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From: Glenn Petersen7/17/2019 8:49:40 PM
   of 1542
 
Trump Expressed Concern About Pentagon Cloud-Computing Contract

By Jennifer Jacobs, Naomi Nix, and Steven T. Dennis
Bloomberg
July 17, 2019

-- Pentagon poised to give JEDI contract to Amazon or Microsoft

-- President frustrated he was unaware of Republican concerns



Donald Trump Photographer: Al Drago/Bloomberg
_____________________

President Donald Trump recently demanded more information about how the Pentagon crafted a massive cloud-computing contract it’s poised to award to Amazon.com Inc. or Microsoft Corp., in order to decide whether he should intervene.

The Defense Department is set to give the contract, worth as much as $10 billion over ten years, to one of the two companies next month. Amazon, whose cloud-computing technology leads the market, is seen as the favorite.

But Trump recently was made aware of letters Republican members of Congress have written to the White House and military leaders complaining that the contract’s terms froze some companies -- including Oracle Corp. -- out of the competition, according to two people familiar with the matter. Trump expressed frustration he wasn’t aware of the concerns and asked aides to show him the correspondence, the people said.

Trump said he’s interested in looking into the circumstances of the bid but didn’t indicate he’ll try to block the contract from being awarded to one of the two finalists, they said.

Senate Homeland Security Chairman Ron Johnson, a Wisconsin Republican who recently wrote to the Pentagon to express concerns about the contract, said in an interview that he discussed it with the president aboard Air Force One last week.

“He wanted to understand what the issues were, what our concerns were,” Johnson said in an interview.

Senator Marco Rubio, a Florida Republican, sent a letter to National Security Adviser John Bolton on Thursday asking him to delay the contract award, saying the bid “suffers from a lack of competition.” Trump and Rubio spoke about the contract by phone the next day, a Rubio spokesman said.

A person familiar with the call said that it sounded as if Trump was thinking about canceling the contract.

All of the people asked not to be identified discussing a sensitive procurement issue. Spokesmen for the White House and Pentagon didn’t immediately respond to requests for comment.

While Trump has leaned on defense contractors to reduce costs on contracts they already hold -- and even to paint new Air Force One planes in his choice of colors -- it may be unprecedented for a president to intervene in a defense contract competition while it’s underway.

The cloud-computing program, known as Joint Enterprise Defense Infrastructure or JEDI, has been contentious. Legacy tech companies including Oracle and International Business Machines Corp. waged a fierce lobbying and legal campaign against the Pentagon’s plan to award the contract to a single company.

“Nothing good can come from President Trump becoming personally involved in an individual procurement, particularly one of this complexity,” said Steven Schooner, a professor of government procurement law at George Washington University. “Historically, the system has operated best with limited -- to no -- high-level political involvement.”

Oracle lost a legal challenge last week contesting the terms of the bid and alleging the Pentagon had crafted unfair requirements and that there were conflicts of interest involving Amazon. Republican lawmakers have taken up Oracle’s cause, pressuring the White House to intervene in the Pentagon project.

Oracle at one point coordinated with at least seven other companies including Microsoft and SAP America to try to block Amazon from winning the entire contract, Bloomberg News has reported. Amazon has already won a contract with the Central Intelligence Agency.

Oracle declined to comment for the story.

In April 2018, Oracle Corp. Chief Executive Officer Safra Catz dined with Trump at the White House and complained that it seemed designed for Amazon to win, Bloomberg has reported. The final requirements for the contract were released in July of that year.

The White House raised concerns about the contract with senior Pentagon leaders while they were still drafting the final requirements for the deal, according to a person familiar with the matter.

(Updates with expert comment in 12th paragraph. The spelling of Oracle CEO Safra Catz’s name was corrected in a previous version of the story.)

bloomberg.com

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From: Glenn Petersen7/20/2019 10:08:03 AM
1 Recommendation   of 1542
 
Cloud Gaming Is Big Tech’s New Street Fight

Streaming video games promises to be an all-out brawl among companies with the internet infrastructure to back it up. At stake? Billions of dollars and the future of a fast-growing industry. What, you thought this was a game?

By Jonathan Vanian
Forbes
July 19, 2019



Look familiar? We asked Stephen Bliss, the illustrator for Grand Theft Auto: Vice City and others, to imagine the Big Three cloud CEOs as 1980s urban crime lords. Bitchin’.Illustration by Stephen Bliss; Illustration from photographs: Bezos: Mark Wilson—Getty Images; Nadella: Abdulhamid Hosbas/Anadolu Agency—Getty Images; Pichai: Ramin Talaie—Getty Images; Building: Smith Collection/Gado—Getty Images; Google drones: Charles Mostoller/Bloomberg via Getty Images; Palm Tree: Denis Tangney Jr.—Getty Images; Controller: Jason Arthurs/Bloomberg via Getty Images
_____________________________

Where is John? That’s the question hanging over you as your team of armored soldiers methodically searches this foreign vessel for a comrade—and war hero—seemingly gone rogue. It’s the year 2558; humans are under attack by alien forces. The last thing you need right now is to have one of your trained killers switch sides.

You cautiously step through the cramped corridors of the spaceship. It’s dark—distressingly so—but for an eerie blue light emanating from the ship’s walls. Your teammates would be in complete silhouette but for the cobalt glints on their weapons. You see shadows you don’t recognize and quietly extend your finger toward your rifle’s trigger. A sapphire streak ripples across its scope.

But they hear you! The aliens’ weapons burst with a kaleidoscope of lethal laser fire that ricochets off the ship’s panels. You sidestep in an effort to get a clear shot—if only you had a little more room—but it’s too late. Before you can return fire, a well-placed beam sends you to a rainbow-colored grave.

Game over. (Start again?)

For nearly two decades, scenes like this one have unfolded in living rooms across the globe, thanks to Microsoft’s long-running video game franchise Halo, playable on the tech giant’s ever-popular Xbox home console. But the rich gameplay described above, which Fortune witnessed during a recent visit to the company’s headquarters in Redmond, Wash., needed no brawny consumer electronics to run with the speed and splendor expected of a modern first-person shooter, as such computationally intensive games are known. It required only a smartphone—in this case, paired with a conventional Xbox controller.



Have smartphones become that good? Not quite. But their tremendous proliferation—more than 5 billion people across the globe own mobile phones, according to 2019 Pew estimates, and more than half of those devices are Internet-connected smartphones—has dramatically changed the way media is consumed. Music, portable since the days of Sony’s Walkman, is now streamed on the go. Movies and television, once limited to larger fixed screens, are now delivered to people’s pockets over the air.

Now video games are preparing to take their turn. If you’re not a gamer, you may not realize just how monumental a metamorphosis streaming promises to be. Today’s video game industry is a behemoth expected to generate $152 billion worldwide this year, according to market researcher Newzoo. That’s 57% more than the $97 billion generated by the global theatrical and home-movie market last year, and eight times the $19.1 billion generated by the global recorded music market. Like those industries, video game makers are grappling with the seemingly boundless potential of streaming, and the race is on to see who gets it right first.

The secret sauce powering all of this media streaming is a technology concept every executive is now familiar with: cloud computing. The off-loading of “compute” to staggeringly large server farms in remote locations, linked to our personal devices with persistent Internet connections, affords each of us on-demand access to supercomputer-level number-crunching power. This capability—plus forecasts that the global gaming industry could reach $196 billion in annual sales by 2022, per Newzoo—is why Microsoft, a gaming-industry stalwart that also happens to be a leading provider of cloud services, is so intrigued by so-called cloud gaming.

It’s also why Halo 5 on a Samsung Galaxy smartphone can still manage such impressive visual pyrotechnics. The demonstration on view in Redmond is really running on the “racks” in a Microsoft data center in Quincy, Wash., 160 miles away. The Quincy facility is one of 13 the company plans to use to host its ambitious Project Xcloud game-streaming service when it begins a public trial this fall.



The last big breakthrough in gaming came a decade ago, when the birth of the smartphone gave rise to rudimentary but wildly popular mobile-first titles like Candy Crush and Angry Birds. “Ultimately the appeal of cloud gaming is the same thing,” says Newzoo analyst Tom Wijman. “You can reach all of this audience without them needing to have a high-end gaming PC or expensive console.”

The folks in Redmond are not alone in their interest. Google, which has fervently expanded its cloud division, announced a cloud-­gaming platform called Stadia that it promises to launch by year’s end. Meanwhile, crosstown rival Amazon, the leading cloud-services company by a country mile, is evaluating how to take its viewing platform Twitch, a top destination for people who watch other people play games, to even greater heights. Behind the big boys, a motley crew of lesser challengers—from Fortune 500 peers like Apple, Nvidia, Walmart, and Verizon to gamemakers like Electronic Arts and Valve to startups like Blade and Parsec—are developing or said to be investigating game-streaming subscription services of their own.

But none of them have cloud-computing muscle like the Big Three, which otherwise use their infrastructure to power the software and services they’re best known for. Whether Amazon, Google, or Microsoft succeeds in crafting the next great console in the sky is almost immaterial. In any case, they’ll all stand to benefit.

Satya Nadella has grown used to the naysayers. For years, Wall Street analysts questioned why Microsoft, the company famous for its Windows operating system and Office business suite, would waste money on something so seemingly trivial as video games. The calls grew louder when Nadella took the company’s helm in July 2014. Still smarting from his predecessor’s missteps in mobile devices, Nadella promised to steer Microsoft away from consumer distractions and toward its highly lucrative business services. Some even urged Microsoft to exit the gaming business altogether. “Four to five years ago, we and others were calling for them to divest that piece of the business,” says Daniel Ives, managing director of Wedbush Securities and a longtime Microsoft observer. That tune has changed: Last year, Microsoft’s gaming revenue—which includes Xbox, Windows games, and a cut of third-party gaming sales—topped $10 billion for the first time.

When I ask Nadella why the company didn’t drop gaming, he chuckles. “There were a lot of things that a lot of people said Microsoft should be doing,” he says. “If I listened to everything that everybody else on the outside asks me to do, there would be very little innovation in this company.”

To be fair, in years past, Nadella had been hesitant to call gaming business core to Microsoft’s overall strategy. Despite its success, gaming represents about a tenth of Microsoft’s annual revenue. Cloud-computing growth is a big reason that the company’s market capitalization topped $1 trillion this year; its “intelligent cloud” unit, which includes its Azure cloud-computing service, generates as much revenue in a quarter as the gaming group generates in a year. (Hasta la vista, Halo!)



