The government IT market isn't growing as fast as it used to. IT-contracted spending by the federal government is expected to grow at a compound annual growth rate of only 4.1 percent annually over the next five years, from $71.9 billion in 2008 to $87.8 billion in 2013, according to market research firm INPUT. But for solution providers who specialize in consolidation through server virtualization, the market is hot and getting hotter all the time. Government agencies have experienced "server sprawl" at least as much as large corporations have. They are often saddled with legacy equipment and applications. And they are tasked with providing more and better services to constituents while their budgets remain flat.

"We are perfect for that market," says Aileen Black, vice president of VMware's Federal Sales Division. To prove it, she points out that Federal is the fastest growing division at VMware, which is itself experiencing heady growth. And, notes Black, 93 percent of VMware's federal sales are through the channel.

At the federal, state and municipal levels, government is consolidating IT operations to provide better service at lower costs. "Virtualization is a way to do more with less," says Jason Bystrak, a senior manager in Ingram Micro's channel marketing group. "Rather than buying more servers or more data center space, (agencies) can virtualize servers and storage so they can do more without changing their overall IT plan."

As a result, solution providers who have solid virtualization expertise and understand the subtleties of the government market will find ample opportunities for consulting, solution sales and ongoing services. One of these is Sean Burke, president of Govplace, a solution provider who specializes in public-sector data centers. Burke has seen his business increase exponentially over the last several years. "And this next year it is just going to explode," he predicts. "There are a lot of RFPs out there right now, and all the implementations will be happening over the next couple of years."

A Virtual Bonanza?

There is a lot of running room in this market. Literally. Federal agencies are riddled with many far-flung data centers that have sprung up over the last decade as servers dropped in price and IT staff took advantage. In fact, no one seems to know exactly how many data centers the government has. "There's been a proliferation of server closets for at least the last 10 years" in the federal government, says Andrew Fanara, team leader for the Energy Star products group in the U.S. Environmental Protection Agency (EPA). Even at his environmentally conscious agency, he notes, "We have more equipment in more dispersed locations than we previously thought."

Part of the problem is that agencies are forced to react to whatever needs are in the political spotlight at any given moment, notes John Slye, principal analyst at INPUT, a government market research firm. The U.S. Dept. of Homeland Security, for example, was thrown together in a matter of months. Today, more than five years later, it is still struggling.

Although the government is using virtualization for many of the same reasons as commercial companies to save energy, cut the number of server boxes, reduce operating costs and pack more processing into less space there are other drivers as well.

First, there are legislative and policy mandates forcing agencies to go green. In addition, both the U.S. Environmental Protection Agency's Energy Star Program and the U.S. Dept. of Energy have turned their attention to increasing the energy efficiency of data centers.

Second, the economic drivers for government data centers are subtly different from those of commercial entities. In corporations, the primary driver is saving money. In government, it's all about doing more with the budget you have, says Burke of Govplace. The demand on resources is exceeding the supply at government data centers, so agencies try to support more applications and services within existing budgets.

The Rush to Consolidation

Consolidation efforts are already widespread at the federal level:

• The U.S. Army is looking to consolidate 80 data centers down to three. NASA and the Jet Propulsion Labs have published a request for information on how to consolidate and virtualize some 19,000 computers.
• The U.S. Dept. of Homeland Security wants to take 22 data centers down to a handful.
• The U.S. Dept. of Agriculture has embarked on a consolidation and virtualization project that could save $40 million per year.

"You can't hear an agency CIO give a speech, " says Slye, "without hearing about how they are trying to drive datacenter costs down by closing some and consolidating."

Although large federal contracts typically go to large government systems integrators, there is plenty of room for smaller solution providers to play a role because of the small-business requirements in contracts. The big systems integrators usually subcontract virtualization work to resellers who specialize in that area.

Some of the best opportunities are at the state and local levels, according to Bystrak of Ingram Micro. Even though states may be even more budget-constrained than federal agencies, they seem to be consolidating their infrastructures more effectively and efficiently, says Slye. "The fact that their data centers are naturally more geographically centralized and that they generally have fewer bureaucratic layers to navigate through helps them act more quickly, " he explains. Many states, including Washington, Georgia and Michigan, have ongoing projects to consolidate patchworks of state and sometimes municipal data centers into a few centralized operations.

Counties are also on the virtualization bandwagon. California's Orange County, the fifth largest county in the U.S., hired Govplace to help it consolidate some 45 different agency data centers into one primary data center. The county wanted the primary center to offer technical expertise and IT services such as application hosting, database administration, data warehousing and hardware co-location services, so that the agencies could focus on their primary mission of serving county residents. Although the transition wasn't mandatory, so far 37 of the agencies have made the switch. Govplace calculated a 400 percent return on investment (ROI) for the county, representing a cost savings of $500,000 over three years.

Making the Virtualization Sale

Because government agencies need to squeeze more efficiency out of current operations in order to fund other activities, a key to successful selling is the ability to show ROI in hard dollars. "If solution providers can come in and show how the agency can attain a quick return on investment, that's a competitive edge, " says Slye.

Several vendors offer training in how to assess data centers for energy efficiency. For example, in April IBM announced a free program to train solution providers in best practices to help clients improve data-center energy efficiency. Indeed, a well-done assessment can be the single most important factor in winning new projects. "We typically close 85 percent to 90 percent of the deals where we do a virtualization assessment, and they lead to considerable revenue," says Craig Cook, director of client services at Long View Systems, a solution provider in Denver.

Another path to virtualization projects is through a back door. A solution provider called in to fix another problem can sell the client on the virtues of virtualization. In fact, that's how Long View got its first government account in the United States. It was originally hired by a large airport authority to fix a technical problem, and ended up doing a virtualization project that consolidated 80 servers down to five. "The original project had nothing to do with virtualization, " says Cook, "but it led to a project worth $80,000 in virtualization services. "

In fact, being familiar with all the different vendors as well as all the different variations on virtualization can be key to becoming a trusted advisor to government agencies, says Tom Simmons, area vice president of Citrix Federal. Solution providers should understand what the government customer needs, what technologies are available from different vendors, and how those technologies can be integrated to solve the customer's problems. Simmons notes that many hardware vendors have started incorporating virtualization features into their servers. "A VAR who understands that can show government customers how to realize virtualization benefi ts just by turning on what they've already bought, " he says. "After establishing credibility and a presence with that customer, the solution provider can pull in other technologies that could give the customer a virtual, end-to-end experience. "

And that can lead to a long and fruitful relationship, because after the initial virtualization work, the solution provider often stays on to help run the data center. Govplace, for example, still works with Orange County and even has an office at the county's data center. "A lot of people think that virtualization for consolidation is a point solution you walk in, you walk out, " says Burke. "But it's not. It's a new way of running data centers. It's a continual change in architecture that still needs to be managed."