Amazon's $600 Million CIA Deal Really Is For A Game-Changing 'Private' Cloud (AMZN, IBM)

Reuters

Amazon CEO Jeff Bezos

Amazon's $600 million contract to build a cloud for the CIA might not happen. But if it does, it will be something Amazon has never done before: a so-called 'private' cloud built in a customer's data center.

If the project proceeds as planned, that would be a game-changer in the fledgling $131 billion cloud computing market.

To recap: In March, news broke that Amazon won a massive contract with the CIA but the details were sketchy. Amazon and the CIA were tight-lipped.

AWS is the largest "public" cloud provider, meaning the hardware is stored in its own data center and many users share it. That's what keeps the costs down. Private clouds use the same technologies, but are located in a company's own data center and not shared with others.

Amazon at one point argued against private clouds and instead offered things like a "Virtual Private Cloud" adding extra security to make the shared hardware more secure and private. Most of the companies that compete with Amazon market themselves by offering private clouds or private/public combo, called a hybrid cloud. This includes IBM, HP, VMware and many others.

If Amazon were to get into the private cloud business, it would really be a threat to all of them.

But because the CIA wasn't talking about the deal, it wasn't clear if Amazon was actually expanding its cloud business in this way.

Then IBM, who had put in a competitive bid, protested the CIA award.  The Government Accountability Office (GAO) investigated and found that Amazon's bid was a whopping  $54 million higher than IBM's. It asked the CIA to go back through the bidding process again. The CIA has 60 days to respond.

That protest gave us a window into Amazon and the CIA's plans. We've been pouring through the documents released earlier this month by the GAO, unearthed by Federal Computer Week's Frank Konkel, who broke the news about the original $600 million CIA deal.

Here's the sentence that caught our eye:

"The contractor generally was to provide a copy of its existing public cloud (modified where necessary) to be installed on government premises and operated by the provider."

In other words. Amazon was going to build its first-ever private cloud.

Amazon's competitors insist their tech is more secure than Amazon. But if Amazon's cloud is good enough for the CIA, and its willing to build private clouds, clearly its secure enough for most enterprises.

If Amazon gets into the enterprise cloud business in a big way, as all signs indicate is will, that's not good news for companies like IBM, HP, Dell, VMware or Microsoft who are all banking that cloud will be the next big growth area for them.

Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.

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