Microsoft’s Military Empire, Explained

A few weeks ago, I was researching Google's work with military drones when I noticed something really weird in the footage. Take a look. This Air Force officer is flying a $60 million drone using an Xbox controller. This got me thinking.

This country has always relied on having access to the best technology.

American tech companies have largely turned their backs on the US Military. Thousands of Google workers now protesting Google's.

Involvement in a Pentagon drone program.

But Microsoft hasn't. They've gone the completely opposite direction.

Tatiana Nadella said, if technology companies do not help the U.S. we're in a whole load of trouble.

Microsoft has used its traditional strengths to build a military empire. I wanted to know how the company best known for spreadsheets and Word documents do it. So I mapped out each of their major military projects, and the results were fascinating. Microsoft is trying to completely change the nature of warfare. But it hasn't all gone exactly as they planned. To understand how Microsoft became a key part of the US Military's technology strategy, you have to understand Bill Gates. Today, he's a laid back philanthropist working on problems like global health. But he ran Microsoft like a drill sergeant.

You never understood the first thing about this.

Back in the 1970s, computers were really only used in labs or in offices. That made sense. They were massive, expensive machines designed to speed up highly specific tasks. The companies that dominated the market back then believed that no average person would ever want their own computer. Bill Gates saw things differently.

Well, I think we will get one in every office and in every home.

Build your own computer. Kits were growing in popularity. Indie hackers were starting to use computers at home, and the technology was getting cheaper. Clearly, there was about to be a massive avalanche of technological progress. The snowball that triggered this avalanche was the Altair 8800. The Altair was one of the earliest personal computers. To modern eyes, it looks like an alien artifact. It didn't have a screen or a keyboard. You had to operate it using a series of switches and lights on the front panel. It didn't even come fully assembled. But that didn't stop people from buying it. The Altair flew off the shelves. Bill Gates and his old buddy from high school, Paul Allen, started writing software for the Altair. Their first release was a version of the basic programming language that let Altair users write and run their own simple programs.

Became, for the first generation of PCs, the thing that unlocked the power that was there.

Bill was obsessed with details. He ran Microsoft like a general in wartime. For Bill, business was war and competitors had to be destroyed. He was going up against an absolute giant, IBM. But giants can't move fast. IBM was a decades old bureaucracy at this point. Eventually the success, the success of the Altair made IBM realize that they needed a personal computer strategy. The execs knew that they couldn't make a breakthrough product by just doing things the old way. So they created a skunk work style R and D lab in Florida. The IBM team began work on their first personal computer. They needed a software. As soon as they met Bill Gates, they were convinced that he was the best option. Bill was still really young, but he knew more about software development than basically anyone else at the time. So the two parties formed an alliance. Bill and his team would provide IBM with an operating system. But crucially, it wouldn't be an exclusive deal.

We have to be able to sell it to other outfits.

The deadline to deliver was tight. So instead of trying to build everything from scratch, Bill bought an existing operating system from a small company named Seattle Computer Products. Microsoft engineers modified that operating system and renamed it Ms. Dos. This was short for the Microsoft Disk operating system. It was a clever move, but like a general pressing home his advantage, Bill didn't stop there. IBM wanted to pay a fixed price for the software license. But that would have limited Microsoft's upside, and Bill knew that. So he went back and demanded a royalty arrangement. This gave him a guaranteed income stream and set Microsoft up perfectly to dominate the rapidly growing PC software market. By 1991, Microsoft was making more than $200 million a year from Ms. DOS. Bill had executed flawlessly, but that was just the first stage of his quest for dominance. The PC growth wave of the 80s and 90s meant that software became a key part of how large organizations. Eventually, one of the biggest of them all, the United States military, gave Bill Gates a call. In the mid-90s, the Navy had a big debate over what operating system should power their warships. Their ultimate goal was to develop a smart ship system that used off the shelf PCs to automate tasks that sailors had traditionally performed manually. If it worked, the Navy stood to reduce the crew workload, improve combat readiness and ultimately create a safer operating environment. UNIX based systems like Linux were open source, stable and flexible. But the fact was that everyone in the Navy was already using Windows at home. Sensing his opportunity, Bill Gates pitched the Navy on something he called Windows for Warships, A bespoke version of Windows NT 4.0 that would serve as the standard operating system on Navy vessels. Windows for Warships is still with us today, and not just in the United States either. The British Royal Navy still uses A variant of Windows for Warships to provide tactical information and torpedo controls across all of its active submarines. But upgrading the US Navy's fleet wasn't easy in practice. In 1998, the USS Yorktown aircraft carrier suffered a system failure that left it dead in the water for two and a half hours. And the new Windows operating system was squarely to blame. It was the kind of thing that was embarrassing in peacetime but potentially fatal in wartime. Following the Yorktown debacle, it became easy to question the decision to go with Windows. Critics said it was rushed and based more on politics than engineering requirements. The source of the problem was pretty simple too. One extra zero fed into just one application on the network created a divide by zero error that crashed everything. It was a big setback for the Windows for Warships program. But at the time, Microsoft was still riding high. It was the biggest company in the world. Military contracts were just a small share of its overall business. However, struggling to deliver high quality products to the military was just part of the problem. For Microsoft, the dot com crash was like the world's worst roller coaster.

