Microsoft Sees Opportunity in Shrinking Federal Budgets

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WASHINGTON — As federal agencies put their budgets under the microscope looking for items to trim, under-producing IT projects could land on the chopping block.

Federal CIOs are under pressure from the White House tech team to eliminate inefficient tech deployments, and either overhaul or abandon projects that are running over budget or behind schedule.

That means that IT firms looking to do business with the federal government are going to have to prove their case, according to Teresa Carlson, vice president of Microsoft’s (NASDAQ: MSFT) federal government division.

“I think in the federal [market] we have to prove our worth now,” Carlson said in a presentation here at Microsoft’s annual Worldwide Partner Conference. “Business cases are going to become extremely important.”

But in crisis there may be opportunity, Carlson said, advising the consultants, resellers and other players that comprise Microsoft’s partner network that federal IT managers are interested in proposals for new technology projects that could replace older legacy systems that can be expensive to manage.

Greg Myers, the general manager of Microsoft’s federal civilian business, said that the company is pitching federal IT managers on cloud-based technologies that it argues are more agile and entail more flexible operating agreements and lower cost than enterprise infrastructure solutions from companies like Oracle (NASDAQ: ORCL) and VMware (NYSE: VMW)

Myers also described a growing tension in the government IT sector in response to the Obama administration’s emphasis on bringing more data and services online while still maintaining and strengthening the security of sensitive data. That friction is particularly acute in areas such as health care, where Microsoft and scores of other firms are vying for government contracts in areas such as electronic health records (EHR).

“You’re seeing this violent collision of being as open as they possibly can on the civilian side, especially in healthcare, and you’ve got, obviously, security [which] is paramount,” he said.

“The CIOs…are really struggling with how to serve both masters. It’s one thing if someone hacks a Google mail account or a Facebook account. It’s quite another if someone gets into your EHR,” he added.

By convening its partner conference in the nation’s capital, Microsoft executives have had a chance to hear about the government’s IT priorities directly from the officials making the decisions.

CEO Steve Ballmer has been making the rounds in Washington this week, meeting with the deputy secretaries at the president’s management council and sitting in on a CIO roundtable. Ballmer also met with senior officials at the Department of Veterans Affairs, and stopped in at Walter Reed Hospital to hand out Xboxes and Zunes to soldiers wounded in combat.

One of Ballmer’s messages to the CIOs was to shorten the development and procurement cycle, Carlson said. Within Microsoft, projects that drag on for more than a year are closely scrutinized, while none is generally allowed to languish for more than two and a half years. But in government IT, historically, it has not been uncommon for projects to crawl along for several years.

“They were blown away by this,” Carlson said. “One of the things the CIOs brought up that they’re struggling with is the culture shift.”

Federal CIO Vivek Kundra has been leading an effort to evaluate under-performing or over-budget IT projects across the agencies, while also trying to bring more transparency into how much money the government is spending on various projects. Just yesterday, Kundra debuted the revamped IT dashboard, an online tool that tracks federal technology projects throughout the agencies and departments.

“They really are paying close attention to these large projects that aren’t working,” Carlson said. “They’ve already canceled one with the VA. There’s going to be more of these.”

Kundra has also been the administration’s most vocal advocate of moving federal computing to the cloud. Microsoft, like many other firms, is vying for federal contracts with its cloud technologies, which Kundra is promoting for the sake of both increased efficiency and, especially, cost savings.

“Cost really is king,” said Kris Teutsch head of Microsoft’s national security group. “That’s driving the behavior of procurement.”

Kenneth Corbin is an associate editor at InternetNews.com, the news service of Internet.com, the network for technology professionals.