Federal Cloud Computing Spending Trends, FY 2021-2023

Deltek/GovWin’s Federal Market Analysis (FMA) team maintains an Excel database of cloud contract awards and opportunities that it refreshes with new data every January through March. This refresh is now complete, allowing us to provide topline numbers for growth in the federal cloud computing market. Today’s post offers a look at some macro trends.

Total Market

Identifiable cloud spending surged upward by $6.2B in FY 2023. This represents the second year in a row of significant increases as total identifiable spending also rose by $2.0B in FY 2022 compared to FY 2021.

FY 2023 is the first year that federal cloud spending rose to nearly $20B per year. This marks a milestone of sorts for those who’ve been watching the market since 2011. Back then, federal Chief Information Officer Vivek Kundra estimated that federal spending on cloud computing could eventually total $20B and comprise ¼ of total federal IT spending. The market is now close to Kundra’s forecast, but whereas he thought IT spending would shift toward cloud and reduce total spending, agencies are still spending more on IT than ever before. In short, cloud computing has not reduced IT spending, even though it has brought scalability and modernized capabilities to federal agencies

Spending by Market Sector

As has been the case for years now, the civilian sector of government led the way in terms of total spending. In fact, in aggregate, civilian agencies are now spending more than twice the amount being spent by the Department of Defense (DOD).

The data shows that spending by civilian agencies far outpaced the DOD in FY 2023, accounting for most of the market’s gains. So, while big efforts at the DOD, such as the Joint Warfighting Cloud Capability (JWCC) may grab headlines, the fact of the matter is that the civilian sector quietly remains the most active of the two.

Spending by Service Delivery

Finally, taking a look at the spending by service delivery reveals the ongoing trend of Software-as-a-Service (SaaS) extending its prevalence in the market.

The dominance of spending on SaaS, as opposed to cloud-based Infrastructure-as-a-Service (IaaS) or Platform-as-a-Service (PaaS), has become so glaring it is almost not worth pointing out any longer. What is important about the trend is its favorability to small businesses. They can offer cloud-based capabilities at far less cost than either IaaS or PaaS, both of which entail a significant investment in computing resources.

Final Thoughts

The federal cloud market appears to have bifurcated into sectors dominated by a select few large commodity infrastructure providers and everyone else. Federal spending on IaaS and PaaS is growing, but at nowhere near the rate of spending on SaaS. This trend could shape big cloud acquisitions on the horizon, such as the successor to JWCC, which promises to extend well beyond IaaS and PaaS and include more providers than the small handful originally selected for contract awards. Time will tell.