Amazon, Microsoft, and Google are competing to win a part of the U.S. federal government’s $7 billion cloud spending. The Biden administration’s IT push is going to create opportunity for the major cloud providers.
AWS still has the lead, but Microsoft is so popular one analyst called it an ‘agency’ of the Pentagon. Google is also ramping up its cloud management tool Anthos and betting on AI for defense contracts.
The federal government has been investing in cloud computing for years — starting with Obama’s Cloud First policy in 2010 all the way to Trump’s Cloud Smart strategy in 2018. But as the pandemic has accelerated the pace of technological adoption and change, the need for cloud has become even more acute, especially for federal agencies that don’t yet have it. Biden’s proposed $1.9 trillion stimulus package included $10 billion for tech initiatives — underscoring their importance to the nation’s recovery — and signaling to government contractors that more federal dollars may be going their way. (Though the latest version of the package had much of that funding cut, lawmakers are actively seeking to add it back to future bills.)
Analysts estimate the federal government spent $6.6 billion on cloud in the 2020 fiscal year, an increase from $6.1 billion the previous year, and that number will grow.
Shawn McCarthy, research director for IDC government insights, told Insider he expected the federal government’s cloud spend to increase by 7.1% from fiscal year 2020 to 2021. Marquee contracts like the Department of Defense’s $10 billion deal with Microsoft to build the Joint Enterprise Defense Infrastructure (JEDI) cloud have drawn even more attention to the federal cloud market, which analysts say is an opportunity for Amazon, Microsoft, and Google to flex their strength.
The government needs their expertise in cloud computing and, increasingly, their support for emerging technologies like artificial intelligence and 5G.
Of the major cloud providers, analysts said that Amazon Web Services is considered the leader in the overall cloud market, and the same holds true in the public sector. But Microsoft has caught up in the federal market, especially with wins like the JEDI cloud contract, meanwhile Google is taking a different tack — betting on multi-cloud management and AI. Here’s a closer look at how the three big clouds stack up in the federal sector. Amazon has a huge head start, but it can’t be complacent Andy Jassy AWS CEO Andy Jassy, who is set to become Amazon CEO, helped oversee the cloud unit’s rise.
Mike Blake/Reuters Analysts agreed that Amazon is the one to beat in the public sector cloud market, just as it is within the larger industry. “AWS had the biggest lead out of the gate,” McCarthy said, and it has “an extremely deep bench of third-party providers that are available via their dedicated government solutions marketplace.” Amazon landed its first major deal with the government in 2013, when it won a $600 million contract to build a custom cloud for the CIA. At the time, cloud computing was considered less secure than local servers — yet the Amazon deal set a precedent, showing that Silicon Valley’s cloud innovation could fit the federal government’s needs, and led AWS to become the first commercial cloud authorized to house all levels of classified government data. But in 2019, the CIA issued a new cloud contract worth billions, and jointly awarded the deal to AWS, Microsoft, Google, Oracle, and IBM — signaling a shift away from its previous single-cloud approach, and ending intelligence agencies’ reliance on a sole Silicon Valley cloud giant.
In a sign of things to come, Amazon lost the JEDI cloud contract to Microsoft the same year. Though JEDI’s future remains in flux because of Amazon’s ongoing legal protest, analysts said it proved Microsoft’s ascendance in the sector. Read more: As Pentagon warns it could abandon its $10 billion JEDI cloud with Microsoft, analysts say AWS could benefit.
“I think last year was kind of characterized by Microsoft catching up to Amazon,” said Chris Cornillie, a federal market analyst at Bloomberg Government.
Microsoft caught up to AWS, thanks to its cloud software Scott Guthrie Scott Guthrie, Microsoft’s executive vice president of cloud and AI, oversees Azure and was once described by an analyst as a “cloud visionary.” Stephen Lam/Getty Images Analysts also agreed that Microsoft isn’t catching up to Amazon anymore — they’re nearly neck-and-neck in the federal market now. McCarthy said Microsoft succeeded “thanks to the popularity of Microsoft 365 and Microsoft Azure.” Microsoft 365 includes Office 365, the company’s line of productivity software, while Azure is its cloud computing service that more directly competes with AWS. Amazon doesn’t have a direct competitor to Microsoft 365, and focuses instead on its core infrastructure cloud platform. Cornillie told Insider Microsoft had done a good job of “leveling the playing field” with its JEDI win and a number of smart investments: working with OpenAI, linking up with Oracle for data interoperability, and a partnership with AT&T to facilitate 5G.
Last year, it launched new Azure Government cloud capabilities and announced it had achieved the highest authorization for handling sensitive government data, finally matching AWS. Within the Pentagon, which has the largest IT budget of any federal agency, one analyst said Microsoft is so entrenched that it has “basically become an agency of the Department of Defense.”
Microsoft 365 was chosen as the department’s sole software suite in a $4.4 billion deal called the Defense Enterprise Office Solutions (DEOS) contract, first awarded in 2019 and recently fast-tracked because of the pandemic. “Microsoft has really benefited in a lot of ways from the COVID-19 pandemic response effort,” Cornillie said, citing that it was also picked for a separate Pentagon initiative which rapidly deployed Microsoft Teams in the department’s Commercial Virtual Remote environment.
Microsoft 365 offers the company a convenient way to sell Azure cloud, plus other services like consulting and maintenance as a bundle, he said. And although the scope of Microsoft’s entanglement in the aftermath of the SolarWinds cyberattacks is still unfolding, analysts said it likely won’t suffer much reputational damage within the federal government.
