Agencies Evolve Toward Cloud and Leading Cloud Vendors

Published: May 21, 2013

Cloud ComputingForecasts and SpendingInnovation

Recent data released by OMB shows that federal agencies spent $4.5 billion on cloud computing services in FY 2012 and 2013. OMB estimates that agencies will spend another $2.2 billion on cloud services in FY 2014, bringing the three year total to $6.7 billion. This data shows that the federal perspective on the cloud is changing, a development that is to industry's benefit.

When the White House published the President’s Budget Request for Fiscal Year 2014 back in April, the materials released included an Excel workbook called the Exhibit 53C.  This workbook provided data documenting federal spending on cloud based solutions in FY 2012 and FY 2013, and it provided an estimate for anticipated cloud spending in FY 2014.  Taken together, these numbers reveal that federal agencies have spent a total of $6.7 billion on cloud computing since FY 2012.  The deployment type of the cloud solutions that agencies have been buying shakes out as follows:

Two conclusions can be drawn from this data:

First, it is clear that cloud solutions are a hit with federal customers.  FY 2013 in particular was a good year for cloud service providers as federal agencies spent a total of $2.3 billion.

Second, federal customers overwhelmingly prefer private cloud solutions.  If projected spending in FY 2014 is any indication, this trend is likely to continue as feds ignore the cost benefits of moving to public, community, and hybrid of clouds in favor of a private cloud model that fits their comfort level.  The takeaway from this is that federal customers have overcome their initial hesitation about the security of cloud computing, but they have also chosen to hedge their bets.  Could this be one of those rare moments when we are witnessing evolution?  Federal customers are still risk-averse, but at the same time they are showing signs of innovation too.

Leading Cloud Vendors

Turning to the other side of the story, who in industry is benefitting from all of this contract money being spent?  Here at Federal Industry Analysis we track developments in the federal cloud market, including who is winning business.  Our data does not account for all of the dollars spent by federal agencies on cloud solutions that makes up the OMB data set above, but it does account for approximately $6 billion in awarded contract value (this includes consulting and strategic planning) since FY 2009.  Given the data we have we are able to make a few observations on the state of competition in the market.

The chart below shows the top ten cloud service providers by number of awards.  This data was collected for the period from Calendar Year 2010 to May 2013 and it makes up a total of 54 cloud contract awards.  The calendar year has been used in place of fiscal year because the exact date of award for many of the efforts could not be confirmed.

According to this small data set, Terremark/Verizon is the leading provider of cloud solutions to federal customers, followed closely by HP Enterprise Services and CGI Federal.  This data includes all kinds of competitions – GWACs, task/delivery orders, GSA IT 70 procurements, and set-asides.  Another interesting point worth making about the data set is that neither Google nor Amazon appear in it.  With the recent announcement of Amazon Web Service’s FedRAMP certification one would expect to find AWS on this list.  AWS is missing, however, because of a curious trend in the cloud market.  Specifically, 3rd parties are often given contract awards to move agency applications to cloud environments hosted by AWS and Google.  For example, several of the Smartronix awards on the chart are for efforts that resulted in the migration of agency apps to Amazon’s Elastic Compute Cloud.  These efforts make is seem as if AWS and Google are not big players in this market when they actually are.

Lastly, below is the same breakout of vendor awards by NAICS Code.  Of the 8 codes represented the one under which the most contracts have been awarded is 541519: Other Computer Related Services, with a total of 18 awards.  This is followed by 541513: Computer Facilities Management Services, with 12 awards, and 541512: Computer Systems Design Services, also with 12 awards.

The variety of NAICS codes used suggests that contracting offices too have evolved to handle cloud procurements.  This is borne out in other data I have seen as well which shows that contracting offices have adapted to the subscription pricing model common to cloud services.  Therefore, with this and other procurement adaptations around pricing and NAICS codes accomplished, the path seems to be clear for the federal adoption of cloud computing to accelerate in the years to come.