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Microsoft Wins Largest Federal Contract for Cloud

Microsoft Corp. won a contract to provide Web-based e-mail and other services to the U.S. Department of Agriculture, making headway in efforts to gain share in the growing market for cloud computing.

The federal agency will move 120,000 users to the company’s Internet-based e-mail and conferencing software, said Redmond, Washington-based Microsoft. The company said it beat out Google Inc. and International Business Machines Corp. for the deal and the department confirmed it looked at all of the available competing options.

Technology companies are racing to lure customers that want computing delivered over the Internet from an outside provider, via the so-called cloud. The contract, which also involves instant messaging and document-sharing programs, is the largest U.S. government adoption of cloud software, Microsoft Vice President Ron Markezich said in an interview.

The department chose Microsoft because half its workers already use Microsoft’s Exchange e-mail software, Chris Smith, chief information officer for the Agriculture Department, said in an interview. Because cloud programs are typically stored on the provider’s server, customers can save money on machines and the cost of maintaining and updating the software.

Microsoft CEO Steve Ballmer discusses cloud computing. Photographer Saeed Khan/AFP/Getty Images Close

Microsoft CEO Steve Ballmer discusses cloud computing. Photographer Saeed Khan/AFP/Getty Images

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Microsoft CEO Steve Ballmer discusses cloud computing. Photographer Saeed Khan/AFP/Getty Images

“It gets us out of the hardware business and ultimately out of the software-refresh business,” Smith said. “It gets us out the business of owning the car, changing the oil, and doing the upkeep.”

Microsoft gained 36 cents to $27.23 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have declined 11 percent this year.

Google’s Recent Win

Smith said the department will pay about $8 per user per mailbox and is aiming to save $6 million next year. Microsoft’s Markezich declined to comment on the value of the deal, which will be administered by Dell Inc.

Google said today it wasn’t given a chance to bid on the contract. “When there has been a full and open competition --as with the General Services Administration, Wyoming, Colorado and Los Angeles -- customers have chosen Google Apps, and taxpayers are saving millions of dollars,” the Mountain View, California- based company said in an e-mail.

Google said last week that it beat out Microsoft for a $6.7 million contract to handle e-mail for the U.S. GSA. In October, New York City and the state of California opted for Microsoft’s cloud software, while Minnesota announced a similar agreement the previous month.

Google Lawsuit

Google sued the U.S. Interior Department in October, claiming it didn’t have the opportunity to compete for a messaging-software contract because the bid request specified a particular Microsoft product.

IBM also said it didn’t bid for the Department of Agriculture contract, according to spokesman Steve Tomasco.

Global cloud-computing sales may reach $148.8 billion by the end of 2014, up from $58.6 billion last year, according to researcher Gartner Inc. in Stamford, Connecticut.

The U.S. government has been quick to move programs to the cloud model because Vivek Kundra, chief information officer for the U.S., has pushed federal, state and local governments to look at the option as a way to save money as they update and consolidate systems, Markezich said.

To contact the reporter on this story: Dina Bass in Seattle at dbass2@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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