The Pentagon recently reaffirmed Microsoft's (MSFT -1.28%) $10 billion Joint Enterprise Defense Infrastructure (JEDI) cloud contract, after legal pressure from Amazon (AMZN -3.01%) and Oracle (ORCL -0.78%) forced the Department of Defense (DoD) to review the entire deal.
Oracle's appeal, which claimed there were errors and conflicts of interest throughout the bidding process, was also rejected in a court in early September. Those two announcements seemed to finalize Microsoft's victory, but Amazon still refuses to concede.
In a blog post, Amazon called the Pentagon's review "nothing more than a 'do-over' for Microsoft to fix its non-compliant proposal." It declared it wouldn't "back down in the face of targeted political cronyism or illusory corrective actions" and would "continue pursuing a fair, objective, and impartial review."
Image source: Getty Images.
A year-long challenge
The DoD awarded Microsoft the JEDI cloud contract, which is worth $10 billion over 10 years, last October. The deal will enable Microsoft to provide cloud infrastructure services for the Pentagon's business and mission operations.
Prior to that announcement, Amazon was heavily favored to win the contract, since Amazon Web Services (AWS) already provides cloud support to thousands of government agencies.
Amazon claimed the DoD's final decision was improperly influenced by President Donald Trump, who repeatedly criticized Amazon, its CEO Jeff Bezos, and Bezos-owned Washington Post in the past. Amazon's complaints triggered an injunction, which prevented Microsoft from starting any work for the Pentagon.
A federal judge also sided with Amazon and warned the DoD that Amazon could still block the deal if it could prove the Pentagon had made any errors throughout its evaluation process. The DoD then asked the judge to postpone Amazon's lawsuit as it conducted an internal review -- which recently wrapped up in Microsoft's favor again.
Does Amazon have any ammo left against Microsoft?
Amazon claims it will "continue to protest this politically corrupted contract award," and will still "pursue a fair and impartial review" to "ensure our country gets the best possible technical capability to protect itself."
Image source: Getty Images.
Amazon also directly criticized the Pentagon, claiming its decision reflected a "growing trend where defense officials act based on a desire to please the President, rather than do what's right."
Those criticisms are sharp, but it's unclear if Amazon still has any viable ways to delay or cancel the deal. For now, Amazon will likely keep challenging the DoD and Microsoft in court, and hope President Trump loses the election in November and a new administration overturns the deal.
But for now, Microsoft is set to start working with the Pentagon when the injunction expires next February. And even if Trump loses the election, it seems doubtful that a Joe Biden-led administration would ask the Pentagon to restart the entire JEDI bidding process again, since it would delay crucial cloud infrastructure upgrades for the DoD.
A stunning victory for Nadella, a humbling loss for Bezos
Microsoft's JEDI deal marks the company's latest victory in the cloud market under CEO Satya Nadella, who adopted a "mobile first, cloud first" approach to the tech giant's future when he took the helm in early 2014.
Under Nadella, Microsoft's Azure became the world's second-largest cloud infrastructure platform after AWS, and its total commercial cloud revenue surpassed $50 billion -- or 40% of its total revenue -- last year. Many companies that Amazon burned in the past, including top retailers like Walmart and Kroger, also preferred to use Microsoft's cloud services instead of AWS.
AWS still generates significantly more revenue than Azure, but it's growing at a slower rate. Microsoft probably won't ever overtake Amazon in the cloud infrastructure market -- even if the JEDI contract injects an extra billion dollars into its cloud business annually over the next decade -- but its latest victory indicates it will remain an attractive alternative to AWS.
Other companies, government agencies, and organizations could then follow the Pentagon's lead and drift away from Amazon. The loss of those customers would represent a long-term threat to Amazon since it still generates most of its profits from AWS -- which subsidizes the expansion of its e-commerce marketplaces and generate most of its revenue.
