Amazon.com, Inc. (NASDAQ:AMZN) and International Business Machines Corp. (NYSE:IBM) are locked in a battle for a $600 million contract to set up a cloud computing system for the CIA.
According to The Wall Street Journal, the transaction demonstrates the growing importance of the intelligence-agency business for technology companies.
Cloud computing involves storing information across an interconnected network of servers with no centralized location. It has become a significant part of how data is stored by all government agencies. Amazon.com, Inc. (NASDAQ:AMZN) is a dominant provider of the infrastructure for cloud computing. It has been using it for several years to sell apparel, books and just about any other retail product that can be delivered by mail.
International Business Machines Corp’s relationship with the Central Intelligence Agency dates back to at least World War II.
Amazon.com, Inc. (NASDAQ:AMZN) considers the federal government opportunity as enormous and believes this would pave way for a significant business opportunity for Amazon Web Services going forward.
The CIA deal would involve extraordinary disclosures of secret government-surveillance programs. The battle between International Business Machines Corp. (NYSE:IBM) and Amazon.com, Inc. (NASDAQ:AMZN) shows that even in the rarified world of intelligence agencies, companies selling internet-based cloud-computing services, such as Amazon.com, Inc. (NASDAQ:AMZN), are challenging the position of traditional technology vendors.
IBM’s Protest
According to The Wall Street Journal report, the CIA unexpectedly chose Amazon.com, Inc. (NASDAQ:AMZN) to build a cloud computing service. International Business Machines Corp. (NYSE:IBM) protested the estimated $600 million contract, which led the Government Accountability Office to recommend the CIA reopen negotiations. It now has 60 days to assess the GAO’s recommendation and announce how it will move forward.
The CIA’s initial decision to award the contract to Amazon.com, Inc. (NASDAQ:AMZN) clearly reflects the changing nature of the intelligence-agency business and its focus to move away from traditional vendors.
CIA Open to New Players
Cloud computing would be the best bet for the CIA as it looks to cut expenditures by capitalizing on new technologies that use clusters of basic computer servers in place of traditional supercomputers to perform vast data-crunching activities. Cloud computing would facilitate renting computing technology over the internet.
Recently the National Security Agency has shown a preference to employ new technology tools to collect and examine communication data with the ultimate goal of blocking any potential terrorist threats.
Though a majority of technology spending was earlier garnered by larger players such as Computer Sciences Corporation (NYSE:CSC) and Hewlett-Packard Company (NYSE:HPQ), the recent announcements point to less technology vendors gaining traction in the niche market.
Amazon Web Services has already been deployed in government with the U.S. Department of Health and Human Services adopting some of its cloud-computing services in May. However, when the CIA gives its stamp of approval, Amazon.com, Inc. (NASDAQ:AMZN) can expect to garner a larger chunk of government business.
