Data center closures could boost IT firms with alternatives


Condoleezza Rice’s consulting firm, RiceHadleyGates, is counseling Nutanix, a San Jose-based tech company. Nutanix offers a data storage service that it says takes up less space and energy than traditional data centers. (Ben Margot/Associated Press)

When Condoleezza Rice was appointed secretary of state nearly a decade ago, she was surprised to find that the State Department had 70 different contracts for telephone service.

“I said, ‘There aren’t 70 carriers, how can that be?’ ” Rice said. “It’s fair to say federal agency technology is in another era, and that’s not a good thing.”

Multiple telephone contracts weren’t the only problem. During her tenure, the State Department was storing information in large, off-site data centers that were “not just inefficient, they were impossible to upgrade because they were legacy systems,” Rice said.

What was once a problem is now an opportunity.

After leaving the State Department in early 2009, Rice, along with former national security adviser Stephen Hadley and former Defense secretary Robert Gates, formed a consulting firm to tackle such issues.

RiceHadleyGates is counseling Nutanix, a San Jose-based tech company, on how to capi­tal­ize on the government’s shortcomings.

Nutanix offers a data storage service that it says takes up less space and energy than traditional data centers. RiceHadleyGates also plans to help Nutanix extend its global reach in emerging markets, such as Asia and the Middle East.

“We’ve been very interested in the fact that [Nutanix is] a kind of answer to something that particularly Bob [Gates] and I faced as heads of major agencies: the need for government agencies to be more efficient,” Rice said.

Federal agencies are under pressure to cut back on their use of traditional data centers. In 2010, then-Federal Chief Information Officer Vivek Kundra directed agencies throughout the government to lose 800 data centers by 2015. Ever since, the race has been on to find more efficient alternatives. For instance, the General Services Administration announced in October that it alone had closed 37 data centers in 2013 to reduce real estate costs and energy consumption.

The pressure created an opening for information technology companies such as Nutanix to tailor their IT offerings, built initially for private-sector clients, to federal ones — upgrading security to meet government requirements, for example. Nutanix, which started selling its products in 2011, now generates about 35 percent of its revenue from the public sector — mostly from agencies seeking to replace data centers with comparatively compact hardware, often stored on-site. In the past couple of years, the 500-person company has expanded its federal team, based in Washington, to 16 from two people.

Competition to update federal technology is growing.

For instance, Menlo Park, Calif.-based software company Delphix found that its virtual data storage system — initially designed for large firms that were developing apps or building Web sites — could be repackaged for the federal government, said Rick Caccia, vice president of marketing at Delphix.

“More and more, of our existing customers were telling us, ‘We’re using this stuff to shut down data centers, or modernize data centers,’ ” Caccia said. “In the last two years, we’ve got customers in every segment — intelligence agencies, military, federal, civilian and state government.”

Delphix, founded in 2008, opened a Washington office four years later to pitch the software to federal agencies as an alternative to traditional data centers. The 175-person firm recently doubled its federal team to six.

But if agencies continue to buy technology individually, instead of collaborating with one another, new hardware and software solutions will take too long to spread through the U.S. government, Rice said.

“There are really two kinds of problems in Washington in this regard,” she said. “One is duplication — everybody does the same thing. The second is, you really need interagency cooperation to carry out policy.”

When setting up new data storage systems, for instance, agencies should consider how other agencies might benefit from access to the information, Rice said.

“When you’re trying to respond to what happened in Ukraine, it’s not just a State Department problem; it’s a Treasury Department problem. . . . It might involve smaller agencies like the [Overseas Private Investment Corporation],” Rice said. “Any problem is going to have multiple agencies’ input.”

Mohana Ravindranath covers IT and small business for the Washington Post and its weekly Capital Business publication.
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