Federal Cloud Computing Market, 2023-2027

Reaching a new high of $12.5B in FY 2022, spending in the federal cloud computing market is positioned for further growth, due to the award of the Joint Warfighter Cloud Capability contracts by the Department of Defense (DOD) and to the ongoing reliance on cloud by civilian agencies for modernizing legacy IT systems.

Growth in the market is, however, proceeding at different paces. Investment in cloud-based infrastructure is slowing due to market maturity, particularly in the civilian sector. Conversely, both defense and civilian agencies are investing heavily in Software-as-a-Service, and enthusiastically adopting Platform-as-a-Service as a secure, efficient and cost effective method of developing software. Interest in Network-as-a-Service solutions is also growing.

Despite the pace of adoption, challenges remain. Multi-cloud environments are becoming increasingly complex, and faith in the security of cloud-based solutions is being tested by highly-publicized security breaches. Agencies are responding to these developments by building zero trust architectures, taking a hard look at automated IT service management capabilities and relying more heavily on the General Service Administration’s FedRAMP program to identify secure cloud products and services.

Deltek returns to a five-year forecasting model this year, projecting growth in agency demand for vendor-furnished cloud computing goods and services from $­­­15.9 billion in FY 2023 to $23.5 billion in FY 2027.

Key Findings

• Adopting Zero Trust. The government’s shift to zero trust, mandated by Executive Orders 14028 and the new National Cybersecurity Strategy, is driving investment in cloud-based cybersecurity capabilities, particularly those providing identity and access management.
• Achieving Market Equilibrium. After years of trailing the civilian sector in cloud investment, the DOD’s spending is now growing at roughly the same rate. This trend suggests increasingly rapid defense cloud adoption while civilian sector investment is slowing.
• Engineering Spending Slows. Spending on cloud engineering trended down across all sectors of the government for the first time in years. This suggests that defense cloud engineering slackened due to delays related to the award of the JWCC contracts. At the same time, civilian agencies are now facing “heavier lifts” in modernizing mission-critical legacy systems. These efforts take more time to plan and cost more to execute.
• Mixed Small Business Market Participation. Agencies awarded a record number of small business set-aside cloud contracts in FY 2022. However, federal customers are also spending nearly twice as much per year with mid-sized and large businesses under cloud Special Item Number 518210C than they are with small businesses. The potential for small businesses to increase their participation in the market remains strong, assuming agencies continue to prioritize small business awards.
• Data Center Closures Drive Opportunity. Despite the formal end of the Data Center and Cloud Optimization Initiative, agencies still have thousands of data centers to close. This promises to drive opportunity for the next several years, especially at the DOD.

Critical Insight for Vendors

Deltek’s Federal Cloud Computing Market, 2023-2027 report provides insight into key policy, acquisition and spending trends that are shaping the federal cloud computing market.

The report provides:

• Insight into the factors, policies and strategies shaping the cloud market.
• Analysis of the dynamics shaping agency spending on cloud computing.
• Identification of opportunities for cloud business development.
• Database of identified federal cloud computing efforts
• Spending profiles and forecasts for the top 18 agencies using cloud computing solutions.
• Recommendations to help contractors evaluate the impact of trends on their business.

Deltek's Federal Cloud Computing Market, 2023-2027 report is delivered in PowerPoint® format, including a PowerPoint® Executive Summary and an Excel® data workbook.