These services can include software applications, applications development platforms and ICT infrastructure (processing and storage) - delivered as an 'as service' mode.
Exemplars include Netsuite, Salesforce, Google App Engine, Amazon Web Services, GoGrid and Nirvanix, these services provide a 'just in time' alternative to in-house ICT departments.
Steve Hodgkinson, research director at Ovum said, both CIOs and policy executives should see the cloud as both a threat and an opportunity.
"Firstly, cloud services are a threat to CIOs because the cloud will come to be viewed as the fastest, cheapest and easiest way to source basic commodity ICT services," he said.
"The cloud will set expectation benchmarks.
"CIOs will come under increasing pressure to explain why in-house ICT services take so long to deliver, are so much more expensive and are so difficult to consume compared to those available from cloud services providers."
Hodgkinson warned CIOs if they don't pay attention they will find their agencies have turned to the cloud without them knowing it has happened - creating fragmented procurement and potential privacy and security risks.
"CIOs need to be on the front foot to ensure that cloud services are used for appropriate applications and to guide Agencies in the use of the cloud," he said.
"Cloud services can form a useful complement to in-house ICT, particularly for applications that are urgent, have tight budgets, do not involve sensitive data or are aimed at collaboration across multiple agencies.
"Secondly, cloud services are a threat to policy executives responsible for ICT industry development because clouds are provided by global ICT companies - typically headquartered in the USA - and they create the risk of invisible off-shoring of Australia's ICT industry."
Australia will need to develop on-shore cloud computing centres to protect and grow its domestic ICT industry, said Hodgkinson.
"Government is one of the few institutions with the operational scale required to create cloud computing services - a 'G-Cloud' - so policy executives will need to take a proactive interest in this before our ICT industry is sucked off-shore without anyone noticing."
Cloud computing is particularly relevant for Government in the context of the recent public sector ICT climate change.
This climate change can be characterised by what is 'out' and what is 'in' for 2009/10;
Out: Big e-Government strategies, In: Fixing the core systems & IT plumbing.
Out: IT as a change agent. In: IT as a necessary, but risky, activity and a cost to be minimised.
Out: Recurrent budget growth. In: Budget cuts.
Out: If it adds value, let's do it. In: How will it cut costs?
Out: Agency-by-agency IT infrastructure. In: Shared IT infrastructure.
Out: Local procurement. In: Aggregated procurement.
"The motivations behind the Gershon Review in the Federal Government and the recent creation of CenITex as a central ICT shared services provider in Victoria are symptoms of this climate change," said Hodgkinson.
"Governments are looking at ways to accelerate the process of managing IT more cost effectively, and by a curious twist of fate are pursuing strategies that have much in common with the emerging logic of cloud computing - shared, on-demand, computing at massive scale."
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