Microsoft wins US$10 billion Pentagon cloud contract, beating Amazon

Microsoft shares rose 0.6 per cent to $140.73 at Friday's close.
Microsoft shares rose 0.6 per cent to $140.73 at Friday's close.PHOTO: REUTERS

WASHINGTON (BLOOMBERG) - Microsoft was awarded a hotly contested contract valued at as much as US$10 billion (S$13.6 billion) to provide cloud computing services to the Pentagon, the Defence Department said in a statement on Friday night (Oct 25).

The decision deals a blow to market leader Amazon.com, which had been battling for the 10-year contract and was seen by many industry analysts as the likely winner. Oracle was another contender.

The Pentagon has said the cloud project, known as the Joint Enterprise Defense Infrastructure, or JEDI, is intended to help bring the Pentagon's technology into the modern era.

The Defence Department is investing in commercial cloud services, which host computing power and storage in remote data centres, to improve data security and speed up real-time sharing of information across the military.

The Pentagon said the contract was expected to be completed by 2029.

Microsoft shares rose 0.6 per cent to $140.73 at Friday's close.

Amazon was long seen to have the upper hand in the competition after it won a lucrative cloud contract with the Central Intelligence Agency.

But politics entered the picture. US President Donald Trump.

Trump has long been at odds with Amazon's chief executive Jeff Bezos.

Bezos also owns the Washington Post, which Trump claims has treated him unfairly in its coverage.

"We're surprised about this conclusion," said Douglas Stone, an Amazon spokesman. 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 where security, efficiency, resiliency, and scalability of resources can be the difference between success and failure."

 
 

"This is a paradigm changer for Microsoft," said Daniel Ives, an analyst at Wedbush Securities who has a "buy" rating on Microsoft. "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."

The Defence Department had come under criticism for its handling of the winner-take-all project, which was marred by accusations of improper ties between former Pentagon officials and Amazon.

The Pentagon's decision to stick to its procurement strategy brought fresh attacks from Trump, lawmakers and Oracle, who have argued that the contract terms were overly narrow.

Bezos and Microsoft founder Bill Gates are the two richest men in the world, according to the Bloomberg Billionaires Index.