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It’s an eternal question. How to grow your business in a mature market with lots of established players. The Defense software market is as mature as any, and yet the DoD has a pervasive need to modernize its software to take into account cloud computing, the need to refresh the military strategic offset, and a host of other reasons. For the big picture of what’s affecting the DoD software market, the Federal Drive with Tom Temin turned to Frost and Sullivan industry analyst Brad Curran.

Interview transcript:

Tom Temin: And even though it is a mature market, there is this modernization drive. So how would you characterize the market maybe starting with a sense of the dollars involved in software acquisition?

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Brad Curran: Just four new prime contracts in the last year, there’s been over $5 billion on the unclassified side. And so that includes both the traditional more proprietary software to keep combat systems updated and operational. And also bringing in commercial technologies, cloud computing as a service functions and things like that with more traditional commercial software companies. So it’s a large market and mature as you stated, it’s still growing.

Tom Temin: And you list in this latest report a number of factors that are affecting the way that it’s buying software and the types of services it’s buying. There’s some strategic influences on software, run through some of those for us.

Brad Curran: That’s right. It’s all about information sharing and collaboration. So on the tactical side, it’s, you know, that desire to tighten that sensor to shooter kill chain, on the enterprise side is to collaborate better, so that resources are better utilized. And, you know, different organizations can share information quickly and easily. And of course, with the intelligence community where there are a huge volumes of data, it’s very important, both to be able to find what you’re looking for, do some analysis, now with the help of artificial intelligence tools, and most importantly, share that information on a timely basis.

Tom Temin: And there seem to be two, not contradictory, but parallel tracks going on here. And one is, as you mentioned, DoD seeking a new type of commercially available software, a lot of this is in the cloud software as a service. But at the same time, you mentioned the Army has established a Software Factory in Austin, Texas, and you’ve got AFWERX, and you’ve got other, maybe there’s three things going on one standard commercial offerings that they’re adopting, two developing through these kind of factories, DevSecOps, and three looking for innovators that are not the traditional vendors, and maybe explain how that all ties in and what vendors have a shot at some of this business.

Brad Curran: That’s right, you mentioned the army futures command and the Defense Innovation Unit, you know, all looking to kind of find that next Palantir, so to speak, and find those innovative companies that can really have an operational impact almost immediately. So it’s good for companies to participate in those activities. You also have very large companies, Microsoft, and Dell and Amazon and, Oracle and VMware and the rest, you know, that are providing the same types of services that large commercial organizations need just to run day to day operations. And then the tactical side, you have to have a survivable network, you have to have a network that can survive in all kinds of environments, both physically and if there’s hostile electronic warfare or cyber attacks going on. So all of those areas are proceeding simultaneously. And all are very important and some crossover as well.

Tom Temin: And in looking at the contract funding by department, you have the three major armed services, Navy, Marine Corps of those three is the largest, but the largest software market of all is joint service. That’s almost half of the total addressable market there. Is that mostly JADC2, or what else is going on in that large, almost half the market that’s joint?

Brad Curran: JADC2 in the last couple of years has come on strong, you know, with billion dollar contracts being let that is one of the big reasons, but also, the DoD CIO and the joint artificial intelligence organization all have a lot more influence than they used to, in an effort to kind of have standard software across all the services again, both to save money and to improve operations and information sharing. So we seen the joint commands and the joint organizations have a lot more influence in setting standards. And in sort of twisting the arm a little bit of the service commanders to get more standardized software and share information.

Tom Temin: We were speaking with Brad Curran. He’s an industry analyst with Frost and Sullivan. And recently we had a story here about a very small startup company, about 15 people that landed a really large IDIQ with the Air Force pursuant to the Air Force’s JADC2 10 years, but about a billion dollars over 10 years, for their part of JADC2 at the Air Force. What is the best way for emergent or contractors new to the defense market that are willing to overcome what it takes to get a contract? What’s the best advice for them to grab hold of this changing and shifting market we’ve been describing?

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Brad Curran: Yeah, as we mentioned, start out with Defense Innovation Unit, with Army Futures Command with the Air Force Research Lab, Air Force Works, you know, and a lot of those contracts at first can be very, very small. But once you show you know that you’re making a good contribution, and that the software can be integrated across several different networks or platforms, you have a much better chance of involvement. And then the other side is stick with the traditional companies, Lockheed Martin, Northrop Grumman, Raytheon, General Dynamics, the other large, traditional defense firms partner with them, because you know, they’re looking to improve the software for the systems that they have. And in many cases, they’re able to bring in some commercial solutions. And then the third leg is, you know, the big commercial companies, Microsoft, Amazon, Oracle, and the rest. They have mature established products. But they also need assistance from time to time, especially with engineering and integration, because they’re not really up to date on some of the nuances of the traditional defense market and the requirements and unique requirements of DoD, not just security, but for, you know, organization and cultural issues as well. And, of course, across the board, firms that can provide artificial intelligence upgrades, cloud computing, processing, exploitation, and dissemination tools for the intelligence community, all of those sorts of things are in high demand.

Tom Temin: And if you go the route of save through AFWERX, or through the Defense Innovation Unit, it’s probably a little less friction to get your own direct contract, because it would likely be through the other transaction authority.

Brad Curran: That’s absolutely correct. And not only that, they’ve come up with other contract vehicles as well. They’ve gotten, you know, the Silicon Valley and Austin and Boston technology communities involved and come up with additional, small, but non-traditional contracting vehicles, but the corner has been turned, you know, DoD is open to these types of things, now. They realize to stay competitive with our near peers, and against non-state actors, because of cybersecurity and, and other problems. You know, they need to again, innovate and adopt software at the speed of relevance. And to do that, you know, they have to engage more with the commercial software companies. And as you mentioned, DoD is also training their own uniform people as well. You know, the thought behind it is, once they’re out in the field, and they come up against an unexpected problem, either because of a software glitch that needs to be patched, or because of adversary activity. They want to have uniform people in the field that can react quickly, and make adjustments to that software, and not have to wait and go back to the factory, so to speak.

Tom Temin: Sure. So the grandfather’s in uniform programmed things in Ada, then there was a whole generation of totally outsourced software. Now the grandsons in uniform are programming in Java.

Brad Curran: Right, exactly. And in the last decade or so, you know, we’ve realized that with an army of contractors required to set up IT networks in the field that won’t go away we’ll still need that services and support. But it can’t depend completely on contractors once we’re out in the field.

Tom Temin: And just a final question, how much legacy code is there to be converted, factored, modernized? Whatever. I mean, there was some very ancient languages that existed up until the 2000s. Is any of that still left?

Brad Curran: There’s still a lot of legacy code. So those types of services are invaluable, and most importantly, the engineering and integration services to be able to get those legacy systems to talk with more modern and up to date programs, especially for one off isolated weapons systems or surveillance systems that are very unique and vital, but still have to be upgraded and become more resilient both against adversary activity but also to enable more sharing of the data.

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