Amazon can blame Trump all it wants but Microsoft will still walk away with the $10 billion JEDI deal, analyst says

• Amazon is challenging the Pentagon's decision to award a $10 billion cloud computing contract to competing Microsoft in a lawsuit, alleging political interference from the Trump administration.
• Wedbush Securities analyst Dan Ives says the lawsuit might delay the contract, but that it won't change the decision, and that Microsoft won on its own merits.
• Amazon Web Services was widely considered the frontrunner to win JEDI because of the company's market-dominant position and high security clearance. The company has repeatedly touted what it believes is its own "technical superiority" over Microsoft.
• While AWS still has a market share that's three times larger than that of Microsoft Azure, the JEDI decision signals to the market that Azure's technology is on par with that of Amazon's, some experts say.
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Amazon's lawsuit challenging the Pentagon's decision to award a $10 billion cloud computing contract to competitor Microsoft might cause a delay, a prominent cloud analyst says, but in the end its just "noise" that won't affect the outcome of the contract.

Microsoft was selected on October 25 for the deal to move the Department of Defense's sensitive data to the cloud. The contract is worth as much as $10 billion over a 10-year span.

Amazon is challenging the decision in the US Court of Federal Claims, and in documents made public Monday, said that President Donald Trump led "repeated public and behind-the-scenes attacks" to ensure the company didn't get the contract, in order to harm CEO Jeff Bezos, his "perceived political enemy."

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Wedbush Securities analyst Dan Ives on Monday reviewed the documents and wrote in a note to investors he doesn't believe the case will change Microsoft's victory.

"We ultimately believe this is a paradigm changer for Microsoft who will remain the lone winner in this hard fought technology/K Street battle that took place over the last year and remains a stinging defeat for Amazon and Bezos," Ives wrote.

Microsoft won on its own merits

Amazon Web Services was widely considered the frontrunner to win JEDI because of the company's market-dominant position and high security clearance.

The company has repeatedly touted what it believes is its own "technical superiority" over Microsoft. AWS CEO Andy Jassy told employees last month, according to a recording obtained by Business Insider, that the company's technology is at least two years ahead of Microsoft's.

But Ives said Amazon's win wasn't such a sure thing.

"We saw the tide turning significantly in the Beltway around this flagship cloud deal for Microsoft and Nadella with the odds looking more that Redmond would win despite Amazon going hard after this over the last few years," Ives said.

Microsoft, Ives previously told Business insider shortly after the Pentagon's decision, did "significant hand-holding with major players in the Pentagon and DOD" and Nadella spent considerable time on Capitol Hill to help Microsoft secure the deal. The government would not select Microsoft if it didn't have the best platform for the job, he said.

"It was a nasty K Street battle between Microsoft and Amazon," Ives said, referring to the Washington DC street known for playing host to lobbying firms. "Ultimately, technology is key."

A 'game changer for Microsoft'

There's a lot at stake in the outcome of Amazon's lawsuit because Microsoft's victory will affect the dynamics of the cloud battles between the two in the longer term.

"This is a game changer for Microsoft as this/JEDI will have a ripple effect for the company's cloud business for years to come and speaks to a new chapter of Redmond winning in the cloud vs. Amazon in our opinion on the next $1 trillion of cloud spending expected to happen over the next decade," Ives said.

While AWS still has a market share that's three times larger than that of Microsoft Azure, the contract signals to the market that Azure's technology is on par with that of Amazon's, some experts say.

Ives estimates the percentage of workloads operating on the cloud today is about 32 percent and will reach 55 percent by 2022. Microsoft, he said, is uniquely poised to win more of those workloads as more companies seek a hybrid cloud, basically a mix of their own data centers and cloud providers.

"We believe Nadella & Co. are in the catbirds seat to get more of these complex workloads (e.g., AI, machine learning, etc.) as more enterprises take the leap to a hybrid cloud architecture over the coming years," Ives said.

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