President Donald Trump shakes hands with Microsoft CEO Satya Nadella during an American Technology Council roundtable at the White House in Washington on June 19, 2017.
Nicholas Kamm | AFP | Getty Images
In a move lauded as a win for taxpayers and a strategic play by Big Tech, Microsoft (MSFT) has reportedly clinched a significant deal with the U.S. General Services Administration (GSA), pledging a potential $3.1 billion in savings on cloud services utilized across federal government agencies. This comes as President Donald Trump’s administration doubles down on its “OneGov” initiative, a procurement strategy aimed at leveraging the government’s massive buying power to drive down costs.
Several tech giants, including Adobe (ADBE), Amazon (AMZN), Google (GOOGL), and Salesforce (CRM), have already offered discounts, indicating a competitive landscape in the race to secure government contracts. However, Microsoft’s latest offer could significantly undercut its rivals and further solidify its position as a key technology partner for Uncle Sam.
Under the terms of the agreement, government agencies must procure through the GSA to access these discounted rates, which span until September 2026. Microsoft estimates total savings exceeding $6 billion over the three-year period.
The cost reductions apply to a broad suite of Microsoft’s offerings, including the ubiquitous Office productivity subscriptions, Azure cloud infrastructure, Dynamics 365 business applications, and Sentinel cybersecurity software. As a sweetener, Microsoft is throwing in a year of complimentary access to its Copilot AI assistant for millions of government workers holding Microsoft 365 G5 subscriptions, potentially accelerating the adoption of AI technologies within the federal sector.
“Switching to these lower prices will be seamless for agencies,” noted Josh Gruenbaum, the GSA’s Federal Acquisition Service commissioner, who previously held a director position at private equity firm KKR. Gruenbaum highlighted the GSA’s oversight of approximately $110 billion in spending on common goods and services, representing a significant portion of the federal government’s total $450 billion expenditure.
The GSA is actively expanding its procurement portfolio, incorporating services for NASA and the National Institutes of Health, in line with an executive order signed by President Trump in March, designed to consolidate procurement and eliminate waste.
With around $80 billion allocated to IT spending, Microsoft’s annual revenue from the U.S. government is estimated to be in the mid- to high-single-digit billions of dollars, making the federal government a crucial customer.
“It’s no surprise that Microsoft is one of the most critical partners for the federal government in terms of its software and the tooling that we use around both the civilian side and the defense side,” Gruenbaum stated.
Gruenbaum revealed he had engaged in extensive discussions with Microsoft CEO Satya Nadella regarding the deal. “I think the biggest piece is he wants to partner with this administration and get this right for AI adoption,” Gruenbaum explained. “But I also think he wants to go and take market share from some of the other tools and services that are out there,” suggesting a dual motive for Microsoft’s aggressive pricing: fostering government adoption of AI and eclipsing competitors.
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