Microsoft won a big victory with an $8 billion Pentagon cloud software contract

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Microsoft won a big victory with an $8 billion Pentagon cloud software contract

satya nadella microsoft

Stephen Lam/Getty Images

Microsoft CEO Satya Nadella waves goodbye to the audience during a keynote at the 2015 Microsoft Build Conference on April 29, 2015 at Moscone Center in San Francisco, California.

  • On Thursday, the US Department of Defense and General Services Administration announced that the $8 billion Defense Enterprise Office Solutions (DEOS) contract will be awarded to CSRA LLC and its contractor teaming partners Dell Marketing L.P. and Minburn Technology Group LLC.
  • These companies plan to use Microsoft Office 365 as they build out office software solutions for the Department of Defense.
  • Analysts had said that DEOS was basically a guaranteed win for Microsoft: While Google has its own G Suite, only Microsoft Office 365 seemed to fulfill all the requirements of the contract. The only real mystery was which Microsoft reseller partner would win the bid.
  • Unlike the $10 billion Joint Enterprise Defense Infrastructure (JEDI) contract, Microsoft bid through partners, rather than directly. JEDI is still up in the air.
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Microsoft has scored a big cloud victory, with the US Department of Defense and General Services Administration announcing that it will be putting Microsoft Office 365 into use under the terms of an $7.6 billion contract.

This 10-year deal, called the Defense Enterprise Office Solutions (DEOS) contract, will see the replacement of the Department of Defense's legacy productivity software with more modern, cloud-based technology. This includes email, collaboration, file storage, messaging, video-calling, and the like, which will be used by over 3 million military personnel.

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On Thursday, the U.S. General Services Administration and the Department of Defense announced that DEOS has been awarded to CSRA LLC and its contractor teaming partners Dell Marketing L.P. and Minburn Technology Group LLC. These companies plan to build a solution using Microsoft's products.

"DEOS will streamline our use of cloud email and collaborative tools while enhancing cybersecurity and information sharing based on standardized needs and market offerings," Department of Defense Chief Information Officer Dana Deasy said in a statement.

Of note is that this is separate from the Joint Enterprise Defense Infrastructure (JEDI) contract - the contentious cloud deal that's currently under review after President Donald Trump himself expressed concerns with the award process. Microsoft and Amazon are both bidding directly for JEDI, with Amazon the favorite to win.

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That's a key distinction from this DEOS contract: This deal was bid on by resellers, who will actually do the work of designing and implementing how the Department of Defense will use Microsoft Office 365. This means that Microsoft will get a sizable cut of the contract's proceeds, but much of it will go to those partners.

Previously, analysts predicted that DEOS was all but guaranteed as a win for Microsoft - while competitors like Google have their own cloud productivity suites, Microsoft Office 365 was widely considered to be the only one that could meet the stringent security requirements mandated by the deal. The only mystery, then, was which resellers would win the deal.

Read more: As Amazon fights for a $10 billion Pentagon cloud deal, Microsoft is a 'lock-in' for an $8 billion government contract that nobody else can really win

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In March, Microsoft announced new software designed for government use and with higher government security certifications.

Business Insider has reached out to Microsoft, CSRA, Dell, and Minburn Technology Group for comment.

Get the latest Microsoft stock price here.

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