Microsoft CEO Satya Nadella leaves the Elysee Palace after a meeting with French President Emmanuel Macron in Paris on May 23, 2018.
Aurelien Morissard | IP3 | Getty Images
Microsoft is signing agreements with foreign governments to offer cloud infrastructure packages similar to the bundle it compiled for the U.S. Department of Defense, people familiar with the matter said.
The Joint Enterprise Defense Infrastructure, or JEDI, cloud offering for the Defense Department provides cloud-based computing and storage resources at all levels of government security, such as devices that can work offline until they resynchronize with cloud infrastructure. The Pentagon will award the JEDI contract to Microsoft in October. The contract is worth up to $ 10 billion over 10 years.
Outside the U.S., Microsoft has shown interest in the type of relationship it has formed with the Pentagon, one of the people said. Specifically, Microsoft is committed to personalizing the Pentagon initiative with people who have adequate government security, and to providing a group of existing products and services, as opposed to specially built technologies, at a customized price.
Microsoft employees began working on cloud contracts for foreign governments after it became clear that the JEDI work would be put on hold due to a legal challenge from Amazon, Microsoft’s main rival in cloud computing, the person said.
The strategy shows that Microsoft hopes to continue to grow its cloud infrastructure business by meeting the needs of the public sector abroad, while maintaining close cooperation with the Trump Administration, which has helped brokers make a possible acquisition of part of ‘ a Chinese-owned social app TikTok.
The company plans to announce the effort later this year, one person said, adding that intelligence agencies and military outside the U.S. may be using it. Another person informed about the work said that Microsoft already has foreign cloud contracts, despite the fact that it has not yet announced the new strategy. It is not clear which countries Microsoft is most focused on.
Microsoft shares are up more than 1% on the news after hours.
The company declined to comment directly on the matter, but generally pointed to its collaborating authorities.
“We have been working with governments around the world for four decades on a long and reliable basis,” a CNBC spokesman said in an email. “We have government customers who use our products to improve their services with the latest in commercial innovations, deeply intervene and connect with citizens in powerful ways, and support government workers with the modern tools they need to become more efficient and effective. to give them time to focus on their mission for agencies. “
In November Amazon Web Services filed a lawsuit in protest of the government awarding Microsoft the JEDI contract, and in February, Judge Patricia Campbell-Smith issued a temporary restraining order that could block the contract from progressing. In April, Campbell-Smith gave the Pentagon permission to reconsider its evaluation of Microsoft’s and Amazon’s bids for the JEDI contract. The Pentagon expects to be done with the review by Sept. 16.
AWS had 47% of the cloud infrastructure market in 2019, while Microsoft had 13%, according to estimates by industry research firm IDC. Analysts at Piper Sandler led by Brent Bracelin, who have the equivalent of a buyout on Microsoft stock, estimate that Microsoft had $ 5.93 billion in revenue from its Azure cloud in the second quarter. That would mean that Azure contributed nearly 16% of Microsoft’s total revenue. Amazon said revenue in AWS totaled $ 10.81 billion in the second quarter.
International customers are more critical of Microsoft than in the past. In Microsoft’s fiscal year 2020, which ended on June 30, the company derived 51% of its sales from customers in the US, down from 71% in fiscal year 2002. Microsoft has won Azure business from some federal groups outside the US, including New Zealand’s fire department, France’s space agency and the Canada Mortgage and Housing Corporation.
Even though Microsoft is looking for a government cloud company outside its homeland, Microsoft remains allying itself with the US as it tries to get TikTok’s operations in the US, Canada, Australia and New Zealand from China-based ByteDance. On August 2, Microsoft said that the CEO, Satya Nadella, spoke with President Trump about a transaction.
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