Louis Gutierrez, CIO Emeritus for the Commonwealth of Massachusetts and for Harvard-Pilgrim Healthcare worried that cloud providers' systems are not mature enough to meet reporting requirements under which many regulated industries operate. He believes "there's a lot that's hugely attractive" about cloud computing, but said he can't fully endorse the model until more effective auditing systems are developed.

"It has to be trust, but verify," said Gutierrez, who suggested that vendors work with industry associations to develop standards that could be used as the basis for industry certification programs. Google's Dodge called the concept "a great idea."

Vendors on the panel conceded that some problems still need to be solved before cloud computing is right for everyone. "There are real challenges moving enterprise IT to the cloud," said Microsoft's Khalidi.

For instance, Khalidi said the industry has not yet developed reliable ways for sharing information between clouds, a situation that would need to be fixed if a state like New York wanted to build a private cloud—an approach favored by Singleton--but still share data with companies and agencies that use public clouds. "We're not there yet," said Khalidi.

And Amazon's Selipsky acknowledged that the technology is not yet in place that would allow vendors to limit the movement of data beyond servers in a particular state in cases where information is legally required to be maintained within its geographic boundaries.

Still, the vendors argued that cloud computing offers enough real benefits at the present time that most organizations should at least consider it for some functions. One approach, said Google's Dodge, is to move low-level data and services to the cloud while continuing to maintain sensitive information in-house.

Dodge told New York's Singleton that his cash-strapped state could save $50 to $100 million per year just by moving its 190,000 employees to Google's cloud-based Google Apps desktop applications. "It's not all or nothing," said Dodge. "Take advantage of the cost savings for the simple things," he said.

Finally, Selipsky suggested the biggest impediment to the growth of cloud computing is not legal or technical, but psychological. The challenge facing cloud vendors is to convince CIOs, a cautious and conservative lot, to hand over their data to an outsider.

"The biggest thing we face is the issue of control," said Selipsky. Noting that even internally run data centers suffer from downtime and loss, Selipsky said tech chiefs mulling cloud services "need to distinguish between the perception of control and the reality of control," he said.

Whether that's enough to sell them on the cloud is an open question. The answer will go a long way in determining if services offered by Microsoft, Google, Joyant, Amazon, and others become permanent fixtures on the IT landscape, or go the way of cloud vendors' early ancestors--the once high-flying ASPs.

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