Pent-up Demand Fuels U.S. Public Sector Cloud Boom

Rhea-AI Summary

Information Services Group (ISG) reports a significant surge in cloud adoption across U.S. public sector organizations, particularly in state, local, and educational (SLED) institutions. The 2024 ISG Provider Lens™ Multi Public Cloud Services report highlights increasing momentum in cloud migration, driven by obsolete legacy systems, retiring IT staff, and budget constraints.

The transition is supported by state governments providing large-scale cloud capabilities, with managed service providers expanding their offerings to include AI solutions. The report identifies a growing trend in SAP migrations to cloud platforms, expected to continue through 2027. Cloud FinOps is gaining importance as agencies seek to align cloud spending with missions and budgets.

Among 38 evaluated providers, IBM leads in all five quadrants, while Kyndryl and Rackspace Technology lead in four quadrants each.

Positive

• Growing cloud adoption momentum in U.S. public sector indicates market expansion
• Increased provider participation and service adaptation for public agencies
• Expected growth in SLED SAP migrations through 2027
• Rising demand for Cloud FinOps services

Negative

• Post-pandemic fiscal and political challenges hindering cloud transformation
• Agencies facing skills shortage due to retiring IT staff
• Budget constraints affecting operational capabilities

Insights

Market Research Analyst

The accelerating cloud adoption in the U.S. public sector represents a significant market opportunity for ISG and other technology service providers. With SLED organizations managing approximately $3.8 trillion in annual spending, this transition indicates substantial potential contract values and consulting revenue streams.

The timing is particularly advantageous for ISG (III), as their positioning as both a research and advisory firm allows them to capitalize on two revenue streams: research publications and consulting services. The report reveals a critical market inflection point where legacy system obsolescence, retiring IT staff and constituent demands are creating forced modernization - a perfect storm for advisory services.

Looking at competitive dynamics, ISG's identification of 38 providers in this space suggests a fragmented market with ample opportunity for specialized advisory services. The company's establishment of the Provider Lens™ research positions them as a trusted authority, potentially driving both their advisory business and stock value through thought leadership.

Technology Strategy Consultant

The public sector's shift toward cloud adoption presents a multi-year growth catalyst for ISG's business model. The confluence of retiring legacy systems, workforce demographics and budget constraints creates an environment where external expertise becomes essential. For investors, this translates to predictable, long-term revenue potential as government agencies typically engage in multi-year transformation projects.

The report's emphasis on FinOps and cost management services is particularly noteworthy. As public agencies grapple with cloud economics, ISG's advisory services become increasingly valuable. The company's deep understanding of both technical and financial aspects positions them well against pure-play technical consultancies.

The identification of this trend by ISG demonstrates their market foresight and ability to align services with emerging needs. Their research-backed advisory approach provides a competitive moat, especially in the complex public sector where track record and credibility are important decision factors.

State, local agencies finally start widespread cloud migration to replace aging technologies, modernize public services, ISG Provider Lens™ report says

STAMFORD, Conn.--(BUSINESS WIRE)-- The U.S. public sector is quickly adopting public cloud services, beginning a long-awaited transition from legacy systems to advanced multicloud platforms, according to a new research report published today by Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm.

The 2024 ISG Provider Lens™ Multi Public Cloud Services report for the U.S. Public Sector finds that cloud adoption by state, local and educational (SLED) organizations in the U.S. is steadily increasing after being slower than expected for the past several years. Though the federal government began making grants available for technology modernization in recent years, post-pandemic fiscal and political challenges prevented many agencies from launching cloud transformations.

“Cloud adoption was slower than expected initially, but momentum is growing now,” said Nathan Frey, partner, U.S. Public Sector, at ISG. “In response, more service providers are entering this market and adapting their strategies to meet public agency needs.”

SLED organizations are turning to cloud services in part because their legacy systems and overall IT models are becoming obsolete, the report says. With IT staff retiring and operating budgets getting squeezed, local agencies often lack the skills to manage either old or new technologies.

Constituents’ service expectations are also pushing agencies toward the cloud. Since 2023, public sector entities have become more comfortable relying on cloud infrastructure and services. Many made the transition by turning to large-scale cloud-based capabilities contracted and controlled by state governments.

To address the complexity of cloud-first or cloud-plus-legacy environments, SLED organizations often engage with managed services providers, many of which have enhanced their services for public agencies. Providers are expanding their use of multiple forms of AI, including generative AI, to make services more adaptable and augment IT staff within client organizations.

