A mammoth government contract could be awarded as early as next month. The leading contender to win it is busy bashing the competition.
Amazon Web Services CEO Andy Jassy derided other providers of traditional on-premises database services at the company’s 10th annual public sector conference in Washington DC on Wednesday. AWS has battled Microsoft, Oracle and others for the Department of Defense cloud services contract, which is worth $10 billion and runs for 10 years.
“I think that most people are pretty frustrated with the older guard database solutions,” Jassy said. “They’re expensive, proprietary, high lock-in. They’re constantly auditing you, fining you unless you buy more from them. It’s just a model that people are sick of. And it’s why people are moving as quickly as possible to more open engines.”
Amazon (AMZN) and Microsoft are the only two remaining companies in contention for the Pentagon contract, which is known as Joint Enterprise Defense Infrastructure, or JEDI.
A huge prize
The award process has been slowed by controversy and protest. In December, Oracle filed a case in the Court of Federal Claims alleging that Defense Department officials involved in the bid process had deep ties to Amazon.
Amazon intervened in the case on the government’s behalf, and in a subsequent filing argued that Oracle’s complaint was “replete with mischaracterizations and over-exaggerations.” In April, a judge set oral arguments for early July, and told the Pentagon that the contract can’t be awarded before July 19.
The fight over the contract has been fierce because the stakes are so high.
Amazon Web Services is the Seattle-based company’s most profitable segment, due in no small part to its work for public sector clients.
Amazon doesn’t disclose what percentage of AWS’ revenue comes from governments, but it counts 5,000 agencies and 10,000 academic institutions worldwide as customers. The annual conference in Washington featured many of those clients, from NASA to the state of Arizona, which shared their stories of transformation through AWS’ cloud.
“We’re faster. We can ask more questions and the cost of asking those questions is almost nothing,” said Sue Gordon, principal deputy director of national intelligence, on stage on Tuesday. “We now have an environment that we trust.”
Amazon leads in government cloud contracting after the company aggressively courted federal business, achieving various security and procurement qualifications before anyone else. It reached a breakthrough in 2013, when the Central Intelligence Agency handed AWS a $600 million contract for cloud services. That contract built confidence in both the public and private sectors about moving data off legacy servers.
“They invented this space,” said Craig Lowery, a tech analyst with the research and advisory company Gartner. “They were the ones who made it work.”
Still, Lowery says, only about 10% of the federal government has transitioned its data to the cloud. That means a huge market opportunity remains.
The federal government currently spends about $5.8 billion on data centers annually, according to the research firm IDC. That’s not forecast to grow much. But cloud spending is at $8.9 billion, and growing rapidly.
Longtime government IT providers haven’t stood idly by. Microsoft has deep familiarity with the public sector, for example, serving 7,000 government entities with various products, and it recently expanded its cloud offerings for the Pentagon. Amazon’s competitors have tried to keep a piece of federal business by arguing that agencies should maintain a “multi-cloud” environment, which is common in private enterprise. With multi-cloud, companies use multiple cloud providers for various services instead of just one.
The JEDI contract, however, is a single-source award. The Pentagon defended that approach in response to bid protests by Oracle and IBM, both of which the Government Accountability Office shut down. And on stage Wednesday, Jassy said that although some companies start out using multiple clouds, they don’t usually spread out their operations equally between them.
“The reason they don’t do it is that if you do, you have to standardize on the lowest common denominator, and these platforms are at pretty wildly different stages in terms of capability and maturity at this point,” Jassy said — another veiled dig at the competition.
Unlike some in the generally liberal tech industry, Amazon has no qualms about supporting the military. AWS executives played up the company’s willingness to serve the US defense and intelligence establishment — a stark contrast from Google (GOOGL), which dropped out of the running for the JEDI contract amid employee protests after the company said it “couldn’t be assured that it would align with our AI Principles.”
“Our men and women in uniform deserve the most, the best technology that’s out there and available for our warfighters,” said Teresa Carlson, head of AWS’ public sector business. She added that JEDI shows defense authorities are “really seeking to embrace the latest technologies in the cloud, so they can perform their mission better, faster, and in a more secure manner.”
If Amazon wins the JEDI contract, it may gain an even bigger advantage in the broader cloud service space because of the economies of scale.
Prices for AWS cloud services have progressively declined, and ramping up its efforts for the Pentagon may accelerate those price drops, said IDC’s Shawn McCarthy.
That could lead to concerns that AWS would become so dominant that viable competitors would fade away. Keith Alexander, a former commander of the US Cyber Command who now runs a cybersecurity firm called IronNet, said that’s always part of the challenge with defense contracting: A few big players dominate the markets for jets and tanks, and now cloud services, too.
“If there’s only three or four, others are going to jump in there if they see there’s an opportunity,” Alexander said. “The question is, can they catch up?”