Bulletin
Investor Alert

London Markets Close in:

Dec. 7, 2019, 9:48 a.m. EST

Microsoft fairly and squarely beat Amazon in $10 billion Pentagon cloud contract

The prestigious contract went to the superior company, despite detractors who claim President Trump opposed Amazon

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    Microsoft Corp. (MSFT)
  • X
    Amazon.com Inc. (AMZN)
  • X
    International Business Machines Corp. (IBM)

or Cancel Already have a watchlist? Log In

By Beth Kindig


MarketWatch photo illustration/iStockphoto

Amazon.com last month filed to overturn a $10 billion cloud computing contract that the Pentagon awarded to Microsoft.

Some analysts argued that Microsoft was favored because President Trump dislikes Amazon CEO Jeff Bezos, who owns the liberal Washington Post.

Focusing on the politics around the Pentagon’s Joint Enterprise Defense Initiative (JEDI) contract overlooks important differences between the competing products, Microsoft’s /zigman2/quotes/207732364/composite MSFT -0.19%  Azure and Amazon’s /zigman2/quotes/210331248/composite AMZN -0.49%  AWS. Amazon may be the leader in cloud computing, but AWS is not the leader in hybrid cloud computing, and that distinction is critical to understanding the JEDI award.

Read: Amazon blames Trump for getting passed over on Pentagon’s JEDI contract

Massive project

The Joint Enterprise Defense Initiative will move the Department of Defense’s (DoD) massive computing systems to the cloud. The initiative will cover 1,700 data centers and move 3.4 million end users and 4 million endpoint devices off private servers and into the cloud.

The current global cloud infrastructure market totals $73 billion in annual revenue and is forecast to reach $166.6 billion annually by 2024. Rather than add substantially to any company’s market share, this contract is more of a nod toward who offers the best security and advanced artificial intelligence during critical operations.

A year ago, pundits were adamant the Pentagon contract would be awarded to either IBM /zigman2/quotes/203856914/composite IBM -0.65% , Oracle /zigman2/quotes/202180826/composite ORCL -0.63%  or Amazon. At the time, Oracle was suing the DoD because it believed the single-sourced contract would be unfairly awarded to Amazon. IBM petitioned that the contract was “written with one company in mind,” and tailored for Amazon.

Meanwhile, Microsoft was missing from the discussion. Around that time, I wrote a high-conviction analysis that Microsoft would be the winner. It was fairly contrarian, as Microsoft did not have appropriate security clearance at the time, and it was believed to be lacking single-source capabilities. My analysis and conclusion were based on Microsoft’s lead in hybrid cloud.

The case for Amazon

Read: How Amazon created AWS and changed technology forever

Amazon argues President Trump politically influenced the decision of awarding the Pentagon contract to Microsoft. Oracle also raised political concerns about Amazon by alleging that two people with links to Amazon’s AWS were planted in the proposal-drafting process . Oracle claimed one of the AWS staffers had engaged in “highly technical” discussions with potential JEDI competitors and had access to a drive with information on it.

Amazon lobbied heavily in the past year, setting a record of $4 million in the third quarter, second only to Facebook at $4.8 million. Microsoft spent $2.3 million in the third quarter, while Oracle spent $1.7 million.

Amazon has a big market share, which is why many opponents believed the single-source contract favored AWS. According to industry analysts , AWS’s existing cloud infrastructure is five times larger than the next 14 competitors in aggregate, with a third of internet websites accessed daily powered by AWS. Every day, Amazon adds as much new infrastructure as the company ran in total seven years ago. AWS is a profitable powerhouse , driving 71% of Amazon’s total operating income in the third quarter while accounting for only 13% of total revenue.

Most importantly, at the time of bidding, Amazon was the only company to have the infrastructure and security clearances to meet the proposed guidelines. Most of the cloud contenders are too specialized, including Oracle with its flagship databases and VMware with virtual machines.

/zigman2/quotes/207732364/composite
US : U.S.: Nasdaq
$ 165.86
-0.31 -0.19%
Volume: 11.81M
Jan. 17, 2020 11:10a
P/E Ratio
31.27
Dividend Yield
1.23%
Market Cap
$1267.68 billion
Rev. per Employee
$902,473
loading...
/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 1,868.76
-9.18 -0.49%
Volume: 1.13M
Jan. 17, 2020 11:10a
P/E Ratio
82.73
Dividend Yield
N/A
Market Cap
$931.08 billion
Rev. per Employee
$359,671
loading...
/zigman2/quotes/203856914/composite
US : U.S.: NYSE
$ 137.09
-0.89 -0.65%
Volume: 2.14M
Jan. 17, 2020 11:10a
P/E Ratio
15.94
Dividend Yield
4.73%
Market Cap
$122.20 billion
Rev. per Employee
$208,845
loading...
/zigman2/quotes/202180826/composite
US : U.S.: NYSE
$ 55.08
-0.35 -0.63%
Volume: 2.48M
Jan. 17, 2020 11:10a
P/E Ratio
17.48
Dividend Yield
1.74%
Market Cap
$177.80 billion
Rev. per Employee
$289,197
loading...
1 2
This Story has 0 Comments
Be the first to comment
More News In
Industries

Story Conversation

Commenting FAQs »
Link to MarketWatch's Slice.