XaaS Will Emerge as New Area of Investments as Governments Scale Digital Transformation Initiatives
“The last few years of enduring pandemic challenges have mobilized a wave of digital transformation activities in government organizations across the world,” said Daniel Snyder, director analyst at Gartner. “Governments are executing innovative activities by harnessing technology to streamline digital services, advance automation processes and evolve citizen experiences.”
In 2022, government IT spending is forecast to increase across all segments except internal services and telecom services. Continuing the trend from 2021, software is forecast to record the strongest growth across all segments in 2022. As legacy modernization continues to be a priority in government organizations, growth in the data center systems segment will continue to slow though the forecast period (see Table 1).
Table 1. Worldwide Government IT Spending, 2021-2022 (Millions of U.S. Dollars)
| 2021 Spending | 2021 Growth (%) | 2022 Spending | 2022 Growth (%) | 2023 Spending | 2023 Growth (%) | |
| Data Center Systems | 25,085 | 7.3 | 26,137 | 4.2 | 26,642 | 1.9 |
| Devices | 37,484 | 13.0 | 37,823 | 0.9 | 37,389 | -1.1 |
| Internal Services | 68,241 | -2.1 | 68,188 | -0.1 | 70,767 | 3.8 |
| IT Services | 191,841 | 10.7 | 204,206 | 6.5 | 220,997 | 8.2 |
| Software | 146,952 | 16.9 | 162,278 | 10.4 | 183,012 | 12.8 |
| Telecom Services | 69,190 | 1.1 | 67,102 | -3.0 | 67,193 | 0.1 |
| Total | 538,793 | 9.1 | 565,734 | 5.0 | 606,000 | 100.0 |
Source: Gartner (June 2022)
Governments continue to invest in critical application software that directly support end user interfaces driving strong growth in this segment. Spending on telecom services is set to decrease in 2022 as governments reduce spending on expensive legacy systems in favor of digital service delivery models.
Anything-as-a-Service Model Emerges as Pay-As-You-Use Gains Momentum
Anything-as-a-Service (XaaS) is gaining popularity across government organizations as it provides better return on investment normalizing IT spend over time making budgeting for IT more predictable, while avoiding the accrual of technical debt. Gartner predicts that by 2026, most government agencies’ new IT investments will be made in XaaS solutions.
“The pandemic sped up public-sector adoption of cloud solutions and the XaaS model for accelerated legacy modernization and new service implementations,” said Snyder. “Fifty-four percent of government CIOs responding to the 2022 Gartner CIO Survey indicated that they expect to allocate additional funding to cloud platforms in 2022, while 35% will decrease investments in legacy infrastructure and data center technologies.”
With the ongoing talent challenges facing organizations, XaaS makes it easier for government organizations to find the right talent via XaaS operating models. XaaS delivery models require different internal IT skill sets and place less demand on the organization to develop or acquire emerging IT skills, which are often hard to find and difficult for governments to afford.
