Amazon's biggest customer may soon be the government

Securing the JEDI contract would be better set up Amazon's up to win additional lucrative cloud computing jobs from the federal government, as well as make it even more competitive in the civilian market. Meanwhile, the company is also pursuing another type of federal business:

As Amazon takes a larger piece of federal procurement, it could save taxpayer dollars and improve efficiency – but also, some fear, squeeze out competition.

"When you're in the door," says Steve Schooner, a professor of government procurement law at George Washington University. "The reality is if you are the primary contractor in a certain space, the growth is potentially unlimited."

A slow build

Before Amazon ever went to Washington, his cloud computing operation had a leg up on everyone else.

Amazon Web Services was born after Bezos realized that buying and maintaining physical warehouses was less efficient than storing it on the internet. Once his engineers figured out for Amazon's website, they made it happen to the service of others.

"It's unbelievable," said Bezos at Economic Club event. "The enterprise companies did not see Amazon as a credible enterprise software company."

It still took a while to get the federal government – which has a history of pioneering new technologies, but is often slow to adopt them – on board.

Amazon was well-established to help.

The company had a substantial head start over competitors like Microsoft, Oracle, and IBM, which were heavily invested in the federal government with software and data centers. Moving into the cloud computing business would only be able to buffer those steady revenue streams.

"The big benefit [Amazon] They said they could not do anything about their own business, "said Scott Drossos, president of the Infiniti Consulting Group, which helps public sector customers move their data to Amazon's cloud-based services.

Later that year, Amazon hired Carlson away from Microsoft, where they had their presence in D.C.

Over the years, Amazon layered in compliance with an alphabet further confidence in cloud data storage. They also agreed on the idea of ​​buying computing capacity on a pay-as-you-go basis, rather than all at once.

When Marina Martin came into the picture in 2013, she took on the massive project of transitioning the agency's IT systems to the cloud. Amazon Web Services was the most attractive option, Martin says.

"They have a tremendous community, and a training environment that I think is really important," says Martin, noting the conferences, videos, and wide network of users who help each other troubleshoot problems.

Building such a robust product tailored for government And spending time holding the hands of federal officials paid off in 2013, when Amazon won a $ 600 million contract with the Central Intelligence Agency, putting it in the cloud. Now, at Amazon's Web Services' annual public sector summit in Washington, DC, the federal government's chief executive officer, John Edwards.

It 's difficult to assess the total magnitude of Amazon Web Services' business with the federal government because it' s much of it – including the CIA contract – is classified, and Amazon declined to disclose a list of its federal customers. It's also difficult to track because the contracts are often granted to third-party firms that execute the task of migrating an agency's data to Amazon's cloud.

But it's an indicator of how quickly the government has been ramping up these types of services, data and analytics firm Govini estimates that federal public agencies have gone from spending $ 13.5 million on non-classified Amazon cloud hosting contracts in fiscal 2014 to $ 45.3 million in 2017 , with 2018 we keep pace with the upward trend.

Feel the Force

The CIA contract is peanuts, though, in comparison to the price Amazon is vying for now: The $ 10 trillion Defense Department JEDI cloud contract.

First Announced in September 2017, the solicitation has been delayed by Congressional Inquiries and Protests by other bidders. Bids were due in October, with an expected award date of April 2019.

The objections center mostly around whether the Pentagon should award the contract, or an approach that might favor Amazon, or divide it up among multiple companies. The private sector has moved towards a "multi-cloud" strategy in order to insure against failure by one company, and to utilize the best aspects of several different cloud providers. If Amazon wins a $ 10 billion chunk of the military's business, the fear is that it would be difficult to change the course of action.

That's the argument that Amazon's competitors have made public and in their lobbying efforts. Oracle filed a protest of the solicitation in August saying that it was contracted to do so. IBM followed suit in October, saying that it was "written with just one company in mind," a thinly-veiled reference to Amazon.

On Wednesday, the Government Accountability Office ruled against Oracle, and a decision in IBM's protests is due in January. Even impartial observers note that going with just one provider

"Maybe it's more costly up front to say" I'm going to do Amazon and Microsoft, "says Brad Wilson, an analyst at the Rand Group. "The tradeoff is, you're increasing the complexity of your operations by doing that."

The Defense Department defended its decision to go to a report to Congress, saying that it would be impossible to have a "data lake."

Amazon, meanwhile, has made it easy to switch between cloud providers by using open standards and allow data portability, meaning that the Pentagon could hire someone else if it fails to perform. Other than that, it has declined to be used on the solicitation process. Other defenders point out that JEDI was not the first big cloud solicitation from the federal government or even the military, and it will not be the last.

"Air Force, Army, Navy, they'll all have their own clouds," says John Wood, CEO of Telos, a federal IT contractor who often hosts Amazon Web Services migrations. "This is definitely not a winner-take-all-initiative, as the competitors are trying to make it out to be."

Wood estimates that less than 5% of the federal government's data has been moved to the cloud, meaning that it's still plenty of work to be done.

Still, even if opportunities, abound and switching is easy, the federal contract could give Amazon an advantage long into the future. Steve Schooner, from George Washington University, says there is a certain inertia to government contracting.

"The firm that is in the Pentagon provides for all of them, they are going to be the contractor for all of their needs, they are going to be first in line the defense space, "says Schooner.

1-Click Government

Cloud storage is not the only part of the $ 500 billion in annual federal procurement that Amazon has its eye on.

It may also be used by a congressman who has been in the service of the general services of the United States in order to set up "commercial e-commerce portals" for government purchase orders costing less than $ 25,000.

Amazon, which already has an extensive section on its website dedicated to serving business customers, is an obvious choice – so much so that the legislation has been referred to as "the Amazon Amendment," even though companies like Walmart and SAP have also expressed interest in doing the job.

But some of the federal government's existing suppliers are worried, because of what it could cost to operate through Amazon's platform rather than selling to government directly.

Becoming a GSA vendor requires an upfront investment in compliance systems, but then can be a valuable source of stable income. If Amazon became the primary procurement portal, it could not it is currently in its consumer retail business.

Since 2004, the Pacific Ink of San Diego has supplied a total of $ 12 million in business per year with the General Services Administration. CEO Jaime Mautz thinks they should, rather than hand them over to a private platform sellers in its marketplace.

"Already our margins are so thin to have these contracts," Mautz says. "To then add any Amazon fee on top of that is going to take a lot of the companies out of the competition."

Amazon declined to comment on this possibility, but in response to the GSA's request for feedback, the company noted that governments should use their platforms to maintain standards for small, minority-and-women-owned businesses.

It's already happening with the city. In early 2017, a government purchasing alliance called US Communities awarded a contract to Amazon to provide its 55,000 member agencies with access to the Amazon's business portal. The request for proposals estimates that the program facilitates $ 500 million in purchases per year.

The Institute for Local Self-Reliance, a nonprofit research group that has been skeptical of Amazon's local influence, produced a lengthy report on the summer that the contract was set up for Amazon prices available.

"Says Stacy Mitchell, who coauthored the Institute for Local Self-Reliance," says Stacy Mitchell, who coauthored the Institute for Local Self-Reliance postponement. "Amazon's real is not enough of a business that you do not really have any benchmarks to figure out what is a reasonable price."