The global shift of ERP platforms to the cloud has strongly influenced the U.S. public sector, where SAP is the dominant ERP platform, the report says. Many public agencies are turning to service providers for assistance with this transition, which often involves fragmented SAP environments, data conformity problems and regulatory requirements. ISG expects the number of SLED SAP migrations to keep growing through 2027.

SLED organizations are increasingly concerned about financial management, especially as they rely more on cloud services, ISG says. Demand is growing for Cloud FinOps, which gives enterprises a framework for ensuring cloud spending aligns with agency missions, regulatory requirements and budgets.

“Agencies need to keep scaling up and adapting cloud usage to meet changing needs and serve constituents,” said Jan Erik Aase, partner and global leader, ISG Provider Lens Research. “FinOps gives them the visibility and confidence to make those investments.”

The report also explores other public cloud trends affecting the U.S. public sector, including stepped-up efforts by hyperscalers to meet the sector’s needs and rising demand for cooperative contracting among states.

For more insights into the cloud challenges U.S. public agencies face, including how to coordinate acquisition and maintenance of resources and evaluate provider’s public-sector qualifications, see the ISG Provider Lens™ Focal Points briefing here.

The 2024 ISG Provider Lens™ Multi Public Cloud Services report for the U.S. Public Sector evaluates the capabilities of 38 providers across five quadrants: Consulting and Transformation Services, Managed Services, FinOps Services and Cloud Optimization, Hyperscale Infrastructure and Platform Services and SAP HANA Infrastructure Services.

The report names IBM as a Leader in all five quadrants. It names Kyndryl and Rackspace Technology as Leaders in four quadrants each and Accenture, Infosys, NTT DATA and Unisys as Leaders in three quadrants each. AWS, CGI, Deloitte and Microsoft are named as Leaders in two quadrants each. SAP is named as a Leader in one quadrant.

In addition, Capgemini and HCLTech are named as Rising Stars — companies with a “promising portfolio” and “high future potential” by ISG’s definition — in two quadrants each. Google and TCS are named as Rising Stars in one quadrant each.

In the area of customer experience, Persistent Systems is named the global ISG CX Star Performer for 2024 among multi public cloud services providers. Persistent Systems earned the highest customer satisfaction scores in ISG's Voice of the Customer survey, part of the ISG Star of Excellence™ program, the premier quality recognition for the technology and business services industry.

A customized version of the report is available from Unisys.

The 2024 ISG Provider Lens™ Multi Public Cloud Services report for the U.S. Public Sector is available to subscribers or for one-time purchase on this webpage.

About ISG Provider Lens™ Research

The ISG Provider Lens™ Quadrant research series is the only service provider evaluation of its kind to combine empirical, data-driven research and market analysis with the real-world experience and observations of ISG's global advisory team. Enterprises will find a wealth of detailed data and market analysis to help guide their selection of appropriate sourcing partners, while ISG advisors use the reports to validate their own market knowledge and make recommendations to ISG's enterprise clients. The research currently covers providers offering their services globally, across Europe, as well as in the U.S., Canada, Mexico, Brazil, the U.K., France, Benelux, Germany, Switzerland, the Nordics, Australia and Singapore/Malaysia, with additional markets to be added in the future. For more information about ISG Provider Lens research, please visit this webpage.

About ISG

ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 900 clients, including more than 75 of the world’s top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including AI, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,600 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data. For more information, visit www.isg-one.com.

View source version on businesswire.com: https://www.businesswire.com/news/home/20241220382225/en/

Press Contacts:

Will Thoretz, ISG

+1 203 517 3119

will.thoretz@isg-one.com

Julianna Sheridan, Matter Communications for ISG

+1 978-518-4520

isg@matternow.com

Source: Information Services Group, Inc.

FAQ

What are the key findings of ISG's 2024 U.S. Public Sector Cloud Services report (III)?

The report reveals increasing cloud adoption in state, local, and educational organizations, with growing momentum in cloud migration, expanded service provider participation, and rising demand for Cloud FinOps services.

How many providers were evaluated in ISG's 2024 Public Cloud Services report?

The report evaluated 38 providers across five quadrants, with IBM leading in all categories.

What is driving the cloud adoption trend in U.S. public sector organizations?

The adoption is driven by obsolete legacy systems, retiring IT staff, budget constraints, and increasing constituent service expectations.

What is the projected timeline for SLED SAP migrations according to ISG (III)?

ISG expects the number of SLED SAP migrations to continue growing through 2027.

How are service providers adapting to meet public sector cloud needs?

Providers are expanding their services with multiple forms of AI, including generative AI, and enhancing their offerings specifically for public agencies.