Microsoft is challenging Amazon's cloud control, specifically on U.S. government projects.  Amazon dominates the cloud-infrastructure industry, with a 47% share of North America's public-sector market.  According to the Wall Street Journal, the Microsoft is rallying other software companies, to press the U.S. government to embrace a multi-cloud approach and more broadly diversify its spending on cloud services.  John Freeman, vice president of equity research at CFRA research, joins Cheddar News' Closing Bell to discuss.

Closing Bell

WSJ: Microsoft Asks Google, Oracle to Help Challenge Amazon’s U.S. Government Cloud Leadership

Microsoft challenging amazon's cloud control especially when it comes to us government projects. So right now amazon dominates the cloud infrastructure industry with a 47% share of north America's public sector market. And according to the Wall Street Journal, Microsoft is rallying other software companies to press the U. S. Government to embrace a multi cloud approach and diversify its spending on cloud services. So the war seems to have begun joining us. Now john Freeman, vice president of equity research at C. F. R. A. Research is here to break things down. And I want to ask what do you make of this reported move by Microsoft? Well it seems like it's it's just sort of a reaction now. Right? So the Jedi contract in 2019 went to Amazon and then got reversed or the contract got canceled. Um you know after, you know there was some push and pull between Microsoft and um and uh and and and amazon AWS. And then again this contract, this is this is called the wild and stormy contract for the N. S. A. It's another $10 billion contract. And what happened was is amazon actually won it. And then Microsoft challenged it. They reviewed the contract and my amazon won it again. So I think what Microsoft is really just trying to do here is trying to get the entire U. S. Government to at least diversify and have multiple suppliers which is in line with sort of government contracting a lot of government sort of contracting um you know guidelines. And that's a whole Another arcane right? Science. But one thing I think is important to remember here is that $10 billion $10 billion 10 years. So it's a billion dollars a year, say for Microsoft Microsoft, uh Azure is already doing $10 billion a quarter. Right? And and amazon just did $20 billion in its quarter for for AWS. So you gotta put it in perspective, having said that they are great, the government's a great reference customer. And if you look at cloud migration overall, we're still not even 50% complete if you look at the overall revenue pie of software, of enterprise software. So in order to get those more conservative enterprises to move those more, you know, mission critical applications, right? It's good to be able to point to the government and say, hey, they did it with us. Right. So you can too Mr bank or right or whatever. Mr conservative enterprise. Right? So that's kind of the real, I think angle that that that Microsoft is trying to is, you know, trying to create for themselves here, I will say that government money does hit different, I guess. And especially when it comes to reputation, making that kind of agreement with the government when you poached potential customers down the line. But Microsoft reportedly provided other software companies with talking points so they can jointly lobby Washington. What argument do you think the companies could be making when trying to convince the government to work with more than one cloud provider? Well, the best argument that there is and one that the government would definitely want to listen to is you don't want to have a single point of failure. And while amazon AWS is highly distributed and very resilient and all of that stuff still right, it's right. It you know, so it's it's it's a single point of failure so you want to be able to diversify that? I think that's the best argument. That's the one that hits, you know, those like the mission critical kind of government applications that, you know, somebody's career is on the line if it goes down right, like, you know, they don't have some sort of personal stake in it. That's the best argument. And really the only argument that that makes sense because they can all, you know, pricing is pretty much uh you know, you know, there's parity with pricing, I don't think anybody's really going to be able to undercut another competitor that much uh in these kinds of contracts. And also the contract terms usually don't last 10 years. I mean no cloud right contract is going to be 10 years long at a fixed price. So there's gonna be some flexibility there. Um So you can say a lot of things about what you might do. Right. But you know, at the end of the day it's about security and reliability over price when you come to government contracting. That's for sure. Yeah. Defense defense D. O. D. Especially. Right. Yeah. I wouldn't put all my eggs are all my servers in one basket. Absolutely. Now, according to the Wall Street Journal, an amazon spokesman called the other companies lobbying efforts a self serving campaign that could end up requiring customers to use inferior technology. I mean I could see through this a little bit. But what do you make of this response? It sounds like politics, right. It doesn't sound like tech, nobody says that in in the private sector world, you know like that kind of disparaging stuff but you know, they're learning to speak the language of Washington and K street I suppose. Um But you know, I think at the end of the day though, you know, it does make sense to have multiple suppliers. Um but you know, and remember their oracles are nice to have because their vocal but at the end of the day there are only three major in first cloud infrastructure providers. You know, it's it's Microsoft, it's amazon Microsoft and google. Um Those are the ones with the scale uh that you know, could probably, you know, that could handle the traffic and and workloads and so forth that that the government will put on them, you know, with amazon having such a large stranglehold on cloud computing. Do you think that an argument could be made that amazon cloud offerings are just better than those from other companies and that other companies need to do better if they want to challenge amazon control of the cloud market or do you think that amazon just has more exposure and they're just a bigger titan in the industry? Yeah, no, I I don't think there's I think there's some advantages for amazon in the third, you know, just the breadth of all of the third party stuff and features that are available, but Microsoft is not far behind here, um and and neither is google, although, you know, each of these companies has their own sort of, you know, specialty that they can use against amazon because amazon is the biggest and and really because they started first, right, it's it's all about that scale and that first mover advantage, Microsoft has an advantage in this. It can it can it can better sell a lot of those conservative enterprises that have written applications using Microsoft dot net, the dot net sort of application framework. And if they do that, those applications, those custom applications that they've written with the Microsoft dot net framework can move to Azure a lot more smoothly and there's a lot of sort of bells and whistles and features that they have there. Yeah, I would, I would think the same. So, I mean they both have their pros and I guess they're cons but it seems like at the end of the day diversifying your servers and where you get your cloud, your cloud network from is a good idea for, like you said, security reasons and back behind the scenes. Perhaps it's better just to make sure the contracts all don't go to one person jOHN Freeman, vice president equity Research at c f. R. A Research, johN, absolute pleasure. Thank you so much for joining us.