What's Standing Between Amazon and Top U.S. Secrets: QuickTake

(Bloomberg) -- The U.S. Defense Department is running a winner-take-all competition to choose a cloud-computing company to host its trove of information, perhaps including top national-security secrets, so that warfighters and military leaders can make data-driven decisions at "mission-speed." Amazon.com Inc., Microsoft Corp. and International Business Machines Corp. are among those vying for the multibillion-dollar contract. The massive scope of the project, and the Pentagon’s intention to choose just one winner, has caught the attention of the tech industry and U.S. lawmakers.

1. Who seems to be winning?

Some technology companies think the Defense Department favors Amazon. Critics including Oracle Corp. pointed to its decision in February to award a contract of as much as $950 million to REAN Cloud LLC, an Amazon partner, to help migrate data to the cloud. (The Pentagon said it was unaware of the award, made by its Silicon Valley-based innovation unit, and reduced the contract to $65 million.) Amazon also won a $600 million cloud contract with the Central Intelligence Agency in 2013 and, to date, has the highest levels of security clearances for its cloud infrastructure. Microsoft is trying to catch up on clearances and secured a lucrative cloud deal with the intelligence community that will likely strengthen its case. Among U.S. providers, Amazon leads the cloud infrastructure market with 44.2 percent, followed by Microsoft’s Azure with 7.1 percent and Google Cloud Platform at 2.3 percent, based on total cloud industry 2016 revenue, according to research firm Gartner Inc.

2. What exactly is the prize?

The Defense Department project known as the Joint Enterprise Defense Infrastructure, or JEDI, could potentially change the business models of traditional technology providers to the Pentagon. The project calls for transitioning at least some of the department’s technology needs -- including some 3.4 million users and 4 million devices -- to a commercial cloud, and applications that make the move will need to be reconfigured to be compatible with that provider’s technical requirements. The transition could threaten the growth of legacy software and database providers like Oracle and IBM that were later entrants into the cloud market. The project will also likely create a lot of business for companies that help organizations move applications and systems to the cloud.

3. How much is the contract worth?

It’s hard to tell. Pentagon chief management officer Jay Gibson said in March that the department anticipates JEDI will “be a multibillion-dollar contract.” In a subsequent report to Congress obtained by Bloomberg News, the Pentagon estimated it will spend $1.63 billion on cloud computing through fiscal 2023. Bloomberg Government has estimated the contract’s ceiling value to be about $10 billion. The Pentagon’s draft request for proposals calls for a two-year base contract with options for renewal over eight more years. Many companies expect that whomever wins the initial contract isn’t likely to lose it after just two years.

4. When will it be awarded?

The Pentagon said it would release a final request for proposals by the end of May and make a contract award as soon as September. Then it said in May that it was delaying the release of the RFP in an attempt to avoid a "rush toward failure." In a July 11 update, the Pentagon’s chief information officer said there was "a bit more work to do before we release."

5. Why can’t there be multiple winners?

That’s what companies such as IBM and Oracle want to know. Tech companies jockeying for a piece of the contract have urged the Pentagon to choose multiple providers, arguing that a single-source approach will stifle innovation and increase security risks. They say, if the Pentagon chooses just one company, it will be essentially be putting all its eggs in one basket. Defense Department officials have countered that it already has difficulty moving information across the agency, particularly into the battlefield and using multiple clouds would increase the complexity of that task. Security experts said there are valuable arguments to be made in favor of both approaches. The debate over the security and innovation of single-source approach caught the attention of Congress, which, after lobbying by other tech companies, required the Pentagon to defend its decision.

6. What is the Pentagon’s rationale?

That scattering its information “across a multitude of clouds” would inhibit “the ability to access and analyze critical data.” In a report requested by Congress, the Pentagon also said that "a common environment for computing and data storage” enhances the effectiveness of machine learning and artificial intelligence for warfighters.

7. How are companies competing for the project?

Vigorously. At least nine tech companies including Oracle, Microsoft, IBM, Dell Technologies Inc. and Hewlett Packard Enterprise Co., SAP America, General Dynamics Corp.’s CSRA, Red Hat Inc. and VMware Inc. have at some point coordinated their opposition to the government awarding the JEDI contract to a single provider. The most active members of the loose coalition trying to unseat Amazon as the front-runner are Oracle, Microsoft, and IBM. They strategize by email and telephone, court trade media and lobby lawmakers, defense officials and the White House, sometimes with help from outside lobbyists and business coalitions. The group succeeded in pressuring lawmakers to direct the Pentagon to defend its approach under the threat of curtailed funding. Amazon is active as well. It blanketed Washington-area Metro transit stations, including the Pentagon’s, with advertisements touting how its Amazon Web Service cloud can benefit warfighters. When those ads came down, in June, they were replaced by ones for Microsoft’s cloud service.

8. Does anybody object to this tech-military collaboration?

There’s been no great pushback within Amazon and Microsoft. That stands in contrast to what happened at Google, where employees rebelled against their company’s cloud contract with the Pentagon’s Project Maven, which uses artificial intelligence to analyze drone footage -- and, in the view of some Google employees, could help pick out targets for drone strikes. Google decided not to renew its contract once it expires, and the episode may have made Google an even longer shot to win a piece of the JEDI project.

9. Why is the Pentagon moving to the cloud?

Large organizations such as the Pentagon put their technology systems into the cloud to more easily move and integrate data across different platforms and programs. For instance, the cloud could make it easier for the Pentagon to merge and analyze a data set of personnel based in a certain region with satellite imagery of that area. The cloud will also likely make it easier for the Pentagon to make system-wide security upgrades to software. The Defense Department has also said it’s making the shift to the cloud to give it a tactical edge in the battlefield and strengthen its use of emerging technologies such as artificial intelligence and machine learning.

The Reference Shelf

• Tech companies are anxious to see the RFP, which is more than a month late.
• A look at the dueling transit advertisements.
• On one level, Microsoft is catching up to Amazon.
• A key Republican House member is unimpressed with how the Pentagon has handled this project.

To contact the reporter on this story: Naomi Nix in Washington at nnix1@bloomberg.net

To contact the editors responsible for this story: Bill Faries at wfaries@bloomberg.net, Laurence Arnold

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