State-sponsored cloud computing could increase in 2010

2010 promises to be a big year for cloud computing. According to a recent INPUT survey of the state and local landscape, the market is expected to nearly triple by 2014. But recent actions by two state governments may throw private sector providers of cloud computing a curveball. Both Utah and Michigan are developing plans to host their own clouds for use by local agencies, regional state offices and school districts.

Software-as-a-Service and Platform-as-a-Service solutions are expected to have the highest Compound Annual Growth Rate (22 percent) because they can be leveraged to address security issues, scalability and existing IT resources, according to Deniece Peterson, Industry Analysis Manager at INPUT. Everything from healthcare reform, open government initiatives, expanded Recovery Act reporting and energy legislation could be addressed with virtualization and cloud computing, she said in a recent e-mail exchange.

For a market valued at $239 million in 2009, public sector cloud providers such as Google,, and Amazon are poised to grab a piece of a nearly $2 billion pie five years from now. But, Ms. Peterson says public sector cloud computing service centers, like the ones being developed in Utah and Michigan, are likely to gain in popularity.

“This practice could indeed increase for a couple of reasons. First, states creating private clouds for their local governments can control security and standardization, and the problems of interoperability and integration are manageable. Secondly, it makes the transition to cloud computing cheaper for local governments,” she said.

For Utah, cloud computing is the logical extension of a statewide consolidation initiative to combine services and hardware, like e-mail and mainframe maintenance, which has been underway since 2007. Utah CIO Steve Fletcher told Government Technology he was already in talks with over a half dozen city counterparts about using the state’s cloud.

Likewise, Michigan is hoping to reap the benefits of shared-services with the addition of a 80,000 square-foot data center. But newly appointed director of Michigan’s Department of Technology, Management and Budget Ken Theis said the state also hopes to lure technology-related economic development by creating a space for private sector companies to host and store applications. Michigan officials said the data center could cater to local startups as well as established companies, nationwide. The data center would offer low-cost hosting for smaller companies and be a competitive option for those bigger companies looking to outsource hosting operations domestically.

For the private sector though, state savings means increased competition among eachother, but also against a public sector option that could be better positioned, to offer cheaper service to other government entities within the state, Ms. Peterson said.

“If states mandate the use of state-owned clouds, this could lock vendors out of sections of the market.”

But Ms. Peterson also cautioned that states might not meet all their needs within their own clouds, creating opportunity for third party providers for infrastructure support and consulting.

She also noted that local entities may show resistance to moving their data to state-sponsored clouds, especially if its perceived as “the loss of control over IT resources and information.”