Microsoft outduels Amazon for JEDI

Microsoft beats out Amazon after contentious competition for DOD’s JEDI award

Late on the afternoon of Friday, Oct. 25, the Department of Defense (DOD) announced it had selected Microsoft (Nasdaq: MSFT) for its lucrative Joint Enterprise Defense Infrastructure (JEDI) cloud contract, the Pentagon’s plan to adopt a general-purpose cloud infrastructure first announced in November 2017. The notification of JEDI’s winner came at an odd time — we saw the first notification of Microsoft’s win at 6:30 p.m. EDT. Releasing news or documents late on a Friday afternoon is sometimes referred to as a “Friday news dump” by members of the media, a technique that can thwart in-depth media analysis of bad news or unfavorable developments affecting the story’s source.

Regardless of why the DOD chose to announce the winner of the biggest single cloud contract to date in federal IT (and one of the biggest IT contracts in federal IT history) when it did, Microsoft is now poised to capture potentially billions in revenue as the DOD’s leading cloud vendor on JEDI, an award with a $10 billion ceiling and a potential 10-year life span if all options are exercised. Vendor selection for JEDI has been ongoing for over a year, plagued by multiple protests, internal investigations, and conflict-of-interest allegations by and between the initial four contestants, Amazon (Nasdaq: AMZN), IBM (NYSE: IBM), Microsoft and Oracle (NYSE: ORCL). The acrimony kept the DOD from awarding JEDI by its original target date of April 2019, though the agency eliminated IBM and Oracle in April in the first “down-select” of the vendor review process.

Amazon was once the ostensible front-runner, but Microsoft’s approach to hybrid cloud may have won out in the end

Amazon won the $600 million cloud award with the CIA in 2013, beating out AT&T (NYSE: T), IBM and Microsoft, an engagement many industry observers expected would act as a springboard for Amazon to future cloud work in the federal IT sector. After JEDI was announced in late 2017, industry analysts believed Amazon, the market share leader in the cloud space, and its ongoing cloud work in the U.S. Intelligence Community (IC) would help clear the way to victory on JEDI. Amazon’s alliance with VMware (NYSE: VMW) was key to winning the CIA cloud work, as VMware was estimated to be hosting between two-thirds and three-quarters of government workloads running on the cloud at the time. Amazon had also enhanced the security of its cloud offerings to accommodate defense- and intelligence-grade data assurance needs by steadily obtaining new authorizations to host government data at increasingly higher security levels. As the vendor selection process for JEDI moved along, however, concerns arose that JEDI’s single-source structure would diminish the DOD’s flexibility in choosing cloud vendors and technologies. There were also indications during 2019 that the DOD’s cloud migration strategy was increasingly favoring a more piecemeal and unhurried transition to the cloud. The DOD’s evolving cloud preferences seemed to shift the JEDI competition in favor of Microsoft’s hybrid cloud approach that blends exiting IT infrastructures with new cloud systems while leveraging partners to a greater degree in the migration process.