As Microsoft makes one its fastest-growing cloud software businesses available for government, it will ramp up pressure on rivals like Salesforce, analysts say (MSFT, CRM)


Satya Nadella Marc Benioff

  • Microsoft has been ramping up its offerings for government cloud contracts, most recently winning the Pentagon’s $10 billion JEDI contract for cloud computing services. 
  • Before that, Microsoft won the DEOS contract to provide cloud software tools to the Department of Defense, and it added versions of Microsoft Teams, Microsoft Power Platform, and Dynamics 365 Customer Engagement to that offering. 
  • Earlier this week, it made another Dynamics 365 tool focused on customer relationship management available for government usage — a sign that Microsoft may put more competitive pressure on Salesforce for government customers. 
  • Analysts say Microsoft’s history of working with government could make the market more competitive for Salesforce, who has invested heavily in making its tools usable by government agencies. 
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Microsoft has been making itself into a formidable contender for government cloud contracts, for both cloud computing infrastructure and cloud software and applications.

Now, a new tool that Microsoft is adding to its offering for government cloud contracts puts increased pressure on competitors like Salesforce that have similar cloud software offerings for governments. Analysts say its a sign that Microsoft is ramping up in the space, meaning the market will get more competitive for Salesforce.

“Salesforce has a deep integration, has been long committed to this, and has a solid footprint. But it’s logical for Microsoft to get into this space. And I am confident that Microsoft will be able to make an impact in this market, based upon its current momentum and its strength and its relationship with the federal government,” Dan Newman, an analyst at Futurum Research, told Business Insider. 

Most recently, Microsoft won the highly coveted $10 billion Joint Enterprise Defense Infrastructure (JEDI) contract to provide cloud computing services to the Pentagon. 

Before that, it was awarded the $8 billion Defense Enterprise Office Solutions (DEOS) contract through reseller partners, to bring cloud software to the Department of Defense. In addition to providing cloud productivity software for email, messaging and word processing, Microsoft said during the bidding process for DEOS in March 2019 that it had created versions of Microsoft Teams, Microsoft Power Platform, and Dynamics 365 Customer Engagement that complied with government rules and standards. 

Microsoft Dynamics 365 is a set of cloud-based business applications that can be used for customer relationship management and financial planning. It’s a business that Microsoft is heavily focusing on. In its last earnings report, Microsoft said Dynamics 365 revenue increased over 40% from a year prior, though it doesn’t disclose specific revenue figures.

As part of a set of updates to Dynamics 365 earlier this week, Microsoft said another Dynamics 365 app will be available for government customers — its Dynamics 365 Customer Insights tool. The tool is essentially a way for organizations to track all the data it has on its customers in one single place, and interact with customers on all the platforms they might be using.

This tool isn’t a new concept. Salesforce has developed a similar tool to help organizations identify their customers across all of their devices, and across the sales, service, and marketing departments.

A logical expansion and increased competition

In order to get government users, Salesforce had to build a more secure and protected version of its platform that had the right security and compliance features needed for technology used by the U.S. government. 

Microsoft has done the same, and Newman notes that as it continues to develop government versions of its Dynamics 365 tools, it will be making sure it meets those standards as well. He added that it’s a logical for Microsoft to expand its business applications into government usage given that their productivity tools and cloud computing services are already offered and can be integrated with Dynamics. 

“This is sort of a broader story developing. All big tech companies want to do all the big tech for everybody,” Newman said.

Rebecca Wettemann, an analyst at Valoir, said Microsoft’s history in working with the US government will give it a big boost as it expands its offerings for government cloud. 

“This is a great way to be able to check off that box for them from a technology perspective and it certainly means that they’re going to be more competitive there,” Wettemann told Business Insider. 

She notes that it’s hard to compare Microsoft and Salesforce’s government cloud offerings because they both have strengths. Microsoft has an advantage by being able to integrate with its productivity apps and offers the financial planning software that Salesforce doesn’t, she said. However, Salesforce has invested heavily in making its tools usable by government agencies. 

She expects that as the competition heats up, Salesforce will start to be more vocal about big government customers it is able to sign on. She also thinks Salesforce will start to use its online learning platform, Trailhead, to attract customers in the government sector, in addition to other sectors. 

“Leveraging what they’ve been able to with Trailhead and Trailhead communities is going to be a key piece for them competitively moving forward in government as well as other verticals,” Wettemann said. 

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