But what if you could hitch gaming’s fortunes to Microsoft’s potent cloud engine? Well, now you’re talking. Nadella’s blockbuster $2.5 billion acquisition of the enormously popular world-building game Minecraft in 2014 was a “bit of a head-scratcher” when it was first announced, says analyst Ives, but it’s now clear that the CEO was “planting the seed of how he viewed gaming as part of the broader business.” Microsoft wouldn’t just retain video games. Much as the company managed with Windows and Office, it would use the flywheel of its cloud-computing infrastructure to dramatically boost the scale of its gaming business—and the fortunes of every video game publisher it works with—far beyond what was previously possible.

Today, gaming is unquestionably “core”; in late 2017, Nadella elevated gaming lead Phil Spencer to the company’s executive leadership team to underscore the point. And executives are bullish on the prospects of cloud-driven gameplay. Julia White, who leads product management for Microsoft’s cloud platform, estimates that the business of selling Azure services to video game publishers is worth $70 billion—about as much as publicly traded transportation darling Uber. Most of today’s Internet-connected video games are developed in, and operated from, private data centers run by game publishers, she says. Technology trends in other industries suggest that won’t last. “Even though game developers are in a very different business,” she says, “they face the same trials and tribulations of a commercial bank or a retail company going to the cloud.”

To the cloudmaster go the spoils: In January, the Xbox maker shocked the gaming world by landing longtime console adversary Sony (of PlayStation fame) as an Azure customer with a promise to collaborate on future unspecified gaming projects. It was as if General Motors and Ford had announced a partnership to take on Tesla—an unmistakable sign that the competitive landscape would rapidly and dramatically change.

It was also an indication that Nadella’s mission for Microsoft would be more expansive than it originally appeared. When I ask him why Microsoft is working so hard to build a consumer entertainment service when it has positioned itself as an enterprise software company, he replies, “It’s a bigger business, right? It’s bigger than any other segment. Why would I not do gaming? It fits with what we do. It has connective tissue to the common platform. We have a point of view that what we can do is unique.”

The problem: so does every other player in this game.

For 39,000 viewers tuned into Twitch, Elvis might as well have entered the building. Richard Tyler Blevins, the 28-year-old celebrity “streamer” known to fans by his moniker Ninja, has logged on to the service to play a few public rounds of the popular “battle royale” game Fortnite with his buddy. As his avatar runs and leaps through the game’s virtual environment, weapon in hand, Blevins barks commands like an NFL quarterback at the snap—and his Twitch viewers hang on every mundanity. Their comments rush by in the chat window accompanying Ninja’s feed. Some viewers respond to every move Blevins’s character makes (“get that delay ninja”); others practically ignore the show to talk among themselves. (One thread of conversation among many: Why Finding Nemo was a “pretty good” Pixar movie.)

In other words, just another day on Twitch. Viewers—overwhelmingly male and mostly 34 or younger—watched a breathtaking 9.36 billion hours of gameplay on the platform last year, according to estimates by production company StreamElements. Twitch launched in 2011 as a spinoff of streaming video site ­Justin.tv, a pioneer in user-­generated content. In 2014, Amazon reportedly spent $970 million to acquire the site, besting YouTube-owner Google in a bidding war. Wedbush analyst Michael Pachter estimates that Twitch brought in $400 million in revenue last year.

Twitch, which is housed in Amazon Web Services, the online retailer’s cloud-computing unit, has rapidly become a cornerstone of the company’s broader video gaming strategy. AWS, as Amazon Web Services is known, is already selling computing resources and developer tools to video game publishers. It’s also rumored to be working on a service that would allow it to stream video games themselves rather than merely video of people playing them. (The company declined to comment, though recent job listings for technical roles for “an unannounced AAA games business” suggest its intentions. Like minor league baseball, “AAA” denotes the highest level of play in terms of budget and production.)



Bonnie Ross, head of Microsoft-owned game studio 343 Industries, mugs with a statue of Master Chief, the protagonist of its Halo series, at the studio's headquarters in Redmond, Wash. Photo by Chona KasingerTwo major milestones in the gaming industry set the stage for a cloudy future. The first: The massive success of Epic Games’ Fortnite, which brought in an estimated $2.4 billion in sales last year and now claims 250 million registered players. Fortnite demonstrated that “cross-platform” games, playable across competing devices from Microsoft, Sony, Apple, and others, could amass audiences far larger than those of the previous era, when titles were limited to specific ecosystems. “Fortnite was critical in getting the message across to all platforms that they have to lower the barrier of entry to their respective walled gardens,” says Joost van Dreunen, head of games for market researcher SuperData.

The second? Twitch. The service demonstrated that people were just as happy to watch and cheer people playing games—call it the kid-sibling phenomenon—as they were to play the games themselves. That kind of interactivity proved that engagement and gameplay were not one and the same. The dynamic expands the addressable viewership for a given title. “Viewing is eclipsing gaming, and a lot of youth of today would say they played the game when they really viewed the game,” says Bonnie Ross, head of 343 Industries, the Microsoft studio that develops Halo.

For Microsoft’s part, the company never saw the spectatorship aspect coming. “Amazon has Microsoft on a treadmill,” a former executive says. Two years after Amazon bought Twitch, Microsoft acquired competing service Beam for an undisclosed amount. Rechristened Mixer, it has become the means by which Xbox customers can watch one another play games, logging 39.6 million hours of viewing in 2018, per StreamElements—a whopping 179% more than the previous year but still a distant third to Amazon’s Twitch and Google’s YouTube Live.

The summer sun blazes above the thousands of coders assembled for Google’s ­annual I/O developer conference in Mountain View, Calif., but the anxiety on display in the long line has little to do with the weather. The event’s attendees, who base their livelihoods on building software for as many users as possible, are keen to hear Google’s sales pitch for why they should create games for Stadia, an experimental cloud-gaming service that the search giant promises to debut in November.

Like most Silicon Valley presentations, the executives onstage overwhelm with ambitious assurances of technical prowess. Stadia’s complex cloud architecture will prevent the nasty networking hiccups that cause online gamers to throw down their controllers in frustration, Google’s representatives say. All gamers will need to do is open a tab in the Chrome web browser; with just a few clicks, they can play a high-speed, high-resolution title such as ­Assassin’s Creed Odyssey.

Like their counterparts at Microsoft and Amazon, Google brass believe their vast data center empire gives them an edge on the technical demands of streaming high-end video game titles without interruption. Like its peers, Google has encouraged its consumer gaming and enterprise cloud groups to work together to ensure Stadia launches without the problems that have traditionally plagued online games.

Thomas Kurian, a longtime Oracle executive who is now chief executive of Google’s cloud business, says the company’s enterprise engineers built the networking technology that powers Stadia. Cloud gaming is a way for Google to penetrate a ­multibillion-dollar industry, Kurian says. “Our hope is that it’s expanding the market, not just being a replacement market,” he says. “For every person in the world that games on a professional desktop, there are probably three who can’t afford one.”

In other words: Why fight over a quarter of the market when the rest is greenfield? John Justice, a Microsoft veteran who now leads product development for Google Stadia, agrees. Gamers no longer want to “buy an expensive box every few years,” he says. Stadia, and services like it, are more accessible destinations to engage with games without the high barriers of entry found in the traditional console market.

Even the pricing plays a part: Though Stadia’s $129 bundle plus $9.99 monthly subscription has already been announced, Google says it is also evaluating a free version, with lower-quality graphics, that would debut later. Though the technological trajectory is clear, it’s still “early days” for the business model behind cloud gaming, Justice says. “Some people really do want transaction models, and some people want subscription models,” he says. “I don’t think we will say we will only go with one.”

It could take years to iron out the details. Though consumers would love a gaming model akin to Netflix or Spotify—pay a monthly fee, play titles to your heart’s content—it’s not yet clear that cloud providers have the leverage over game publishers to make that happen. Publishers have seen how platform pressures have changed the business of movies, music, magazines, and more. They don’t want to give up a share of their sales unless they’re certain that there are many more to be had in the long run.



Ubisoft, the French publisher best known for the Assassin’s Creed series, isn’t terribly concerned. “That’s less interesting to us,” says Chris Early, an Ubisoft executive who manages partnerships and revenue. The company in June revealed its own subscription service, called Uplay+, that is playable on personal computers and spans more than 100 titles in its own catalog, including Far Cry and Prince of Persia. It costs $14.99 a month and will also be available on Stadia next year. At this moment, “it makes less sense for a publisher to be part of an aggregated subscription model,” says Early. There are many proposals for how to sustainably monetize cloud gaming, he adds, but it remains unclear “who is going to pay whom.”

For now, publishers are focused on figuring out whether today’s successful titles make sense in the cloud—or whether all-new titles, native to the format, will replace familiar franchises. The interactivity of Twitch and the novelty of so-called freemium mobile games, like Candy Crush, showed that technological leaps could open new paths to gaming engagement. The possibilities that could emerge from running games on the same infrastructure that supports today’s artificial intelligence are something that technologists can only fathom.

“There will probably be evolutions of game design that we can’t even imagine yet,” says Early, “and they’re going to take advantage of the increase of cloud compute.”

Back in Redmond, I stop by Microsoft’s 343 Industries game studio, where employees welcome me to a visitor center—a shrine, really—celebrating the company’s Halo franchise, which has racked up $6 billion in sales since its debut. Statues depicting its heroes and villains tower over my head—a gallery of Greek gods, so to speak, for the gaming set. There are glass museum cases everywhere packed with memorabilia. On one wall is a rack of replicas of the virtual weaponry from the game, as intimidating in person as they appear on the screen. Bright orange tags with the word “prop” hang from their triggers in case someone takes the “incineration cannon” a little too seriously.

Founded in 2007 and named after a Halo character, 343 Industries is one of the older members of the Microsoft game portfolio. Last year alone, Microsoft acquired six game studios; at this year’s E3 industry confab, the company announced that it had picked up one more. Today, its Xbox Game Studios division is a federation of 15 semiautonomous studios that the company believes will be a key asset in the cloud-gaming wars—particularly against Amazon and Google, which lack strong titles of their own.

Not everyone sees it that way. Though Microsoft has won plaudits for successive editions of Halo and the Forza car-racing series, analysts have pointed to the titles’ relative age—Halo debuted in 2001; Forza first appeared four years later—as evidence that Microsoft’s homegrown studios have run out of ideas. “We have work to do there,” acknowledged Spencer, the Microsoft gaming chief. “We haven’t done our best work over the last few years with our first-party output.”