Alex Rossino, a senior principal research analyst at government contracting research firm Deltek, told Insider that as the government increasingly pushes its security burden onto vendors, big cloud players will actually benefit. “The large cloud providers especially have the deep pockets to be able to make sure they provide the best kind of upgraded security,” he said.
“So I think that’s a selling point for them when it comes to the federal government; they can actually use the SolarWinds example as a way to say, ‘Well, look, we can make sure that doesn’t happen.'” Google is banking on AI and multi-cloud Google Cloud CEO Thomas Kurian at Google Cloud Next 2019 Google Cloud CEO Thomas Kurian has been credited with shoring up its enterprise business, and could help its play for government contracts. Insider Intelligence Though Google is still catching up to Amazon and Microsoft, and only recently spun up a large-scale dedicated government cloud, they are “a known entity and should become competitive,” said McCarthy.
Analysts also said Google is leveraging its strength in AI, a field the government is very interested in, and pushing Anthos, its tool for managing multiple clouds, to break into the federal market. Some big hires are evidence of this play: Cornillie said Google Cloud CEO Thomas Kurian, who has been running the unit with strategies inspired by his former employer Oracle, would help build up its enterprise business, while Joshua Marcuse, who heads the global public sector team and was recruited from the Defense Innovation Board (the Pentagon advisory board that was led by former Google CEO Eric Schmidt) would help with its AI push. Marcuse previously led development of the Pentagon’s ethics AI principles, though that approach has since been criticized by the AI community and former Google AI researcher Meredith Whittaker for lacking accountability. Google’s renewed interest in working with the Defense Department comes after it dropped out of bidding for the JEDI contract in 2018, following employee protests over a controversial AI project called Project Maven. Google is hoping for a fresh start under Biden, and the Pentagon is too.
Cornillie said Google now views its AI prowess as helping open the door to new cloud contracts — taking a “if you want AI capabilities out of the box, it works best in our cloud” approach. However, its ambitions are limited by the fact that it doesn’t hold all security certifications required by the sector, he said.
Bringing in Todd Schroeder from Salesforce to lead global public sector digital strategy was another “smart move,” Cornillie said. Schroeder has emphasized multi-cloud, open platforms, and AI as the future for federal cloud, which play to Google’s strengths. In 2019, Google introduced its Anthos product, which lets customers build and manage their applications across Google Cloud, AWS, and Microsoft Azure.
Banking on multi-cloud as the future (a reasonable bet, as the Department of Homeland Security just issued a $3.4 billion multi-cloud contract), Google is hoping its cloud management tool will become indispensable.
A new $3.4 billion DHS cloud contract could kick off a fierce battle between cloud giants like Amazon and Microsoft, analysts say. There are signs its product is sticking: Google has already done some pilots with Customs and Border Protection to optimize workloads across Azure, AWS, and Salesforce, Cornillie said, and the agency is now competing a large cloud migration contract that has Anthos’s multi-cloud management function explicitly written in.
IBM, Oracle, and smaller players are not to be discounted are IBM and Oracle, analysts said. They’ve also been steadily making progress, but “for reasons of security certifications and for reasons of the maturity of their tech, they’re still looking for niche components or niche contracts,” Cornillie said. “They haven’t been able to land any really big fish yet.”
Both companies bid for the JEDI contract, and both lodged formal protests after being eliminated from the running. But they haven’t given up on the market: Oracle made its Cloud Marketplace available for government customers to run software in its cloud in January, while IBM acquired open-source cloud provider Red Hat for $34 billion in 2018 — a move analysts at the time were excited by, saying IBM could make inroads as a hybrid cloud provider.
Rossino said smaller cloud players could enter the U.S. federal government’s cloud market by providing cloud management services:
“If they have capabilities that allow for the automation of cloud management, that’s really important too,” he said. But still, it’s a strategy borne of necessity rather than creativity. “The Microsoft’s, Amazon’s, they’ve already locked up the infrastructure market. There’s almost excess capacity out there,” he added.
Telus Selects Google Cloud in 10 year Deal:
Google Cloud on Tuesday announced a new, 10-year strategic partnership with Telus, the Canadian telecommunications company. The two companies plan on collaborating on new services and products for a handful of key industries, including healthcare, agriculture, security and connected home. Telus also plans to modernize its own IT and network with the help of the Google Cloud Platform.
It’s the latest deal to showcase Google’s efforts to cultivate more cloud business within the telecom sector. Last year, Google outlined a multi-pronged pitch to the telecommunications industry that includes industry-specific solutions like Anthos for Telecom.
Together, Google and Telus plan to develop services and products that use AI to better leverage data within specific verticals. For instance, a couple areas of focus include new collaboration solutions for healthcare providers, as well as supply chain traceability tools for the food and agriculture sector.
Meanwhile, Telus’ own wireless and wireline services will get an upgrade as part of the deal. Leveraging Anthos, Google Cloud’s managed application platform, Google will partner with Telus to deliver 5G services and Multi-Access Edge Computing (MEC). Telus also plans on using Google Cloud Contact Center AI to upgrade its customer service.
“Our strategic partnership with Google will propel our digital leadership across the communications technology, healthcare and agriculture sectors, whilst amplifying our Customers First priority, redefining how service is delivered in Canada and globally,” Telus CEO and President Darren Entwistle said in a statement.