Who Will Win A Multi-Billion Dollar Pentagon Cloud Contract?

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The United States Department of Defense is not one to resist technology. Rather, the DoD always leads in tech adoption and innovation, to gain military advantages in every arena for the protection of the American people. As threats from home and abroad are rising, the Pentagon is doubling down with a fresh tranche of resources courtesy of the American taxpayer.

With the passage of the record-breaking $1.3 trillion omnibus bill, the DoD has been appropriated $654 billion for FY2018; the largest ever budget for the Defense Department and a $64 billion increase from 2017. Not since the Iraq/Afghanistan wars of 2003 has there been the largest year-over-year increase in funding, and they are directed to exercise the budget immediately.

Along with the funding, the DoD is directed by Congress to create a "framework" for how it will acquire cloud computing services for all of its entities within 60 days of the bill's enactment. This framework is intended to outline the value given to taxpayers for the 10-year locked-in DoD contracts with no exit strategy. In other words, for the duration of the 10-year contract, there is no opportunity for competition, which in theory can lower the quality of the service. The Pentagon likes control.

Competition Isn't Always a Good Thing

Cloud computing is rapidly growing in scale and scope, and migration to cloud computing for military applications is a top priority of the Defense Department since announced on September 13, 2017. According to Deputy Defense Secretary Patrick M. Shanahan, "Accelerating DoD's adoption of cloud computing technologies is critical to maintaining our military's technological advantage." Cloud computing is a huge advantage for security, simplicity, and provides flexibility to the way DoD works with information that's secure, rather than having many servers scattered around the globe for every command. 

The Defense Information Systems agency has already built 3 cloud computing networks internally, although they were primarily used for trialing the pros and cons of outsourcing to a 3rd party cloud computing provider. With this announcement, the decision has been made to contract out to a commercially available supplier. Surely both Amazon Web Services and Microsoft Azure were benchmarked.

The public IaaS cloud computing market demand as a whole is growing quickly, with a 31% increase in 2016. Amazon Web Services has become the standard bearer of the public cloud computing industry with a large 44.2% market share. Microsoft's Azure follows in a distant second place with only 7.2% of the total industry. Over the past year though, Azure has experienced high growth/adoption rate, double of what AWS netted. IBM's Softlayer service comes in at 2.77% market share. If Amazon (NASDAQ:AMZN) secured the DoD cloud contract, legacy providers, such as IBM (NYSE:IBM), could see their growth significantly impacted, as they were late entrants into the cloud computing market. Adding further influence to the equation is AWS proven infrastructure within the U.S. intelligence community, through the current $600 million contract with the C.I.A which began in 2013. 

Competition, in general, is an excellent means to drive down costs and improve quality. However, there is a dissonance with this instance. Due to the nature of the sensitive data being utilized in the cloud, the more providers, the greater risk of infiltration into the network, which harms national security interests. The dynamics within military applications are a completely different ballgame from the public domain.

On the other hand, if the DoD is dependent on one provider for a 10-year contract, "switching costs" typically are high, and if something goes wrong, there are no alternatives. Yet, fairness and due diligence should still prevail as to not show a special interest. After all, coupled with the existing government contracts for AWS, Jeff Bezos has built a relationship with the Pentagon advising the former Secretary of Defense Ash Carter. 

Nevertheless, it is always difficult to bet against Amazon (NASDAQ:AMZN); they are the clear front-runner. Watch for the competition to come out swinging.

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Disclosure:

I have received no additional compensation other than the Ethereum that Hade Technologies pays to produce Exclusive Content

Comments (3)

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  • DoubleD
  • ,  Member
  • 27 March 2018, 10:03 am

I wonder if BOX (NYSE:BOX) is in the running?

   0   Reply (0)   Follow(55)  

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    • John R
    • ,  Member
    • 27 March 2018, 07:03 am

    "With the passage of the record-breaking $1.3 trillion omnibus bill" What happened to the Tea Party, the party that was steaming about spending to much money...

       0   Reply (0)   Follow(55)  

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      • 3Kings
      • ,  Member
      • 27 March 2018, 07:03 am

      Whoever wins it will be huge.

         0   Reply (0)   Follow(55)  

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