As Amazon fights for a $10 billion Pentagon cloud deal, Microsoft is a 'lock-in' for an $eight billion authorities contract that no one else can actually win (MSFT)

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Satya Nadella

  • An $eight billion contract with the Division of Protection, referred to as the Protection Enterprise Workplace Answer (DEOS), is presently up for grabs.
  • The contract entails updating the DoD’s software program for e-mail, collaboration, file storage, messaging, and the like. 
  • Analysts say that each Microsoft and Google supply the proper suite of merchandise, however Microsoft is the one one with the qualifying safety necessities — basically making it a one-horse race.
  • An necessary nuance: Microsoft is not going after the contract straight; reasonably, consultants will bid with proposals to resell and keep Microsoft Workplace 365. It nonetheless signifies that Microsoft comes out method forward. 
  • Nonetheless, successful DEOS may truly be unhealthy information for Microsoft: It is in rivalry for the Pentagon’s $10 billion JEDI cloud contract, too — and one analyst urged to Enterprise Insider that the federal government could not wish to put all of its cloud eggs in a single cloud basket. 

Proper now, all eyes within the cloud trade are on the JEDI contract, a winner-take-all $10 billion cloud take care of the Pentagon. Amazon is taken into account the far-and-away frontrunner, with Microsoft within the uncommon place of underdog.

However there’s one other massive Division of Protection contract up for grabs. And, valued at at $eight billion, it stands to be practically as profitable, even when it is not as high-profile as JEDI.  This 10-year contract known as the Protection Enterprise Workplace Answer (DEOS) — and Microsoft seems to have it on lock. 

Like JEDI, DEOS will even be awarded to a single firm. However the place JEDI is all about offering the Pentagon with cloud infrastructure, DEOS is centered on discovering new cloud-based software program to the exchange on-premise productiveness software program the Division of Protection makes use of for over three million army personnel. That software program contains e-mail, collaboration software program, file storage, messaging, video calling, and the like.

Bidding will doubtless start someday in February or March, and an award may are available April or Could. Microsoft tells Enterprise Insider that it will not bid for DEOS straight; as a substitute, it is working with third-party resellers of Microsoft providers, who will deal with the precise implementation of the deal ought to they win. Google didn’t reply to requests for remark about whether or not or not it can make a bid. 

If the proposal is efficiently adopted by its meant recipients, it can mark the primary time that the entire army branches and headquarters companies have accepted a single, centralized set of widespread providers,” Charles King, Pund-IT president and principal analyst, advised Enterprise Insider.

Proper now, analysts say there are solely two cloud productiveness suites that match the invoice: Microsoft Workplace 365 and Google’s G Suite. For the time being, although, Google does not have the required safety certifications for this type of authorities mission, however Microsoft does. That signifies that whereas Google is a competitor on paper, consultants agree that a method or one other, Microsoft goes to win this. 

“[Google hasn’t] invested the identical period of time and vitality as Microsoft and Amazon have in DOD-ready cloud providers,” Chris Cornillie, federal expertise market analyst at Bloomberg Authorities, advised Enterprise Insider. “It is wanting like that is going to be a one-horse race.”

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Google versus Microsoft

Microsoft has one very giant benefit right here: Its lengthy affiliation with lawmakers usually, and the Division of Protection specifically. What’s extra, the contract requires distributors to carry stringent safety necessities round categorised knowledge — necessities that Microsoft says that its cloud will totally meet by the tip of this yr. 

“We consider our 40+ yr partnership with the DoD, in live performance with our efforts to modernize productiveness and collaboration with Microsoft Groups and Microsoft 365, offers revolutionary, confirmed and safe expertise to help the DoD’s mission. We look ahead to competing for the DEOS contract and persevering with to supply the DoD with our newest business improvements,” Microsoft stated in an announcement.

If Microsoft Workplace 365 does turn into the Pentagon’s new cloud software program resolution, this is able to be a leverage for Microsoft to maintain that mutually useful relationship alive. 

“It could cement a long-term relationship with Microsoft, which frankly they already had,” Rick Holgate, senior director and analyst at Gartner, advised Enterprise Insider.

