Onvia recently published a white paper on cloud computing titled Tactics to Win in the State & Local Cloud Market, which draws from our industry-leading database of government contracts as well as 3rd party research from leading industry experts. Based on our research, we found the IT cloud SLED (state, local, education) market is relatively open for government contractors of various specialties and sizes to compete and win business in this growing market segment.
Among the key findings were the following:
1) Vendor size is not a gating factor in bid success
Our research did not reveal any built-in bias in the IT cloud SLED market towards a certain minimum size of vendor. We divided cloud vendors into four groups based on annual revenue:
- Small businesses up to $10m in annual revenue
- Medium businesses in the $10m - $99m range
- Larger firms in the $100m - $999m range
- Enterprise firms with $1b or more in annual revenue
In segmenting IT cloud awards by these ranges, Onvia noticed that among recent SLED cloud awards, 44% went to cloud providers with less than $10 million in annual revenue and a full 73% went to those with less than $100m. While larger firms making over $100m had higher average award values, they captured a relatively small share of the overall award count. Onvia concludes that small to mid-sized service providers can find success in prime contracting roles in the IT cloud SLED market, and many appear to have aligned their businesses with larger players such as Microsoft, AWS, Google, IBM or VMware through VAR or solutions-specialist relationships.
In this environment, the small companies often act as prime contractors, fulfilling the high-touch planning and implementing work while relying on OEMs and infrastructure partners to deliver on backend hardware or software needs. While this general type of partnering in IT is not unique, government buyers in this context appear to be comfortable with the service, attention and expertise of the small to mid-sized vendors.
2) SLED cloud contracts awarded to diverse mix of firms by industry specialization
Across the landscape of cloud award winners in the SLED market, there was no single dominant vendor specialty or category. Prime contractors include industry giants such as Microsoft being awarded IT cloud contracts alongside smaller companies, whose primary business is software development, full-service VAR, SaaS and IaaS provider, full-service consultant or systems integrator. While vendor category was often related to the type of award that was won, it was clear from our data set that vendors belonging to each of these industry categories had real opportunities in the cloud SLED market – either as a prime or a subcontractor.
In addition to flexibility of vendor specialization, cloud vendors can win with a range of experience in the government cloud market. Onvia found in its SLED award database that, of those firms awarded contracts, the average number of awards was only 1.2 over the last several years. Because few vendors have a long track record of cloud success in the SLED market, this statistic emphasized the need for vendors to highlight their success in federal IT and private sector cloud projects, or their broader SLED experience, including under-threshold or sub-contracting wins.
3) Cloud opportunities exist in all levels of government
While smaller cloud vendors may feel compelled to earn their first cloud win with a small city or town agency, our data did not point to this being a requirement for SLED success in the IT cloud market. Many vendors in the SMB segment (under $10 million in revenues) have won awards at the county or state level. The largest difference in award activity for smaller vendors selling into large agencies was award size, not their chances of winning. SMB vendors had average cloud award values of $117k in our data set vs. the next largest bracket of firms with $10m - $99m in sales, having average award values of $688k. One explanation for SMBs having opportunities within larger agencies is due to the diversity of cloud project scale and approaches. A wide range of project budgets exists at the county and statewide level. Small vendors may be able to win awards for implementation and deployment of SaaS services, even at the state level, while larger infrastructure or data storage awards would be reserved for the bigger players. Having access to various budgets at multiple levels of government provides a range of opportunities for the small to mid-sized IT providers to penetrate any level of SLED government with their first competitive win.
Based on Onvia’s research, the environment for cloud procurement in the SLED market can be described as open and flexible. Rather than having the market dominated by only the largest IT firms and providers, the SLED cloud contracting marketplace allows for a wide range of vendor business models and sizes to compete and win. While government IT chiefs will want to see relevant work experience to reassure them of a provider’s capabilities and expertise, that expertise does not need to come from pure cloud wins in the SLED market. Government IT vendors should feel empowered to bid on cloud projects in education, city, county, or state agencies and know that a track record of relevant cloud success inside or outside the public sector can leave them well qualified to complete in this relatively new SLED market.