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Oracle failed to derail the Pentagon’s $10 billion JEDI contract, but it still ended up a winner in Microsoft’s upset victory over Amazon (ORCL, MSFT, AMZN)

The force was supposed to be with Amazon in the battle for JEDI. But then came a disturbance in the force — and its name was Oracle.

Microsoft scored an upset victory over Amazon when the Defense Department awarded the $10 billion Joint Enterprise Defense Infrastructure, or JEDI, project to the software behemoth last week.

Analysts believe Microsoft got a much-needed assist from Oracle, which waged a legal challenge against Amazon and the DoD in a seemingly quixotic campaign that they believe tipped the scales.

And while Oracle failed to derail the contract process, its outcome has turned out to be a win for the tech giant, especially in light of its surprise partnership with its longtime arch-nemesis Microsoft.

"Oracle seems to have lost the battle but won the war," Christopher Cornilie, a Bloomberg Government analyst who covers government IT contracts, told Business Insider. Oracle's lawsuits and protests may not have had much of a material impact on the outcome of the bid. But Oracle did succeed in slowing down what could have been a quick award process, giving Amazon's political and business foes a chance to muster their opposition.

"They brought Oracle and Microsoft more time to invest in their solutions, acquire security certifications, and establish strategic partnerships. They also appear to have driven a wedge between the Pentagon and Amazon."

Patrick Moorhead, president of Moor Insights & Strategy, a tech research firm, agreed. "Oracle helped Microsoft win JEDI primarily by slowing down the process which brought out the ire of the Trump administration, secondarily by cutting [a] deal with Microsoft," he told Business Insider.

The nastiest battle for a tech deal in 20 years

To be sure, the stakes in the battle for JEDI were high.

The project would be worth billions of dollars in revenue over the coming years — as much as $10 billion. It would also boost the winner's position in an increasingly competitive cloud market.

"This was the nastiest bakeoff that I've seen for a technology deal in 20 years of covering tech," Wedbush analyst Daniel Ives told Business Insider. "There's never been more at stake in any deal period. Because it's not just about JEDI and the $10 billion. There's a multiplier effect in terms of whatever the winner gets."

The major cloud players — including IBM and Oracle, with Google removing itself from contention — competed for the Pentagon contract to build the massive platform that will store and manage sensitive military and defense data. The DoD eventually narrowed it down to two finalists, Amazon and Microsoft.

Amazon was quickly seen as the early favorite. It had established relationships in the federal government and the necessary security clearances. Wedbush analyst Daniel Ives had given Microsoft just a 20% chance of beating Amazon.

"Microsoft was playing from behind in terms of from the technology perspective," he told Business Insider.

Referring to Microsoft's cloud platform, he added: "They needed to significantly ramp up Azure cloud in terms of the clearances and they had to do a number of hand-holding sessions within the Pentagon to narrow the gap."

In other words, Microsoft needed more time to show that it could match and even surpass what Amazon had to offer. And that's exactly what Oracle provided by mounting a legal challenge to the JEDI contract process.

Oracle accused the Pentagon and Amazon of improprieties

Oracle essentially accused Amazon and the Pentagon of being involved in a corrupt process. "JEDI is riddled with improprieties," Oracle's suit, filed in May, said. "AWS made undisclosed employment and bonus offers to at least two DoD (Dept. of Defense) JEDI officials."

Oracle also questioned the Pentagon's plan to have just one vendor build the JEDI project, in a world where many large customers tap multiple cloud providers.

"The problem is we're having a false debate: single cloud versus multi-cloud," Ken Glueck, an Oracle executive vice president who is the company's point-man in Washington told Business Insider in July. "Customers buy the clouds that fit their particular needs, which is almost always more than one. This one-size fits all idea is, I think, limited to JEDI and promoted by Amazon, because it fits Amazon's needs."

Google had echoed a similar view. At the time it withdrew from contention for the deal late last year, it argued in a statement that "a multi-cloud approach is in the best interest of government agencies, because it allows them to choose the right cloud for the right workload."

Oracle was never a serious contender for JEDI

But when Google dropped out, it appeared to let the whole thing go.

Not Oracle.

This was surprising in many ways: Oracle, not considered a frontrunner in the bidding process, was leading the charge against JEDI.

Amazon, Microsoft and Google, the top cloud infrastructure companies, were seen as the top contenders for what would be one of the biggest public cloud projects in history. Oracle is a strong player in cloud software, but is considered a minor player in cloud infrastructure — which is what the JEDI contract was calling for.

"Oracle is far behind AWS and [Microsoft's] Azure as it seeks to establish itself in the cloud infrastructure and platform market, and has a steep uphill climb ahead," Wedbush analyst Steve Koenig told Business Insider in May as Oracle intensified its legal campaign against the JEDI process.

"It's not clear that Oracle will ever get a piece of the JEDI action – even if the procurement approach is reassessed. However, Oracle has smart lawyers and the cases it pursues often have merit. So at a minimum, Oracle's lawsuit probably throws some sand in the wheels of the JEDI process."

The sand-throwing caused the JEDI process to stall, as the award was delayed pending an official investigation into Oracle's claims.

Ives said the delay gave Microsoft much-needed time to catch up to Amazon. For example, the company was able to boost its security clearance to better suit the terms of the JEDI contract in April, while Oracle was busy running its legal campaign.

