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Amazon Wins $600 Million CIA Cloud Deal As IBM Withdraws Protest

IBM and Amazon's eight-month legal tussle over a 10-year, $600 million cloud contract is now over, after IBM drops its appeal in response to government concerns about further delays.

After spending the last eight months trying to block Amazon's 10-year, $600 million cloud computing contract with the Central Intelligence Agency, IBM has decided to give up the fight, Federal Computer Week reported Wednesday.

The battle began in January when FCW reported that the CIA had chosen Amazon Web Services over IBM to build a version of its public cloud that runs inside the CIA's data center. IBM protested the decision in February, and in June, the U.S. Government Accountability Office upheld parts of its protest and recommended the CIA re-open bidding.

Amazon then sued the government to have the deal reinstated, and earlier this month, the court ruled in its favor and green-lighted the deal.

[Related: Amazon Claims Victory Over IBM In $600M CIA Contract Court Case ]

IBM then filed a motion to stop Amazon and the CIA from beginning work. But after the government said more delays could threaten national security, IBM is now ending its fight.

"In light of the government's recent submissions emphasizing its need to move forward on the contract, IBM has withdrawn its motion. IBM maintains its position that the GAO's findings were appropriate," an IBM spokesperson said in an emailed statement.

Amazon didn't respond to a request for comment. But given that government agencies have voracious IT spending appetites, this might just be AWS' biggest customer win to date.

Craig Atkinson, CTO at JHC Technology, a Waldorf, Md.-based AWS partner, said he thinks the CIA cloud deal could open the door to other big AWS contracts. The intelligence community has strict guidelines for data security, which is why CIA choosing AWS amounts to "a major endorsement," Atkinson said in an email.

"I would not be surprised to see a large procurement from the Department Of Defense or the Defense Information Systems Agency now that CIA is essentially sanctioning IaaS and AWS," Atkinson told CRN.

Conventional wisdom suggests the AWS cloud would be cheaper because Amazon's whole game is about undercutting competitors' pricing. But, the CIA chose AWS even though IBM's cloud would've been cheaper.

While Amazon's estimated price was around $54 million higher than IBM's, the CIA said this "was offset by Amazon’s superior technical solution," the GAO said in its report. Specifically, the CIA felt AWS would scale better than IBM's cloud.

Kevin Chu, director of systems and infrastructure at Digitaria, a San Diego, Calif.-based AWS partner, actually isn't surprised that AWS won the CIA cloud deal.

From growing its enterprise sales team to ensuring that its cloud services meet regulatory compliance requirements, AWS has been working to target customers in government circles, he told CRN.

"More and more enterprises that Digitaria engages with require compliance with one or more of these regulations or standards as a term of doing business with them," Chu said in an email.

NEXT: Why AWS Is More Secure Than Some Think


It's important to note that the CIA isn't putting its data into the AWS public cloud. Instead, Amazon is building a replica of the AWS public cloud to run in its own data center -- which is basically a private cloud.

That said, AWS is plenty capable of storing sensitive data in the public cloud that meets the security needs of regulated organizations, Ron Bodkin, CEO of Think Big Analytics, a Mountain View, Calif.-based AWS partner, told CRN.

Think Big Analytics recently worked with the Nasdaq to build a reference architecture for storing regulated financial data on the AWS cloud. Bodkin sees the AWS-CIA cloud deal "as a similar endorsement of AWS' ability to handle sensitive data sets."

Meanwhile, if AWS were to pursue additional government and enterprise private cloud-type deals, that would put it into more direct competition with VMware, Microsoft and other private cloud vendors.

"Organizations that want to avoid building their own private cloud could benefit from companies like Amazon doing it on their behalf," Tony Safoian, president of SADA Systems, a North Hollywood, Calif.-based cloud services partner, told CRN.

AWS has a significant head start in public cloud IaaS and that business continues to do well. In Amazon's third quarter, North America sales in its "Other" category, which is mostly AWS, grew 56 percent year-over-year to $1.01 billion.

But, public cloud IaaS is an increasingly crowded space. Microsoft, VMware and others are trying to capture the hearts and minds of enterprises that, they believe, prefer to use a public cloud with an enterprise pedigree. Google, which invented a lot of the key technologies that underpin the cloud, is going to eventually start reeling in some big cloud deals of its own.

All of which suggests that AWS moving into the private cloud space would make a lot of sense.

For IBM, which has long been synonymous with large government and enterprise deals, losing the CIA cloud deal to AWS is a wake-up call.

But, it's not like IBM is snoozing on the opportunities in the cloud space: It paid $2 billion in June for public cloud vendor SoftLayer and inked a 10-year, $1 billion cloud deal with the Department of the Interior in August.

PUBLISHED OCT. 30, 2013

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