Microsoft: Jedi reveals the dark side of public sector customers
Public contracts sound like a great business for companies. The ultimate customer is typically a government with a huge budget, high creditworthiness and a myriad other contracts to award.
In reality, public bodies and arms of the state can be chaotic, entitled and insanely demanding. Microsoft is the latest casualty.
The tech giant’s deal to modernise the Pentagon’s IT capabilities ended abruptly this week. The US Department of Defense announced it was calling off the flagship $10bn Joint Enterprise Defense Infrastructure (Jedi) cloud contract.
Justifications were woolly: evolving requirements and industry advances apparently mean the deal, signed in 2019, no longer suits. The real cause may be twofold: a rethink about the wisdom of appointing a single cloud computing provider; and delays caused by Amazon’s legal fight against the contract.
A new multi-vendor contract, known as the Joint Warfighter Cloud Capability, is being drawn up. Microsoft is likely to feature as one of the contractors. It is wise to remain outwardly gracious. Building up a relationship with the DoD has already borne fruit. The software group has already secured a bigger deal — agreeing to provide the US Army with augmented reality headsets in a contract that could be worth up to $22bn over 10 years.
The DoD’s change of heart does not threaten Microsoft’s equity value, which has doubled in the past two years and now exceeds $2tn. Its cloud business Azure is gaining on Amazon’s AWS, thanks partly to its integration with dominant office software Microsoft 365. In the last quarter, revenue rose 50 per cent on the previous year.
The real winner, however, is Amazon. The cloud and ecommerce group has long complained that former president Donald Trump’s antipathy towards founder Jeff Bezos influenced the decision to hand the Jedi contract to Microsoft.
The US tech giants should perhaps tap contractors to the UK government for some salutary war stories. Lockheed Martin’s contract to upgrade Army battle tanks was delayed by more than four years partly due to a late-stage specification change by the Ministry of Defence. A sudden jump in the number of security guards required by the Olympic organising committee in 2012 led to G4S recording an £88m loss instead of an expected £10m profit for the contract.
Amazon and Microsoft should consider how much time and money they plough into the new cloud contract and any other supposed prestige jobs dangled in front of them by Washington.
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