If OMB's predictions on cloud spending are right, you might have to change the way you approach cloud sales. immixGroup senior analyst Chris Wiedemann talks about what you should do to prepare.
OMB’s FY14 predictions on cloud spending ended up being well short of the mark, and FY15’s anticipated cloud spending looks to lag again – next year’s levels may come in at roughly $200 million less than this year’s. Some analysts predict that OMB will get it wrong again, and that federal cloud spending will increase again next year. Dig a little deeper, though, and it starts to look like OMB’s predictions may be right on the money this time around – which means that you may have to change your approach to cloud sales.
There are three main indicators that cloud spending will go down in FY15.
One-off buying increases in FY14. HHS, one of the main recipients of the FY14 spending anomaly, is cutting its cloud spend in half this year. SSA, the largest cloud spender in the federal government, is down over $100 million in FY15 in cloud purchasing. That trend looks to continue – while SSA is likely to increase cloud spending to support its new National Support Center facility, that increase will be more than offset by spending decreases driven by data center consolidation and migration away from the National Computing Center.
Policy obstacles. Although some progress has been made towards things like Software as a Service adoption in the government, widespread acceptance of using “public,” or non-proprietary, infrastructure or applications to host government data has been slow to take on among cybersecurity and governance personnel. That reluctance to truly embrace cloud computing, as industry understands the term, is the major reason that the bulk of federal cloud spending goes to operating private cloud infrastructures.
The “low hanging fruit” has been picked. Federal cloud initiatives like email as a service have been widely adopted within government. Reluctance to trust government data to a private sector cloud service provider will make it very difficult to move more mission-critical applications off of government-owned infrastructure any time soon. Moreover, most of the departments that are interested in private cloud adoption (think SSA, Treasury, DHS, etc.) have already invested in the necessary infrastructure, so any future spending increases will be more incremental than exponential.
None of this means that federal cloud spending has hit a ceiling, but expecting any more cloud spending than the $2.7 billion estimated for FY15 is a little optimistic, to say the least. Over the next few years, as spending slows, cloud vendors will need to temper their expectations of their potential market. When talking to potential customers, remember that most departments are still far from what industry would consider true cloud adoption.
Instead, if you want to capture a share of the federal cloud market, look for ways to support private cloud management. Technologies like network management, performance monitoring, continuous monitoring, and other tools to support large infrastructures will likely remain the predominant “cloud” requirements in FY15. Target your enterprise application sales towards departments that operate robust private clouds – since technologies successfully installed there will be deployed across most of the enterprise by default.
No matter how you may change your expectations for selling cloud services into the federal government, one thing you should not expect is an explosion of federal cloud spending – at least not in FY15.