IaaS Growth Drives Federal Cloud Market

Infrastructure-as-a-service offerings dominate the federal cloud computing market, according to a new report.

The federal government spent $3.3 billion on cloud computing in fiscal 2015, up almost 25 percent from a sequestration-driven 5-year low of $2.6 billion in fiscal 2012, according to analysis from big data and analytics firm Govini released this week.

IaaS providers benefitted the most from federal agencies beginning to modernize IT infrastructures. Agencies increased IaaS spending by 53 percent to $897 million in fiscal 2015 from $585 million in fiscal 2012.

From an industry perspective, the biggest beneficiaries were IBM – the market leader in IaaS offerings, with $1.1 billion in cloud revenue since fiscal 2011 – and cloud resellers DLT Solutions and InfoReliance.

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The need for agencies to modernize IT infrastructures and manage the internet of things – the proliferation of networked devices and sensors – are driving cloud spending, said Matt Hummer, director of analytics and professional services for Govini.

“Agencies have an infrastructure modernization gap between the standards for what they need to be doing for things like the internet of things and where they are right now,” Hummer said. “The mission of agencies and their data and mobility are really driving cloud.”

New guidance on IT modernization from the  General Services Administration, the Office of Management and Budget, as well as legislation before Congress is likely to push cloud spending higher, he said. A key factor is that the Obama administration guidance is predicated on agencies having the dollars to actually modernize – such as the $3.1 billion IT Modernization Fund promoted by U.S. Chief Information Officer Tony Scott. As it stands, the administration’s fiscal 2017 budget sets aside $7.3 billion for provisioned services like cloud computing.

“A big challenge a lot of agencies are having is they are ad hoc buying cloud wherever they can where the dollars allow them to do that,” Hummer said.

While IaaS might be the biggest cloud market in federal government so far, software-as-a-service or platform-as-a-service offerings also show growth. Govini’s analysis indicates federal SaaS spending “surged in fiscal 2015,” jumping to $574 million from $342 million in fiscal 2014. With SaaS becoming the dominant software delivery model in part because of features like automatic patch management, Govini expects increases in coming years in SaaS spending. 

Govini calls PaaS “optimal for IoT development” because of its flexible architecture – among other features – and the numbers indicate increased growth in that market across government as well. Driven heavily by the Defense Department, which accounts for almost half the government’s PaaS spending, the federal PaaS market jumped 39 percent from fiscal 2011’s spend to $551 million.