Frames from Halo Infinite, the forthcoming edition of the sci-fi game series, and Forza Horizon 4, a popular car-racing series. Both are published by Microsoft. Courtesy of Xbox Game Studios
________________________

That must change if Microsoft, the only video game veteran among the Big Three consumer cloud companies, hopes to maintain its natural advantage against Amazon and Google. After all, in video games, as in other parts of the media industry, content is king—which is why Microsoft’s rivals have moved to hire gaming veterans from top shops such as Electronic Arts (Madden NFL, Need for Speed) and 2K Games (Civilization, NBA 2K20) in an effort to build their own franchises. It is an uncanny echo of the moves by Amazon and Google to build their own premium programming, for Prime and YouTube, respectively, to compete with Netflix.

But Rome wasn’t built in a day. Seven years after establishing a gaming group in 2012, Amazon laid off dozens of game developers as it reorganized itself for a cloud-based future. (Amazon downplayed the news. “Amazon is deeply committed to games and continues to invest heavily in Amazon Game Studios, Twitch, Twitch Prime, AWS, our retail businesses, and other areas within Amazon,” a spokesperson tells Fortune.)

Van Dreunen, the SuperData analyst, believes it will take up to five years before cloud-driven efforts by the Big Three will significantly affect the traditional gaming industry. Until then, look for cloud computing’s leaders to continue investing in their data center infrastructure to support the “gradual rollout” of cloud-gaming services, he says.

Why would Amazon, Google, and Microsoft make so much noise about a future that’s so far away? It’s all a part of the “land and expand” business model familiar to the technology industry, says analyst Pachter: Give a speech, plant a flag, hope that early momentum snowballs into an insurmountable competitive advantage. After all, “Facebook wasn’t a billion-dollar idea until it was,” he says. “Uber wasn’t a billion-dollar idea until it was.”

Microsoft, in particular, has no intention of missing out. The company still regrets losing the mobile war to Google and its Android operating system. (Microsoft “missed being the dominant mobile operating system by a very tiny amount,” cofounder Bill Gates lamented earlier this year.) To underperform in an area where it has a head start of almost two decades would be, in a word, unconscionable.

Time to suit up, then. “We’re in gaming for gaming’s sake,” Nadella says. “It’s not a means to some other end.”

A version of this article appears in the August 2019 issue of Fortune with the headline "Big Tech's New Street Fight."

https://fortune.com/longform/video-game-streaming/

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From: Glenn Petersen7/25/2019 7:27:57 PM
   of 1542
 
Google Cloud’s run rate is now over $8B

Frederic Lardinois @fredericl
TechCrunch
July 2, w019



It’s been a while since Google last shared any fundamental financial data about its cloud business. In today’s earnings call, though, Google CEO Sundar Pichai, who recently installed former Oracle exec Thomas Kurian as the new head of Google Cloud, announced that this business unit now has an $8 billion annual revenue run rate. That’s up from the $4 billion the company reported in early 2018.

While Google often felt like an also-ran in the cloud wars, it’s clearly starting to make up some ground. “Other cloud providers would have you believe that no one is using Google, which is not true,” Kurian told me when I talked to him earlier this year. Now he can put some numbers behind this claim.

To put that into perspective, AWS’s run rate topped $30 billion last quarter while Microsoft Azure is somewhere around $11 billion, though concrete numbers are hard to come by.

“Q2 was another strong quarter for Google Cloud, which reached an annual revenue run rate of over $8 billion and continues to grow at a significant pace,” Pichai said. “Customers are choosing Google Cloud for a variety of reasons: reliability and uptime are critical. Retailers like Lowe’s are leveraging the cloud as one of the important tools to transform their customer experience and supply chain.”

Pichai also noted that customers want the flexibility to move to the cloud in their own way, something that some of Google’s competitors — and especially Microsoft — focused on before Google got to this point. With Anthos and other initiatives, the company is now catching up, though.

Unsurprisingly, Pichai also stressed Google’s role in pushing AI forward at a time when enterprises are starting to look at how they can make use of this technology.

techcrunch.com

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From: Glenn Petersen7/26/2019 10:37:08 AM
   of 1542
 
Amazon’s cloud business reports 37% sales growth but misses analysts’ estimates

Published Thu, Jul 25 2019 4:05 PM EDTUpdated Thu, Jul 25 2019 7:35 PM EDT
Jordan Novet @jordannov
CNBC.com

Key Points
  • Amazon Web Services continues to grow and churn out earnings for its parent company.
  • AWS continues to lead the cloud infrastructure market, but Microsoft is gaining ground. Last week, Microsoft reported 64% growth in Azure revenue.
Amazon reported 37% growth in its cloud business on Thursday, a number that came in below analysts’ estimates and suggests that Microsoft is picking up steam. The results contributed to a miss for Amazon as a whole.

Amazon Web Services, which provides computing and storage for corporations, schools and government agencies, said second-quarter revenue rose to $8.38 billion, compared with the $8.48 billion average analyst prediction, according to FactSet. Growth slipped from 41% in the previous quarter.

AWS continues to play an essential role in driving profit for Amazon, the world’s second most valuable public company. In the cloud market, Amazon maintains a commanding lead over all other rivals, including Google, IBM, Microsoft and Oracle.

But Microsoft’s Azure business is growing faster and picking up ground as the No. 2 player. Last week, Microsoft reported 64% revenue growth in Azure sales.

AWS generated $2.12 billion in operating income in the quarter, up from $1.64 billion a year earlier and lower than the FactSet consensus estimate of $2.45 billion.

In the second quarter communications app provider Slack said it had committed to spending at least $250 million on AWS over the course of five years. That’s just the latest figure to become public as more of AWS’s customers file for IPOs and divulge their hefty cloud spending.

Ride-hailing company Lyft said in its prospectus that it’s committed to spending at least $300 million on AWS over three years — from the beginning of 2019 through 2021. Pinterest said it will spend at least $750 million on AWS over the course of a six-year period that ends in July 2023.

“AWS has benefited from a first-mover advantage in the cloud market and has sustained growth at scale over the last two years,” KeyBanc Capital Markets analysts led by Edward Yruma wrote in a note to clients on Monday. “There are few business models at this scale that are still growing 38% y/y.”

AW revenue came accounted for 13% of Amazon’s total revenue. Of Amazon’s total $3.1 billion in operating income, 52% came from AWS.

siliconinvestor.com

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From: Glenn Petersen7/26/2019 8:19:45 PM
   of 1542
 
Exclusive: Inside the effort to turn Trump against Amazon's bid for a $10 billion contract

By Michael Warren, Kylie Atwood and Alex Rogers, CNN
Updated 2216 GMT (0616 HKT) July 26, 2019

(CNN)Tech giant Oracle's push to scuttle a bid by its rival Amazon to win a highly sought-after defense contract has reached President Donald Trump's desk -- a possible attempt to appeal to the President's well-known animosity toward the online retail giant and its founder, Jeff Bezos.

White House officials in recent weeks have shown Trump a document that alleges a large conspiracy to award Amazon a 10-year, $10 billion contract to build the Pentagon's cloud computing network, according to three sources familiar with the matter. The document, obtained by CNN, is identical to one created by Oracle's top Washington lobbyist, Kenneth Glueck, an executive vice president with the company, Glueck tells CNN.

The one-page document was presented to Trump along with other information in a meeting in the last week where the contract and Amazon's possible award were discussed, one of the sources said. It's unclear how the document made it to the White House.

The document contains a flow chart titled "A Conspiracy to Create a Ten Year DoD Cloud Monopoly," and provides a visual representation of a narrative that Oracle has been pushing for months -- that a web of individuals inside and outside the Defense Department were greasing the wheels for Amazon to win a cloud computing contract known as the Joint Enterprise Defense Infrastructure (JEDI). Oracle's own bid did not make it to the final stage.

Amazon declined to comment for this story.

The chart features the faces of a number of former Pentagon officials, current Amazon employees and executives, as well as consultants working on behalf of Amazon, connecting them together in a criss-cross of business and professional ties. The version shown to the President includes photographs of the previous two secretaries of Defense, Ash Carter (featured alongside President Obama) and Trump's former Defense Secretary, James Mattis.

With images of dollar signs, arrows, and a heart linking the various figures, the chart leaves the overall impression of corruption and conflicted interests. A blown-up copy of the chart is visible from the street, perched in Glueck's window at Oracle's K Street office in downtown Washington. But while the chart is heavy on graphics and innuendo, there is no specific charge of wrongdoing.

Oracle's Washington, DC office prominently displays a flow chart of alleged conspiracy over Amazon Web Services' bid for the Pentagon cloud computing contract.

Many of the implied and explicit allegations have been addressed by an internal Pentagon investigation or in a legal challenge by Oracle in federal court. Neither have determined them to be problematic.

In recent weeks, the President has indicated he has concerns over the JEDI contract, and that the administration will be reviewing the matter. The decision to revisit the contract, however, ultimately lies with the Secretary of Defense.

When asked by a reporter about the contract during a July 18 appearance in the Oval Office with the prime minister of the Netherlands, Trump said, he'd been getting "tremendous complaints about the contract with the Pentagon and with Amazon," including from Microsoft, Oracle and IBM.

"Great companies are complaining about it," Trump said. "So we're going to take a look at it. We'll take a very strong look at it."

On July 22, Trump retweeted a Fox News segment criticizing the JEDI contract as "The Bezos Bailout." It's not clear if the President had already seen the Oracle document by then.

While it would be highly unusual for a president to intervene on the awarding of a big government contract, during Trump's time in office, companies have learned that appealing to him on a personal level can help secure his attention.

He's also discussed the deal with senators, while other members of Congress have written appeals to him both in support and against Amazon's getting the contract.

Trump has regularly blasted Bezos and Amazon, claiming the company does not pay enough in taxes and has taken advantage of the US Postal Service to grow its business. Bezos also owns the Washington Post, which Trump has repeatedly characterized as unfair to him and his administration.

Oracle, on the other hand, has a close relationship with the Trump administration. The company's CEO, Safra Catz, served on Trump's transition team, has dined at the White House and was once under consideration for a job in the administration. Officials who work for Oracle have been spotted in the West Wing as recently as last month, according to a person with direct knowledge.

Glueck tells CNN neither he nor anyone at Oracle, including Catz, gave his chart to the White House and that he does not know how it ended up on the President's desk. He has distributed the chart widely to other lobbyists and journalists. "I'm not upset that it's in front of him," Glueck said.

The White House did not reply to requests for comment.

Oracle's anti-Amazon push

Oracle's flow chart is part of a months-long endeavor to disrupt the JEDI contract and undercut Amazon, which is widely seen as the front-runner to win the bid.

Amazon and Microsoft are both finalists for JEDI, which, according to one Pentagon source, could be awarded as early as August 23. Microsoft declined to comment.

