IBM Says Uncle to AWS on $600 Million CIA Cloud

After nine months of disputing that Amazon Web Services should not have been awarded a massive contract to build a private cloud for the US government's Central Intelligence Agency, IBM has withdrawn its protest seeking an injunction to prevent AWS from moving ahead with the project.

"In light of the government's recent submissions emphasizing its need to move forward on the contract, IBM has withdrawn its motion," IBM spokesperson Clint Roswell told EnterpriseTech. "IBM maintains its position that the GAO's findings were appropriate."

The CIA cloud project, which could add up to $600 million in revenues over a four-year term with an optional five year extension for even more, is the first time that AWS has built a private cloud explicitly for a third party.

The cloud subsidiary of the online retailing giant was awarded the contract back in February, and neither the CIA nor AWS would even confirm that the deal existed. But then IBM filed a bid protest with the Government Accountability Office right after the award, so there is a paper trail; news of this protest did not surface until June. Once that protest became common knowledge, Amazon confirmed the deal existed and said that it was going to fight IBM's protect of the manner in which the CIA cloud deal was awarded. The GAO was tight-lipped about the whole thing, but rumors were going around that the GAO told the CIA that it had to reopen the bidding and do a better job comparing pricing for the two bids from ASW and IBM.

The GAO eventually released a redacted version of its report on the CIA cloud deal (PDF), upholding many of the criticisms raised by Big Blue. The report showed that IBM did indeed have a lower price, at $93.9 million for the first phase compared to $148 million for AWS, but that the CIA also thought that AWS had the better technical solution and that this outweighed the price differential. The workload that the CIA wants to run in its cloud is an unspecified MapReduce application, presumably running a variant of Hadoop, and the companies were pit against each other to load up thousands of virtual server nodes to chew on 100 TB of raw data put on object storage that could handle 6 reads/second and 2 writes/second.

After the GAO sided with IBM on a few points in its protest (and with AWS on a few others), asking the CIA to do a re-evaluation of the deal. Amazon filed its own complaint with the US Court of Federal Claims in July, saying this was not necessary, and two weeks ago Judge Thomas Wheeler ruled in favor of AWS. IBM filed an injunction to stop the work from proceeding on the CIA cloud, but has now reconsidered that position. Quite likely after getting some pressure from Uncle Sam, which wants to get on with building the CIA cloud.

There is a lot more at stake here than a single, juicy government contract.

First, Amazon CTO Verner Vogels has been adamant over the years that, by definition, cloud means public cloud, and the company has resisted any suggestion that what companies and governments want is a mix of private cloud capacity and public cloud capacity, and the idea that any organization would want to run only on a private version of AWS was anathema to AWS. But, this is precisely what the CIA wants, and as it turns out, it is precisely what it will be getting.

So it would seem to be only a matter of time before other organizations will be knocking at the door of AWS asking for something similar. Certainly very large organizations are going to be able to get more leverage to have AWS build them a private cloud that is compatible with the public cloud – just like the hyperscale datacenter operators of the world are able to get customer systems at dirt-cheap prices from Hewlett-Packard and Dell. Given the stringency of government security, particularly for the military and the intelligence agencies, other security-sensitive industries such as banking and insurance and maybe even government supercomputing labs someday may be inclined to hire AWS to build them a private cloud, too.

The other effect of the AWS deal to build the CIA cloud is that it gives Amazon credibility for very large government contracts, above and beyond the GovCloud public cloud it has set up in the American northwest back in the summer of 2011. The idea with GovCloud is to keep it public, meaning make government agencies share the same physical servers, storage, and networks to drive up utilization. This is the whole point of a public cloud. But, some local, state, and Federal agencies cannot or will not share the same facilities, much less the same systems, with other agencies because of physical and virtual security concerns. And they will probably start asking for private AWS clouds, too.

What affect this will have on the AWS business in unclear. The business is on track to have somewhere around $2 billion to $2.5 billion in revenues this year, and no one knows if it is profitable or not. If it is like the rest of Amazon, then AWS is not making money, and there is every reason to believe that this is the case given the business philosophy of company founder Jeff Bezos. Amazon wants to compete aggressively on technology and price, own markets, and figure out how to bring money to the bottom line later.