Google nips Microsoft as government agencies move to the cloud

WASHINGTON (Reuters) - Google Inc has won a share of a federal government contract that the company hopes will give it a boost over Microsoft Corp as they race to convert government agencies to cloud computing.

The U.S. General Services Administration awarded a five-year, $6.7 million contract last week to Unisys Corp, with Google as a subcontractor -- a relatively small dollar amount but an important initial foothold.

As part of the contract, Google and Unisys will transition the GSA, which basically serves as the back office for federal agencies, to a secure cloud-based platform that includes Google's Gmail, Calendar, Docs and Sites applications.

The GSA is the first U.S. federal agency to make an agency-wide move to cloud computing, in which applications are delivered through a web browser to allow any time and anywhere access to information.

Consumers typically use cloud computing when online banking or shopping on sites like Amazon.com.

The GSA is a big win for Web search engine leader Google because the agency touches so many aspects of the federal government, potentially setting the company up for other federal agency contracts.

"It's a real duel," said Melissa Webster, program vice president for content and digital media technologies at market researcher IDC. "Microsoft is clearly in Google's gun sights and... Google is a huge threat to Microsoft in lots of areas."

The biggest challenge Google poses to Microsoft is on pricing, she said.

Microsoft expressed disappointment in the GSA's decision but said it was "gratified that so many federal, state and local governments have chosen Microsoft to meet their business needs." Google hopes the GSA win will help to change that.

"This opens up the flood gates to a lot of agencies who really have wanted to move to the cloud and have wanted to see a green light to do so," Dave Girouard, Google's president of enterprise, told Reuters.

Girouard said Google's advantage over Microsoft in cloud computing hinges on the elimination of software installation as Google's cloud is entirely Web-based, keeping prices low.

Microsoft said competition was good for the industry, and it was confident customers would not stray.

Microsoft offers a "private cloud" option that hosts its products on the customer's own servers. Google's servers must host their suite of cloud services.

GOVERNMENT ADOPTION

Moving all of its 17,000 employees and contractors to cloud-based email and collaboration tools will lower costs by 50 percent, saving the agency $15 million over five years, the GSA said in a statement.

"I think other agencies will look closely at that savings as budgetary pressures become more and more significant in the federal government," David Mihalchik, Google strategy and business development executive, said in a phone interview.

Still Google faces some resistance in the federal market. Last month it sued the U.S. government for excluding its products from being considered for a five-year contract worth about $59 million to upgrade the Interior Department's email system.

Global IT spending on cloud services are expected to triple by 2013, topping $44 billion, IDC said.

IDC's Webster said that while a cloud vendor offering robust functionality could displace the incumbent, she did not think Google would be able to displace Microsoft in the private sector.

"There is still a huge gap in what Microsoft provides in its online suite and what Google provides," she said.

"The real threat to Microsoft is to maintain its price and maintain its value in the face of this cheaper, innovative challenger," Webster said.

But she said Google may make inroads in the government sector, as these deals are driven primarily by email services.

(Reporting by Jasmin Melvin; Editing by Ted Kerr)