After failing to successfully bid on the contract, Oracle mounted a legal challenge to the Pentagon's process, alleging its rival had an unfair advantage due to Amazon's close relationships inside the department. That challenge was rejected by a federal claims judge last month.

One source close to the White House says the President has mentioned revisiting the JEDI contract to other White House officials. "Trump wants to scuttle this process and possibly reopen it back up again with extra guardrails," the source told CNN.

The source also notes a White House intervention into the JEDI bid process could be an important first test for Trump's newly sworn-in Defense secretary, Mark Esper, who indicated this week he would be looking into the contract.

"I've heard from everybody about JEDI Cloud, that's one of the things I'm going to take a hard look at," Esper told reporters at the Pentagon Wednesday.

"Trump has inserted himself in other deals as well but this particular deal especially with Amazon and Bezos and the Washington Post...could land at the desk of Esper," the source close to the White House said.

Winning the JEDI contract is a top priority for Amazon and decisions related to the program are handled at the highest levels of the company, sources familiar with the topic told CNN. Since 2013, Amazon Web Services (AWS) has operated the Central Intelligence Agency's cloud network.

AWS is the most profitable arm of Amazon, accounting for 12 percent of the company's total sales last quarter, according to a company earnings report on Thursday. At $8.3 billion, AWS sales have grown 37 percent compared to this time last year. Amazon's cloud segment as become a vital part of its success — particularly as its e-commerce business faces growing policymaker and antitrust scrutiny.

Amazon officials have been well aware of Oracle's efforts to undercut their bid in recent months, which is viewed by many within the company as a last-ditch attempt to derail the award process at a late stage.
Capitol Hill weighs in

Some Republicans in Congress have been encouraging the administration to revisit the JEDI contract. Senators Ron Johnson of Wisconsin and Marco Rubio of Florida have written separate letters to the Pentagon raising concerns about moving ahead with the contract. Trump even discussed JEDI with Johnson on an Air Force One flight to Wisconsin two weeks ago, according to the senator's office.
Trump also called Rubio earlier this month to share his concerns about the contract, according to a Rubio spokesperson. Trump gave the indication that he may get involved in preventing the awarding of the contract if necessary.

On July 23, a dozen Republican House lawmakers sent Trump a letter urging him to delay awarding the JEDI contract. The letter, which was first reported by Axios, states that awarding the contract would be "premature" because the Pentagon's Office of Inspector General "is still investigating potential conflicts of interest by DoD employees in awarding the JEDI contract."

The same day, Dana Deasy, the chief information officer for the Department of Defense, responded to Johnson's request to delay the award until the inspector general's office completed its probe, according to a letter obtained by CNN. Deasy wrote that he would "ensure" that Pentagon officials "consult" with the IG office "before finalizing the award decision."

Defense Department spokeswoman Elissa Smith has said that an internal investigation into conflicts of interest determined there was "no adverse impact" to the JEDI acquisition process. However, Smith said that potential (and unspecified) ethical violations uncovered by the investigation have been referred to the Pentagon's inspector general. That office is currently reviewing those allegations.

Only one of the 12 signatories to the House letter, Florida GOP Rep. Matt Gaetz, sits on the Armed Services Committee that oversees the Pentagon. Not all Hill Republicans agree. The previous week, four of Gaetz's GOP colleagues on the committee, including ranking member Texas Rep. Mac Thornberry, sent a letter to Trump urging him to "move forward as quickly as possible with the award and implementation" of the JEDI contract.

"Our committee has conducted oversight of this contract from the beginning. As you know, the courts have upheld DoD's handling of the competition. While it is understandable that some of the companies competing for the contract are disappointed at not being selected as one of the finalists, further delays will only damage our security and increase the costs of the contract," the letter states.
JEDI under Mattis.

The idea of the Pentagon having its own commercial cloud system had been percolating inside the department since the Obama administration. Yet the formal project didn't get off ground until after Mattis took a trip to the West Coast in August 2017, where he visited the headquarters of Google and Amazon. According to two former Pentagon officials, Mattis, initially a skeptic of the idea, returned to Washington convinced that the Pentagon needed its own cloud.

That fall, the Pentagon announced that it would be soliciting bids from private companies to build a massive cloud computing system for the entire Defense Department. Four of the five leading cloud computing companies, Amazon, IBM, Oracle and Microsoft, submitted bids. Google did not.

At the heart of Oracle's allegations is that the Pentagon, under Trump's first Secretary of Defense Mattis, was predisposed to pick Amazon. Mattis had a high-profile meeting with Bezos during his August 2017 trip to Amazon's headquarters in Seattle. Also, one of Mattis' top advisers, Sally Donnelly, counted Amazon Web Services as a client at her national security consulting firm, SBD Advisors.

Donnelly sold the firm upon joining Mattis at the Pentagon in January 2017. She has since left the Pentagon and has started a similar consulting firm, Pallas Advisors.

According to federal ethics forms, Donnelly disclosed her prior work for Amazon when she began working at the Pentagon. "No personnel in the secretary of defense's front office participated in drafting the requirements or the solicitation. Any assertion or suggestion to the contrary is false," the Department has said in a previous statement.

Two former Pentagon officials with knowledge say Donnelly did not work on the JEDI contract or acquisition process in her capacity as Mattis's senior adviser.

Mattis did not respond to request for comment. When reached for comment, Donnelly referred CNN to her lawyer Michael Levy, who said in a statement:

"While at the Department of Defense, Ms. Donnelly had no role in acquisition or procurement. She played no role, and exercised no influence, in connection with any government contract, including -- as the Department of Defense has confirmed repeatedly -- the JEDI contract."

A spokesman for former Defense secretary Carter, who is featured on Oracle's chart, told CNN that he "played no role whatsoever in the JEDI contract competition, which was initiated after he left the Department of Defense."

As Defense Secretary, Esper has the power to halt the award of any defense contract, though he would have to have a legitimate reason for doing so. "He could let this die on the vine," said a former Pentagon official who spoke on condition of anonymity. "Contracts don't get awarded all the time."

Given the high profile of JEDI, doing so would likely cause a huge firestorm. The Pentagon has strict rules governing the bidding process. Any move by the administration to alter the bidding process would likely elicit lawsuits.

CNN's Zachary Cohen and Kaitlan Collins contributed to this report.

edition.cnn.com

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From: Glenn Petersen7/28/2019 11:08:39 AM
   of 1542
 
Satya Nadella Cheated at ‘Civilization,’ Now He Wants to Conquer Cloud Gaming: A Q&A With Microsoft’s CEO

By Jonathan Vanian
Fortune
July 27, 2019

Satya Nadella has never considered himself a “gamer,” but Civilization did manage to capture the attention of the Microsoft CEO for a stretch when he was younger.

He spent his time—unsurprisingly—empire building and strategically planning. “Then I somehow got all the cheat sheets,” he says. “And it became boring.”

“Civ,” as hardcore fans like Nadella and Facebook’s Mark Zuckerberg refer to it, requires careful thought, as players take on the role of world leaders vying to become the envy of all other nations, either by military might, technological supremacy, or through plain ol’ riches.

Now as Microsoft’s Xbox console business comes under attack from industry newcomers—invaders like Amazon and Google—Nadella finds his video game empire in a fight for its survival. In its latest earnings report, Microsoft said Xbox hardware revenue declined 48%, which gaming analysts attribute to the fact that its current flagship console, the Xbox One, was released nearly six years ago. In video game time, that's equal to 12 Assassin's Creeds.

And this time around, for Nadella, no cheat codes or power-ups will save the day. In the face of losing not just a video game, but video gaming, what is a talented strategist (or cheater) to do?

Ever the tactician, Nadella is changing the rules, instead. By unveiling the video-game streaming service Project Xcloud, he’s saying the console doesn’t matter as much moving forward. “I may start on a phone; I may go to a console; I may end up on a PC—but your game catalog should be available,” he says. “Your friends you play with should be there, wherever you’re playing.”

In this edited interview with Fortune, Nadella talks about partnering with Microsoft's long-time video game foil Sony, dealing with toxicity in video games, and which game is his current favorite Xbox title. (And no, it's not Civ.)

Fortune: When you first became CEO, you hedged by saying gaming wasn’t core at that time. What changed?

Nadella: I wanted to acknowledge that gaming is an important thing, and instead of trying to draw a direct line to what the rest of the company was doing at that time, we can still love gaming for gaming’s sake. Since then, what has changed is the connected tissue of this company, which is the cloud.

Why do you need to have a gaming distribution business as well as a separate Azure business in which you sell developer tools and computing power to game publishers?

For us, we will have both. The number of people who use Azure as the cloud backend for their game development is growing—our partnership with Sony [as an example].

That was surprising.

It’s a beginning for us. First of all, it’s all driven by Sony. They looked at who are all their partners that they can trust. In fact, it turns out, even though we’ve competed, we’ve also partnered.

What do they trust?

Basically and fundamentally the fact that we have a business model in the areas that they’re partnering with us, where we’re dependent on their success. So we will do the best job for them, whether it’s in cloud or whether it’s in A.I. or what have you, in order to make sure that Sony can succeed with their own IP creation.

Sony is going to be using Azure?

That’s a core piece of the partnership. They also have—beyond gaming—other assets, like interesting devices and silicon (chip) businesses, which could be interesting in the context of what we’re doing in Azure.

Overall, if you look at all the parts of these businesses, whether it’s in entertainment, gaming, or the camera businesses, all of these things can use more cloud computing power. But they can also go-to-market with Microsoft in some industrial cases, especially for their things around cameras.

With Amazon and Google getting into the gaming business and pushing streaming, it seems that hardware devices will become less relevant. Will the streaming software platforms eventually determine how games are played and how content is distributed?

Our general point of view is that you've got to put people at the center, and then everything else that people use becomes relevant. So I don’t sort of make statements like “devices are not relevant” or “software is all relevant.” The mere reality is that we move between devices.

Even in gaming, I may start on a phone; I may go to a console; I may end up on a PC—but your game catalog should be available. Your friends you play with should be there, wherever you’re playing.

So to me, being able to think about both the market in that expansive way, but, most importantly, think about the use cases for the people in such a way that you’re not bound to only one device or one [software] input—that’s the other thing.

With the idea of playing games across multiple platforms getting more popular, what will gaming be like five years from now?

Each of the platform companies will make their own sets of decisions. The way I look at it, in a world where people are going to play more across more platforms, the opportunity is for us to expand the market—if you really open up. But each player will make their own decision.

There’s things you can’t control and you just have to live in the world with it.

That’s right.

What did you think of the gaming business and Xbox prior to becoming Microsoft's CEO?

