Microsoft joins Google in offering billions in cloud discounts to the U.S. government

For Microsoft, the price of admission to Washington’s AI future is a discount. On Tuesday, the General Services Administration (GSA) announced a OneGov agreement with Microsoft that slashes prices across Microsoft 365, Copilot, Azure, Dynamics, and security tools — a package GSA says could save agencies about $3.1 billion in year one, with Copilot free for up to 12 months for G5 government customers. Agencies can opt in through September 2026, and some discounts run as long as 36 months.

But deals like this don’t happen out of civic duty. Microsoft is following the money — and protecting its moat. A federal seat today often means thousands of seats tomorrow as adoption ripples across agencies. The discounts buy loyalty, not efficiency. Once Copilot is baked into daily workflows, renewal pricing won’t be voluntary; it’ll be unavoidable.

Google has played the same card. Less than two weeks ago, GSA announced a “Gemini for Government” package with Google that pairs AI services and cloud at deeply discounted rates. That deal follows a separate, headline-grabbing cut earlier in 2025: a 71% reduction on Google Workspace for federal agencies, with reported potential savings in the billions.

The competitive context is shifting in real time. Amazon Web Services inked its own government-wide arrangement in August, offering up to $1 billion in credits for cloud services, modernization support, and training through 2028. Earlier reporting said Oracle was dangling steep concessions — as much as 75% off on license-based software and substantial cloud discounts — raising the competitive floor for everybody else.

Even OpenAI struck a OneGov agreement, offering federal agencies ChatGPT Enterprise for just $1 per agency for the first year, part of both OpenAI and Anthropic’s attempts to position their AI services within government channels. And Adobe, Box, and DocuSign have rushed to join the OneGov program, slashing their e-signature and content-management stacks by 65–70%. The signs are there that Washington might be forcing an old-fashioned price war in the most modern corner of IT. 

For hyperscalers, it’s not about giving the government a bargain. It’s about seeding dependence in practically the only customer on earth who doesn’t churn.

“As GSA seeks to transform government in this new era of AI, Microsoft is committed to leading as the government’s essential partner in delivering the tools necessary to help federal agencies harness the power of AI to advance the public good," Chris Barry, Microsoft’s corporate vice president of U.S. Public Sector Industries, said in a press release.

Under Microsoft’s terms, agencies get more than office software price relief. The OneGov bundle spans monitoring and security (Microsoft Sentinel, Azure Monitoring) and identity governance (Entra ID Governance). The structure is intentionally turnkey: standardized terms, unified pricing, and on-ramp workshops so agencies can deploy fast rather than renegotiate one-off deals. It’s the OneGov strategy working as designed — centralize demand, wring out cost, and move AI from pilot to production. 

“For more than four decades, Microsoft has partnered with the U.S. Government to serve the American people,” Satya Nadella, Microsoft’s chairman and CEO, said in the press release. “With this new agreement ... we will help federal agencies use AI and digital technologies to improve citizen services, strengthen security, and save taxpayers more than $3 billion in the first year alone.”

Federal agencies have struggled to fund AI without raiding line items elsewhere. Bulk, time-limited pricing gives CFOs cover to stand up copilots and agentic workflows across tens of thousands of seats while staying inside budget. The broader OneGov push — backed by an April policy shift to consolidate and standardize IT buying — tilts the field away from bespoke contracts and toward platform plays with clear, government-wide price curves. 

That’s great for agencies trying to modernize; it’s also a high-stakes customer-acquisition bet for vendors hoping discounted seats convert to sticky, full-freight usage later.

President Donald Trump’s policies have turned the screw on Big Tech even further. His AI Action Plan, rolled out in July, directed agencies to adopt AI at speed while bulldozing regulatory obstacles. The White House tied budgets to “AI-friendly” policies, making it clear that holdouts risk losing funding. That’s a convenient backdrop for GSA to announce headline savings — with discounts serving as both carrot and stick.

Meanwhile, the administration has blurred the line between industrial policy and direct ownership. In August, Washington acquired a 10% stake in Intel through a CHIPS Act package, an unprecedented move that puts taxpayers directly on the hook for Intel’s turnaround. At the same time, Trump announced a (still in the works) revenue-sharing deal with Nvidia and AMD that lets certain AI chips flow to China in exchange for a 15% U.S. cut — a strange mix of protectionism and profiteering. And looming in the background is the so-called Stargate Project — a $500 billion multiyear moonshot, pitched as America’s answer to China’s state-backed AI buildout. OpenAI, Oracle, and SoftBank are supposedly in the mix. 

OpenAI recently landed its first real Pentagon contract — a $200 million, one-year deal to pilot “frontier AI” across defense operations and back-office workflows. The Pentagon gets early access to cutting-edge models at scale; OpenAI gets a beachhead in one of the only customer bases with both unlimited data and unlimited budgets.

Zoom out, and the OneGov deals Washington is cutting are as much about market share as modernization. The federal cloud and productivity stack is a once-in-a-decade land grab. Price is the headline; annuity revenue is the footnote. If OneGov keeps driving unified terms while AWS, Microsoft, and Google jockey for incentives, the cost of entry drops — and the switching costs rise (later).

For now, the scoreboard is simple: Google set the tone with aggressive Workspace and AI pricing; Microsoft matched with a multiproduct bundle and a Copilot teaser; AWS put a giant credit pool on the table. Washington — often a punchline for paying more — may have learned how to haggle. But in cloud and AI, the first taste is always cheap. The real bill comes later.