U.S. government IT spending reached a record $64.7 billion in 2018, a 9.5 percent increase from 2017 spending levels, according to Bloomberg Government analysis.  If that trend continues, the federal government is expected to spend more than $93 billion by 2020.

“Based on historical spending trends, we’re looking at between $93 and $94 billion in an IT budget, about half of which will go to civilian agencies and the other half will go to the Pentagon”. Bloomberg Government Federal Market Analyst Chris Cornillie stated during a webcast.

Until recently, the Defense Department approached cloud computing with extreme caution – placing its focus more on security requirements than mission-driving cloud efforts. As a result of the maturation of cloud technology, the Pentagon is moving to the same multi-cloud approach that most Fortune 500 companies employ.

The Department of Defense’s Big Cloud Buy

“Although the Pentagon is a relative latecomer to cloud computing, spending on cloud computing at the Pentagon is increasing dramatically”.

Cornillie said. The Defense Department’s IT contract spend grew by more than 12 percent in 2018 and it has been gearing up for a big cloud buy in 2019 following the announcement of its $10 billion offer for the Joint Enterprise Defense Infrastructure (JEDI) acquisition.  

According to Nextgov,  the JEDI contract announced in 2017 will put a single cloud service provider in charge of hosting and distributing mission-critical workloads and classified military secrets to warfighters around the globe.

Since its announcement 18 months ago, the JEDI contract has been controversial. Several companies have taken issue with the Defense Department’s decision to issue the contract to a single company. Last December, Oracle entered a lawsuit in the U.S Court of Federal Claims alleging the JEDI acquisition was slanted toward Amazon Web Services. AWS, through its contract with the CIA, is the only commercial cloud company that currently hosts secret and top secret classified government data.

Bids for the JEDI acquisition came from industry giants like Amazon Web Services, Microsoft, IBM, Google and Oracle in October of last year.

The Pentagon’s Cloud Wars

Now, there is much more at stake than the $10 billion deal. The winner could gain an advantage when bidding on other Defense contracts. That’s because whoever gets to develop the cloud for the Department of Defense is in a better position to argue for other contracts with similar requirements.

IBM’s and Oracle’s bid have already been ruled out because they could not meet the Pentagon’s minimum requirements while Google dropped its bid for the acquisition – citing concerns that the contract may not align with the company’s principles for how artificial intelligence should be used – leaving only AWS and Microsoft in the race.

According to Defense spokeswoman Elissa Smith, “The two companies within the competitive range will participate further in the procurement process”. These two finalists are the top two cloud infrastructure vendors on the market. Microsoft with 13-14 percent of the market share and Amazon with 33 percent.  

Although Microsoft lags behind in market share, it does offer products and services  – like Azure Stack – that would be very appealing to the military. And just recently, Microsoft announced that it is building two data centers exclusively designed to host the Pentagon’s classified data and that it is expanding its security capabilities to further compete with Amazon for the JEDI contract.

Microsoft has been a government contractor for a long time and its ubiquitous Office 365 platform has it all but guaranteed to receive a sizable share of the Defense Enterprise Office Solutions contract, another multibillion-dollar cloud deal.

Both AWS and Microsoft have experience with federal contracts and each counts with different strengths and weaknesses. It will be a tough decision to make in the coming weeks with the winner expected to be announced by mid-July.