Xbox has a long tradition in our company. I’ve always known the people who have been running that, over the years. Even when I was running Azure, some of the core hypervisor and security work, we would share. In fact, I don’t know if this story has been told, Azure Sphere [Microsoft’s security software for managing Internet-connected devices] comes out of the security work out of Xbox.

In some sense, the entire notion of how do you have the “hardware root of trust” [an IT security feature] docked to a cloud service with a secure channel backed to the update? That’s entirely, one of the things the Xbox has.

When Xbox was introduced, it was pitched as a gateway to the living room. What you are doing seems like a different view.

The living room is not the only place where people play games—the living room is a super important place where they play games.

We still love our console, we’re going to have another console. We’re going to keep at it, because we think that there are people who want to play games on the console.

And it just so happens that people love to play games on PCs. We didn’t have much of a value proposition to them other than saying we have the Windows operating system, and we’ve done everything we’ve can to serve developers there. But we’re now going to do even more on the PC.

With Xcloud, we can reach anybody on a mobile phone to play AAA games [gaming’s equivalent to Hollywood blockbusters]. It’s more of an extension than to say what we were doing [in the living room] was wrong or not or didn’t make sense. It’s just that hey, it has become clearer and bigger, we have been able to really jump on that.

A vocal minority in gaming has a toxic aspect to it. Do you worry that will harm Microsoft’s reputation?

Absolutely. I mean look, toxicity is not just limited to gaming. When I think about Internet safety and the need for tools around moderation, investments by us around moderation—this is what we are doing with the Xbox ambassadors.

That’s all super important stuff. Whenever you have a community that’s an online community—whether it is Yammer inside Microsoft or whether it is Xbox Live and the community outside—they all have to basically be governed by certain norms or civility, and we have to do that.

One of the things I realized is we can’t just complain about what the world looks like. You've got to start by saying, 'Okay, can the people who are creating these communities first, live the values?' And through that, make sure that the physics of the local interactions is what is reflected in the broader community.

With so much scrutiny on the tech companies, is this the right time for Microsoft to make a big effort to be a larger consumer tech company?

I mean we are [a consumer tech company]. The question is—because I think there's a [misconception] the press has gotten—are you a consumer company or are you an enterprise company? We have tremendous success in the enterprise, but really, the way I’ll always see it is we are focused on users who we can do unique things with in both work and life.

There are a billion users of Windows—they use it at work, they use it at home. Therefore we always had dual use. I look at, can we do more things around productivity across work and life? What can we do in gaming, obviously, which is entertainment? These are categories we’ve always been in.

It doesn’t take anything away from our success in commercial, but it also gives us a huge opportunity in what the world views as a consumer business. So be it.

Do you play games?

A little bit. I’m not a big gamer, I will say that. There’s an Xbox game, which is a cricket game that I love [Nadella is referring to the Don Bradman Cricket gaming franchise]. It’s actually a pretty decent game.

Did you play games growing up?

Not really, but I loved Civ.

That was your favorite?

Yeah for a while. And then I somehow got all the cheat sheets, and then it became boring.

Then you just cheated on your empire building.

That’s right (laughs).

fortune.com

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From: Glenn Petersen8/2/2019 2:46:53 PM
   of 1542
 
Pentagon puts $10B contract on hold after Trump swipe at Amazon

By JACQUELINE FELDSCHER
Politico
08/01/2019 04:07 PM EDT
Updated 08/01/2019 05:35 PM EDT

The Pentagon is slamming the brakes on its mega-competition to award a $10 billion cloud computing contract after President Donald Trump suggested the Defense Department might have rigged the contest in favor of Amazon, a frequent target of his criticism.

Defense Secretary Mark Esper, who assumed his post July 23, is now reviewing accusations of unfairness in the fiercely fought competition, the Pentagon announced Thursday, marking the president's latest incursion into the arcane world of Defense Department contracting. Oracle has reportedly waged an aggressive lobbying campaign to push back on the competition, now pitting Amazon against Microsoft, including talking with members of Congress and preparing a graphic that made its way to the president's desk.

"Secretary Esper is committed to ensuring our warfighters have the best capabilities, including Artificial Intelligence, to remain the most lethal force in the world, while safeguarding taxpayer dollars," Elissa Smith, a Pentagon spokesperson, said in a statement Thursday. "Keeping his promise to Members of Congress and the American public, Secretary Esper is looking at the Joint Enterprise Defense Infrastructure (JEDI) program. No decision will be made on the program until he has completed his examination."

The latest scrape once again pits Trump against Amazon, whose founder and CEO Jeff Bezos also owns The Washington Post and has become a growing powerbroker in the D.C. region.

The review is expected to delay the award of the JEDI contract, which the Pentagon had hoped to award in August. JEDI would give the Pentagon a single, secure cloud computing system for data ranging from personnel statistics to intelligence information, instead of the more than 500 clouds used by different parts of the military today.

The contracting process has been plagued by controversy that pre-dates Trump's involvement, including allegations by rival bidders that the competition unfairly favored Amazon because of perceived conflicts of interest. Companies have also raised issues with the Pentagon's decision to choose just one company for the contract, citing a lack of competition and security concerns. Four companies — Oracle, IBM Corp., Amazon and Microsoft — initially bid for the winner-take-all contract. Amazon and Microsoft are the only two finalists.

Amazon and Microsoft both declined to comment.

IBM, one of the losing competitors, issued a statement Thursday reiterating that the company "has long raised serious concerns about the structure of the JEDI procurement," adding that its position remains that the "men and women in uniform would be best served by a multi-cloud strategy."

Competitors have also taken issue with two meetings former Defense Secretary Jim Mattis had with high-ranking Amazon employees. The first was in March 2017, when Mattis met with Teresa Carlson, the vice president of Amazon Web Services, at a dinner in London, according to The Wall Street Journal. Mattis also met with Bezos in August 2017.

In July, a judge ruled in favor of the Pentagon, finding that Oracle did not meet the contract requirements. Oracle had also filed a protest with the Government Accountability Office, which found that the Pentagon’s procurement process was fair.

Late last week, the Pentagon shot back at Oracle in a fiery statement following the court decision, calling the contractor’s allegations “the subject of poorly-informed and often manipulative speculation.”

Despite the court ruling that the competition is fair, Trump recently asked officials to review the contracting process after companies competing against Amazon lodged “tremendous complaints.”

"They are saying it wasn't competitively bid," Trump said at the White House on July 18. "Some of the greatest companies in the world are complaining about it ... I will be asking them to look at it very closely to see what's going on because I have had very few things where there has been such complaining."

White House aides have shown Trump a briefing slide created by Oracle’s top lobbyist that attempts to illustrate how the Pentagon unfairly favored Amazon in the competition, CNN reported.

The chart, which includes photos of current and past defense officials linked by hearts and dollar signs, is likely an attempt to appeal to the president’s animosity toward Amazon owner Bezos. Trump regularly blasts both Bezos and Amazon on Twitter and also routinely criticizes the Post for its coverage of his administration.

The president even mocked Bezos in January after the CEO became the subject of a National Enquirer expose on his marital troubles. “So sorry to hear the news about Jeff Bozo being taken down by a competitor whose reporting, I understand, is far more accurate than the reporting in his lobbyist newspaper, the Amazon Washington Post,” Trump tweeted.

While it’s highly unusual for a president to get involved in the details of specific Pentagon acquisition projects, it’s becoming standard practice for Trump. He inserted himself into contract negotiations for a batch of F-35 fighter jets to try to lower the price. He also weighed in on the Air Force One contract with Boeing.

Some members of Congress have urged the president to get involved in the contracting process for JEDI to ensure there is enough competition and that the Pentagon is getting the best deal possible. A group of representatives sent a letter to Trump on July 23, asking him to wait to award the contract until the Pentagon had investigated any potential conflicts of interest.

“As commander-in-chief, we know that you want both the best technology for our warfighters and the best deal for taxpayers,” the letter reads.

Others, however, urged the Pentagon to move forward so it can fast-track certain technologies, such as artificial intelligence, that will help it compete with China. Four Republican lawmakers last month asked the president to let the program progress, Reuters reported.

“We believe that it is essential for our national security to move forward as quickly as possible with the award and implementation of this contract,” said the letter signed by Rep. Mac Thornberry (R-Texas), the ranking member of the House Armed Services Committee.

Some outside experts agree a delay would harm national security. Tom Spoehr, the director of the Heritage Foundation’s Center for National Defense, told POLITICO a delay in the program would “just perpetuate the status quo.”

“It’s hard to capture the shortcomings of the status quo because people are living under it right now,” said Spoehr, who recently co-authored a paper urging the president to let the acquisition continue. “You delay the savings involved with a single cloud.”

politico.com

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From: FUBHO8/16/2019 8:29:33 AM
1 Recommendation   of 1542
 

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From: Glenn Petersen8/22/2019 1:39:48 PM
   of 1542
 
How Amazon and Silicon Valley Seduced the Pentagon

Tech moguls like Jeff Bezos and Eric Schmidt have gotten unprecedented access to the Pentagon. And one whistleblower who raised flags has paid the price.

by James Bandler, Anjali Tsui and Doris Burke
ProPublica
Aug. 22, 5 a.m.



From left: Eric Schmidt, the former chairman of Google’s parent company, James Mattis, the former secretary of defense, and Jeff Bezos, CEO of Amazon. (Nate Kitch, special to ProPublica)
_____________________________

ProPublica is a nonprofit newsroom that investigates abuses of power. Sign up for ProPublica’s Big Story newsletter to receive stories like this one in your inbox as soon as they are published.

This article was co-published with Fortune.
_________________________________

On Aug. 8, 2017, Roma Laster, a Pentagon employee responsible for policing conflicts of interest, emailed an urgent warning to the chief of staff of then-Secretary of Defense James Mattis. Several department employees had arranged for Jeff Bezos, the CEO of Amazon, to be sworn into an influential Pentagon advisory board despite the fact that, in the year since he’d been nominated, Bezos had never completed a required background check to obtain a security clearance.

Mattis was about to fly to the West Coast, where he would personally swear Bezos in at Amazon’s headquarters before moving on to meetings with executives from Google and Apple. Soon phone calls and emails began bouncing around the Pentagon. Security clearances are no trivial matter to defense officials; they exist to ensure that people with access to sensitive information aren’t, say, vulnerable to blackmail and don’t have conflicts of interest. Laster also contended that it was a “noteworthy exception” for Mattis to perform the ceremony. Secretaries of defense, she wrote, don’t hold swearing-in events.

