Cloud may be slow, but it's going to be big

True: Cloud computing has not yet come on like gangbusters in the federal government. More like footsteps of a steady series of app-by-app deals. But the cloud computing model as a federal service is still maturing, as is the government’s ability to craft the business cases and service level agreements it needs for cloud computing.

So before writing off cloud as just another fad, think again.

It’s a mistake to conclude, from the past three years or so, that cloud is passé. The buzz has to move to the next fascination before procurements actually start to ramp. Feds often talk and dabble a few years before moving markets.

Some signs can certainly present a confusing message. Recently, for example, the Defense Information Systems Agency (DISA) issued a request for proposals to lower the ceiling on what had been a $450 million (over four years) commercial-style cloud brokering deal. DISA concluded that likely demand would come in lower than it originally expected.

Don't interpret that as lack of ardor on the part of the Defense Department for the cloud model. It simply means DOD agencies have many choices for where to go for cloud hosting, and what to host in it. For example, Navy CIO Terry Halvorsen bluntly declared this month that the department would check all of the options out there before committing to DISA as a cloud host. Civilian agencies, too, will want to maintain relationships with multiple cloud service providers (CSP).

So, current market numbers notwithstanding, I think cloud will not only grow, but also have growing implications for many product suppliers to the federal government beyond the CSPs themselves.

What will drive cloud growth? Fundamentally, the changing economics of computing. When an agency can see an order of magnitude cut in cost with instantly responsive service, it will switch to avoid continued investment in the high costs of operating and optimizing legacy infrastructure. Even if switching hosting from a government-owned and -operated data center isn’t initially cheaper, it at least brings more predictable costs that will drop over time as IT requirements become more standards-based and hence, more commoditized.

Despite the entreaties of this and the previous administration’s tech chiefs, federal spending on infrastructure and commodity applications persists as the largest share of the IT spend. That’s why they’ve been pushing cloud for a while, and shared services even longer.

The analysts seem to be in agreement. A recent report from IDC Government Insights shows a short term stall in federal cloud spending growth, but a jump to $7 billion in 2017 -- roughly 8 percent of the federal IT budget.

I emphasize cloud because of how it is shaping up to affect the sales of so many IT products, particularly software. And because there’s a pause at hand before the federal cloud market takes off, technology manufacturers have time to reorient their sales, pricing, and revenue models, so they’re positioned to thrive in a market where growing volumes of applications and supporting infrastructure will be acquired as services in the next three to five years.

Here’s how cloud will change things for other vendors. Software licensing will move towards the online, as-a-service, subscription or utility-based model, whatever you want to call it.

Large organizations want to get away from the expensive and cumbersome job of monitoring and managing licenses with the exposure to audits and fines they sometimes entail. But it also means software publishers must have a pricing, sales, and revenue strategy that can meter and bill usage to the actual users under the new model.

Cloud will expand the opportunities for shared services by making it easier to develop once, deploy multiple times. But agencies have to stop thinking that they are unique. In times of static budgets, we all need to learn to adapt and adjust our processes as necessary to use existing, available online applications.

It all means software vendors should be examining their delivery models to accommodate and bill for deployments as a utility like electricity.

While many federal managers worried they would have new cybersecurity challenges in the cloud, they’re now realizing the cloud can actually enhance security. With applications and data separated logically from the underlying infrastructure, it’s actually easier to concentrate on security add-ons like encryption and federated identity and access control ecosystems.

As I’ve said before, the mix of end customers for IT hardware changes as organizations reduce their numbers of old-fashioned data centers in favor of the new industrial-strength facilities that support clouds.

A healthy -- and intense -- competition has developed among CSPs. They’re seeking federal customers and in some cases building data centers dedicated to federal use. Today, the technical interfaces of some competing cloud providers aren’t interchangeable, because several competing standards exist for service delivery. While this is holding up cloud revenue growth today, eventually standards-based cloud computing provided by a few behemoths will prevail.