"The longer the longer this played out, the better it was for Microsoft," he said.

Cornillie, the federal contracts analyst, echoed that point, saying the legal challenge "bought Oracle and Microsoft more time to invest in their solutions, acquire security certifications, and establish strategic partnerships."

Sowing dissent

"They also appear to have driven a wedge between the Pentagon and Amazon, for instance, by exposing that Amazon had failed to report its overtures to Mr. Ubhi."

He was referring to Deap Ubhi, a former Amazon employee before he came to work for the federal government on the JEDI contract process, who subsequently rejoined Amazon. Oracle zeroed in on Ubhi to support its claim that the process was riddled with conflict.

Suddenly, what was supposed to be a straightforward government bid process morphed into a bitter legal showdown involving the Pentagon and two rival tech behemoths.

The tone of the dispute appeared to turn nasty at times. In a stinging rebuke of Oracle, the Pentagon in a June court filing defended its decision not to consider the Silicon Valley giant's bid by essentially saying that Oracle's platform is simply inferior to the cloud technology of either Microsoft or Amazon.

"Oracle is not in the same class as Microsoft and AWS when it comes to providing commercial IaaS and PaaS cloud services on a broad scale," the DoD said in a court filing, referring to two key cloud technology offerings — specifically, "infrastructure as a service" and "platform as a service."

An unexpected alliance between two bitter rivals

Then, amid the legal wrangling, came another unexpected twist.

In June, Microsoft and Oracle, one of the most bitter rivals in the enterprise software arena, stunned the tech world by unveiling a cloud partnership.

"This is the start of a beautiful friendship," Don Johnson, the executive vice president of Oracle Cloud Infrastructure, told Business Insider at the time.

The alliance would let businesses seamlessly set up and run their networks on both Microsoft Azure or Oracle's cloud infrastructure. It would make it easier for clients to pick and choose different offerings from both companies.

"Do they love us? Do we love them? We're still competitors," Clay Magouyrk, an Oracle senior vice president, told Business Insider in September. "So why would we get together? Because we think the value to us and our customers is just huge."

And one of those customers is the Pentagon, Moorhead said.

A strong alliance

The alliance benefitted both Microsoft and Oracle. Oracle actually has strong relations with the Pentagon when it comes to other enterprise software installed in private data centers. But it cannot match the cloud infrastructure of either Microsoft or Amazon in the JEDI project.

Partnering with Microsoft would allow it to potentially play a role in the JEDI project. For Microsoft, partnering with Oracle would potential strengthen its position with a company with strong ties with the federal government in other technology areas.

"Oracle is embedded in the US DoD, and by cutting a deal with Microsoft, I believe it impacted the decision," Moorhead said. "Oracle does a lot of business with the DoD. The DoD is going cloud but Oracle's [cloud infrastructure] is weak. By Oracle partnering with Microsoft on Oracle [cloud platform], I believe it scored Microsoft points with the DoD bid equation."

Cornillie also said Oracle may have failed to win the JEDI contract, but "by virtue of its partnership with Microsoft, Oracle will maintain a foothold in the federal market."

"That's a far more attractive deal than the alternative if Amazon had won," he said. "But their win also comes at the cost of damaging the firm's relations with Pentagon officials."

A federal judge eventually shot down Oracle's legal challenge to the JEDI project in July. Oracle subsequently announced it was appealing the ruling.

Amazon faces more heat in Washington

But by then, Amazon faced new problems in its quest for the JEDI, this time in Washington.

Oracle's legal crusade had drawn the attention of important people in government, led by President Trump, who is often critical of Amazon CEO Jeff Bezos and the Washington Post, which he owns.

In fact, a forthcoming book, "Holding The Line: Inside Trump's Pentagon with Secretary Mattis," reports that former Defense Secretary James Mattis was ordered by Trump to "screw Amazon" out of the JEDI contract.

In August, the DoD announced that it was launching a review of the JEDI process, and that the contract will not be awarded until it was completed.

Other political figures also joined the fray. In July, Senator Marco Rubio of Florida wrote then-National Security Adviser John Bolton, arguing that the Pentagon "used the arbitrary criteria to eliminate two of the bidders, IBM and Oracle, leaving only Amazon and Microsoft." Rubio was supported by Oracle founder Larry Ellison when he ran for president in 2016.

Oracle still wins

When Microsoft was proclaimed the winner of the JEDI contract, an Amazon spokesman said the company was "surprised about this conclusion," adding that its platform "is the clear leader in cloud computing." It's possible that the company pursues legal avenues to block or otherwise overturn the award to Microsoft.

Reacting to the Pentagon's decision, Toni Townes-Whitley, a Microsoft president, said in a statement, "We brought our best efforts to the rigorous JEDI evaluation process and appreciate that DoD has chosen Microsoft."

But how Oracle is now poised to gain from the outcome of the battle was summed up by Ives of Wedbush, who says the JEDI project will be such a huge and complex undertaking other tech companies aside from Microsoft will likely benefit.

"No doubt that any company that has a partnership with Microsoft is well- positioned when it comes to getting a piece of JEDI."

Got a tip about Oracle, Microsoft, Amazon or another tech company? Contact this reporter via email at [email protected], message him on Twitter @benpimentel. You can also contact Business Insider securely via SecureDrop.