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Forecast Decodes IT Market Hot Spots

Austerity may be the new norm for federal spending, but both sides of the government IT contracting table are still looking for a big payoff.

The Federal Industry Analysis Team’s flagship forecast report, Federal Information Technology Market, 2014–2019, predicts a decline in the federal IT market from $101 billion in FY 2014 to $94 billion by FY 2019, reflecting a -1.6% Compound Annual Growth Rate (CAGR). The report analysis examines the diverse influences shaping individual market segments and federal agency buying patterns, calling out the primary drivers and inhibitors affecting the IT investment decisions of federal agencies.

Declining IT budgets have ushered in an era in which agencies are tasked to “do more with less.” The realities of more limited funding resources are spurring cost saving initiatives across the government. Commodity information technology purchases are one area especially worth noting. Increased use of strategic sourcing contracts and enterprise license agreements are just two ways that agencies are approaching commodity IT cost reduction. The intention of driving down commodity costs can be found behind the shift away from reliance on desktop computers and toward greater use of thin clients, mobile devices, and laptops. Another tactic to save money comes in the form of delays to technology refresh cycles and efforts to scavenge existing commodity IT resources. These cost reduction initiatives are expected to facilitate operating on a new, lower budget baseline.

A lower baseline typically tracks to lower levels of contracted spending. In many cases, however, agencies intend to reinvest the savings that these changes produce. These reinvestment goals stand to provide contractors with a chance to provide additional products and services. Unlike in the past when agencies might have used recovered funds to pursue ‘nice to have’ capabilities, they are now in the position of stretching to make ends meet.

Facing federal technology mandates and expanding mission requirements, agencies are hard-pressed to prioritize investments to achieve the biggest impact and deliver the greatest value to government organizations. For many agencies, this focus will draw support for investments in hot spots like cybersecurity, cloud computing, virtualization, and big data solutions (e.g. data mining). As budget pressure continues, agencies will be particularly adverse to cuts in security spending. In order to facilitate expansion in cloud computing, big data, cybersecurity, program management and other critical areas, agencies will have ongoing requirements for support services.

Deltek’s Federal Industry Analysis (FIA) Team foresees the recent downward spending trend continuing in coming years but not entirely uniformly. The team’s forecast draws on a whole host of primary and secondary research. Looking beyond the funding reported through the Office of Management and Budget (OMB), the FIA team’s market sizing includes spending from the judicial and legislative branches, the intelligence community, federal organizations that are not subject to federal IT budget reporting requirements, and IT embedded in large defense systems. This off book spending helps to offer a more complete view of government buying. 

These market trends are influencing the future of information technology contracting and creating an environment full of both challenges and opportunities. The trick for vendors is positioning for those opportunities while avoiding pitfalls and keeping an eye on the shifting landscape. The first order of business is getting the lay of the land. Then, the next step is determining which moves will get your business ahead and which ones could be dead ends. For more analysis of contractor-addressable budgets across the federal Hardware, Software, IT Services, and Communications and Network Services markets, see our new GovWin IQ report “Federal Information Technology Market, 2014-2019.”

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Originally published in the GovWin FIA Analysts Perspectives Blog. Follow me on Twitter @FIAGovWin.

 

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