Is Microsoft becoming a dangerous creature of its country’s military-industrial complex, the way the United States claims that Chinese tech company Huawei is?
Besides allegations that they both harvest customer data, the two tech giants have another thing in common: military contracts.
According to a Quartz post in May, one of the nuggets of “evidence” that has led to the landslide of charges and U.S. trade sanctions against Huawei came in 2005, when a report by the Rand Corporation (a quasi-official U.S. government think tank) estimated that Huawei’s sales linked to the Chinese military could be anywhere from less than 1 percent of revenues to as high at 6 percent.
Turns out that Microsoft’s $1.79 billion in military contracts, awarded so far in 2019, equals just under 1.94 percent of its declared annual revenue (to April 24) of $92.126 billion; this is according to public figures gleaned from the U.S. Department of Defence (DoD). (All amounts are in U.S. dollars.)
This represents the highest ratio of direct DoD contract-revenue for Microsoft, going back to July 2014.
But, if later this summer the DoD awards its $10 billion JEDI contract for cloud services to Microsoft, rather than Amazon (as is largely expected), then Microsoft will make over 3 percent of its 2019 revenue from the U.S. military.
And aside from direct contracts with Microsoft, there are also DoD contracts with licensed resellers of Microsoft software and services, which should be factored in—they are further evidence of the tight relationship between Microsoft and the Pentagon.
Thus in 2018, while Microsoft’s direct DoD contracts only amounted to $747.25 million, there were another $3.84 billion-worth of military contracts with third-party resellers of Microsoft Windows and Windows software support.
The combined value of all Microsoft-related DoD contracts in 2018 was over $4.59 billion, or 4.16 percent of Microsoft’s revenue of $110 billion for that year.
Microsoft is, therefore, a company with deep (and troubling) military ties, on a par with Huawei—at least by the measure of the 2005 Rand Corporation report.
Chinese military-industrial complex looks awfully familiar
That 2005 Rand Corporation report—titled, A New Direction for China’s Defense Industry—was commissioned by the U.S. Air Force and could be described as a sort of wake-up call intended to convince the U.S. military and its civilian masters to stop underestimating the Chinese tech threat, on both the economic and military level.
In the report, Rand describes Huawei as one of a new breed of Chinese companies (in the tech sector and notably also in shipbuilding) that are the especial focus of state funding and research largesse.
These Chinese companies operate in the world as designated “national champions”. At the same time, explains Rand, they are “genuinely commercial in orientation, seeking to capture domestic and eventually international market share”, not to mention world-class expertise.
The Chinese military, says Rand, benefits as a favoured customer and research partner of these companies.
Rand does not actually attribute Huawei’s successful growth to intellectual property theft and industrial espionage but rather to something it calls the “Digital Triangle”, which consists of:
- An exploding Chinese information technology sector in China, that attracts western partners and legitimate technology transfers.
- State research and development and funding.
- Military contracts.
Rand describes this as “a classic techno-nationalist strategy à la Japan”.
Maybe so but it also sounds like the military-industrial complex of post-Second World War United States—that nexus of big government, big science, and big business that gave birth to the wonderfully awful postwar American dream, from automobiles and automatic weapons, to the Internet and intercontinental ballistic missiles.
I actually need convincing that the favoured position of Huawei and Lenovo and ZTE and the other Chinese “national champions” in China today is materially different than the position of General Motors, IBM, Northrop, Hewlett-Packard, et al, in the U.S. of the 1950s through the 1970s.
Fifty years ago, American multinational corporations such as GM, IBM, and Standard Oil/EXXON were likewise seen as “national champions” and given every possible advantage by the U.S. government to smooth their way in the world.
It is hardly surprising if China (like Japan and Korea earlier) is now trying to copy this most successful example from the heyday of American state-sponsored capitalism. It’s also not surprising if the prospect of China getting it right scares the crap out of the U.S. government.
U.S. military likes Microsoft’s SaaSy new business model
In a Form 10-K submitted, no later than June 30th, 2018, to the U.S. Securities and Exchange Commission as part of its filings for fiscal 2018, Microsoft states that “substantial revenue comes from our U.S. government contracts”.
This claim is certainly backed up by the Unites States Department of Defence (DoD) Contracts website, which states that it announces the award of all DoD contracts valued at $7 million or more (excluding covert funding, one assumes).
A search of “Microsoft” and recent” returns 26 contracts awarded from June 14, 2019, back to July 9, 2014.
The total value of all Microsoft-related DoD contracts for the period of nearly five years is $8.35 billion, with $4.16 billion in direct contracts with Microsoft and $4.19 billion-worth of contracts with licensed resellers.
