Here, we describe an emerging trend that will affect the purchasing of cloud computing services for U.S. state and local governments, as well as in many other regions in the world. This is important for IT leaders of those governments who are looking for cost-effective solutions to their infrastructure and application needs, as well as for vendors that sell in this space.

• Cloud computing will gain ground in the federal government as the cloud storefront established by the U.S. General Services Administration develops further and broadens its offering.
• State and local governments would benefit from the potential financial advantages of a cloud computing model.
• There will be increasing concern for how cloud computing may positively or adversely affect local economies and employment.

• Government agencies that are considering cloud computing deployments should look at all dimensions of public value, including impact on employment and economic recovery policies. Cloud service vendors should better elaborate their value propositions, balancing cost and flexibility benefits against possible drawbacks to local ecosystems.

Cloud computing is gaining visibility in several governments worldwide, especially thanks to the commitment shown by the U.S. federal government. However, questions remain as to what the benefits for state and local government might be, especially taking into account the global nature of cloud infrastructure and how difficult it might be to relate their impact to local economies, something that will become increasingly important as the governments become more engaged with stimulating economic recovery.

During the past several months, cloud computing in government has become a much hyped topic in certain regions (mostly in the U.S. and the U.K.), and discussions about its fitness for purpose abound among many clients. In previous research (see "Cloud Computing for Government is Cloudy"), we highlighted some of the benefits and risks of cloud computing in a government environment: Benefits concern primarily cost reduction or better cost control, flexibility and elasticity; while risks concern security, reliability, availability and vendor lock-in.

Some of the risks (either actual or perceived) will be gradually reduced or contained as vendor offerings mature and comply with government regulations, and as government organizations become smarter at articulating the right combination of public and private cloud services. However, emerging discussions highlight a different set of issues as cloud computing makes its way through governments in North America and elsewhere.

The first issue has to do with the role of IT professionals in government organizations as infrastructure and applications gradually become commoditized. Knowledge, skills and ultimately power are intimately correlated with the ability to exercise sufficient control over assets and services: Development, procurement and operations require resources and skills that may no longer be suitable for a highly commoditized environment. Application developers, help desk staff, and infrastructure and operation professionals are no longer needed, whereas stronger skills are required for vendor management and sourcing, enterprise architecture, business relationship management, and portfolio management. In any case, the IT organization will be lighter as resource-intensive activities are either entirely automated or moved outside the IT department. Many such aspects have already been experienced with outsourcing, and are among the reasons why outsourcing is not hugely popular with government in some regions. The counter to this, of course, is that governments are increasingly struggling to recruit and retrain competent employees to provide these services.

The second issue is that security and data location requirements may demand data to be stored on servers that are within certain jurisdictional boundaries. This is likely to be a tougher issue between European countries than at the state or provincial level, and also difficult because managing a higher fragmentation would be quite difficult for cloud service vendors, or would make the services considerably more expensive.

The third issue, a more important and insidious obstacle to cloud computing use, especially for state, provincial and local governments, has to do with its impact on local economic development and local employment. Especially at a time when government spending is a driver to sustain the local economy, there is an increasing sensitivity of how public money is spent. Cloud computing has two potentially negative effects on the ability to control this impact. The first is that capital spending moves to operational spending, which leads to fewer opportunities for call for tenders that will benefit IT product manufacturers, and especially their local resellers. The second is that cloud-based services may have little or no contribution to the local economy because they are actually provisioned in a different jurisdiction

The counterargument is that the savings realized through cloud computing may be invested into higher-value initiatives that could involve local players. However, this heavily depends on the nature of the local ecosystem: If vendors in a province are mostly box movers and hardware resellers, it may be hard to find business process analysts or Java programmers.

These same arguments have been made to formulate positive discrimination toward open-source software, contending that its adoption would have local benefits. However, open-source software has clearly demonstrated that what is needed for these benefits to be realized is a receptive ecosystem coupled with government spending (see "The Ideal Open-Source Ecosystem").

While an open-source ecosystem typically requires the availability of and investment in human resources, creation of a cloud requires a much greater set of ingredients, including infrastructure and energy as well as a broad set of skills ranging from security to infrastructure and operation management. Of course, there will be jurisdictions where large vendors establish their data centers, which will directly benefit from cloud computing, but they are only a handful. It is also possible that fiscal and grants incentives (see Note 1) will be made available at the state, federal and supranational (e.g., the European Union) level to support cloud infrastructure developments, but again they will benefit only very few jurisdictions.

Therefore, the reality of cloud geopolitics will start affecting both prospective government users and vendors in the next 12 months, as the perceived maturity of certain cloud services increases and with the progression of U.S. federal government initiatives. By 2013, more than 50% of cloud computing deployment decisions by state, provincial or local governments will be directly or indirectly influenced by considerations of local economic impact.

Advice to State and Local Government IT Leaders Who Are Potential Users of Cloud Services

• Assess cloud computing opportunities — both at the infrastructure and application levels — in terms of public value, taking into account benefits and risks to all the relevant political priorities in the jurisdiction, and weigh them against the more-traditional benefits and risks (for a list, see "Cloud Computing for Government is Cloudy")
• When evaluating vendor proposals, explore whether the vendor has made or plans to make investments that could have a direct or indirect impact on local economic development and employment. This may have a minimal weight in the public value assessment, but would be useful to respond to questions by politicians about the consequences of moving toward cloud-based solutions.
• If owning or operating a government shared-service infrastructure that already serves different agencies or jurisdictions, examine the impact of replacing some of the services with cloud services offered by external service providers in terms of public value, not only in terms of efficiency and effectiveness. The impact on local suppliers and local employment should be made explicit, too.

Advice to Cloud Service Vendors That Target State and Local as Well as International Government

• Be prepared to address the politics of security and privacy.
• Ensure that your messaging shows an understanding of geopolitical concerns that clients and prospects might have.
• Ensure that the value proposition clearly illustrates whether there are any benefits due to the reliance on the local ecosystem or, where there is no such reliance, how financial and other benefits can free resources that can directly impact the local ecosystem.

"Cloud Computing for Government Is Cloudy"

"Cloud Computing in Government: Private, Public, Both or None?"

"The Ideal Open-Source Ecosystem"