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Government IT: U.S. States Abandon CapEx Data Centers

If you’re an IT solutions provider in the government market, building or upgrading data centers that state governments own and manage sounds like a fading business model.

Indeed, U.S. states are moving away capital spending on data center upgrades, according to multiple CIOs who attended the National Association of State Technology Directors’ Eastern Region conference this week in Saratoga Springs, N.Y.

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On the one hand the statements aren’t all that surprising. The U.S. federal government has had a “cloud first” policy since about 2011. Chatter about the federal policy has surely trickled down to the state level. But on the other hand, the cloud first policy experienced slow traction at least through early 2015 because of various economic, cultural and technical issues, according to Federal Communications Week.

Government Clouds Gain Momentum

Still, the IT spending pendulum continues to swing toward cloud OpEx projects rather than on-premises CapEx projects — particularly within state governments. Georgia and Virginia have already moved aggressively toward third-party cloud and infrastructure providers, while New York is consolidating 53 agencies into a leased data center, and Pennsylvania is looking to make similar moves, according to a panel of CIOs and technology leaders at this week’s conference.

The big question mark: Will U.S. states spend for hyperconverged data centers — which are easier to scale and manage than traditional data centers — or will they simply outsource to cloud and managed services provider?

No doubt, many MSPs and cloud providers have worked to meet various compliance mandates to run federal and state workloads. Key MSPs in the government market include CloudNexa, DLT Solutions, LogicWorks, ReanCloud and Smartronix each of which are among the top 50 MSPs supporting Amazon Web Services customers.

At the federal level, 8.5% of all IT spending will involve cloud computing in fiscal year 2016, up from 5 percent in 2015, according to IDC Government Insights.

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