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U.S. Defense Department reaffirms $10 billion cloud deal to Microsoft

Amazon vows to ‘protest this politically corrupted contract award’

Microsoft Corp. and Amazon.com Inc. have been dueling for the $10 billion JEDI contract for years.


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The Force appears to be finally with Microsoft Corp. in its epic duel with Amazon.com Inc. for JEDI.

The Department of Defense on Friday said it has completed its re-evaluation of the hotly-contested $10 billion cloud-computing deal and reaffirmed its award to Microsoft. “Microsoft’s proposal continues to represent the best value to the government,” the DoD said in a statement.

“The JEDI Cloud contract is a firm-fixed-price, indefinite-delivery/indefinite-quantity contract that will make a full range of cloud computing services available to the DoD,” the statement continued. “While contract performance will not begin immediately due to the Preliminary Injunction Order issued by the Court of Federal Claims on February 13, 2020, DoD is eager to begin delivering this capability to our men and women in uniform.”

The announcement came shortly before the markets closed. In another brutal day for tech stocks Friday, shares of Microsoft
MSFT,
-1.40%

dropped 1.4% in trading; Amazon
AMZN,
-2.17%

shares declined 2.2%.

“We appreciate that after careful review, the DoD confirmed that we offered the right technology and the best value. We’re ready to get to work and make sure that those who serve our country have access to this much needed technology,” a Microsoft spokesperson told MarketWatch.

Amazon vowed to “protest this politically corrupted contract award” in a strongly worded blog post.

“[Amazon Web Services] remains deeply concerned that the JEDI contract award creates a dangerous precedent that threatens the integrity of the federal procurement system and the ability of our nation’s warfighters and civil servants to access the best possible technologies,” Amazon said. “Others have raised similar concerns around a growing trend where defense officials act based on a desire to please the President, rather than do what’s right.”

“This was illustrated by the refusal to cooperate with the DoD Inspector General, which sought to investigate allegations that the President interfered in the JEDI procurement in order to steer the award away from AWS,” Amazon continued. “Instead of cooperating, the White House exerted a ‘presidential communications privilege’ that resulted in senior DoD officials not answering questions about JEDI communications between the White House and DoD. This begs the question, what do they have to hide?”

The Defense Department’s Joint Enterprise Defense Infrastructure (JEDI) cloud-computing deal over 10 years is considered a plum government contract. The Pentagon initially awarded JEDI to Microsoft in October over the objections of co-finalist Amazon, which filed suit in protest in November. In April, a federal judge gave the Pentagon permission to reevaluate bids from Microsoft and Amazon.

Read more: Amazon files suit, challenging Pentagon’s $10 billion cloud contract to Microsoft

Anticipating a win, Microsoft has been signing similar deals with foreign governments for cloud-infrastructure services, according to a report by CNBC last month.

For years, Microsoft and co-finalist Amazon have engaged in behind-the-scenes lobbying and subterfuge over the deal as they battle for supremacy in the cloud market. And at times, the competition has taken on almost a cartoonish quality, evoking Mad magazine’s Spy vs. Spy comic strip.

Adding to the political intrigue is the future of TikTok, a video-sharing social networking service owned by ByteDance, a Beijing-based Internet company. Microsoft is the leading candidate to acquire TikTok, though Oracle Corp.
ORCL,
-2.39%

and Twitter Inc.
TWTR,
-4.22%

have also been mentioned as suitors. Alphabet Inc.’s
GOOGL,
-2.96%

GOOG,
-3.09%

Google was part of a group that explored a bid before dropping the idea, according to a Bloomberg report.

Microsoft is believed to be the favorite to acquire TikTok, published reports suggest, because it has been in close contact with the Trump administration. The software giant was initially awarded JEDI in October because of the president’s disdain for Amazon Chief Executive Jeff Bezos, who also owns the Trump-baiting Washington Post, say two people closely aligned to Amazon who are not authorized to speak publicly on the matter.

Amazon Web Services commanded 47% of the cloud infrastructure market in 2019, while Microsoft had 13%, according to estimates from market researcher IDC.

“This is a game changer for Microsoft as JEDI will have a ripple effect for the company’s cloud business for years to come, and speaks to a new chapter of Redmond winning in the cloud vs. Amazon in our opinion on the next $1 trillion of cloud spending expected to happen over the next decade,” Wedbush Securities analyst Daniel Ives said in a note late Friday.

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