New York mayor Bloomberg said the partnership will streamline the city's IT operations and save $50 million in five years.
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Bloomberg on Wednesday also issued an executive order centralizing IT management under the department of technology and telecommunications. Previously, every agency "managed its own IT planning and services in a vacuum," he said.
"It moves us a long way to our goal of centralizing our IT infrastructure," Bloomberg said. "We want every single dollar to drive efficiency, savings, and the delivery of services."
Indeed, Ballmer said that a common problem he has observed that prevents IT departments in the public sector from running as smoothly as they could is "critical mass" -- or a lack of centralization of IT purchasing, infrastructure, and activities.
He said Microsoft is "delighted" to be contributing to New York's efforts to solve this problem.
The deal with Microsoft also has a cloud-computing component that will allow 30,000 city employees to use Microsoft's hosted offerings, such as the Windows Azure cloud computing development environment, and the Business Productivity Online Suite (BPOS) of hosted collaboration services.
The city's IT department will work with individual city entities to decide how best to balance a combination of on-premises software and hosted services.
Microsoft also unveiled another public-sector cloud computing deal this week with the state of California, which is using BPOS alongside an in-house hosted system to consolidate more than 100 email systems.
The use of cloud computing also will help New York in its data center consolidation plan, also unveiled Wednesday. Bloomberg said New York is currently working to trim 50 data centers to one downtown in the borough of Brooklyn.
"If you think about it, you begin to see how much money and effort this will save," he said.