Microsoft Corp scored a major victory in securing a milestone, US$10 billion Pentagon contract for cloud-computing services, but the contract — unthinkable for Microsoft even a year ago — is likely to come at a cost, legal and internal.
Amazon.com Inc, the market leader in cloud services, is considering a challenge to the award of the contract to Microsoft’s much smaller Azure business, citing US President Donald Trump’s interference in the bidding process, a person familiar with the matter said.
Amazon had been widely considered the front-runner because of its superior size and previous cloud contract with the CIA in 2013.
Meantime, Microsoft employees have protested involvement in the contract, known as the Joint Enterprise Defense Infrastructure (JEDI), intended to bring US military technology into the modern era.
“We are disheartened that Microsoft accepted the JEDI contract,” a group of employees calling itself Microsoft Workers 4 Good wrote on Twitter. “As Microsoft workers, we are now complicit of ‘increasing the lethality’ of the US Department of Defense.”
Microsoft has said it would continue to pursue government and military work, despite objections from some employees.
The company also plans to be involved in bids for a second large defense contract that involves cloud-based and collaboration software.
No matter the potential problems, the contract remains a major victory for one of the world’s most valuable companies — showing investors and potential customers that it is a strong alternative to Amazon Web Services, which has for years been considered the default choice.
“This is a paradigm changer for Microsoft,” Los Angeles-based Wedbush Securities Inc analyst Daniel Ives said. “It’s a landmark win that will change the cloud-computing battle over the next decade. It’s a shocker to Amazon and Bezos to lose it, but for Microsoft it signals a new era of growth in cloud. This adds US$10 to the stock in my opinion.”
In the past year, Azure has racked up some large deals from Kroger Co to AT&T Inc, but a customer as big, demanding and secretive as the Pentagon goes a long way toward cementing Azure’s reputation as a serious contender.
Trump has long been at odds with Amazon chief executive officer Jeff Bezos, who own the Washington Post, which Trump claims has treated him unfairly in its coverage.
“We’re surprised about this conclusion,” Amazon spokesman Douglas Stone said.
He added that the company was “the clear leader in cloud computing and a detailed assessment purely on the comparative offerings clearly lead to a different conclusion. We remain deeply committed to continuing to innovate for the new digital battlefield.”
Amazon Web Services, the retail giant’s cloud computing arm, has a wide lead in the business of selling cloud services to businesses and governments, with US$32.5 billion in sales during the most recently reported 12 months.
Microsoft, which does not break out comparable sales for its Azure unit, likely pulled in a fraction of that, analysts said.
In a statement released late on Friday, the US Department of Defense said that “the acquisition process was conducted in accordance with applicable laws and regulations. The process cleared review by the US General Accounting Office and the Court of Federal Claims.”
The Pentagon inspector general on Friday said in a separate statement that it had “not found evidence that we believe would prevent the DoD [department of defense] from making a decision about the award of the contract.”
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