Laster’s alarms triggered fear among Pentagon brass that Mattis would be seen as doing a special favor for Bezos, which could put him in hot water with President Donald Trump, who has repeatedly proclaimed his antipathy to Bezos, mainly because of his ownership of The Washington Post. The swearing-in was canceled only hours before it was scheduled to occur. (This episode, never previously reported, is based on interviews with six people familiar with the matter. An Amazon spokesperson said the company was told that Bezos did not need a security clearance and that the company provided all requested information.)

Despite the cancellation, Bezos met with Mattis that day. They talked about leadership and military history, then moved on to Amazon’s sales pitch on why the Defense Department should make a radical shift in its computing. Amazon wanted the department to abandon its hodgepodge of 2,215 data centers, located in various Pentagon facilities and run using different systems by an array of different companies, and let Amazon replace that with cloud service: computing power provided over the internet, all of it running on Amazon’s servers.

That vision is now well on its way to becoming a reality. The Pentagon is preparing to award a $10 billion, 10-year contract to move its information technology systems to the cloud. Amazon’s cloud unit, Amazon Web Services, or AWS, is the biggest provider of cloud services in the country and also the company’s profit engine: It accounted for 58.7% of Amazon’s operating income last year. AWS has been the favorite to emerge with the Pentagon contract.

Known as JEDI, for Joint Enterprise Defense Infrastructure, the project has been the subject of accusations of favoritism. Two spurned bidders have launched unsuccessful bid protests and one of them, Oracle, filed and lost a lawsuit. Meanwhile, there’s an ongoing investigation by the Pentagon’s inspector general.

The DOD defends JEDI. The agency’s decision-makers have “always placed the interests of the warfighter first and have acted without bias, prejudice, or self-interest,” DOD spokesperson Elissa Smith said in a statement. “The same cannot be said of all parties to the debate over JEDI.”

What’s happened at the Pentagon extends past the JEDI contract. It’s a story of how some of America’s biggest tech companies used a little-known advisory board, some aggressive advocacy by a few billionaires and some unofficial lobbying to open a backdoor into the Pentagon. And so, no matter who wins the JEDI contract, one winner is already clear: Silicon Valley. The question is no longer whether a technology giant will emerge with the $10 billion prize, but rather which technology giant (or giants) will.

There are certainly benefits. The Pentagon’s technological infrastructure does indeed need to be modernized. But there may also be costs. Silicon Valley has pushed for the Pentagon to adopt its technology and its move-fast-and-break-things ethos. The result, according to interviews with more than three dozen current and former DOD officials and tech executives, has been internal clashes and a tortured process that has combined the hype of tech with the ethical morass of the Washington industry-government revolving door.

Laster did her best to enforce the rules. She would challenge the Pentagon’s cozy relationship not only with Bezos, but with Google’s Eric Schmidt, the chairman of the defense board that Bezos sought to join. The ultimate resolution? Laster was shunted aside. She was removed from the innovation board in November 2017 (but remains at the Defense Department). “Roma was removed because she insisted on them following the rules,” said a former DOD official knowledgeable about her situation.

Laster filed a grievance, which was denied. “I’ve been betrayed by an organization I joined when I was 17 years old,” said Laster, who is 54. “This is an organization built on loyalty, dedication and patriotism. Unfortunately, it is kind of one-way.”

Other criticism, from Amazon’s rivals and the press, has centered on the actions of several DOD workers who had previously worked directly or indirectly for Amazon and have since returned to the private sector. The most important of those employees, Sally Donnelly — a former outside strategist for Amazon who had become one of Mattis’ top aides — helped give Amazon officials access to Mattis in intimate settings, an opportunity that most defense contractors don’t enjoy. Donnelly organized a private dinner, never reported before, for Mattis, Bezos, herself and Amazon’s top government-sales executive at a Washington restaurant, DBGB, on Jan. 17, 2018. The dinner occurred just as the DOD was finalizing draft bid specifications for JEDI. (Asked about the dinner and several others like it, the DOD’s Smith said: “One of the department’s priorities is to reform the way DOD does business. As part of this reform, leaders are expected to engage with industry — in a full and open manner within legal boundaries — to find ways to reform our business practices and build a more lethal force.” A spokesperson for AWS said the dinner “had nothing to do with the JEDI procurement, and those implying otherwise either are misinformed or disappointed competitors trying to distract with innuendo vs competing fairly with their technical capabilities.”)

Such meetings aren’t illegal, but they undermine public trust in defense contracting, said Charles Tiefer, a professor at the University of Baltimore School of Law and one of the nation’s leading experts on government-contracting law. “This is a particularly serious example of the revolving door among Pentagon officials and defense contractors, which has been problematic in recent years and is getting worse under the Trump administration,” he said.

In July, Trump expressed concerns about the process and whether it was skewed in Amazon’s favor. Early this month, his new defense secretary, Mark Esper, announced a fresh review, which will delay the selection of a winner. The judge in the JEDI-related case ruled in favor of the government but nonetheless summed up the process as containing conflict-of-interest allegations that were “certainly sufficient to raise eyebrows” and a “constant gravitational pull on agency employees by technology behemoths.”

The board that Bezos almost joined — called the Defense Innovation Board — was launched in 2016 by Ashton Carter, the last defense secretary in the Obama administration. Carter worried that the Pentagon’s information technology was falling behind. He recruited a collection of tech luminaries, including Schmidt, then the executive chairman of Google’s parent company, and LinkedIn co-founder Reid Hoffman, by appealing to their patriotism and enticing them with the proposition that the DOD needed the insight and culture of Silicon Valley. Of course, the Pentagon also has an annual infotech budget of $38 billion, and what tech CEO could resist offering products and services to solve the department’s problems?

Schmidt, the chairman of the innovation board, embraced the mission. In the spring and summer of 2016, he embarked, with fellow board members, on a series of visits to Pentagon operations around the world. Schmidt visited a submarine base in San Diego, an aircraft carrier off the coast of the United Arab Emirates and Creech Air Force Base, located deep in the Nevada desert near Area 51.

Inside the drone operations center at Creech, according to three people familiar with the trip, Schmidt observed video as a truck in a contested zone somewhere was surveilled by a Predator drone and annihilated. It was a mesmerizing display of the U.S. military’s lethal reach.

Yet as Schmidt and his colleagues studied the control panels and displays, they felt like they were witnessing technology frozen in the 1970s. He began asking questions about the challenges of controlling drones thousands of miles away. One operator complained that he had to use his joystick to toggle quickly between systems and screens, turning off one feed to use another. He had to do all of this while simultaneously flying the drone and trying to keep his attention on a target that was frequently in motion.

A little later, on the operations floor, Schmidt watched as dozens of people monitored video feeds from drones around the globe. One of the visitors noted that computers using recognition software and machine learning could much more efficiently and accurately perform the majority of these tasks.

A little more than a year after Schmidt’s visit, Google won a $17 million subcontract in a project called Maven to help the military use image recognition software to identify drone targets — exactly the kind of function that Schmidt witnessed at Creech. (Schmidt declined to be interviewed. A person close to the innovation board said he was unaware of his company’s involvement in Maven. Google, which has funded ProPublica projects on voting and video journalism in recent years, declined to comment on the record.)

Schmidt’s influence, already strong under Carter, only grew when Mattis arrived as defense secretary. Schmidt’s travel privileges at the DOD, which required painstaking approval from the agency’s chief of staff for each stop of every trip, were suddenly unfettered after Schmidt requested carte blanche, according to three sources knowledgeable about the matter. Mattis granted him and the board permission to travel anywhere they wanted and to talk to anyone at the DOD on all but the most secret programs.

Such access is unheard-of for executives or directors of companies that sell to the government, say three current and former DOD officials, both to prevent opportunities for bribery or improper influence and to ensure that one company does not get advantages over others. “Mattis changed the rules of engagement and the muscularity of the innovation board went from zero to 60,” said a person who has served on Pentagon advisory boards. “There’s a lot of opportunity for mischief.”

In a written statement, the DOD denied that Mattis extended Schmidt’s privileges, characterizing them as “no more and no less” than when Carter was defense secretary. As for Mattis, his former press secretary, Dana White, speaking on his behalf, said: “In order to do their job, all members of the Defense Innovation Board had full access to the department and its entities. Secretary Mattis insisted on it. He fully leveraged their unique experience to ensure DOD adapted and gained maximum advantage over the rising threats of near-peer competitors.”

Over the next months, Schmidt and two other board members with Google ties would continue flying all over the country, visiting Pentagon installations and meeting with DOD officials, sessions that no other company could attend. It’s hard to reconstruct what occurred in many of those meetings, since they were private. On one occasion, Schmidt quizzed a briefer about which cloud service provider was being used for a data project, according to a memo that Laster prepared after the briefing. When the briefer told him that Amazon handled the business, Schmidt asked if they’d considered other cloud providers. Laster’s memo flagged Schmidt’s inquiry as a “point of concern,” given that he was the chairman of a major cloud provider.

The DOD became unusually deferential to Schmidt. He preferred to travel on his personal jet, and he would ferry fellow board members with him. But that created a problem for his handlers: DOD employees are not permitted to ride on private planes. Still, the staff at the board didn’t want to inconvenience Schmidt by making him wait for his department support team to arrive on commercial flights. So, according to a source knowledgeable about the board’s spending, on at least one occasion the department requisitioned military aircraft at a cost of $25,000 an hour to transport its employees to meet Schmidt on his tour. (The DOD’s spokesperson said employees did this because “there were no commercial flights available.”)

The fact that such unusual access was granted to a board member who was a DOD vendor raised alarm, according to current and former Pentagon employees. As she had in the Bezos episode, Laster took action. She was a former Marine who’d been a military police officer in the U.S. force in Somalia in the 1990s. Her official title was designated federal officer for the Defense Innovation Board. Laster’s job was to make sure that members’ conduct was ethical and in accordance with laws, regulations and rules. Blunt and direct, she was hardly a pushover. But Laster had never encountered tech billionaires before, much less ones empowered by the head of her agency.

The trouble started after Laster sought a clarification of how to carry out Mattis’ sweeping travel directive. She was concerned that it could expose the department to accusations of giving vendors an unfair edge. Three members of the board worked directly or indirectly for Google and two for United Technologies, a major defense contractor.

Schmidt responded by threatening to go over her head to Mattis, according to her grievance. She was told to stand down and never again speak to Schmidt. According to the grievance, her boss told her, “Mr. Schmidt was a billionaire and would never accept pushback, warnings or limits.”

The Schmidt episode captured the tension that had emerged inside the department. To one Silicon Valley supporter, it was a “textbook example of the bureaucracy trying to slow down progress and change using rules, rules, rules.” To Michael Bayer, the former chairman of another Pentagon advisory board, where he had worked with Laster, she was a person of “extraordinary character” who was working hard to make sure the board “did the right thing.”

