Why the CIA cloud contract is worth so much more than $600M; the week in cloud

We all knew the battle between IBM(s ibm) and Amazon Web Services(s aws) over which gets to build the CIA cloud goes well beyond the $600 million contract itself. With the U.S. government’s “cloud-first” initiative many billions of dollars worth of business are at stake.  Whichever vendor finally gets the nod from the CIA will automatically gain credibility for other government agencies wanting to build secure clouds. In short if IBM wins, no government bureaucrat will be fired for buying IBM cloud. Ditto for AWS.

But right now, we still don’t know who will build this all-important private cloud.

A recap: Late last year AWS won the contract which, at that time, was top secret. In February, IBM, which was the also-ran in this instance, challenged the result, arguing that the CIA failed to take into account all the facets of the bids. At that point, because the government’s General Accountability Office (GAO) got involved, things went more public than the CIA would have liked. The CIA responded that it’s taken GAO concerns into account but has not said whether the AWS stands or  if IBM prevailed. Finally, AWS challenged the notion that the contract should be reconsidered and the whole mess now sits in the U.S. Court of Federal Claims. 

Proponents of both sides love to talk (off the record) about what this all means, but suffice it to say, AWS needs this deal to prove it knows what’s what in private, secure cloud as opposed to public cloud. And IBM needs it to show that its array of hardware, software, and services can add up to a secure cloud that is affordable to mere mortals. A reasonable person would say that a good chunk of the rationale behind IBM’s $2 billion purchase of SoftLayer was to show that IBM is serious about cloud and has all the tools needed to provide private, as well as public cloud capabilities. (IBM/Softlayer were out last week loudly proclaiming their win of the DARPA robot challenge away from AWS.)

Amazon, king of public cloud, is not stupid. It sees the appeal private cloud has for workloads with strict regulatory and compliance constraints. I’m convinced — although they haven’t confirmed it –that AWS is building an array of “mini-me” clouds in various localities around the world to meet these needs.

It’s also safe to say that Google, another big public cloud provider with the Google Cloud Platform, has likewise found the private cloud religion and is suiting up for that fight. Microsoft(s msft) and VMware (s vmw) of course have already staked their private cloud claims.

Speaking of IBM and cloud, the company also disclosed last week that the Securities & Exchange Commission is looking into how it accounts for cloud revenue. IBM maintains it’s using generally accepted accounting practices. Let’s don’t go too hard at IBM on this one: we’ll see a lot more of these inquiries as legacy IT vendors try to transition existing hardware, software, and services businesses into cloud computing deliverables.

Gratuitous plug department

On Thursday, GigaOM launched our first-ever Structure podcast. Check out Derrick Harris and I and Microsoft Server & Tools group CTO Dave Campbell on the very first episode.

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And, don’t forget to tune in to hear next week’s guest, Ken Rudin, head of analytics at Facebook(s fb.)

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