Federal Market: Will Cloud, Managed Services Prevail Amid Tight Budgets?

An era of tighter government spending seems to have arrived, but cloud computing and managed services may still provide a growth opportunity. Recent evidence of the former comes from Defense Secretary Robert Gates. In an August 9 press briefing, Gates said the Pentagon now looks to cut “a third of the budget for services and support contracting over the course of the next three years.” He observed that service support and advisory contractors of all kinds accounted for  39 percent of DoD’s workforce cost in 2009, up from 26 percent in 2000. Here are more details.

As for the latter, cloud and service providers continue to rollout products for government customers. Google last month announced its Google Apps for Government. Microsoft earlier this year unveiled its Business Productivity Online Suite Federal.

And this month, Autonomic Resources, an IT and service integration firm, expanded its cloud offerings in the federal market, offering technologies from OpenStack, Zenoss and Enomaly.  OpenStack is an open source cloud project launched by Rackspace. Zenoss, which makes monitoring software, has been cultivating ties to service providers, while Enomaly offers an infrastructure as a service platform.

On the managed service side, Bivio Networks and IP communications provider Global Crossing earlier this week announced an alliance to offer managed security services to federal government customers. Global Crossing’s Federal Sector will employ Bivio’s network security products, including the recently launched Continuous Threat Monitoring Solution.

Dollars and Cents

So why the government enthusiasm? Industry believes agencies will continue to invest in such areas as IT security and will look to save money in the cloud.

John Sutton, executive vice president and general manager of Global Crossing’s Federal Sector, said he sees an increasing level of funding for comprehensive national cybersecurity. He pointed to the establishment of the U.S. Cyber Command as an example of the government’s IT security focus. The Pentagon in May announced the new command, which seeks to integrate the military’s cyberspace operations.

Elan Amir, Bivio’s president and chief executive officer, said he believes federal funding for cybersecurity will continue to grow, despite the focus on budget control. He suggested customers may opt for managed services as their method of deploying solutions such as threat monitoring.

“Having a service provider set up and provide that whole functionality as a managed service makes it much easier for the customer,” he said.

Federal interest in the cloud also provides vendors cause for optimism. Terremark recently cited federal data consolidation and cloud projects as factors driving its government business. The company reported that federal bookings for its June-ended quarter more than doubled compared with the previous quarter.

Input Inc.’s market research seems to back up vendor sentiments. The company asserts that federal IT spending has “some protection from significant reductions,” citing shared services and cybersecurity as examples of the Obama administration’s near-term priorities. Input predicts that federal IT market will expand at a 5.4 percent compound annual growth rate through 2015. The market researcher puts the market at $86 billion in 2010 and projects a $112 billion market in 2015.

So for providers, success in federal IT boils down to hitting the right spots. That, and the small matter of execution. A high-visibility failure could well put the brakes on services that are still fairly new to government.

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