A striking fact is how Microsoft’s publicly listed revenue from U.S. military contracts appears to be growing, thanks largely to the company’s shift, since 2015, to a software as a service (SaaS) business model and since it emerged as a power in cloud-based computing with its Microsoft Azure cloud platform.
Note: SaaS means delivering software capability over the Internet (a.k.a., the “Cloud”) and billing it like a metered service.
Microsoft’s biggest recent DoD contract—awarded in January and worth $1.7 billion—is firmly rooted in cloud computing.
And the mammoth $10 billion JEDI contract that Microsoft is the favourite to get later this summer is entirely about providing the U.S. military with a cloud-based computing infrastructure.
DoD contracts with Microsoft unless otherwise noted:
June 14, 2019: Additional $25,395,860 as part of an already-awarded Network as a Service (NaaS) contract.
April 24, 2019: $7,269,740 firm-fixed-price contract for Microsoft enterprise services.
January 11, 2019: Five-year, estimated $1,760,000,000 contract for Microsoft Enterprise Services for the Department of Defense (DoD), Coast Guard, and intelligence community.
November 29, 2018: Blanket Purchasing Agreement (BPA) with several supplier for $3,170,000,000 to provide Microsoft perpetual software licences and annual subscriptions for DOD, U.S. intelligence community, and U.S. Coast Guard activities worldwide.
November 28, 2018: $480M contract with U.S. Army for Microsoft Hololens.
September 26, 2018: $34,350,473 to execute the enterprise information technology as a service network as a service experiment.
June 28, 2018: $13,499,934 for nonpersonal consulting services for Enterprise directory, systems management, Army Golden Master sustainment support, SharePoint, and Enterprise service management system.
June 1, 2018: Regan Technologies Corp awarded $22,684,415 to provide Microsoft software and software support for the Defense Health Agency (DHA) and partner agencies.
June 20, 2018: $19.4 million contract with U.S. Immigration and Customs Enforcement (ICE).
May 4, 2018: Insight Public Sector Inc. awarded estimated $653,210,000 BPA to provide Microsoft brand-name software licenses, software assurance, and cloud offerings to the Department of the Navy (DON).
September 25, 2017: Lockheed Martin awarded $8,213,328 modification to implement Microsoft Windows upgrade of operational mission planning element platforms.
September 3, 2017: L3 Technologies Inc. and others awarded $7,943,687 to update obsolete F-16 MTC software and hardware, to include implementation of Microsoft Windows 10.
June 22, 2017: Insight Public Sector awarded $8,600,231 BPA under the Department of Navy Enterprise Software Licensing initiative to provide Microsoft licences and software.
January 31, 2017: SHI International Corp. awarded $13,657,127 for Microsoft software assurance and licence subscription services.
December 30, 2016: $34,371,098 for consulting support services for mature Microsoft products acquired by Air Force under the Microsoft Joint Enterprise License Agreement.
December 20, 2016: $927,000,000 for Microsoft Enterprise Technical Support Services to obtain highly-trained Microsoft Blue Badge Cardholder support.
December 1, 2016: $44,742,615 contract with Air Force for Microsoft Premier Support services.
April 22, 2016: $31,100,000 for premier support services for Army.
January 15, 2016: Minburn Technology Group LLC awarded $115,000,000 to procure commercial Microsoft software licenses and software assurance in support of U.S. Special Operations Command Headquarters Procurement Division.
August 28, 2015: $575,000,000 for Microsoft enterprise technical support services.
June 9, 2015: $9,149,000 for Microsoft Premier Support services and Microsoft Custom Support services for Windows XP, Office 2003, Exchange 2003 and Server 2003.
May 29, 2015: Insight Public Sector Inc. awarded $30,934,596 BPA to procure Microsoft enterprise licences and support, known as software assurance.
May 15, 2015: Insight Public Sector awarded $156,106,996 BPA under the Department of the Navy Enterprise Software Licensing Initiative to provide the renewal of existing software assurance and new Microsoft software licences.
December 23, 2104: En Pointe Gov Inc. awarded $11,207,546 or Microsoft software assurance, maintenance, and support.
September 25, 2014: $7,572,520 to provide nonpersonal Microsoft consulting services for various Army functions.
September 24, 2014: $11,600,029 for Microsoft Premier Support Services.
July 9, 2014 : InfoReliance Corporation awarded an estimated maximum of $8,932,350 for Microsoft Consulting Services (MCS) in support of the Defense Threat Reduction Agency Directorate of Information Operations (J6).