The US Department of Defence (DoD) has cancelled the $10bn Joint Enterprise Defense Infrastructure, or Jedi, contract for cloud services awarded to Microsoft in 2019. The deal has been the subject of much political and legal wrangling, but the news that it has been rescinded is a reflection of the changing nature of the cloud market, with organisations now keen to pick and choose services from different cloud providers, rather than committing to a single platform.
The Pentagon announced the Jedi contract cancellation on Tuesday evening. “With the shifting technology environment, it has become clear that the Jedi Cloud contract, which has long been delayed, no longer meets the requirements to fill the DoD’s capability gaps,” it said in a statement.
Microsoft had been awarded the contract, which would have seen DoD’s IT systems replaced with a single cloud platform hosting classified information and providing AI-powered intelligence services for the US government. Instead, the DoD will now seek proposals “from a limited number of sources” capable of meeting its requirements for the different parts of Jedi. These are likely to include Microsoft and Amazon, which has been at the heart of much of the Jedi-related controversy since it launched a lawsuit complaining that the contract award to MSFT was unfair.
Jedi contact cancellation: politically motivated?
Amazon’s AWS cloud division, the market leader in public cloud, had been seen as favourite to land the contract. When it lost out to Microsoft the company launched a legal challenge, claiming the then US president Donald Trump had exerted undue influence on the bidding process. Trump is a fierce critic of Amazon and its founder Jeff Bezos, and Amazon said in a statement following the latest decision: “Unfortunately, the contract award was not based on the merits of the proposals and instead was the result of outside influence that has no place in government procurement.”
The prospect of prolonged litigation meant “nobody was going to win” from keeping Jedi in place, says Nick McQuire, chief of enterprise research at CCS Insights. “The bottom line is that the customer [the DoD] has yet to benefit from this project,” he says of the Jedi contract cancellation. “It’s been dragging on for two years, Microsoft isn’t able to get on with fulfilling the contract and Amazon is facing mounting legal costs.”
Dave McCarthy, vice president in the worldwide infrastructure practice at research firm IDC, says a combination of political, legal and market factors contributed to the Jedi contract cancellation. “It didn’t help that the deal was plagued by political and legal challenges,” he says. “But anyone who has worked in sales knows the adage, ‘time kills all deals’. In the two years since the contract was awarded, cloud service provider offerings have evolved and it is not unusual for project requirements to change as well.”
How the cloud market has changed since 2019
The services contained in Jedi will now be packaged up and awarded to different providers. This reflects wider trends in the market, with enterprises and public sector organisations adopting a multi-cloud approach, deploying workloads with different providers as appropriate.
McCarthy points to IDC’s IaaSView 2020 report on the state of the Infrastructure as a Service (IaaS) market, which surveyed 1,500 IT decision-makers from around the world and found 56% of respondents are using multiple public cloud IaaS providers. “Sometimes this can be an unintentional side-effect of M&A activity,” he says. “In other cases, it reflects a ‘best of breed’ approach of picking the cloud that is most appropriate for a particular workload.” Indeed, the State of Cloud 2021 report from Flexera indicates only 8% of companies select a single cloud provider – public or private – to cater for all their needs.
The DoD is unlikely to pursue a formal multi-cloud strategy where different systems are all connected together, McQuire argues. Instead, he says, it is likely to "break off requirements into different use cases and scenarios, then assign those on a workload-by-workload basis to relevant suppliers." He adds: "That's very much the trend we see in the market at the moment, and it's smart because you can source innovation from different suppliers. There's also the argument from a cost and regulatory point of view that you need to be careful of the concentration risk presented by having too many cloud services with one provider."
But while this approach of multiple providers has benefits, it is not without risk, McCarthy says. "Challenges still exist in maintaining consistent security and management across multiple cloud providers," he adds.
What will happen to the new Jedi contracts?
McQuire says significant government contracts are hotly contested because they demonstrate the successful cloud provider can be trusted working with highly sensitive information. This can be useful when trying to win business in other sectors. "If you can win big government contracts, that will usually carry weight in highly regulated industries like financial services," he says.
He adds that to bid for government contracts, cloud providers have to demonstrate high levels of data security, as well as transparency on where information is stored geographically, which can be a selling point for enterprise customers too. "Jedi was a big deal in terms of value, but what you're seeing now from Microsoft, AWS and others is that investments they've made in making their clouds ready for the public sector are now being carried over into other industries," he says.
Alongside Microsoft and Amazon, other cloud providers are likely to be keen to grab some of the DoD's cash. "Government procurement processes tend to be lengthy and complex, so I expect it will take a while before we know the outcome," IDC's McCarthy says. "However, it does give both sides a fresh chance to evaluate requirements and capabilities."