Cloud Market Trends: Engineering Spending vs. Capability Spending

Among many of the findings discussed in GovWin Federal Market Analysis’ latest report on the Federal Cloud Computing Market, 2022-2024 is the observation that cloud use across the Department of Defense (DOD) appears to be on a different trajectory than across the civilian sector of government. Specifically, this difference concerns the engineering of systems to make them cloud-ready vs. the purchase of cloud-based capabilities. Currently identifiable cloud spending at the DOD appears to be more focused on the engineering aspect of cloud than does the civilian side of the market. This post provides some of the data featured in the report and suggests some reasons behind the divergence between the defense and civilian sectors.

FMA’s annual cloud data divides spending and total awarded contract value (TCV) into four categories: cloud engineering, cloud capabilities, cloud infrastructure, and consulting. These categories are determined by the primary thrust of the work described in the contract data and related documents (when available), such as requests for proposal, requests for information, etc. Focusing on spending only, and leaving aside TCV, this data for the DOD shows a tighter focus on cloud engineering than on the other categories.

Defense spending on the engineering of systems for the cloud is outpacing spending on other categories of work. Admittedly, “engineering” is a large bucket in which all kinds of work is taking place, but the category does catch some variations in services, including straightforward engineering and technical support, migration services, system development, and software development.

Compare this to similar data for the civilian sector.

Civilian agencies are also spending on cloud engineering, but in contrast to the DOD most of their spending is for cloud capabilities. These are all kinds of capabilities delivered via Software-as-a-Service (SaaS). The DOD is spending billions on SaaS-based capabilities, too, but much less than it is spending on cloud engineering.

Why might this be?

Diving deeper into the data suggests that the DOD’s spending on engineering is related to expanding the use of cloud computing for mission critical functions. Increasingly, defense organizations are turning to cloud for more than just back-office business capabilities. For example, cloud is being leveraged for cyber operations and explored for command and control.

The other difference between the defense and civilian sectors has to do with the evolving use of cloud computing. Several years ago, civilian agencies were spending more on cloud engineering than they were on cloud capabilities. That the DOD is now showing the same evolution comes as no surprise. The row over the Joint Enterprise Defense Infrastructure (JEDI) delayed DOD’s march to the cloud by at least a couple of years, leaving the department in the same place civilian agencies were in three years ago.

Civilian agencies, meanwhile, appear to have moved past the initial engineering phase and into leveraging SaaS for their capability needs. This represents an evolution toward using commercial cloud partners instead of engineering existing systems. Civilian agencies generally do not have the same level of security requirements as the DOD, either, which makes the spending difference understandable. The DOD is just embarking on its journey to the cloud. As the Joint Warfighter Cloud Capability becomes available we should see an even bigger jump in the DOD’s reliance on cloud for all sorts of purposes.