Amazon is the undisputed leader in cloud computing infrastructure. But that doesn't mean the company is close to winning a major cloud contract from the U.S. Department of Defense, contrary to at least one media report.
The deal, which is reportedly worth up to $10 billion, could make a material difference for a smaller cloud provider, such as Oracle or Google. In Amazon's case, the dollar amount isn't that big a deal -- Amazon Web Services books around $5 billion in revenue per quarter -- but it would give the company even more government credibility and lead to further deals.
The final request for proposal with updated terms, which tells companies what they'll have to deliver to get the contract, has not been released yet. It will become available in early May. The contract will be awarded in September, then companies can then file protests.
U.S. Navy Commander Patrick Evans, a Department of Defense spokesperson, reiterated that the Pentagon's process is "transparent" and will remain "a full and open competition."
"No companies were pre-selected. We have no favorites, and we want the best solution for the department," Evans told CNBC.
Chief Pentagon spokesperson Dana White also addressed speculation Thursday that Amazon was in the lead to take the lucrative defense contract.
"The secretary has been very clear that we need to be good stewards of the American people's money," White said. "So, nothing is taken for granted and nothing is presumed. We will get a full, open and transparent competition, and this is the first of many competitions with respect to the cloud."
In the midst of all this, President Trump has been expressing concerns about Amazon on Twitter, and on Monday Vanity Fair reported that his advisers were suggesting that he try to "cancel Amazon's pending contract" with the Pentagon.
A day later, Oracle CEO Safra Catz had dinner with President Trump, along with technology investor Peter Thiel, sources told CNBC.
"I think she and Peter were very surprised by how much the president actually knew about this. He knew a lot about it," a person familiar with the dinner conversation told CNBC.
Amazon's edge
While the deal isn't done, Amazon does have a basic advantage. Its cloud services have been certified for the highest possible security level, while many of its competitors' have not.
An Amazon spokesperson cited the accreditation as a point of distinction but said she didn't think there is any feature that puts one company decisively ahead of others in the bidding process.
Other cloud providers -- like IBM, Microsoft and Oracle -- have worked with government agencies for many decades. That could help their chances of winning part or all of the decade-long Joint Enterprise Defense Infrastructure, or JEDI, contract.
Federal defense agencies widely use Microsoft server software, which integrates easily with Microsoft's Azure public cloud, and among employees, Windows is the most popular operating system, Leigh Madden, Microsoft's general manager of defense, told CNBC.
"I think it certainly should make a difference," he said.
Even if AWS were to win the deal, it wouldn't make a huge financial impact. AWS pulled in $17.46 billion in revenue in 2017, with $5.11 billion of that sum coming in the fourth quarter alone. Over 10 years, $10 billion would average out to up to $1 billion per year, which would represent 5.7 percent of AWS' 2017 revenue, or $250 million per quarter, which is 4.9 percent of AWS' fourth-quarter revenue.
But the deal could lead to further credibility and other deals for AWS. For instance, AWS won a key CIA contract in 2013, and the agency's chief information officer boasted last year that the adoption has had a "material impact." Following that deal, several private-sector companies, like GoDaddy and Shutterfly, have opted to move their computing infrastructure to AWS.
For smaller cloud providers, though, the JEDI deal would be much more impactful.
"This deal would eclipse anything we've seen in terms of a deal with a provider of technology, certainly cloud capability, to the federal government, and not just the DoD," Madden said.
Once the new contract is finalized, the work will move fast. The Defense Department is aiming to move its core service to the cloud just three quarters after awarding the new contract, according to a document describing the JEDI plan.