"What happened to the generation of power a century ago is now happening to the processing of information. Private computer systems, built and operated by individual companies, are being supplanted by services provided over a common grid -- the Internet -- by centralized data-processing plants. Computing is turning into a utility, and once again the economic equations that determine the way we work and live are being rewritten."

Nicholas Carr, The Big Switch -- Rewiring the World, from Edison to Google, 2008.

Many IT executives, vendors and consultants have embraced author Nicholas Carr's historical analogy. They point out that in 1907, 70 percent of the industrial electrical generation in the United States was in-house, but by the 1920s that same percentage was generated by utility companies. Initially you had to own your own plant, but later it became a disadvantage.

They believe the same thing is happening now with computing, and that many activities that take place in the data center will soon move "into the cloud," where they can be done more economically.

White papers and trade shows are touting cloud computing as the next big thing. But it's not at all obvious what it will mean to public-sector CIOs.

A recent Forrester Research report defines cloud computing as "a pool of highly scalable and managed compute infrastructure capable of hosting end-customer applications and billed by consumption." In other words, users subscribe to computing services hosted by very large service providers, like Amazon or Google.

A May 2008 white paper by Kishore Swaminathan, Accenture's chief scientist, described some early applications:

• Hardware clouds, such as Amazon's Elastic Compute Cloud (a.k.a. Amazon EC2), are large data centers that let customers use Amazon's hardware -- servers, storage and network -- for a use-based fee. Organizations can run applications, store data or execute e-commerce transactions. Many of the early users have been Internet startups rather than large enterprises.
• Software clouds involve software as a service (SaaS), such as Salesforce.com, running on a hardware cloud, usually outside the customer's data center. Employees use a Web browser to access it, and organizations pay by the number of users.
• Desktop clouds, like Google Docs or Zoho.com, run word processing or spreadsheet applications from a hardware cloud via the Internet, yet provide a user experience much as if the application ran locally.

What distinguishes cloud technology, according to Hewlett-Packard (HP) executive Russ Daniels, is that it's a highly automated, self-service and paid for incrementally. "That variable cost component is an essential driver," he said. "The cloud delivers scaling at low cost. We've been doing high-performance computing services for a long time, but the cloud allows the workload to vary from large to small as you need capacity."

Daniels, HP's chief technology officer for cloud services strategy, noted that many Web hosting companies offer virtualized Linux containers for $15 a month. "But what's new is the ability to easily add another one incrementally for a shorter period of time."

Big Changes Coming?
Are we rapidly approaching an era when most data center storage services will be hosted by hardware vendors? Will most software customers rent access to applications hosted externally? IT research firm Gartner recently predicted that by 2012, one in every three U.S. dollars spent on enterprise software would be a service subscription rather than a product license. Gartner also estimated that by 2011, early technology adopters would purchase 40 percent of their IT infrastructure as a service. If Gartner is right, what will such a sea change mean for government IT organizations? Will they be early adopters of this new approach or will they be reluctant