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Microsoft (MSFT) suffered a seemingly serious blow to its future earnings on Tuesday when the Department of Defense announced that it is killing off its controversial Joint Enterprise Defense Infrastructure, or JEDI, cloud-computing project. But it's not the end for Microsoft's connected defense ambitions.
The initiative was expected to drag the DoD’s computing platforms into the 21st century by consolidating them into a single entity. The idea was to ensure everyone from DoD employees in the U.S. to soldiers on the frontline could access and manipulate data and support innovations in artificial intelligence at the speed of modern enterprises.
Microsoft initially won the contract in 2019, giving its cloud platform, the second largest in the world, a massive win over market leader Amazon. But the deal was fraught with issues including accusations of interference by then-President Donald Trump — who expresses disdain for Amazon (AMZN) founder Jeff Bezos — and worries about a single company controlling the government’s entire cloud platform.
It’s not all doom and gloom for Microsoft, though. The company now has the option to bid on JEDI’s replacement, the Joint Warfighter Cloud Capability initiative, a multi-cloud project that could see Microsoft and Amazon win the contract together.
A potential win for both Microsoft and Amazon
In a statement announcing the end of JEDI, the DoD more or less lays out that Microsoft and Amazon are still its top contenders for the JWCC contract.
“The Joint Warfighter Cloud Capability (JWCC) will be a multi-cloud/multi-vendor Indefinite Delivery-Indefinite Quantity (IDIQ) contract,” the statement reads.
“The Department intends to seek proposals from a limited number of sources, namely the Microsoft Corporation (Microsoft) and Amazon Web Services (AWS), as available market research indicates that these two vendors are the only Cloud Service Providers (CSPs) capable of meeting the Department’s requirements.”
The fact that the initiative’s contract is listed for an indefinite delivery and indefinite quantity means that it could stretch beyond the $10 billion of JEDI, which would benefit the two tech giants.
So while Microsoft would certainly like to know it’s got a $10 billion contract with the DoD under its belt, the knowledge that it’s almost guaranteed to at least share the JWCC contract with Amazon should offer some relief.
Project JEDI has been controversial for years
Project JEDI was plagued with controversy since it was announced in 2018 — with cybersecurity experts like NYU Tandon School of Engineering professor Justin Cappos pointing to the dangers of the DoD relying on a single cloud vendor, a relative rarity even in the enterprise space.
The reason using a single vendor is so controversial? It’s simply safer to use multiple cloud vendors. Think of it this way: If a single cloud vendor is hit with a cyberattack and can’t provide the services the DoD needs, the Pentagon is out of luck. But its operations can continue if it can rely on a backup provider.
In fact, Microsoft’s then general manager of national security Leigh Madden said as much during a 2018 interview with TechCrunch, telling the publication, “it’s counter to what we are seeing across the globe where 80% of customers are adopting a multi-cloud solution.”
Microsoft didn’t even start work on the project
The DoD released its final request for proposal (RFP) for JEDI in July 2018, after receiving 1,500 comments and questions on previous RFPs.
While Amazon was considered a shoo-in for the project because of its massive cloud business, it was not Microsoft’s only competition. Oracle (ORCL) and IBM (IBM), which are also players in the cloud market, were among a number of firms vying for JEDI's $10 billion contract.
In the end, though, Amazon and Microsoft, which have a slew of data centers stationed throughout the world, and a history of working with the government, came in as the two finalists, the Pentagon said in April.
When Microsoft won the contract in 2019, Amazon filed suit alleging the Trump administration interfered with the award process. The thinking from Amazon was that Trump had a bone to pick with then-Amazon CEO Bezos, who owns the Washington Post — a paper that had scrutinized the Trump administration.
An investigation by the DoD’s Inspector General, however, found the Trump administration had not interfered with the process. Still, Amazon sought to fight the award to Microsoft, and won a restraining order blocking the Windows maker from beginning work on the project.
Amazon’s legal fight picked up steam in April when Amazon beat out a motion to dismiss its case. That left the JEDI’s existence up in the air, raising questions about whether the DoD would continue to slog through court fight after court fight to maintain the project.
"We understand and agree with the DoD’s decision," an Amazon spokesperson said in a statement. "Unfortunately, the contract award was not based on the merits of the proposals and instead was the result of outside influence that has no place in government procurement."
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