More than a year after the U.S. Department of Defense awarded a $10 billion cloud contract to Microsoft Corp., a prolonged court battle and a change of administration threatens to break it up, setting off a likely goldrush of smaller bids for more software providers, experts say.

Amazon.com Inc. unit Amazon Web Services Inc., Alphabet Inc.'s Google Cloud and Oracle Corp. were among the cloud providers that initially expressed interest when Defense chiefs requested bids for the Joint Enterprise Defense Infrastructure project in 2019. While Microsoft ultimately won the bid, AWS sued to stop work on the contract while it contested the award process, which Amazon alleged was tainted by undue political influence.

The Pentagon has repeatedly contested those allegations, with Defense Department spokesman Russell Goemaere saying in a May 13 statement to S&P Global Market Intelligence that Defense leaders "consistently stated in all court filings, and public communications, that the allegation of improper influence is not supported."

Even setting aside the political allegations, however, software analysts and government contract experts said the JEDI project, which aimed to put a single cloud service provider in charge of remotely hosting and distributing information to warfighters, suffered perception problems from the beginning.

"You have the two biggest providers of cloud in the federal government, and if you pick one, you know the other one is going to mount a full-scale effort to break it up," said Michael Hettinger, founding principal of the Hettinger Strategy Group, a government relations and federal market advisory firm. "It would be easier from a perception standpoint [for the Defense Department] to say 'let's make multiple awards.'"

AWS is widely considered the market leader in cloud computing, though Microsoft's cloud unit reports more in quarterly revenues than AWS due to Microsoft's inclusion of server products in its Intelligence Cloud division, which also encompasses sales of Microsoft's Azure cloud services. AWS reported $13.50 billion in revenue during its most recent reporting period, while Microsoft's Intelligence Cloud division reported revenue of $15.12 billion.

Pentagon officials are now considering pulling the plug on the JEDI project altogether, following months of delays and continued court challenges, The Wall Street Journal reported May 10.

Pentagon Press Secretary John Kirby said in a May 10 press briefing that the Defense Department is "going to assess where we are in regards to the ongoing litigation and determine what the best path forward is for the department."

If the Pentagon abandons the current contract, the Defense Department could rebid the work as part of a multi-award project in which several cloud providers, such as Amazon, Microsoft and International Business Machines Corp., may win a portion, Hettinger said. That would likely add millions to the quarterly revenues of each, and help to boost IBM's profile in the cloud market, where it currently trails both Microsoft and AWS.

In an emailed statement to Market Intelligence, a Microsoft spokesperson did not comment on the status of the current cloud contract, but said it remains ready to serve the Defense Department's cloud needs.

"We agree with the US Departments of Defense and Justice that prolonged litigation is harmful and has delayed getting this technology to our military service members who need it," the spokesperson said. "We stand ready to support the Defense Department to deliver on JEDI and other mission critical DoD projects."

AWS could not be reached for comment as of press time.

Jean Atelsek, a research analyst for the cloud transformation and digital economics unit at S&P Global Market Intelligence's 451 Research unit, said a principal advantage of the cloud is that it makes it possible to operate systems in a disaggregated way, allowing for more nimble updates as an organization's digital needs evolve.

"Different capabilities can be upgraded and evolved independently, without having to overhaul the whole system," Atelsek said. "This is likely one reason why the DoD is pursuing cloud."

But she noted that the use of a single cloud vendor does have potential drawbacks.

"Other cloud vendors may have more appropriate or even better services for a particular use-case, but the DoD may not be able to as readily take advantage by sticking to a single cloud," Atelsek said. "On the other hand, a cloud provider is likely to give preferential commercial terms if it helps win an exclusive relationship."

John Weiler, executive director of the IT Acquisition Advisory Council, said a winner-takes-all acquisition contract "creates an unnecessary monopoly, and monopolists are never incentivized to give better value." The IT Acquisition Advisory Council is a public-private partnership of concerned citizens, public interest groups, private sector sponsors and government partners that advises government agencies on making sound acquisition decisions and industry players on commercial best practices.

Weiler pointed to a precedent for multiple cloud players to work on a single contract at the Central Intelligence Agency, which in 2020 awarded parts of its C2E Commercial Cloud Enterprise contract to AWS, Microsoft, Google, Oracle, and IBM.

"In less than a year, the CIA was able to take the JEDI concept and do it right," Weiler said. "You eliminate the whole protest nightmare by having a multi-cloud award with those who are viable."

Having multiple providers working on a cloud contract is also beneficial from a national security standpoint, he argued, saying that awarding a large deal to one specific company makes that company an alluring target for cyber criminals.

If JEDI is scrapped, Weiler believes that all the original bidders are likely to return to the table, with Amazon, Microsoft, Google, Oracle and Dell Technologies Inc. among the most likely interested parties.

"All the bidders who succeeded with C2E already have their proposals ready," he said.