Big government contracts, especially with the military, aren’t just a boon for private contractors — they’re a patriotic feather in the cap of public-facing companies.
The Pentagon announced Wednesday its decision to award up to $9 billion in military modernization funds to all four of the cloud companies selected to compete for Joint Warfighting Cloud Capability contracts. JWCC has a base period of three years, with optional extensions that could see the deal stretch into June 2028.
AWS, Google, Microsoft and Oracle were all entitled to a victory lap, but there are not yet any clear winners or any major shifts in the battle for cloud dominance. The real triumph belonged to the concept of hybrid multicloud, a strategy that will keep the four CSPs in close competition for individual military contracts for the duration of the agreement.
“The four companies are being given seats at the table, but with none of them having any guaranteed outcomes,” John Dinsdale, chief analyst and research director at Synergy Research Group, said in an email.
The devil often lurks in the details, which are rarely made public, said Dinsdale, who characterized the deal as an overarching framework within which “some contracts will be awarded, or not, within periods of time that may be rather fluid.”
No matter how the $9 billion is eventually divided among the CSPs, it represents little more than a tiny share of the broader market for cloud.
Overall spending on public cloud is expected to reach nearly $600 billion next year, up from nearly $500 billion this year, according to Gartner. AWS, which commands the largest share of the U.S. cloud infrastructure market, reporrted $20.5 billion in sales during Q3 2022, a period of relatively sluggish growth.
Microsoft reported $20.3 billion in cloud revenue for the same three-month period ending Sept. 30, and Google, the smallest of the three hyperscalers, had $6.9 billion in revenue. Oracle, which has only a 2% market share according to Synergy Research Group, is not typically considered a hyperscaler.
“If that $9 billion over five years does come to fruition, it will still only represent a fraction of a [percentage point] of the total market,” Dinsdale said. “Even if it all was awarded to a single cloud provider, it will hardly move the needle in terms of market share.”
Wins and losses
A contract like JWCC does confer bragging rights and there are wins and losses on the margins. But for Microsoft, the JWCC contract is likely bittersweet.
Three years ago, Microsoft was poised to become the sole recipient of the Joint Enterprise Defense Infrastructure contract worth up to $10 billion. The Pentagon canceled JEDI in July 2020, when it committed to multicloud.
“This award should have included all the major cloud providers from the beginning,” Ed Anderson, distinguished VP analyst at Gartner, said in an email to CIO Dive. “Each has something to bring to the table and including them all will provide the DOD much more flexibility in their use of cloud.”
For Google, a hyperscaler with an estimated 11% of the U.S. market, and especially Oracle, being included in the same group as the two largest CSPs is a win.
“Capturing JWCC is a huge boon for Oracle, which drastically trails AWS, Azure, and GCP by a large margin in revenue and market share,” Devin Dickerson, principal analyst, Forrester, told CIO Dive via email.
Oracle, however, has a major on-premises presence in the federal government.
“Adoption of Oracle’s cloud services means potential avenues for growth in government applications for hybrid and public cloud workloads,” said Dickerson.
IBM may have taken the biggest hit in the JWCC process. The company, which Synergy estimates has a 3% cloud market share, was tapped for JEDI but did not make the cut for JWCC.
“We did our due diligence with the proposals and, ultimately, it came down to our analysis of who could best meet the requirements,” John Sherman, CIO at the DOD, said in response to a question about IBM during a JWCC press conference on Thursday.
The persistence of hybrid
Hybrid and industry cloud, as well as mainframe modernization, have been the focus for IBM, which could account for the company being left out of JWCC.
“It’s possible and even likely that IBM didn’t meet the technical and security requirements for the JWCC,” Dickerson said.
The CIA awarded its multibillion-dollar Commercial Cloud Enterprise contract to IBM, along with AWS, Microsoft, Google and Oracle and IBM in 2020, said Dickerson, “but as helpful as winning the C2E contract is in establishing IBM as a major cloud provider for government applications, missing on JWCC is another blow to its comparatively small public cloud business.”
Inherent in JWCC isn’t just a multicloud strategy, but a commitment to a hybrid ecosystem that integrates cloud and on-prem infrastructure.
Government mainframes aren’t going away anytime soon.
“Maybe my successor will sit up here and say we are completely off of a hybrid environment,” Sherman said during the press conference. But for the foreseeable future, he said, it’s going to be a hybrid ecosystem.
