Several public-sector entities have already started using software-as-a-service (SaaS) offerings, such as customer relationship management software from Salesforce.com. Economic development, permitting, emergency management, public works, housing and transportation agencies use it for constituent services, case management and outreach, said Dan Burton, Salesforce.com's senior vice president of global public policy.

Burton said there are cultural hurdles CIOs have to clear before they feel comfortable with the SaaS business model. "CIOs intuitively understand the value proposition of paying a monthly fee for something that's customizable, yet easy and quick to get up and running," he said. "But we hear the same questions from government CIOs as from those in the private sector -- about security, about integration, so it's a matter of walking organizations through it."

Vance Checketts, general manager of EMC Corp.'s Mozy business, which provides online backup, said he sees the company's MozyEnterprise service as an onramp to the cloud. "The first thing you need is a compelling value proposition -- backing data up into the cloud," he said. "From there we think it will evolve, and we will offer other cloud applications."

Checketts said he tells CIOs that the security of encrypted backup that is offsite but online is superior to their traditional backup, and there's a significant total cost of ownership advantage. "It frees up in-house IT resources and you pay for only the storage space and licenses you are using," he said.

For CIOs, cloud computing may eventually mean they can rent anything under the sun and can focus on innovation, Burton said. "They won't be worried about keeping the lights on, or the next Microsoft patch, or buying the latest server," he said. "They can focus on building great applications for their organizations."