Federal Cloud Could Leave VARs Behind

By John Hazard  |  Posted 2011-05-04 Email Print this article Print
 
 
 
 
 
 
 

Budget cuts on the federal level and a mandate to pushing agencies to accelerate cloud adoption will push many VARs out of the federal game as cloud providers and big systems integrators take their places.

VARs and Systems Integrators who sell to the Federal government may face a shrinking universe of sales opportunities, but don’t blame the budget directly. It’s the cloud’s fault.

The cloud and a reduced IT footprint have been goals of the Executive Branch for more than a year now, but deficit-reduction measures will accelerate cloud adoption at most agencies.

Government spending analysts say the government’s construction of a cloud infrastructure will put a larger share of the $79 billion Federal IT spend in the hands of fewer cloud providers and systems integrators. Those competing for what remains of the Federal IT spend face a channel of smaller contracts, shorter projects and more frequent turnover as the executive branch adopts a more agile approach to IT procurement.

"VARs should be prepared for a faster, more agile channel," said John Slye, principal research analyst at Input, a market-research firm in Reston, Va.

A Shrinking Universe


Since taking office in 2009, Vivek Jundra, the country’s first federal CIO, has sought to force the executive branch to do more with less.|

"There is a desire to take things which are common across agencies and seek shared solutions," said Shawn McCarthy, director of research at at IDC Government Insights. "When there is a major investment, agencies are forced to justify the spend and see if they can get it through a shared service, cheaper or through the cloud."

In November, the Office of Management and Budget established what it called a "cloud-first" strategy, that required federal agencies to default to cloud-based solutions "whenever a secure, reliable, cost-effective cloud option exists," according to the OMB. In February, White House announced a plan to reduce use the Cloud and virtualization to reduce the number of data centers from 2,094 to 1,284 by 2015.

Unless they have a good reason not to, agencies are required to adopt a cloud option.

"The government is no longer building as much of its own," McCarthy said. "Which means VARs have fewer places to sell their equipment. If the government is getting their infrastructure from the SIs or directly from the software maker, the universe of what VARs can sell into is being eroded."

The push to the cloud will only be accelerated by the attempt to rein in the deficit. As budgets remain flat or decrease -- President Barack Obama requested $77.1 billion in IT spending for fiscal 2012, down from $79.5 billion requested for fiscal 2011 -- officials will be forced to give greater consideration to any cost savers like cloud computing, McCarthy said.
Instead of selling to the federal government, many VARs will pick up those SIs as customers, reshuffling the same money, McCarthy said.

Channel Churn

VARs and systems integrators are also likely to find a more fluid federal channel and procurement process, as spending pressures force agencies to adopt more agile contract practices and place greater scrutiny on underperforming contracts. VARs can expect a lot more channel churn than they are used to, according to Slye

"The days of huge services contracts for billions of dollars with multi year multi-extensions are over," said Slye.
 
Federal procurement agents are increasingly using a modular model to scope projects and put contracts out for bid and the OMB and Government Accountability Office have shown an increasing willingness to review over-budget and delayed projects and to put that up for a re-compete.

"You do not want to be the gopher with head sticking out of the hole when the lawn mower comes by right now," Slye said. "They’re being asked to save money and they’re going to be looking hard for underperformers.

"If you have a contract that is underperforming, you have a target on your back," he said. "If you see a contract that is underperforming, you have a chance to win that business. They’re willing to bring in new blood to stay on budget... Deficit-reduction will mean a lot of turnover in the channel"

 

 
 
 
 
 
 
 
 
 
























 
 
 
 
 
 

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