The United States Department of Defence (DOD) is currently in the process of finding $10 billion worth of suppliers for its cloud infrastructure. This would obviously be enough to make even the most conservative cloud executive excited, but it gets even better; if you are Amazon.
You see, rather than creating a network of vendors, each of who can act as counterbalances for each other, including building redundancies into the system, the DOD is going with a single vendor. That means that one supplier will win a $10 billion contract, making it one of the most sought-after government contracts ever.
Single vendor contracts are not uncommon, in fact in the “old days,” of software and hardware upgrades, companies like IBM and Microsoft were often awarded major, lucrative contracts following a competitive bidding process. Microsoft currently has a $1 billion deal with the Department of Defence to supply Windows software. But cloud arrangements are usually different because the client will often prefer to have numerous suppliers, reducing the dependency on a single company, and potentially avoiding any unforeseen downsides, such as privacy breaches or public relations failures. But, a spokesperson for the Department of Defence told TechCrunch that they see a single supply arrangement as being beneficial for the DOD from a technical standpoint and are eager to build a relationship with the successful vendor.
So why is the good news all Amazon’s? To say that Amazon dominates the cloud market would be a dramatic understatement. The company has close to a 38% market share and is growing by .5% every quarter on average. Microsoft is making massive gains, but with less than 15% of total market share, there is a lot of ground to make up. This type of market dominance will play well with the DOD, in fact, both Oracle and Microsoft have complained that a single vendor arrangement unfairly favours Amazon. Many have pointed out the hypocrisy of companies like this complaining about single vendor contracts when they have profited off them for years.
Analysts are saying that Amazon winning the contract as a “no-brainer,” but with plenty still going on behind-the-scenes, and a $10 billion contract offering Microsoft valuable percentage points as well as a lucrative deal, the result is far from certain.