Single-award JEDI contest far from a shutout for cloud vendors

Considering the size and scope of the overall federal IT market, all should not be lost for those who will miss out on the Defense Department’s potential $10 billion “JEDI” cloud computing contract that in its current form will go to a single winner.

That outlook does depend in part on which direction the military goes: whether the Joint Enterprise Defense Infrastructure is a catch-call for its cloud computing strategy as many in industry have feared, or if JEDI is merely one big piece of a larger thrust that will involve multiple clouds.

“We don’t have clarity on what the future of the Pentagon’s cloud efforts will be, at least I don’t think it’s been clearly articulated where JEDI’s going to fit in that picture,” said James Bach, federal IT market analyst at Bloomberg Intelligence.

”If it’s going to be one of many different environments… then the stakes for JEDI aren’t as high, it won’t be the one cloud that everything rushes to,” Bach told me.

The stakes were still elevated though for one now-confirmed loser in Oracle, whose financial and enterprise resource management systems are embedded deeply in many agencies. It made too much sense for them to let it slip without a fight before its protest was denied by a Court of Federal Claims judge late last week.

“It’s going to be much tougher for Oracle to have an iron-clad sales pitch for their systems that they have to move over to a cloud that’s not theirs,” Bach added.

A judge's written ruling could be released within the next week to 10 days, then comes the anticipated August award of JEDI to either Amazon Web Services or Microsoft, if Oracle does not appeal the ruling. The federal market is obviously watching but so is the general business community that includes investors who do not follow government IT regularly.

“Six months ago, it was in the background with some paying attention,” said Dan Ives, managing director of equity research at Los Angeles-based investment bank Wedbush Securities. “Over the last few months it’s become more of a front-and-center issue.”

“It’s become a lot closer in terms of who can win this deal [and] today is more of a jump ball,” Ives told me. “It’s going to have ramifications for many, many years.

“Whoever gets this has a significant leg up in government cloud deals” that Ives estimates could add up to $100 billion over the next decade.

Also consider whatever comes out of the intelligence community’s effort to acquire multiple cloud infrastructures through the still-in-works “C2E” contract that could be worth tens of billions of dollars.

The size and scope of that opportunity implies that there should still be much left in the pie for others even if they miss out on the JEDI prime award. IBM in particular could still be a beneficiary even after they also protested JEDI’s single-award structure and were eliminated in a prior downselect.

Bach said not to discount IBM as a significant federal cloud player, given Big Blue’s federal business that stretches beyond just hardware and software to consulting or other services work.

“It’s big enough to say if they’re not a part of the future defense cloud environment, they can still wrap services around an Amazon cloud or they can wrap services around a Microsoft cloud,” Bach said. “If you look at (JEDI) as a catalyst for more cloud spending, you still have the infrastructure, then there’s going to be a long tail of services to follow that.”

As leaders of the cloud pack, Amazon and Microsoft already have sizable federal footprints. Ives estimates that Amazon’s federal contracts contribute around $2 billion in annual revenue with Microsoft at between $2 billion and $3 billion.

Ives and Bach both point out that much of the federal government’s IT infrastructure does not yet reside in cloud environments but agencies are making efforts to change that over the next decade.

IBM certainly will have a role in that, as will Oracle and Google, according to Ives.

“There’s massive opportunity for those core enterprise players, but I think when you look at the platform opportunities and the environments, they’ll be AWS- and Microsoft-driven,” Ives said.

But "as more of these progress, there’s going to be a number of vendors that will benefit.”