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Fed Cloud Spending on Perplexing - but Upward - Trajectory

By John K. Higgins
Feb 23, 2016 7:00 AM PT
federal-cloud-computing-spend

U.S. government agencies have spent more on cloud configurations than official budgets have predicted -- and those agencies will pick up the pace of cloud spending over the next five years.

Federal agencies will significantly boost spending on cloud deployments with various "as a service" configurations, according to two recent reports.

However, the reports differ on the components used in the forecasting process. One study incorporates a change in cloud deployment terminology the federal Office of Management and Budget recently adopted, while the other does not.

Federal cloud spending is projected to grow from US$3.1 billion in fiscal 2016 to $6.2 billion in 2020, according to a forecast Deltek issued last year. The growth in cloud spending will come amid a slight decline in overall federal IT investing.

"Strong investment in cloud computing is reassuring within a flat IT budget environment," said Deniece Peterson, director of Deltek's federal industry analysis program. "Although budgetary pressures are easing for the next two fiscal years, agency leadership is still focused on cloud computing, which can drive long-term savings that can be redirected to mission-critical needs."

Overall federal spending for IT will decline from $97.7 billion in fiscal 2015 to $94.4 billion in 2020, Deltek noted. OMB reported IT spending for 2015 at $84 billion for major federal operating agencies, but Deltek adds estimates for intelligence and other government functions.

Federal agencies have favored private cloud deployments by a wide margin, a trend that will continue for the next several years, according to both reports.

In terms of the type of investment, Deltek sees Infrastructure as a Service as the most popular component of future federal cloud configurations, with annual spending increasing from $1.39 billion in 2015 to $3.93 billion in 2020. Next is Software as a Service, which will grow from $636 million in 2015 to $1.65 billion in 2020, followed by Platform as a Service, which will go from $322 million in 2015 to $615 million in 2020.

New Cloud Terminology

In the second report, IDC Government Insights reported a positive trend in federal cloud spending that underscored a forecast of continued growth.

"Basically, every year since 2012, government agencies have spent more on cloud each year then they predicted they would," said Shawn McCarthy, research director at IDC and author of the report.

IaaS configurations will garner the most attention from federal agencies over the next five years, followed by SaaS and then PaaS deployments, both IDC and Deltek said.

However, IDC included a fourth category that suddenly added an amount of funding exceeding the combined total of the first three. Even for the statistically challenged, this change seems to fall well outside any normally acceptable variation.

The head-scratching change is attributable to OMB's decision this year to use the term "provisioned services" in reference to cloud technologies and the addition of a category titled "Other" to the standard IaaS, SaaS and PaaS configuration descriptions.

The new category "immediately became the top bucket for cloud spending," McCarthy said. The change "reflects the fragmented nature of cloud solutions in that there are some types of calls to cloud-based databases, application programming interfaces, and shared services that don't fit easily into the current cloud categories."

The fourth component covers cloud investments that "extend across multiple categories, which are used in a combination of ways, or for cloud services, which are procured in a way that is not easy to measure against one of the other categories," he said in the report. While noting that the change was somewhat at variance with conventional IT taxonomy, IDC decided to accommodate the OMB modification in its forecast.

The result is a stunning increase in cloud allocations that carries through to 2019 -- and likely beyond. For example, IDC calculates that total federal combined IaaS, SaaS and PaaS cloud spending will hit $2.1 billion in 2016. But when it includes the new category valued at $4.46 billion, the total for that year balloons to $6.75 billion.

Vendors "need to know how large a government market is before making decisions on how they might enhance and sell their products," McCarthy wrote in a blog post. "When the government calls more than two-thirds of its offerings 'other,' it blurs the lines and confuses providers."

Deltek Takes Different Tack

For Deltek, the issue is less confusing. OMB's reference to provisioned IT services "includes but is not limited to cloud computing," Peterson noted. OMB characterizes such services as "owned, operated, and provided by an outside vendor or external government organization" and "consumed by the agency on an as-needed basis."

Examples include the purchase of capabilities from another federal agency; the purchase of SaaS, PaaS and IaaS from a private service provider; and the purchase of shared services or cloud services.

"We do not consider the total provisioned IT services budget to be cloud for several reasons," Peterson told the E-Commerce Times. One is that OMB uses the cloud definition from the National Institute of Standards and Technology for classification purposes.

Another is that in its 2017 budget preparation instructions for agencies, OMB makes it clear that the other category excludes cloud, she noted. A table in the instructions uses a category listing called "Other -- non-cloud."

A third factor in Deltek's approach is that "our cloud forecast focuses on contractor-addressable cloud computing, so services procured from another agency such as e-gov lines-of-business services and other shared services are excluded because they are not addressable by federal contractors," Peterson said. Deltek refers to the contractor-addressable market as the subset of the total federal market that reflects the amount of potential or planned spending on vendors or contractors.

Here's an example of the outcome of the two approaches:

Federal Cloud Spending for Fiscal 2019 ($M)
Category IDC Estimate Deltek Estimate
IaaS 1,583 3,712
SaaS 1,605 1,485
PaaS 457 603
Other 7,815 --
Total 11,460 5,800

Wherever the classification terminology settles out as in future years, the trend line for cloud investment is decidedly positive. The Obama administration's budget proposal for fiscal 2017, which was released in early February, reinforces that trend, according to McCarthy, and "cloud growth looks on track to continue."


John K. Higgins is a career business writer, with broad experience for a major publisher in a wide range of topics including energy, finance, environment and government policy. In his current freelance role, he reports mainly on government information technology issues for ECT News Network.


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