Microsoft has the power today to exercise predatory and exclusionary control.

We believe the courts will ultimately find that all of Microsoft's actions have been completely legal and good for consumers.

At its peak in 1999, Bill Gates presided over a $620 billion company, by far the biggest in the world. Just two years years later, Microsoft had lost 60% of its value. And worse still, the company was floundering.

This is the end of an era.

Their arrogant dominance in the computing industry turned into uncertain anxiety. Part of the problem was that the all conquering general had handed over control of the company to Steve Ballmer. What was once a laser focused strategy quickly became fragmented. And this wasn't just because of Ballmer. He was trying to make Microsoft succeed when the battlefield conditions had changed. Microsoft's original mission was to put a computer with Windows into every home. And they'd basically done it. But every company needs a second act. And unfortunately for Microsoft, it took years for them to find new focus. Under Ballmer's leadership, Microsoft lost its core identity. Between Windows Office, the Xbox and various developer tools, the company went from not really diversifying at all to diversifying way too much. None of Microsoft's major initiatives were at the forefront of the next major tech waves. The PC growth wave that turned Microsoft into the world's biggest company was over. The 2000s were an era dominated by consumer Internet and mobile devices. And Microsoft didn't have a winner in either category. Apple introduced the ipod in October of 2001. It took Microsoft five years to release the Zune, which flopped and was discontinued in 2011. The iPhone was launched in June of 2007. It took Microsoft three years to release the Windows Phone, which also completely flopped. Google's search engine launched in 1997. It took Microsoft 12 years to put out a competitive product. And when it did arrive, it was Bing. Today, Google has 92% market share in search. Bing has just 2%. All of these launches were reactions, and none of them played to Microsoft's strength. The company that had been such a fearsome leader became a meek follower. But the incredible and ongoing success of Windows had left Microsoft with one key strength distributing to enterprise customers. Microsoft was still trusted by the world's largest corporations, many of which ran on Windows and Word. They needed to leverage those relationships next time. There was a major tech trend in the early 2010s. Virtual and augmented reality technology looked like the next big thing. So Microsoft got to work. They introduced the Xbox Kinect in 2010 and the first HoloLens in 2016. But Microsoft ultimately believed that augmented reality was too cumbersome for everyday consumers. So unlike other headsets like the Oculus VR, which were aimed mostly at gamers, Microsoft positioned the HoloLens as a professional device for large corporations. Selling to large enterprises would leverage Microsoft's key strengths. And enterprises don't come much bigger than the US military. Microsoft won a massive $22 billion contract for a project called the Integrated Visual augmentation system, or IVAS. This will see over 100,000American soldiers equipped with augmented reality headsets based on the HoloLens technology. The IVAS project is actually just the latest in the installment of the military's obsession with augmented reality that dates back to the 1980s. The army had identified that technology was transforming battlefield intelligence. Satellites and drones were generating so much data that old technologies just weren't keeping up. But with the right gear, that raw data could be transformed into useful information. This early thinking became a prototype army project called the Soldier's Computer. It was far from perfect. The screen used for the heads up display was the same one used in Nintendo's Virtual Boy. It was low resolution and could only display things in. And the Virtual Boy was a big flop with consumers and critics. But for some reason, military officials were determined to succeed. So they doubled down and moved the soldiers computer project to the US Army's Natick Soldier center in Massachusetts. There was no better place for the augmented reality tech to be put through its paces. Project's budget was increased. With more money now on the line, this looked like the moment where this technology would either prove its viability or be canceled entirely by the Department of Defense. In 1992, the soldier's computer went into field testing. At first, everything was going smoothly. Soldiers were really happy about how the thermal imaging increased their sight range. And the ability to fire around corners while staying in cover was truly novel. But the drawbacks quickly became apparent. First off, the head mounted display was extremely clunky. Data transfer lagged by up to 75 seconds. That is, if the system just didn't crash entirely. The U.S. army Research Institute published a report which included some very honest opinions from soldiers. They called it junk. They said it sucks. And they all mentioned how painful it was to wear.

