Microsoft Corp. today won the Department of Defense’s hotly contested $10 billion, 10-year cloud computing contract, beating out frontrunner Amazon Web Services Inc.

Amazon.com Inc.’s cloud computing unit had been the presumed favorite for the plum contract, known as the Joint Enterprise Defense Infrastructure or JEDI, for well over a year partly thanks to its leading position as a cloud services provider. The contract award came in statement issued by the DOD today.

Under the JEDI contract, the Pentagon will spend up to $10 billion over 10 years on cloud infrastructure and services if all options in the contract are exercised. The pool of bidders once included IBM Corp. and Oracle Corp., but it was narrowed down in April to AWS and Microsoft. The services will help the DOD analyze and process swaths of classified and sensitive military data.

“The National Defense Strategy dictates that we must improve the speed and effectiveness with which we develop and deploy modernized technical capabilities to our women and men in uniform,” DOD Chief Information Officer Dana Deasy said in the announcement. “The DOD Digital Modernization Strategy was created to support this imperative. This award is an important step in execution of the Digital Modernization Strategy.”

Deasy added, “Prior to the award, the department conferred with the DOD Inspector General, which informed the decision to proceed.”

The contract was seen as a huge win for whichever company got it, because it also might influence many more multibillion-dollar contracts with the government down the road.

Now it’s a huge win for Microsoft, which has already been riding the success of its cloud computing services ranging from applications such as Office 365 to its Azure cloud infrastructure services. It’s also a win for Microsoft Chief Executive Satya Nadella (pictured), who has shepherded Microsoft’s multiyear return to form thanks largely to a focus on its cloud services.

“I had fully expected AWS to win JEDI given its scale and capabilities, but I think history with the military, alignment with Oracle and SAP, and client computing capabilities got it the win,” said Patrick Moorhead, president and principal analyst at Moor Insights & Strategy.

Constellation Research Inc. analyst Holger Mueller noted that it’s the largest contract and workload in Azure’s history. “This is a great win for Microsoft,” he said, one that enables the company to mount an even more credible challenge to AWS for cloud leadership.

At the same time, the loss is a blow for AWS, whose revenue growth has been slowing for several quarters, now settling in at a 35% clip with yesterday’s third-quarter earnings report.

In a statement from a spokesperson provided to media, AWS said it was surprised at the decision. “AWS is the clear leader in cloud computing, and a detailed assessment purely on the comparative offerings clearly lead to a different conclusion,” the spokesperson said. “We remain deeply committed to continuing to innovate for the new digital battlefield where security, efficiency, resiliency, and scalability of resources can be the difference between success and failure.”

Amazon didn’t say anything about a potential appeal, though a source told Business Insider that the company is “still evaluating options.” It could protest the decision through what’s known as a “request for reconsideration” with the Government Accountability Office. Wedbush Securities analyst Dan Ives said in a note to clients cited by Business Insider that he “fully” expects Amazon “and others” to challenge the decision in court, though it’s not clear how that would work.

Moreover, although JEDI was granted to Microsoft alone, the full contract amount depends on whether services are delivered as specified in the first couple of years. “The base contract period is two years with a $1 million guarantee,” Deasy added in the announcement. ” The department projects that user adoption will drive an estimated $210 million of spending during the two year base period. The DOD will rigorously review contract performance prior to the exercise of any options.”

Deasy also said the DOD “continues to assess and pursue various cloud contracting opportunities to diversify the capabilities of the DoD Enterprise Cloud Environment.  Additional contracting opportunities are anticipated.”

Microsoft had been seen as unlikely to beat AWS because the latter had more extensive security certifications. But Microsoft has been endeavoring to up its security to the top federal standards. Apparently the delays in awarding the contract, which was supposed to happen originally early this year, gave it time to do so to the Pentagon’s satisfaction.

Earlier this week, Defense Secretary Mark Esper recused himself from considering the contract because his son works at IBM and he said he wanted to avoid an appearance of a conflict of interest, though IBM hasn’t been in the running for awhile now. Esper had been in charge of evaluating Amazon’s and Microsoft’s bids since August when he was sworn in as defense secretary.

In July, U.S. President Donald Trump said he was “looking into” the JEDI contract after hearing of “tremendous complaints” from companies, including Microsoft, Oracle and IBM.

Speculation has swirled over whether Trump was getting involved in the decision to thwart Amazon, which he has criticized on several occasions. Amazon Chief Executive Jeff Bezos also owns the Washington Post, which has run many hard-hitting stories about Trump.

According to the New York Times, “a speechwriter for former Defense Secretary Jim Mattis, who over time became an enthusiast of moving Pentagon operations to the cloud, alleged in a book scheduled for publication next week that Mr. Trump had wanted to ‘screw’ Amazon and give the contract to another company.”

Photo: Microsoft/livestream