Microsoft inks cloud deal with Intelligence Community ahead of decision on huge Pentagon cloud contract

The headquarters of the National Security Agency in Fort Meade, Md. (NSA Photo)

While the largest cloud computing contract in the history of the industry waits in the wings, Microsoft was awarded a deal with several U.S. government agencies for its Azure and Office 365 cloud services, it announced Wednesday.

The deal, which Bloomberg said was worth “hundreds of millions” of dollars in revenue, was actually awarded to both Dell and Microsoft under a joint licensing agreement, but it involves Microsoft technology. Microsoft has existing relationships with government agencies involved in sensitive work, but this announcement covers all the agencies under the Intelligence Community designation — 17 different agencies including the Central Intelligence Agency, National Security Agency, and Federal Bureau of Investigation — and their use of Azure, Office 365, and Dynamics services built specifically for government requirements.

All cloud vendors tout their security credentials, but the government has a more formal process for certifying those capabilities. Amazon Web Services won a contract with the CIA back in 2013 that paved the way for cloud vendors as government contractors, which is a pretty lucrative business if you can get your foot in the door. And now the Big Three cloud vendors — as well as several of the also-rans like IBM and Oracle — have all invested in building cloud products that meet government security standards.

This new deal is a nice feather in Microsoft’s cap as it prepares its bid for the Department of Defense’s big cloud computing contract, which could last up to ten years and produce billions of dollars in revenue to the lucky winner. The Pentagon has continued to insist that it wants to hire a single vendor to manage its cloud efforts, which has prognosticators betting that AWS will win, but several cloud vendors are eager for that business and the decision could come down to the company that is willing to accept the smallest margin on the deal.