Google, for its half, does not maintain the correct safety certifications required by this contract. And Holgate believes that even when it did, Google would have one other massive drawback: Google dropped out of the working for the bigger JEDI contract, citing considerations that working with the Pentagon might be a violation of its company code of ethics. It appears doubtless that Google would have related considerations over the DEOS contract, as properly. 

An necessary nuance

An necessary nuance right here is that, once more, neither Microsoft or another vendor is prone to bid straight on this deal. As an alternative, the bid shall be a battle between consultants who’ve obtained the necessary Schedule 70 certification to supply IT providers to the federal government. These consultants will then resell software program to the Pentagon and set up and keep it for them, based on the phrases of the DEOS contract. 

Relationships with these sorts of consultants is a specific energy of Microsoft, which has constructed a deep bench of companions over time in nearly each trade doable. The analysts we spoke to count on that Common Dynamics and Perspecta will bid on DEOS with a proposal for a Microsoft Workplace 365-based resolution, whereas Accenture, BAE Techniques, and Leidos may additionally participate. 

“Clearly Microsoft is in a very good place,” James Bach, federal spending analyst at Bloomberg LP, advised Enterprise Insider. “I’d take into account their software program providing as a frontrunner on this place.”

Notably, any bidder may additionally work software program from different distributors like IBM or Oracle into their proposal. Nonetheless, the analysts we spoke to count on that even when that involves cross, Microsoft Workplace 365 would doubtless nonetheless kind the spine of the bid — that means Microsoft itself comes out as the largest winner regardless, as the middle of a wide-reaching modernization effort on the Division of Protection.

“This is able to be the primary time the DoD as an enterprise has adopted a business service for one thing like e-mail and phrase processing and displays and spreadsheets,” Cornillie stated. “It could be fairly vital there.”

What all of it means for JEDI

Analysts say there’s comparatively little controversy round DEOS in comparison with the dramatic race for the JEDI contract, during which Microsoft can also be taking part.

Amazon Net Providers, the frontrunner for JEDI, has truly attracted a smear marketing campaign that seems geared toward undermining its possibilities to win. Proper now, too, the Division of Protection is investigating claims levied by Oracle that AWS is benefitting from unfair conflicts of curiosity. Certainly, IBM and Oracle have filed formal complaints in regards to the JEDI bidding course of, particularly in regards to the winner-take-all nature of the contract. 

“The JEDI contract is just a little completely different as a result of there’s extra potential for altering the best way the Protection Shops info,” Cornillie stated. “But in addition, JEDI meant that numerous incumbent contractors, for instance IBM and Oracle, have been going to lose enterprise. Naturally these corporations sounded the alarm.”

Away from all of that, DEOS is just about a assured win for Microsoft, analysts say. Nonetheless, Cornillie says that successful DEOS may also imply that Microsoft hurts its personal possibilities with DEOS — the Pentagon may merely not wish to depend on one firm to supply that a lot of its IT infrastructure. 

“Typically, the Pentagon must be observant about the truth that if it places an excessive amount of of its eggs in a single basket, it creates a single level of failure,” Cornillie stated. ” I feel that is without doubt one of the the explanation why the Pentagon goes to be way more reluctant to award each contracts to the identical vendor.”

Holgate, for his half, disagrees. He believes that getting the DEOS contract would not harm Microsoft’s possibilities for JEDI, however it may begin some conversations throughout the authorities about whether or not it is such a good suggestion. 

“It could basically be placing all of your eggs in a single very massive basket with out numerous alternatives to shift if one thing goes flawed in that relationship,” Holgate stated. “It would not make Microsoft much less doubtless, however it might give the DoD one other set of things to think about.”

Learn extra: Microsoft has an opportunity at beating Amazon for the ‘most necessary cloud deal ever,’ and it may change the steadiness of energy within the cloud wars

Nonetheless, corporations don’t make a lot of a racket round DEOS, and it is doubtless as a result of they’re choosing their battles, Holgate says. In any case, Microsoft’s utility suite appears to be the one one that matches what the contract is asking for, each when it comes to the software program itself, and in its certifications. 

“The trade has acknowledged that this can be a lock-in for Microsoft,” Holgate stated. “Until one thing dramatic occurs, like one thing reputation-damaging for Microsoft, with this one, the trade says, we simply have to let this go. There’s resignation that it may possibly’t present a aggressive providing to what Microsoft has already put collectively.”

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