Why Microsoft’s $10 Billion DoD JEDI Award Means More Than Just the Contract Itself

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Microsoft Corp. (NASDAQ: MSFT) has won the lucrative $10 billion cloud computing contract from the U.S. Department of Defense (DoD) after months of evaluation. The move is an outright victory for Satya Nadella, and it is a defeat over Jeff Bezos and Amazon.com Inc. (NASDAQ: AMZN). The move also was a victory on top of a prior victory over Oracle Corp. (NYSE: ORCL) and over International Business Machines Corp. (NYSE: IBM).

The Pentagon made the announcement of its decision for the Joint Enterprise Defense Infrastructure project on Friday evening, This so-called JEDI award aims to modernize the DoD’s technology infrastructure. Oracle had previously accused Amazon of having an unfair advantage due to ties at the Pentagon, and IBM had protested its removal from the massive government contract.

What is interesting here is not just the size, nor that President Trump had said he was considering getting involved. Defense Secretary Mark Esper had even removed himself from the process of deciding the winner in recent days. While impressive by the sheer size of $10 billion, perhaps the largest issue will be that this goes above and beyond bragging rights when it comes to competitive cloud contract awards ahead.

DoD said that it had previously awarded contracts of over $11 billion over 10 separate cloud contracts in the past two years. While this latest news is a Microsoft victory for the largest component of the JEDI contract, the DoD statement did note that “additional contracts are planned for both cloud services and complementary migration and integration solutions necessary to achieve effective cloud adoption.”

There is one issue that was long at the core for this decision process and was not given the public attention as much as the drama around the companies involved, and there was a chance the award would be a hybrid that kept multiple vendors involved. Cybersecurity may have been a key issue in this contract, as well as the focus and scope of these companies when it comes to day-to-day operations. After all, Microsoft is a more focused company and Amazon is now targeting almost anything and everything where it thinks it can make a buck or displace other businesses.

It appears as though there were fewer security concerns with Microsoft. And Microsoft has not been called out by the president to the extent that Amazon has been. These points should only be considered as observation and conjecture at this point, and they were not addressed or included in the formal announcement.

The DoD statement said:

Today the Department of Defense has taken another step forward in the implementation of our Cloud Strategy with the award of an enterprise general-purpose cloud contract to Microsoft. This continues our strategy of a multi-vendor, multi-cloud environment as the department’s needs are diverse and cannot be met by any single supplier. This contract will address critical and urgent unmet warfighter requirements for modern cloud infrastructure at all three classification levels delivered out to the tactical edge.

This award is the conclusion of a process that began with the release of the first RFI to industry nearly two years ago. Throughout that time, the department’s focus never wavered from the need to support our warfighters with this essential capability.