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Microsoft makes inroads with U.S. spy agencies as tech giants face off over cloud contract

Microsoft has secured a potentially lucrative agreement that makes the full suite of the tech giant’s cloud-computing platform available to 17 U.S. intelligence agencies, executives said recently, moving agencies’ computer systems onto Office 365 applications and adding certain cloud-based applications not previously available to them.

The agreement could strengthen Microsoft’s prospects for winning government business at a time when it is locked in competition with some of the world’s biggest tech companies for a Pentagon cloud-computing contract that is expected to be worth billions.

For years, Amazon Web Services, a subsidiary of that provides cloud computing for businesses and government agencies, has been the primary provider of cloud services to U.S. intelligence agencies, thanks to a $600 million contract with the CIA. (Amazon founder Jeffrey P. Bezos also owns The Washington Post.)

That remains the case after the recent agreement. Still, executives from Microsoft framed the contract agreement as an “awakening.”

“This is a huge win from a Microsoft perspective,” said Dana Barnes, vice president of the company’s joint and defense agencies business unit. “It’s kind of an awakening as far as the intelligence community is concerned that you can’t be a one-cloud community.”

The update came as part of a routine contract renewal between the Office of the Director of National Intelligence and computer provider Dell, which subcontracts government work to Microsoft. Microsoft has for years provided basic computer programs to the intelligence community under contract with Dell, some of which make use of cloud-based technology. But U.S. intelligence officials have not previously had access to the full suite of Microsoft Azure Government cloud services.

A release published by the company said the cloud stores government data itself in eight geographically distributed data center regions that include no commercial data. Barnes also said the platform has been designed to support different levels of classified data, echoing a cloud storage service released by Amazon last year that is meant to serve a similar purpose.

Amazon launches new cloud storage service for U.S. spy agencies

The opportunity could amount to hundreds of millions of dollars as the 17 agencies that make up the U.S. intelligence community see more choices for data storage and analysis, though the exact amount will depend on how many orders are placed by government contracting officers.

Microsoft executives said the update could also strengthen the company’s bid for a coming Pentagon cloud computing award. Called the Joint Enterprise Defense Infrastructure (JEDI), the contract has sparked a competitive frenzy that has attracted West Coast tech companies and Beltway government contractors.

“From a Microsoft perspective, this shows that the intelligence community has trust in our cloud,” Barnes said. “If the intelligence community can trust our cloud, then the federal government can, the Defense Department can.”

The contract is expected to grow to billions of dollars, officials said in a March 7 conference call. It is also seen as a foothold for future business with the Defense Department, which received more funding than any other agency by far under the president’s 2019 budget.

The opportunity has attracted the interest of large tech firms including Microsoft, Amazon, Oracle, IBM and the IT services unit of General Dynamics. Amazon Web Services is seen as a front-runner for the contract given its past work with the CIA.

The Pentagon said in early March that it plans to pick a single winner for the JEDI award, which is expected to be the largest Defense Department cloud-computing effort to date.

Amazon’s competitors, including Microsoft, have sharply criticized the Defense Department for its decision to turn to one company for the effort, saying the government would miss out on innovation elsewhere if it uses a single provider. Amazon has said that its “partner community,” under which the government can use other companies’ products alongside Amazon’s, means that users have options.

And the company’s rivals are worried that the firm may have an inside track to receiving the contract. Such concerns peaked in early February when the Pentagon awarded a contract with a $950 million ceiling to Herndon-based REAN Cloud, a start-up that advertises itself as an Amazon Cloud partner. A month later the company slashed that contract to $65 million and dramatically limited the scope of work following criticism from the industry.

The Defense Department has justified its decision by arguing against unneeded complexity. Tim Van Name, the deputy director of the Defense Digital Service, said in early March that having a single cloud provider is the best approach because having several “would exponentially increase the overall complexity,” introducing greater risk into military operations because officials “would have to manage the seams between the applications.”