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Microsoft CEO Satya Nadella
- Six months ago, Amazon Web Services was seen as the clear winner in the race for the $10 billion Joint Enterprise Defense Infrastructure (JEDI) contract.
- Now, Wedbush Securities analyst Dan Ives says Microsoft has a 40% chance of winning over AWS - far from a sure thing, but better chances than it had even a year ago.
- Microsoft has stepped up its game on its Azure Government cloud, and it's leveraging it's four-decade- long relationship with the Department of Defense to be more competitive for the deal.
- Ives says that investors are watching closely to see who wins JEDI, as a proxy for their ability to win more government cloud deals in the future.
Just six months ago, analysts believed Amazon was the hands-down frontrunner in a race for a $10 billion cloud contract with the Pentagon. But now, says an analyst, Microsoft actually has a fighting chance.
Right now, these cloud giants, along with IBM and Oracle, are competing for the Joint Enterprise Defense Infrastructure (JEDI) contract, a winner-take-all contract to move sensitive military data to the cloud.
Just about a year ago, Amazon Web Services had an 80% chance of winning, while Microsoft had a 20% chance, wrote Daniel Ives, managing director of equity research at Wedbush Securities, in a note to clients on Monday. The gap has narrowed to AWS having a 60% chance and Microsoft having a 40% chance.
Ives calls this bid the "cloud Super Bowl," and says the announcement of the winner will be a defining moment in the cloud wars between the two tech titans. And while it's far from a sure thing, Microsoft stands a better chance than ever before.
"I think Microsoft still has some wood to chop to even the odds over the next six to eight weeks and that's why it's going to be a fierce battle between these two Seattle brethren to win JEDI," Ives told Business Insider. "In my opinion it's the most important cloud deal ever."
Microsoft is making some headway
JEDI isn't necessarily the endgame, and there will be other government cloud deals to come, says Ives.
But the announcement of the JEDI winner will have a ripple effect for years, he says. Whoever wins JEDI may be more likely to win future government cloud contracts, which Ives estimates will be worth $20 billion over the next five years. That's why investors in both companies are carefully watching JEDI, as a sign of things to come.
In the past few months, Microsoft has made steady progress with its Azure Government cloud, which is certified to handle classified information. It's planning to earn the highest government security authorization, which of all the cloud giants, only AWS holds. Microsoft is also investing in its artificial intelligence product line.
What's more, Microsoft been aggressively deepening its relationship with the Department of Defense. In January, Microsoft just won a separate $1.76 billion contract with the department for software development services.
Amazon had become a go-to cloud vendor for the government, as it had previously won a $600 million cloud contract with the CIA. However, Microsoft's relationship with the Department of Defense spans over 40 years, to the earliest days of the company. And Microsoft has lots of relationships with IT consultants and systems administrators who specialize in helping big government agencies like the DoD adopt new technology.
"While Microsoft might be at a slight disadvantage to Amazon and AWS from a cloud perspective, Microsoft is actually in a position of strength especially when it comes to its partner network, especially in the Beltway," Ives said. "That has enabled the company to get a leg up in the past two months."
The victory circle
The race, Ives says, is going to come down to which vendor with which the Pentagon feels most comfortable. Ives says that in his conversations with Washington insiders, Microsoft's hustle to get the deal has not gone unnoticed.
AWS knows that Microsoft is catching up, and it's no coincidence that Amazon announced a new headquarters near Washington, D.C., even as it expanded its partnership with
"Microsoft has really stepped up in its partner ecosystem to potentially leverage itself into the victory circle for JEDI," Ives said. "The Azure Government cloud has been significant. Them getting that deal in early January was a major feather in their hat."
Both clouds are on something of a tear: When both companies announced earnings last week, AWS saw 45% year-over-year growth, while Microsoft Azure saw 76% year-over-year growth. Google previously dropped out of the JEDI race.
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