The EconomistJuly 13th 2019 Business 63O
ver thepast decade Amazon Web Ser-
vices (aws) lured untold numbers of
consumers and corporations onto its bil-
lowing cloud. The division earned its giant
e-commerce parent $7.3bn in operating
profits last year. It could soon be earning
more. Jeff Bezos, Amazon’s boss, is going
after a potentially more lucrative custom-
er: the government. Amazon has outspent
all technology firms on lobbying in the first
quarter, and is building a second headquar-
ters in Virginia, near the Pentagon.
No wonder. Next month the Defence
Department may award a cloud-computing
contract worth $10bn. The Joint Enterprise
Defence Infrastructure (jedi) initiative
aims to create a unified “war-fighter cloud”
to modernise the Pentagon’s existing net-
works and data centres. In April aws and
Microsoft edged out Oracle and ibm onto
the final shortlist.
jedi is just the start. America’s federal
agencies were slow to adopt cloud comput-
ing, notes Gary Labovich of Booz Allen
Hamilton, a consultancy. The cia led the
way in 2013 by awarding a $600m cloud
contract to Amazon (familiarising cautious
officials with aws). Today agencies are out-
sourcing with gusto. Bloomberg Govern-
ment, a research outfit, reckons that annu-
al spending on cloud computing by the
federal bureaucracy will leap to $5.3bn this
year, from $2.5bn in 2015. The feds will pay
an extra $4.6bn for related digital services.
Amazon may hit snags, however. For a
start, the mood in Washington, dc, is turn-
ing against Big Tech. President Donald
Trump has criticised Amazon and Mr Bezos
over two dozen times on Twitter. Bernie
Sanders, a leftie senator running for the
Democratic presidential nomination, in-
troduced a bill (dubbed “Stop bezos”) to
levy hefty taxes on giant firms. Chuck
Grassley, a Republican senator, has pressed
the Pentagon to answer allegations that it
its procurement process favours aws.
This points to a second niggle: Ama-
zon’s rivals are crying foul. In a case before
a federal court, Oracle is arguing that the
jedi procurement process was biased. The
Washington Postreported that Deap Ubhi, a
former Amazon executive named in the
lawsuit, tweeted, “Once an Amazonian, al-
ways an Amazonian”, in praise of Mr Bezos,
while allegedly involved in designing the
jedi process. The suit also questions meet-
ings between senior officials including
James Mattis, a former defence secretary,andAmazonbosses.awsandthePentagon
denyanyimpropriety.
The finalcomplication isapotential
backlashoverAmazon’scosinesswithgov-
ernment.InMaysomeshareholdersatAm-
azon’sannualmeetingcalledforittostop
sellingfacial-recognitionsoftwaretogov-
ernments.Theresolutionsfailedbutmay
resurface.(SanFranciscohasbannedcity
departmentsfromusingsuchtechnology.)
awshasalsocomeunderfireforsupport-
ingMrTrump’simmigrationcrackdown.
Confrontedlastyearwithanemployee
backlashagainstitssaleofartificial-intel-
ligence software to America’s armed
forces, Googlebacked off and withdrew
fromthejeditender.Amazonisstanding
firm.Last month Andy Jassy,who runs
aws, responded to employee concerns
abouttheuseofitsfacial-recognitiontools
inlawenforcementbycitinga coreAma-
zonprinciple: “Have backbone;disagree
andcommit.”Spokenlikea soldier.^7NEW YORK
Amazon is eyeing billions in federal
contractsBig Tech and big governmentJEDI orders
I
n the grand finale of #nextgen, an
event held last month at bmw’s head-
quarters in Munich to show off the German
carmaker’s vision for the future of mobil-
ity, Harald Krüger, its boss, unveiled the Vi-
sion dc Roadster. The staid 53-year-old
mounted the futuristic, angular motorbike
as if he were ready to ride off into the sun-
set. Shortly afterwards he was on his way.
On July 5th Mr Krüger said that he would
stand down with less than a year of his five-
year term remaining.
Rumours had been rife that bmw’s su-
pervisory board was about to announce
that, unlike his predecessor, Norbert Reit-hofer, Mr Krüger would not get a second
term. On his watch the company’s financial
performance has sputtered. More trou-
bling, it has lost the technological edge on
which the pulling power of premium
brands relies. His successor—widely
tipped to be Oliver Zipse, bmw’s head of
production—will need to soup up both.
For years bmw’s excellent cars and out-
standing profits were the envy of carmak-
ers. Its luxury saloons remain desirable
and returns have been decent. But despite
record sales of around 2.5m vehicles last
year, operating profits fell by 8% to €9.1bn
($10.7bn). Operating margins have halved
since 2011, to under 6% (see chart). A profit
warning in March has weighed on bmw’s
share price, which is down by 45% since a
peak in 2015, the year Mr Krüger took over.
It would be unfair to pin all the blame
on the outgoing boss. All carmakers must
contend with slowing sales in China, trade
tiffs and costly investments required to
cope with tighter emissions rules and up-
heavals such as electric vehicles (evs), self-
driving cars, carsharing and other mobility
services. Daimler, the maker of Mercedes
and bmw’s arch-rival, has also seen its mar-
gins shrink and last month issued its third
profit warning in a year.
But Mr Krüger has been slow to adapt
bmw to changing trends in technology and
consumer taste. Blingier Mercedes have
outshone conservative Beemers, and
Daimler overtook bmw as the world’s big-
gest premium carmaker in 2017. Early to the
spot the craze for suvs, bmw has failed to
exploit it; for every ten cars it makes, six are
saloons, the market for which is shrinking
fast. For all Mr Krüger’s talk of bmw as a
“tech company” it has not produced a cut-
ting-edge ev since the i3 and i8, two inno-
vative vehicles introduced under Mr Reith-
ofer. Daimler, Audi and Jaguar all have.
At least bmw no longer appears to be
asleep at the wheel. It wants to launch 25
new electric and hybrid vehicles by 2023,
two years earlier than previously planned.
On July 9th it presented a battery-powered
version of its popular Mini hatchback. A
tie-up with Daimler to pool investments in
mobility services, and with Jaguar Land
Rover to develop evs, has met with the ap-
proval of analysts. Such manoeuvres, com-
bined with a focus on more lucrative mod-
els, could help bmwto cut a cumulative
€12bn in costs over the next four years and
restore margins to a healthy 8-10%, insists
Nicolas Peter, its chief financial officer.
But rivals are not standing still. Many
have more ambitious targets for evs. bmw’s
plans for a world of ride-sharing and self-
driving cars—where the appeal of luxury
motors is less obvious—do not differ radi-
cally from those of competitors. Re-engi-
neering the “ultimate driving machine”, as
bmw styles itself, for the new age will not
be easy for whoever replaces Mr Krüger. 7MUNICH
A German carmaker tries to turn a
corner—and loses a bossBMWTune-up time
Shifting downSource:EvercoreISIBMW, operating profit margin, %*Forecast0246810122010 11 12 13 14 15 16 17 18 19*