4 Blue Chips Playing in the Government Cloud

These big-timers are making inroads to the billions at stake

By Marc Bastow, InvestorPlace Assistant Editor


Computer Sciences‘ (NYSE:CSC) recent snagging of a Federal Aviation Administration contract to implement cloud-based software-as-a-service is another milestone for an underlying theme in the U.S. government’s IT space: the acceptance (and embracing) of cloud-based computing.

The federal government’s budget for IT spending is roughly $80 billion, so the financial stakes are high. The Obama administration has outlined steps to consolidate or close 1,000 government data centers by 2015, and early last year the Office of the Chief Information Officer instituted a “Cloud First” strategy to pick up the adoptive pace of cloud computing and services.

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In 2011, the General Services Administration, Department of the Interior and the Department of Agriculture all migrated to cloud computing. Agencies within the government are being asked to move a total of 80 services to the cloud during the next 18-month period in an attempt to save $100 million per year starting in 2013.

With all that money sloshing around, a feeding frenzy is in full swing. While not a complete list of the players, here’s a quick look at the most recent winners and bidders for government cloud contracts to see who could benefit from this big-value, big-reward largesse:


CSC’s award is a very big, very public first step for Microsoft (NASDAQ:MSFT), as under the contract, CSC will provide Microsoft Office 365 in Microsoft’s secure cloud environment. The Microsoft Office 365 solution includes email, collaboration, messaging, legal and other office applications. CSC will migrate 80,000 users to Microsoft Office 365, with a $91 million contract price tag.

Sure, whatever part of the $91 million Microsoft earns will be a drop in the bucket, but after losing out on a contract for work with the DOI last year, MSFT was looking for a big win to get even deeper into the game.

Mission accomplished.


The aforementioned DOI contract award went to Google (NASDAQ:GOOG) after a lawsuit (one of the hazards of federal contracting) emerged over Microsoft’s original win. In 2010, Google introduced Google Apps for Government, designed specifically with measures to address the policy and security needs of the government and public sector. In fall 2011, Google agreed to drop the suit as the agency opened up the competition again, and in May 2012, Google prevailed for the $35 million deal.

The adoption of Google Apps in the federal marketplace is key for Google, one of the biggest and most visible cloud players in the industry. Once implemented, DOI will become the largest major U.S. government agency to switch to Google’s cloud.


The worlds biggest e-tailer isn’t just about moving books and merchandise: Amazon (NASDAQ:AMZN) is positioning itself to be a major government cloud provider.

Amazon’s Web Service began in 2006 when it realized the expertise and infrastructure built for the company’s online business could translate to other functions. With the government’s move to a cloud-based model, Amazon ramped up “GovCloud,” a grouping of data centers only available to government agencies and contractors.

The results of the efforts are outstanding. Amazon doesn’t break out AWS revenues — though Capital Business reported revenue estimates of $940 million in 2011 — but it has a number of jobs in place, including the National Institutes of Health 1000 Genomes Project, where AWS is storing 200 terabytes of data on human genetics. Amazon also is on the GSA schedule program, partnering with Laurel, Md.-based Aquilent — yet another inroad into this expanding market.


You mean phone and Internet service provider Verizon (NYSE:VZ)?

Yup. That one.

Last year, Verizon spent $1.4 billion to gobble up Terremark Worldwide, a provider of managed IT and cloud services. According to Washington Technology, “Verizon officials said the acquisition would strengthen its commercial and federal business by adding Terremark’s portfolio of cloud solutions, business and government customers, and network of global data, while adding to their own cloud capabilities.”

And in 2010, the General Services Administration awarded the company a blanket purchasing agreement potentially worth $75 billion, in which Verizon will offer infrastructure-as-a-service solutions, helping government customers manage servers, storage, applications and more.

Verizon has a huge footprint in the commercial space, sharing a virtual duopoly with AT&T (NYSE:T). Now it has plenty of capacity to add to that in the federal space.

Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he was long MSFT and VZ.

Article printed from InvestorPlace Media, https://investorplace.com/2012/06/4-blue-chips-playing-in-the-government-cloud-csc-msft-goog-amzn-vz/.

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