It would be hard to find a purer embodiment of the proverbial revolving door — or a stealth influencer — than Sally Donnelly. For the past dozen years she has shuttled between the DOD and consulting firms, including at least once with Amazon as a client, that seek to influence the department. During her most recent government stint, Donnelly, 59, came to be viewed as the “fairy godmother” of the Big Tech advocates in the department, as one Pentagon official put it to ProPublica.

Donnelly is known as a superb crafter of narratives, a person who can present ideas in persuasive ways. She honed those skills in her first career, as a reporter at Time magazine, where, among other things, she covered the Pentagon and wrote glowingly of Mattis. Donnelly spent 20 years at the newsweekly before moving to the DOD for the first time in 2007. She worked for the then-chairman of the joint chiefs of staff, Adm. Mike Mullen, then later for Mattis, including while he oversaw the wars in Iraq and Afghanistan as the head of Central Command.

In 2012, Donnelly departed and opened her own consulting firm, SBD Advisors. “Our team offers guidance and stealth strategies,” its website boasted, according to a 2014 article in Politico, “ensuring that clients benefit from the results of our campaigns while outwardly they are under-the-radar.” SBD’s clients included Amazon, Uber, Bloomberg, Palantir and others.

Donnelly was a master at quietly cultivating a network, one that straddled the permeable line between government and industry. Carter rented an office at the firm before he became Obama’s defense secretary, and a Politico story listed him as a SBD adviser. (During Carter’s tenure as secretary, Donnelly worked as a DOD consultant.) SBD’s other high-profile generals and defense-connected figures included Mullen, former director of national intelligence Dennis Blair and Michael Flynn, the former Defense Intelligence Agency chief and national security adviser who has since pleaded guilty to lying to the FBI.

By 2015, Donnelly’s business had announced a new focus. SBD now specialized in “bridging the gap between Silicon Valley and Washington, DC,” its website declared, by “facilitating engagements between the technology and defense sectors.” The next year her firm started advising Amazon Web Services on how to land DOD contracts.

In January 2017, Donnelly rejoined the department after successfully shepherding Mattis through the Senate confirmation process. Her title, senior adviser, understated her influence. She emerged as one of the most powerful people in the leadership of the Pentagon, according to numerous DOD staffers. She guided Mattis on politics (which was relatively new terrain for him), relations with the White House and dealing with the press.

Donnelly also helped the defense secretary connect with outside companies. She helped arrange not only the January 2018 dinner between Bezos and Mattis, but also a previously reported private dinner with Mattis and Teresa Carlson, the head of the AWS division that sells services to governments, in March 2017 in London. (A host of that gathering told The Wall Street Journal that cloud computing was not discussed and that the purpose of the dinner was to talk about a charity involving wounded veterans.) The same year, at Donnelly’s behest, AWS’ Carlson met with several of Mattis’ top aides. People familiar with the matter say they discussed a possible job for Carlson at the Pentagon. No offer was made. (A source close to Carlson said such a job “would not have been of interest.”)

A lawyer for Donnelly, Michael Levy, said she “always adhered to all ethical and legal obligations and acted in the best interest of the national security of the United States.” He added that she played no role in the JEDI contract. “To suggest otherwise … reflects an absence of even the most rudimentary understanding of the government contracting process.”

A veteran Marine general, Mattis was initially perceived as skeptical of what Silicon Valley was selling. He knew the flesh-and-blood realities of war and believed in giving autonomy to commanders on the ground. In his mind, anything that reinforced Pentagon leaders’ desire to micromanage events halfway across the globe was problematic. Technology, he believed, could make matters worse.

But Schmidt was an effective advocate for the power of big data, which he argued had become as important a strategic resource as oil. And he emphasized that the need for technological improvement was urgent: China was rapidly improving. In June 2017, at a private lunch in a Pentagon conference room, Schmidt told him Google’s lead over China in artificial intelligence technology had shrunk from five years to six months. “Mr. Secretary, they’re at your heels,” Schmidt said, according to three people familiar with the lunch. “You need to take decisive action now.”

Schmidt wanted the department to adopt a Silicon Valley philosophy that emphasized innovation, taking risks and moving fast. Among his recommendations: embrace cloud computing. In the summer of 2017, Mattis decided to investigate firsthand. He departed on a tour that would include visits to Amazon and Google headquarters and a one-on-one with Apple CEO Tim Cook.

At Amazon, despite the tempest about Bezos joining the innovation board, Mattis and the CEO hit it off. The two talked together for about an hour. Mattis gave a pithy sweep of lessons from military history and expressed his view on the perils of overreliance on technology. He noted how the British Navy, once famous for its derring-do, nearly lost the World War I battle of Jutland when ship captains hesitated, waiting for flag signals from their fleet commander.

After the meeting, Bezos and Mattis walked to another conference room, where AWS executives made their case that the company’s cloud products offer better security than traditional data centers, according to three people who attended. As evidence, they noted that the Central Intelligence Agency had embarked on a $600 million, 10-year cloud contract with Amazon in 2013 and, they said, it was working.

To ensure that Mattis could visualize the impact Amazon’s technology could have on an actual battlefield, staffers placed on the conference room table a “Snowball Edge,” a suitcase-sized device with lots of storage that allowed soldiers in remote environments to quickly process information.

One of Mattis’ last meetings on the trip seemed to tip him into the camp of the cloud advocates. He met with venture capitalists, including Marc Andreessen, an influential Silicon Valley figure who first made his name as the creator of the Netscape browser a quarter-century ago. Andreessen was a booster of Amazon. “You need to get to the cloud,” he told Mattis. “You’d be stupid not to.”

Something seemed to click inside Mattis. He told his staff to begin preparing a memo laying out how the DOD would shift its computing to the cloud.

The Pentagon’s cloud initiative ultimately ended up being led by Chris Lynch, the head of Defense Digital Service. DDS was no ordinary unit; it was a corps of software engineers hired from Google, Amazon and other tech companies to “challenge the status quo, burdensome policies and established bureaucracies in an effort to streamline DOD’s ability to introduce modern software development, tools and practices,” according to a department spokesperson. And Lynch himself was no ordinary government employee. As a teenager, he had been arrested and expelled from his Ohio high school after he and some friends called in a bomb threat as a joke. But he grew up, earned his high school degree, worked at Microsoft and then ran a series of startups. At 43, he wore hoodies to an office dominated by starched white shirts and still considered himself an insurgent, a point he conveyed by posting a sign reading “The Rebel Alliance” outside the entrance to his group’s office; the name also reflected his obsession with Star Wars. (His team came up with the acronym JEDI for the cloud project.)

Lynch had a vision of how the Pentagon’s cloud initiative should work: a single DOD-wide cloud run by one provider that would allow the agency to shutter all but the most secret of its data centers. Having one cloud would be ultra-efficient, he said. It would allow programmers to deliver instant software fixes to the entire department, rather than multiple divisions needing to wait weeks for an outside contractor to come by in person.

Lynch also believed the department lacked the expertise to manage multiple vendors, each with its own idiosyncrasies. Better to give the entire agency one provider. And as he saw it, only three cloud companies in the U.S. were capable of that mission: Amazon, Microsoft and Google.

Some in the Pentagon believed that Lynch’s plan presented its own risk. They thought that putting all of the agency’s data in one company’s system made it more vulnerable, not less, than having it stored with multiple vendors. They also worried such an approach would stifle competition and create a huge monopoly.

But Lynch had an advantage in the fight: Donnelly. She obtained full access to the Pentagon front office for Lynch and secured a “letter of marque” for him, a written statement of support from Mattis that put the weight of the agency’s chief behind him.

Amazon often seemed to have allies close at hand. For example, the deputy defense secretary sometimes used his chief of staff, Tony DeMartino, as a point man to the key committee on JEDI. DeMartino had been managing director of Donnelly’s consulting firm, where he’d had Amazon as a client. He was warned to be “vigilant and consult” with ethics lawyers before involving himself in matters related to Amazon. But even after the warning, DeMartino repeatedly participated in the cloud-related matters, according to emails submitted by Oracle in its lawsuit against the government, as well as emails obtained by ProPublica and interviews with current and former Pentagon officials. For example, one November 2017 email reviewed by ProPublica, which was copied to Donnelly, shows DeMartino suggested a “huddle” with the new head of the Pentagon’s cloud executive steering group to discuss the man’s responsibilities. Later, after DeMartino was no longer serving the deputy secretary, he asked to remain “linked into” the cloud initiative. A contracting officer who examined DeMartino’s role concluded that his actions hadn’t affected the JEDI process since DeMartino’s role was “ministerial and perfunctory.” (A person in DeMartino’s camp insists that his only activity on JEDI was blocking a “stupid acronym” — C3PO — from being inserted in a larger memo.)

A second former Amazon employee would spark more controversy. Deap Ubhi, a former AWS employee who worked for Lynch, was tasked with gathering marketing information to make the case for a single cloud inside the DOD. Around the same time that he started working on JEDI, Ubhi began talking with AWS about rejoining the company. As his work on JEDI deepened, so did his job negotiations. Six days after he received a formal offer from Amazon, Ubhi recused himself from JEDI, fabricating a story that Amazon had expressed an interest in buying a startup company he owned. A contracting officer who investigated found enough evidence that Ubhi’s conduct violated conflict of interest rules to refer the matter to the inspector general, but concluded that his conduct did not corrupt the process. (Ubhi, who now works in AWS’ commercial division, declined comment through a company spokesperson.)

Ubhi worsened the impression by making ill-advised public statements while still employed by the DOD. In a tweet, he described himself as “once an Amazonian, always an Amazonian.”

By the time the draft JEDI bid was formally unveiled in March 2018, rumors had begun surfacing in trade publications that the specifications had been written with Amazon in mind. For example, the bid required that the JEDI contract could not account for more than half of the provider’s cloud data load. And it required that the provider have at least three physical data centers, each separated by more than 150 miles. Only a tiny handful of companies could fulfill those mandates.

Many tech companies were furious. Indeed, the only major cloud computing company that defended JEDI was Amazon. The harshest reaction came from IBM, Microsoft and Oracle, which would form the nucleus of a coalition that would work to stop JEDI. “This one-size-fits-all idea is, I think, limited to JEDI and promoted by Amazon, because it fits Amazon’s needs,” said Ken Glueck, Oracle’s top Washington executive.

The DOD’s spokesperson said, “The requirements were not designed around any one provider.” An Amazon spokesperson said that “from day one, we’ve competed for JEDI on the breadth and depth of our services, and their corresponding security and operational performance.”

