The Pentagon and Amazon beat back Oracle’s legal challenge to the $10 billion JEDI contract, but experts say the real winner may be Microsoft (ORCL, AMZN, IBM, GOOG)

satya nadella

The Pentagon and Amazon prevailed over Oracle in the legal fight over the $10 billion JEDI cloud project, but experts say the battle may have helped Microsoft, Amazon's rival.
The Oracle campaign helped highlight criticisms of the DoD's decision to award the contract to only one vendor, experts say.
Amazon had been seen as the likely winner of the contract, but the legal dispute may have hurt its chances, and given Microsoft time to rally support in Washington DC.
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The Pentagon beat back Oracle's challenge to the $10 billion DoD cloud contract, but experts say the real winner in the legal brawl may turn out to be Amazon's rival, Microsoft.

Even though Oracle lost the legal brawl — which alleged that the process was "riddled with improprieties" that favored Amazon Web Services — experts say the tech giant's campaign for the Joint Enterprise Defense Infrastructure, or JEDI, project highlighted a criticism of the Pentagon contract process: offering contract to a single vendor.

"I think Oracle's fight helped Microsoft gain footing and may lead to the removal of the winner-takes-all model," analyst Ray Wang of Constellation Research told Business Insider.

The Pentagon's JEDI project will build a cloud platform that will store and manage sensitive military and defense data.

The DoD had named Amazon Web Services and Microsoft Azure as the finalists in the contract, rejecting the bids of other major tech giants, including Oracle and IBM. Oracle launched a legal protest which was rejected Friday by a federal claims judge.

The judge's ruling reaffirmed the Pentagon's view that the JEDI process "has been conducted as a fair, full and open competition," Defense Department spokesperson Elissa Smith told Business Insider. Over the course of the legal fight, Amazon had denied Oracle's claims, as well, reiterating that the strength of its bid was based on the merits of its service.

Still, all of this drama may have served to take some of the shine off of Amazon's bid, which was widely considered to be the far-and-away favorite coming into the process. In a note to clients, Wedbush analyst Daniel Ives also said the legal fight gave Microsoft time to flex its muscles in Washington DC.

"We continue to hear from our Beltway contacts that Microsoft has made 'steady and impressive progress' and significantly narrowed the gap over the last six months with the odds of a win looking more like a realistic possibility for Redmond vs. a pipe dream a year ago," Ives wrote.

A huge deal

The JEDI project is expected to be one of the biggest public cloud deals in history, potentially worth up to $10 billion to the winning bidder, which explains the stiff competition for the contract.

"This is a huge deal and likely a secure entry point into a vast amount of additional government business," analyst Rob Enderle of the Enderle Group told Business Insider.

Wang of Constellation Research echoed this point, saying the contract winner "will have a massive advantage for the next two decades in computing." Whoever wins the contract "will have an enormous advantage and a massive barrier to entry to take over that contract in the future," he said.

Amazon has been seen as the frontrunner in the process, partly because it had already secured a $600 million cloud contract from the Central Intelligence Agency in 2013 — though some competitors have insinuated that the deal's requirements were heavily weighted towards features and certifications only held by Amazon.

Amazon dominates cloud

Amazon dominated the $25 billion public cloud market with 46% market share, according to analyst firm IDC's 2017 data. Microsoft was second with 11%, followed by IBM with 5.6%, Alibaba Group with 4.5% and Google with 3.3%

"We just have much more functionality by a large amount than anybody else, and we also are iterating at a faster clip," Andy Jassy, CEO of AWS, told CRN recently.

But experts say the legal tussle with Oracle probably hurt Amazon. This was underscored Thursday, the day after the court hearing on Oracle's protest, when Sen. Marco Rubio (R-FL) sent a letter to National Security Adviser John Bolton asking to delay the awarding of the JEDI contract.

"DoD has used arbitrary criteria and standards for bidders," Rubio wrote. "Even though 200 companies were initially interested, DoD instituted such a restrictive criteria that only four companies bid on JEDI. DoD then further used the arbitrary criteria to eliminate two of the bidders, IBM and Oracle, leaving only Amazon and Microsoft."

Rubio was supported by Oracle founder Larry Ellison when he ran for president in 2016.

Enderle said the Oracle legal battle ended up delaying the project at a time when the Trump Administration "has become vastly more hostile toward Amazon." President Trump has been publicly critical of Amazon CEO Jeff Bezos, who he taunted on Twitter over his high-profile divorce. Bezos also owns the Washington Post, a newspaper that has published reporting critical of President Trump.

"It is now much more difficult to give them this kind of business particularly given they are on the list of firms the government thinks are already too powerful," Enderle said. "Microsoft isn't on that list and might now be favored more than they were previously as a result. Amazon still likely has the edge, but that edge has been massively reduced and, as more time goes on, that edge is trending to be eliminated."

Got a tip about Oracle or another tech company? Contact this reporter via email at bpimentel@businessinsider.com, message him on Twitter @benpimentel. You can also contact Business Insider securely via SecureDrop.

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