Thought Leadership

Three trends to watch in the FY 2021 federal cloud computing market

The 2020 federal fiscal year calendar is behind us and the eyes of government contracting business development professionals are fully focused on FY 2021. And in this new fiscal year, federal cloud computing is a market segment that is particularly ripe for growth, bolstered by major acquisition initiatives designed to improve and modernize procurement processes and regulations. The federal cloud computing market is poised for this strong growth in response to both ongoing IT modernization initiatives and new demands caused by the COVID-19 public health crisis.

“The scalability of cloud computing was critical in agencies' successful and rapid transition to a remote workforce during the pandemic response,” said Deniece Peterson, director of federal market analysis for Deltek. “This only served to highlight the role of cloud for mission continuity and success.”

Many agencies are leveraging COVID-19 response efforts to rapidly address longstanding IT challenges. Aging legacy systems and the need to improve cybersecurity capabilities continue to be key drivers of agency cloud adoption. In fact, a growing number of agency leaders are also actively encouraging cloud use and introducing improved data management practices, both of which are making cloud the medium of choice for delivering modern capabilities.

A new report from Deltek, Federal Cloud Computing Market, 2020-2022, examines the major budgetary, policy, acquisition and workforce issues influencing federal cloud computing priorities, as well as the current and pending policies shaping procurement in not only IT, but across all segments of the federal government contracting market. This report forecasts that federal cloud investment will grow from $6.8 billion in FY 2020 to $7.8 billion in FY 2022 at a Compound Annual Growth Rate (CAGR) of 4.6%.

Here are three specific trends within the federal cloud computing market that are worth keeping an eye on:

  • Adoption Rates Accelerate. Even before the COVID-19 public health crisis, federal agencies' adoption of cloud-based capabilities, reliance on commercial partners for application hosting and the development of new capabilities in cloud environments was accelerating.
  • Defense Commits to Commercial Cloud. After years of planning, the Department of Defense appears to be firming up its commitment to commercial cloud, estimating that it will spend $300M of its planned Fiscal Year 2021 cloud budget with commercial providers.
  • Sound Data Management Makes a Difference. The growing focus on sound data management across government, including the hiring of Chief Data Officers, is prompting agencies to leverage commercial cloud services that are more secure than legacy data centers.

“Agency IT modernization efforts have become synonymous with the adoption of ‘as-a-Service’ models making cloud the medium of choice for delivering modern capabilities while providing secure storage and computing power,” said Alex Rossino, senior principal research analyst for Deltek.

While the drive to modernize IT within federal agencies is not one that looks to be ending any time soon, and with the impacts of COVID-19 likely to continue to reverberate throughout the government market for the time being, the federal cloud computing market appears to be one that contractors can count on for continued growth in the near future.

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