Oracle responded by using its own access. As first reported by Bloomberg, Oracle arranged for its co-CEO, Safra Catz, to attend a private dinner in April 2018 with Trump and Peter Thiel, a founder of defense firm Palantir and a Trump ally. Catz told Trump she thought the JEDI specifications had been written so that only Amazon could win, according to a person familiar with the conversation and Bloomberg.

Only four companies submitted bids for JEDI. Google had already withdrawn from the bidding, citing its belief that the project should be split among multiple providers. The decision came after its own employees protested the company’s participation in Maven, expressing opposition to the idea that their technology would be used to help kill people. Two bidders — IBM and Oracle — were eliminated after they failed to meet the bid requirements. That has left only Amazon and Microsoft still standing in the JEDI competition.

Both IBM and Oracle filed protests. IBM’s protest was dismissed and Oracle’s was denied by the Government Accountability Office. Oracle sued the government in the U.S. Court of Federal Claims, asserting JEDI had been tainted by conflicts of interest. The judge in the case ruled against Oracle. He agreed with the contracting officer that Oracle lost the bid on the merits and that any “errors and omissions” were “not significant and did not give AWS a competitive advantage.”

Oracle did not give up. The company hired former members of the Trump administration and made its case to allies on key congressional committees. Largely as a result, the House Defense Appropriations Subcommittee blocked the DOD from spending money on JEDI until it demonstrated it was using multiple cloud vendors.

Then, in July, Trump himself got involved, saying he was considering intervening in JEDI. Soon after, the new secretary of defense, Mark Esper (a former chief lobbyist for Raytheon), requested another review.

Much of the information that has surfaced in the press about JEDI is the product of investigations performed by Oracle and its lawyers. Meanwhile, PowerPoint presentations and investigative reports containing allegations of all sorts of byzantine chicanery by Amazon began circulating last year. By the spring of 2019, multiple corporate interests had deployed private teams to investigate their rivals and DOD officials.

The Pentagon’s inspector general continues to investigate, according to a spokesperson, including “whether current or former DOD officials committed misconduct relating to the JEDI acquisition, such as whether any had any conflicts of interest related to their involvement in the acquisition process.”

The claims and investigations have left JEDI shrouded in uncertainty. The project might not survive in its current form, according to people knowledgeable about the DOD, but there’s little doubt that the agency will move its computing to the cloud in one form or another.

As for Donnelly, she left government again last year. A going-away party was thrown for her at the Pentagon. Jared Kushner and former White House economic adviser Gary Cohn attended. Today, Cohn is the chairman of the advisory board of a new firm that Donnelly has opened, Pallas Advisors, which she founded along with Tony DeMartino, the former DOD political appointee and ex-strategy consultant for SBD.

Pallas describes itself as a “strategic advisory firm” that provides “insight into how governments think and operate.” According to a person familiar with the matter, one of Pallas’ staffers, Robert Daigle — who had previously worked on the JEDI project at the DOD — turned up in early August in the offices of at least one U.S. senator. Daigle was accompanied by Chris Lynch, who has left the DOD and founded a company, Rebellion Defense, that is seeking defense contracts relating to artificial intelligence. (Rebellion’s board members include Eric Schmidt.)

Lynch and Daigle were pushing a familiar agenda from a new vantage point: They wanted to explain why a single-cloud makes sense for the Defense Department. And if their own companies got some new opportunities as a result, it went without saying, that would be just fine with them.

Claire Perlman contributed to this story.

propublica.org


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From: Glenn Petersen10/4/2019 2:26:59 PM
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Homeland Security moves its biometric database to the cloud in another win for Amazon:

Legacy Systems Held DHS' Biometrics Programs Back. Not Anymore.

By Jack Corrigan,
Staff Correspondent
NextGov
October 3, 2019 03:09 PM ET

The cloud-based HART system, which will house data on hundreds of millions of people, promises to significantly expand the department’s use of facial recognition and other biometric software, as well as its partnerships with external agencies.

The Homeland Security Department is retiring the decades-old system officials use to analyze biometric data, and its replacement is poised to both refine and significantly expand the agency’s application of the controversial technology.

The new cloud-based platform, called the Homeland Advanced Recognition Technology System, or HART, is expected to bring more processing power, new analytics capabilities and increased accuracy to the department’s biometrics operations. It will also allow the agency to look beyond the three types of biometric data it uses today—face, iris and fingerprint—to identify people through a variety of other characteristics, like palm prints, scars, tattoos, physical markings and even their voices.

And by freeing the agency from the limitations of its legacy system, HART could also let officials grow the network of external partners with whom they share biometric data and analytics capabilities, according to Patrick Nemeth, director of identity operations within Homeland Security’s Office of Biometric Identity Management.

“When we get to HART, we will be better, faster, stronger,” Nemeth said in an interview with Nextgov. “We'll be relieved of a lot of the capacity issues that we have now ... and then going forward from there we'll be able to add [capabilities].”

The agency’s existing platform, the Automated Biometric Identification System, or IDENT, was stood up in 1994 to help federal law enforcement officials collect and process fingerprints, but in recent years officials retrofitted the system with facial and iris recognition tools. Today, IDENT houses identity data on more than 250 million different people, and it serves as the “workhorse” for the department’s expanding biometric identification regime, according to Nemeth.

But as the agency rolls out facial recognition technology across U.S. airports and increases the use of biometrics at the border, officials are finding themselves constrained by their legacy tech.

“You can only take a 25-year-old system so far,” Nemeth said. “We need to have more throughput capacity, we need more storage, and you can't just keep adding to an old system. It's time to go back and re-architect it from the beginning for all that rapid access.”

Last year, Northrop Grumman won a $95 million contract to develop the first phase of the HART roll out, which, according to Nemeth, essentially amounts to building a leaner version of IDENT that can accept new biometric capabilities down the line. In June, the department released a solicitation for the second phase of the project, which will entail standing up those new capabilities and deploying the system within the department. Phase one is expected to wrap up in 2021.

According to the latest solicitation, HART will be housed in Amazon Web Services’ GovCloud, adding to the companies’ expansive portfolio of high-profile government clients. Homeland Security officials were initially hesitant to migrate such sensitive data to the cloud, Nemeth said, but they ultimately determined AWS would provide the same level of security as any agency data center. Other agency leaders have echoed those claims.

Still, Nemeth was quick to note his office doesn’t want to lock itself in with any particular vendor for either cloud services or biometric identification tools. Officials intentionally divided the HART roll out into two phases to prevent a single provider from monopolizing the department’s biometrics operations, he said. With recognition technology still in its early days, officials want the option to adopt new, better tools as they come to market.

“We're making sure that, given all the different [biometric] modalities and the way things are developing in the IT industry, we have options later on,” he said.

Officials will continue to use IDENT as it stands up HART over the next few years, Nemeth said, and they won’t officially retire the legacy system until its replacement has been tried and tested in the field.

Beyond raw computing power, the HART system also promises to improve the actual application of biometric technology by allowing the agency to check multiple data points, or modalities, at the same time. This “fusion” of different identifiers stands to improve the accuracy of officials’ assessments recognition, Nemeth said.

Today, when an official runs a person’s face, fingerprint or iris scans through IDENT’s massive database, the system doesn’t return a single result. Rather, it assembles a list of dozens of potential candidates with different levels of confidence, which a human analyst must then look through to make a final match. The system can only handle one modality at a time, so if agent is hypothetically trying to identify someone using two different datapoints, they need to assess two lists of candidates to find a single match. This isn’t a problem if the system identifies the same person as the most likely match for both fingerprint and face, for example, but because biometric identification is still an imperfect science, the results are rarely so clear cut.

However, the HART platform can include multiple datapoints in a single query, meaning it will rank potential matches based on all the information that’s available. That will not only make it easier for agents to analyze potential matches, but it will also help the agency overcome data quality issues that often plague biometric scans, Nemeth said. If the face image is pristine but the fingerprint is fuzzy, for example, the system will give the higher-quality datapoint more weight.

“We're very hopeful that it will provide better identification surety than we can provide with any single modality today,” Nemeth said. And palm prints, scars, tattoos and other modalities are added in the years ahead, the system will be able to integrate those into its matching process.

The phase-two solicitation also lists DNA-matching as a potential application of the HART system. While the department doesn’t currently analyze DNA, officials on Wednesday announced they would start adding DNA collected from hundreds of thousands of detained migrants to the FBI’s criminal database. During the interview, Nemeth said the agency is still working through the legal implications of storing and sharing such sensitive data. It’s also unclear whether DNA information would be housed in the HART system or a separate database, he said.

HART will also include a data warehouse and performance testing environment where Nemeth’s team can trial new tools and conduct broader analysis of the agency’s operations. Officials currently need to test tools, troubleshoot field equipment and run experimental queries in IDENT’s production environment, which pulls its limited computing resources away from agents in the field. With the new platform, officials can scale up those efforts without impacting the agency’s day-to-day operations, Nemeth said.

As the department deploys more biometric software in the field, lawmakers and civil liberties advocates have called for more regulations on the government’s use of the tech. Today, there isn’t a single law on the books governing the facial recognition and identification tools that are already widely used by federal law enforcement, and without regulation, many fear those applications could infringe on Americans’ civil liberties and perpetuate discrimination.

Critics have taken particular issue with the government’s tangled web of information sharing agreements, which allow data to spread far beyond the borders of the agency that collected it. The Homeland Security Department currently shares its biometric data and capabilities with numerous groups, including but not limited to the Justice, Defense and State departments.

In the years ahead, HART promises to strengthen those partnerships and allow others to flourish, according to Nemeth. While today the department limits other agencies’ access to IDENT to ensure they don’t consume too much of its limited computing power, HART will do away with those constraints.

“Currently, we have to be very mindful and use modelling to make sure the quantity, the volume that a new partner might want to use would not adversely affect all of our current stakeholders,” he said. “HART will raise that .”

While information sharing agreements themselves aren’t necessarily a bad thing, it all depends on how groups use the data they receive, according to Mana Azarmi, the policy counsel for the Freedom, Security and Technology Project at the Center for Democracy and Technology. A person might give information to a single agency thinking it would be used for one specific purpose, but depending on how that information is shared, they could potentially find themselves subjected to unforeseen negative consequences, Azarmi said in a conversation with Nextgov.

“The government gets a lot of leeway to share information,” she said. “In this age of incredible data collection, I think we need to rethink some of the rules that are in place and some of the practices that we’ve allowed to flourish post-9/11. We may have overcorrected.”

nextgov.com

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