Could Microsoft's Pentagon Cloud Contract Help Close the Gap With Amazon?

Microsoft Azure's mildly shocking win over Amazon Web Services for the US governmment's $10 billion JEDI contract—to modernize and rebuild the Department of Defense's cloud infrastructure—couldn't have come at a better time for the company's steadily growing cloud business.

In the Satya Nadella era at Microsoft, the company has prioritized Azure as a core pillar of the tech giant's growth. It has worked—in Microsoft's latest quarterly earnings report, its "Intelligent Cloud" revenue made up $10.8 of the company's $33.1 billion in revenue, a slight drop-off from last quarter's record of $11.4 billion.

After subtracting expenses, that leaves Microsoft with $3.9 billon in operating income from its cloud infrastructure and services products this past quarter. Overall, Intelligent Cloud revenue is up 27 percent year-over-year.

But Azure is still a distant second to AWS in overall cloud market share. Gartner's last report of the infrastructure-as-a-service (IaaS) market in 2018 showed AWS at 47.8 percent of the market compared to 15.5 percent for Azure, 7.7 percent for Alibaba Cloud, and 4 percent for Google Cloud Platform (GCP).

That's why the timing of Microsoft's Joint Enterprise Defense Infrastructure (JEDI) contract win is so key. Though Azure is still far behind AWS in the cloud market, in addition to giving MS a massive and sustained new cloud revenue source for the next decade, the new contract is a symbolic win for Microsoft in the company's most important current and future growth area—even if the circumstances under which Microsoft was awarded JEDI were murky, contentious, and loaded with political subtext.

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