Uncle Sam’s $1.7B Move to Cloud-Based Solutions
Policy + Politics

Uncle Sam’s $1.7B Move to Cloud-Based Solutions

iStockphoto/The Fiscal Times

The United States federal government is expected to greatly accelerate its spending on cloud computing solutions starting in fiscal year 2014, which begins October 1, 2013.

In its report, "Perspective: Growth and Slight Contraction - Government Cloud Spending by U.S. Federal Agency," published July 15, market research firm IDC Government Insights points out that the overall U.S. government cloud services market will reach $9 billion in fiscal year 2017.

Cloud computing is a broad and often ambiguous term, usually referring to the infrastructure of systems available to users from a remote location (data center) over the Internet, as opposed to in-house computing services.


In its report, IDC specifies that the government's transition to cloud-based solutions was sluggish, and that it lagged behind the private sector in embracing the cloud. In part, cloud investments have been stalled because of a deceleration in consolidation among government systems, federal sequestration, and other issues, IDC notes.

"There are clear indications that fiscal year 2014 will continue to be a flat year for cloud computing investments," said Shawn McCarthy, Research Director at IDC Government Insights.

"Yet beyond that, growth potential looks bright. Investments should reach a critical mass around 2015 and beyond. A new emphasis on cloud solutions is expected to return within the next 18 months,” he said.

A number of systems integrators and technology companies like AT&T (NYSE:T) and  IBM (NYSE:IBM), as well as Amazon (NASDAQ:AMZN), which recently secured a $600-million deal to build a private cloud for the CIA, will benefit from the growing market.

The biggest category of government cloud spending is so-called Infrastructure as a Service (IaaS) solutions – which essentially means renting the required computing, storage, and networking resources from third parties, instead of installing the necessary hardware and software in its own data centers. IDC expects US government spending on IaaS to increase more than fivefold, from $1 billion in fiscal 2012 to $5.4 in fiscal 2014.

The government prefers private cloud services – which are usually secure and customized, and running solely for one organization – to public cloud services like email, website hosting, and data storage offered by third parties. IDC predicts that public cloud federal spending will increase 7 percent to $118.3 million in FY2014 compared to FY2012, while the federal private cloud market will grow 13 percent to $1.7 billion in FY2014 and will soar to $7.7 billion in FY2017.

Community cloud spending (when a private cloud is shared between multiple organizations, as is the case with the FBI’s Next Generation Identification system) and hybrid cloud spending (a mix of public and private cloud services, as used by NASA’s hazard monitoring system) will decrease in FY2014 compared to FY2012 by 17 percent (to $313.5 million) and 0.1 percent (to $77.3 million) respectively.

The Treasury Department (which uses Amazon’s public cloud for its site and content management), Justice Department, and Social Security Administration are the biggest cloud adopters among the federal agencies. In terms of service areas, IDC's report states
that clouds for criminal investigation and surveillance led the spending rankings, followed by Social Security benefits and accounting.

Still, U.S. federal cloud spending remains a fraction of a global market. According to a Gartner report, public cloud services will grow to $131 billion worldwide in 2013 with North America accounting for 59 percent of all new spending on cloud services between 2013 and 2016.

Editor's note: The IDC report cited is also identified as Document # GI241746. This article by Nick Shchetko originally appeared at Minyanville.com.

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