I don't know who ever put it on a soldier's back, who's walking the street, hopping a wall, going through a door, or coming out of a hatch. We just wanted it to go away. We didn't want anything to do with it.

The package added about 40 pounds to a soldier's pack. For comparison, the meta Oculus Quest 2 weighs just over one pound. And honestly, people don't really like wearing the Meta Oculus Quest 2. That if people aren't going to wear a 1 pound VR headset, soldiers are definitely not going to be cool with wearing a 40 pound VR rig. But despite this, enough people high up in the military still believed in the program. So it survived and work continued. Eager to move past earlier failures, the DoD rebranded the project and started calling it land Warrior in 1996. They even approved a billion dollar budget for it. The DoD then appointed a colonel to act as an interface between the engineers building the product and the soldiers who would actually use the. But even with all of this in place, the project still had one big flaw it just couldn't get over. In order to take advantage of the latest technology, the military had switched to using consumer hardware as a foundation for the Land Warrior project. The gear didn't work in the rain, and it couldn't withstand electromagnetic interference. Now, this isn't a problem for VR gaming on your couch, but it's a huge problem when you're a soldier in the middle of a battlefield. Trying to solve these problems blew out budgets. By 1999, spending on Land Warrior had increased by 50%. If a private company was burning this much cash with nothing to show for it, the project would get scrapped. Investors would start asking tough questions. But too many of the military's leaders had staked their reputations on Land Warrior. So failure just wasn't an option. Now, the main guy driving this whole vision forward was William Owens. Owens was a Navy admiral who served as the vice chairman of the Joint Chiefs of Staff during the Clinton administration. In other words, he had the ear of the president. Owens was the biggest advocate in the armed forces for what he called network centric warfare. And he actually laid out his entire vision in this great Charlie Rose interview from the mid-90s.

I genuinely believe in the next five years there will be a revolution in the way this nation fights wars. And it will come primarily from the smart front end of war fighting. That is the ability to use high technology surveillance of a very large battlefield, a battlefield perhaps the size of North Korea or Iraq, and with the ability to see that battlefield 24 hours a day, real time, all weather. We have never in the history of war fighting ever seen the battlefield that way.

That vision was highly compatible with the army's new post Cold war strategy of a smaller, better equipped fighting force. By the time the United States invaded Iraq, Land Warrior was ready to be deployed. In 2005, 229 US infantry soldiers were fitted with Land Warrior Heavy. It had been almost 20 years since the project began, but it was finally getting traction. And it had just found a use case. Soldiers deployed in Iraq used their Land Warrior gear to digitally mark safe regrouping points. But soldiers still didn't really love it. It still needed a lot of work. By June 2010, under the Obama administration, Land Warrior was rebranded again to Net Warrior. The bulky pack and headgear was gone, and in its place, a respec'd Android phone secured to the soldier's chest. Mobile technology had become good enough to fulfill most of William Owen's vision. But the army still thought it needed more to show for all its work and money spent. So in 2019, they invited Microsoft engineers to a military base to teach them about what soldiers needed from an augmented reality headset. That weekend marked the birth of IVAs. You might think, given the decades of work that had gone into the project and Microsoft's years of experience with augmented reality, that progress would be smooth. But IVAS was plagued with problems. From day one, it kind of felt like everything was back at square one. But billions of dollars later, Microsoft and the army are determined to make IVAs work. The project has huge potential to improve soldiers awareness and effectiveness. And besides, Russia and China are working on their own IVAs style programs. So the United States is determined not to fall behind. The current plan is to get working HoloLens headsets into the field by the end of 2023. But ultimately, IVAs might not even matter because Microsoft's work with the military goes way deeper. The consumer Internet and mobile device trends were both underpinned by a major shift to the cloud. When your phone or laptop performs operations, they're usually not performing those locally. Instead, those calculations are on being done on a server in the cloud. This time, Microsoft was determined to ride the new wave. Their history with cloud computing dates back to 2006 and an experimental project to put Windows into the cloud. But businesses didn't want Windows in the cloud. They wanted flexibility. And that's exactly what Amazon Web Services AWS delivered. By the time Microsoft released the Azure cloud computing platform in 2010, they were a long term way behind Amazon. But they had one key distributing the products they made to big customers. Microsoft studied Amazon's strategy very closely and improved Azure. Once they had a solid product in place, they started including Azure credits in their enterprise deals. This drove rapid adoption from large customers who needed thousands of office licenses. Just think about it. You're a company that's already buying lots of Windows licenses for your employees, and all of a sudden you have a bunch of free cloud computing credits. Of course you're gonna go with Microsoft Azure over aws, which is gonna cost you an ARM and a leg. It wasn't long before Azure hit a $10 billion run rate, and it was growing faster than AWS. Azure was the biggest reason Microsoft's stock price started climbing. After being flat for years, Microsoft was finally riding a major new tech wave. Large organizations everywhere were closing down their data centers and moving their hosting to the cloud. And one of those large organizations was the U.S. department of Defense. Years of small test projects had left the military with over 500 different external cloud computing contracts. It was a mess that needed tidying. The military had tons of data to sift through, and centralizing it safely and securely would allow for better coordination between different areas of the military. This would ultimately lead to more effective performance on the battlefield. So the DOD went looking for a cloud service provider. To do this, it launched the Joint Enterprise Defense Infrastructure Project, or jedi. Microsoft immediately saw the opportunity. JEDI wasn't as flashy as ivas, but it was arguably more important. It was an upfront $10 billion commitment, with potentially way more further down the road. Plus, winning the JEDI contract would cement Microsoft as the military's most trusted vendor. But despite a bunch of advantages, Microsoft was still an underdog. AWS was bigger, and Amazon had just won a $600 million contract to provide cloud services for the US intelligence community. The JEDI contract looked tailor made for AWS. Other cloud providers, sensing that Amazon was the strong favorite, argued that the DoD should split up the contract so they would at least have a chance of getting some of the business. But the whole point of Jedi was to centralize the military's cloud systems. Dealing with multiple vendors just didn't make sense. So every major cloud provider would have to duke it out. During the bidding process, five companies made it to the starting line. Amazon, Microsoft, Google, IBM and Oracle. Pretty quickly, though, three of them crashed out. Google said they wouldn't be working with the military on ethical ground. IBM and Oracle were eliminated because they simply didn't have enough capabilities. So ultimately, it came down to a battle between Microsoft and Amazon. Everyone thought that Amazon was going to win. Everyone, that is, apart from President Trump. You probably remember that one of Trump's least favorite people was Jeff Bezos. Trump didn't really care all that much about Amazon, but Bezos was also the owner of the Washington Post, and Trump hated the Washington Post.

