Contradictory Trends in the Federal Cloud Market

Published: October 21, 2015


Deltek attempts to clarify apparent contradictions in the rapidly evolving federal cloud market that are confusing vendors trying to plan their go-to-market strategies.

We here at Federal Industry Analysis are often asked to identify trends in the federal cloud computing market. Is adoption rising or falling? Is the pace of adoption changing? Are agencies more inclined to use private, on-premise solutions, or are they turning to massive public cloud providers like Amazon Web Services (AWS) and Microsoft? The answers to these questions are not always clear cut as the available data can show several distinct trends happening at once and some of these can be contradictory.

For example, are agencies still inclined to use private, on-premise cloud solutions over public cloud? The answer is yes, kind of. If you are talking about the Social Security Administration and its new National Support Center, a huge, on-premise “cloud” built with help from industry partners, the answer is a resounding yes. Then there is the new contractor-owned, contractor-operated pilot “cloud” the Army is building at a government facility in Huntsville, Alabama. The Defense Department’s Chief Information Officer, Terry Halvorsen, has commented several times in 2015 that he would like to make the “COCO” cloud option more widely available to Defense customers. A policy change is required to make it happen, but the fact that he is talking about it indicates the COCO path to the cloud is seriously under consideration at the DoD.

So, should providers position themselves to offer agencies on-premise solutions in government-owned clouds or contractor-owned clouds in government facilities? In some cases, yes. In other cases, no. There are many paths to the cloud.

Take for instance Accenture’s recent announcement that it is partnering with AWS to provide expertise for migrating agency applications and data to AWS’ public cloud. According to the Office of Management and Budget, spending by agencies on public cloud is projected to rise by 12.4% in FY 2016 while spending on private and hybrid cloud deployments is projected to be flat. The cloud data we keep here at Deltek further shows that when measured by the number of contracted and awarded efforts per year, the use of public cloud in the federal government nearly tripled from FY 2012 to FY 2014.

The data shows, therefore, that on-premise and off premise solutions are both in use depending on the agency customer being discussed. Given the contradictory trends, what’s a vendor to do? There is no single answer that fits all cloud services providers, so the best we here at FIA can do is advise that vendors to keep the following things in mind.

First, understand that agencies are picking their way through the maze of a new technology approach (i.e., cloud), which they do not understand particularly well. This means that they will purchase many different kinds of solutions, offering business opportunities for different types of providers. The important thing for vendors to understand is where their solution meets a respective agency’s needs and how it fits that agency’s strategy. Obviously, the SSA is a bad place for an Infrastructure-as-a-Service provider to try selling their solution. By contrast, the DoD is an excellent choice.

Second, being a “cloud service provider” is not the only option for conducting cloud business with federal customers. The Accenture-AWS deal illustrates this perfectly. Accenture is going to take advantage of its core competency – consulting – and let AWS do the hosting/CSP stuff. This is a win-win situation for both vendors and agency customers because, frankly, the latter are confused when it comes to the cloud.

The federal cloud market thus encompasses far more than the narrow “aaS” definitions provided by the National Institute of Standards and Technology. It also includes an array of cloud-related services that may prove to be just as profitable for vendors as are hosting an agency dataset or providing a software capability as a service. What’s more, a vendor doesn’t need to be FedRAMP compliant to provide cloud brokering, consulting, training, acquisition support, or related program management services. Add this to the fact that agencies are developing hybrid cloud environments composed of private, public, and other types of solutions, and you’ll see that there is opportunity for all to win a piece of the pie in a growing cloud market.