Microsoft to keep 'foot in door' despite Israel cloud tender loss

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Even though AWS and Google Cloud won the Nimbus tender, sources tell "Globes" that the Israeli government will renew its contract for Microsoft Office cloud services.

Microsoft Corp. (Nasdaq: MSFT) recently withdrew its appeal to the Israeli courts after losing in the huge NIS 4 billion tender for the government Nimbus cloud computing project. Nimbus includes migrating the data from all Israel's government ministries and authorities onto the cloud and the tender was won by Amazon Web Services (AWS) and Google Cloud.

In withdrawing its petition, Microsoft gave no explanation for the sudden change of heart about its objections to its rivals winning the tender but sources familiar with the matter have told "Globes" that Microsoft is currently benefitting from the growing use of its services by Israeli government ministries. In addition, Microsoft also expects that the state will extend the agreement to use its personal computer (PC) software, which represents for the tech giant a kind of 'foot in the door' in being able to continue providing services to Israel's government ministries, even after such services are transferred to rivals Google and AWS.

Bodies such as the Ministries of Finance, Transport, Justice, Health and Tourism use the various services associated with Microsoft's PC cloud products and Office 365. The most popular service of all is Microsoft's Teams communications platform as well as the various Office applications including Word, Excel, Power Point and the Planner management software, the forms software which is used extensively by Israeli ministries and public bodies.

An opening for the use of cloud products

According to the protocols of the tender signed by Microsoft, Israeli government ministries are entitled to use Microsoft PC applications such as word processing and power point presentations only when they are installed on the computers of the government and public bodies. However, the package purchased by the government from Microsoft also allows ministries an opening to use Unified Cloud management applications of Office 365, if approval is granted by a special committee of the Ministry of Economy ICT Authority "Cloud Committee." Despite that "Globes" has been informed that ministries continue to use the Unified Cloud Management applications of Office 365, without the approval of the "Cloud Committee."

Even though the generalities of the original agreement between the state and Microsoft saw use of Microsoft cloud products as the exception, over time government ministries have invested millions of shekels in upgrading Microsoft's various cloud services. For example, the Rabbinical Courts have spent nearly NIS 1.2 million on upgrading Microsoft Office 365, in addition to training seminars including lunch for these seminars.

Investments of millions

Many government ministries are dependent on the large number of Microsoft products regardless of the Office 365 tender. The Ministry of Health, for example, invested NIS 6 million in buying cloud services from Microsoft. The Ministry of Justice invested NIS 300 million in upgrading its data security systems for Microsoft in the cloud and the Ministry of Foreign Affairs purchased storage services and publicity management materials from Microsoft Azure cloud services for NIS 251,000. It should be stressed, however, that these services were bought before AWS and Google Cloud won the Nimbus tender.

The Office agreement between the state and Microsoft is in effect until the end of 2022. Despite the Nimbus tender being awarded to AWS and Google Cloud, the Government ICT Authority believes that the next agreement with Microsoft for cloud products will almost certainly be signed, with negotiations expected to be concluded by the end of the third quarter for a contract extension.

The date for government ministries to move to the cloud servers of AWS and Google Cloud has not yet been finalized. "Globes" understands that the Government ICT Authority and the Ministry of Finance Procurement Administration are already preparing the transition of government servers to Google Cloud and AWS. In the past few weeks, probably due to the results of the tender and the legal appeals, the approvals to upgrade the cloud infrastructures have been issued in only small numbers and many applications have been delayed.

"In no rush to move to the cloud

Government employees are full of doubts. A senior executive with a data systems company that works with the government told "Globes," "The Ministry of Finance will encourage computer personnel in government offices to move to the cloud storage or cloud security of AWS and Google but I don't see them conducting the migration so easily to places where Google and AWS don't have a relative advantage.

"Government ministries can ask AWS or Google to finance the move to one of their partners and if they refuse then there won't be a move and Microsoft will continue to serve them. All the local authorities, the Israel Electric Corp., Mekorot, all work with Microsoft and I find it hard to see how government ministries won't be able to connect to them with the same type of programs."

Another source said, "Microsoft hopes that the Ministry of Finance will make Office products exempt from the tender, or that the delay created by the appeal will result in the Office agreement being extended. It is not impossible that that was one of the reasons for the withdrawal of the appeal by the software giant. Despite the loss, Microsoft is banking on having its 'foot in the door' even after its current major loss in cloud services."

Committed to the tender

The Government ICT Authority said, "In exceptional instances, subject to approval from the Cloud Committee and the Procurement Administration use will be made of some of the products of Office 365. From the moment that the winners were selected for the Nimbus tender, the Government ICT Authority has been strenuously engaged in the migration of government ministries to using the clouds of the winners."

The Ministry of Finance Procurement Administration said, "The Nimbus project and cloud tender in particular were managed professionally and thoroughly, with its many complexities. Due to this we understand why Microsoft announced that it does not plan to file an appeal against the results of the tender. As a rule, the government will purchase public cloud services from the winning suppliers of Nimbus and all other assessments and comments are groundless."

Published by Globes, Israel business news - en.globes.co.il - on August 25, 2021

Copyright of Globes Publisher Itonut (1983) Ltd. 2021

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