Many federal agencies are grappling with how and where to adopt the cloud computing model and how it will fit into federal IT's laundry list of regulations.

Microsoft probably isn't alone in thinking about government-specific cloud services. Amazon, for example, has 110,000 square feet of leased data center space in northern Virginia. "I am looking forward to working closely with the Federal CIOs to make sure our services can meet the requirements that can make them successful in their quest," Amazon CTO Werner Vogels wrote in a blog post last September.

Among the early government BPOS customers is Newark, N.J. Newark was ready for an e-mail upgrade and tired of major problems with downtime with its on-premises Exchange Servers, and after analyzing the cost of in-house, hosted and cloud-based e-mail, it found that, even as part of a suite alongside other products, Exchange Online would save Newark more than $200,000 over three years because Newark will be able to avoid costs for consulting, new hardware, anti-malware and maintenance.

Mike Greene, the city's assistant business administrator and CIO, sees other benefits as well. Microsoft has promised 99% uptime and his users will now get 5 Gbytes of storage space, much more than the sub 1 Gbyte storage they have now. Additionally, Newark now plans to upgrade its Intranet by using SharePoint Online, and hopes that having e-mail as a service will free up its IT pros to work on higher business value projects.

The city recently finished a 75-user pilot, and hopes to roll out Exchange Online to all 1,700 users, including those on Blackberries, by the middle of March.

Newark joins 48 of the 50 states and more than 500 customers in the public sector in whole, including groups the British postal service, as BPOS customers. Microsoft has yet to sign up any major U.S. federal agencies for agency-wide use of BPOS, but BPOS is already available on Apps.gov, and Markezich said the company is "far down the road" in discussions with several agencies.

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