A sobering take on government contractors

I recently had a chance to hear a small informal presentation by an executive with decades of high-level industry experience in the government contracting market, and who is very respected in the community. His remarks were sobering, and I took a chance to follow up with him after his presentation to get more meat on the bones of his discussion.

He started his presentation by asserted that no traditional government contractors had established any position to speak of in the market for cloud computing, arguably the biggest tech management shift of the past decade. Instead, Amazon Web Services, with no presence in the federal market, stole the market from under their noses. Very few government contractors had even explored entering this market.

Why, I asked? "Government contractors don't think that way," the executive replied. "They are very focused on government RFPs, responding to things the government puts out. That keeps them busy. But it makes them very unlike Silicon Valley companies and venture capitalists that are constantly scanning the market for new tech trends and developments. When Amazon concluded there was a potential huge market in cloud computing, they poured huge amounts of their own money into developing an infrastructure. Government contractors don't think that way either. They don't want to risk large amounts of their own money."

By contrast, Amazon was "willing to take time and risk" painstakingly to make a business case for cloud to senior federal officials over a number of years before making sales.

The executive in question sees the cloud as just the latest illustration of the failures of government contractors to exploit opportunities opened up by the internet. The internet, he pointed out, was incubated by the government, with much of the work sponsored by DARPA. The first federal funding of what became the internet started in 1962. Over the next 30 years, before it was commercialized, the growing network was well-known within the defense and academic communities. It was everywhere around the world of government contractors, but they did not really see its commercial potential.

Silicon Valley, he noted, initially knew much less about the internet than government contractors did, but once they saw things developing, they jumped. "What always struck me as strange was that 90 percent of the companies that clustered around the internet were Silicon Valley, yet they had not been involved in developing it for all those years," the executive told me. "Government contractors sat here with the internet growing over time, this was their backyard." (He made the same observation about GPS systems, developed by government and government contractors, but exploited by Silicon Valley.)

This executive said he attended National Science Foundation meetings on the internet "for years" as the technology was developing; "there would be some government contractors there listening but I never saw any major contractors do anything about it." Indeed, he "never heard much of any discussion in the government contracting community of this." (The one exception was SAIC's 1995 acquisition of Network Solutions, which held a contractual agreement with the U.S. government to be the exclusive seller of all internet domain names globally.)

He said that senior federal agency leaders with whom he has been speaking feel that, because of these contractor shortcomings, they aren't "getting what they need" from contractors. They desperately want to tap into the commercial tech world – hence the new Defense Department offices in the Silicon Valley, Boston, and Austin, Texas – but there is wide skepticism in the commercial tech world about the government's slowness and the large marketing resources that go into landing government business. So, the executive felt, whether DOD's efforts will be successful is very much an open question.

Finally, he reported that he had never seen senior agency leaders feeling so "besieged" as they do now. There is a "general anxiety about the speed of change," he observed. With tight budgets, there is "intense internal pressure about how to work with less," but that means changing an "agency's longstanding IT environment to something that would be totally different," which is hard. Organizational and technological change are coming so rapidly that "people are having a more difficult time figuring out what to do to be on the advanced end of technology." And agency leaders, he asserted, don't believe they have the talent inside government to select the right technologies.

In sum, a frank and fairly grim picture from a very wise man. I would like to hear reactions from readers!