Sizing up the federal cloud market

Much of the government technology market’s oxygen has been sucked up by the Defense Department’s big-ticket JEDI cloud computing contract given its size and scope, plus its drastic departure away from how the Pentagon has done big IT contracts before and all the protest drama and other industry angst.

That is one large slice but is a single piece of an overall federal cloud opportunity that equity analysts at investment bank Wedbush called in a Nov. 9 research report a “transformation growth opportunity over the coming five to ten years.”

Almost $20 billion in federal cloud projects and initiatives are “up for grabs” over the next five years as agencies look to upgrade their aging IT infrastructures and move them to cloud environments, Wedbush analysts Daniel Ives and Michael Pachter wrote.

There certainly is an increased thrust to move legacy federal IT systems -- some of them up to five decades old -- into next-generation environments both in terms of policy and procurement activity.

The 2018 Presidential Management Agenda touts IT modernization as a core piece of a larger government transformation effort. Agencies also are awaiting the centralized Technology Modernization Fund to be appropriated for fiscal 2019 after they chased the $100 million in TMF funds in fiscal 2018.

At up to $10 billion, the Joint Enterprise Defense Infrastructure contract is also not the only large cloud buy the Pentagon has on its agenda. The potential $8 billion Defense Enterprise Office Solutions contract for cloud-based email, calendar and collaboration services is in the pre-solicitation phase.

Both of those procurements clearly state a preference for DOD to buy a commercially-available infrastructure. Given that overall shift in mindset of the government’s largest enterprise, Wedbush is also handicapping Amazon Web Services and Microsoft as “in a two horse race to be leaders” over the field of other competitors in the overall federal cloud market.

The CIA’s award to Amazon five years ago of a $600 million commercial cloud hosting contract signaled to other agencies that they could also go in the same direction. At the same time, AWS winning that contract made them a major player in federal IT almost overnight given the fact that they beat out a rival bid from IBM.

Cloud is also gaining momentum among civilian agencies, who have been the main applicants for TMF funding over the past calendar year. James Bach, Bloomberg Intelligence federal IT contracts analyst, writes that AWS and Microsoft will also “likely be the go-to-providers of cloud hosting infrastructure” for those agencies as well given their positions in the broader commercial landscape.

Both the State and Housing and Urban Development departments in particular are moving into the cloud amid other migrations by agencies such as the GSA, NASA and the Agriculture Department, Bach wrote in a research note for clients.

Traditional federal systems integrators need not worry about being left behind in this overall cloud push however. Consulting, advisory, migration and application rationalization opportunities should abound for those players but commercial names like Accenture and IBM are also ones to watch, Bach says.

Keep in mind that JEDI’s procurement documents clearly state that transition and migration services are outside of that contract’s scope. The DEOS contract also does not clearly spell out those services as well, so it would seem likely that separate procurements for transition work would take place.