Every hour we're getting calls from reporters from the Washington Post asking ridiculous questions. And I will tell you, this is owned as a toy by Jeff Bezos.

Amazon says it's considering its own options. After the Pentagon's surprise decision to award a $10 billion cloud computing contract to Microsoft.

There was even a report that Trump directly called Secretary of Defense General Mattis and ordered him to screw Amazon.

Amazon is making what appears to be an unprecedented request in his case against the government over that $10 billion Jedi contract. Amazon is seeking to depose President Trump, Secretary of Defense Mark Sir Jasper and former Defense Secretary James Mattis. In that case, when Microsoft won the.

Contract, lots of people thought that Trump tipped the scales. So did Amazon lose the Jedi contract because of foul play? Well, not necessarily, because Microsoft was a solid choice. By this time, they'd already been doing business with the DOD for decades. In fact, they just signed a five year contract worth nearly a billion dollars to provide Windows 10 and associate hardware to the military. Microsoft was making more money from the American defense establishment than Amazon was. Plus, building products specifically tailored to enterprise clients was what Microsoft excelled at. The DoD was a big, complex customer, but they weren't looking for anything flashy. They just wanted something that worked. Ultimately, Jedi ended with a big anticlimax.

The Pentagon is canceling a $10 billion deal called Jedi with Michael Microsoft.

Jedi was replaced with the Joint Warfighter Cloud capability project, the JWCC. This new $9 billion contract was split between four of the five companies that were originally part of the Jedi bidding process. Microsoft got a piece, but it wasn't the big win that they'd hoped for. Sometimes reality can be underwhelming. Led by their general Bill Gates, Microsoft grew into a behemoth that understood its allies and ruthlessly destroyed its enemies. Today, Microsoft's work with the military is based on the same principles. But in the end, those setbacks don't matter all that much. What matters is that Microsoft has become one of the US Military's most trusted vendors because it's more like the military than any other big tech company. Today, the US Military runs on Windows, Excel, spreadsheets, and the Microsoft cloud. Is it flashy? Not necessarily. But winning wars is a great grind. Microsoft knows that better than almost anyone. And as war continues to become more Digital throughout the 21st century and the Defense Department looks for reliable private sector partners, Microsoft has made itself indispensable. If you'd like to know more about how technology affects geopolitics, just watch this video about the semiconductor war between America and China Next. Thanks a lot.