The standard enterprise software model, under which companies purchase licenses and then continue to pay out for renewals, upgrades, and maintenance, represents a big waste of corporate IT dollars and manpower, according to Google CIO Ben Fried.

"It's a racket and we are suckers," said Fried, during a keynote Wednesday at the Interop Conference & Expo, a UBM TechWeb event, in New York City. Beyond his role at Google, Fried moonlights as a partner in a sausage company, which, he said, "provides a rich source of metaphors" for the software industry.

Fried said that even when companies don't upgrade or otherwise modify their software, they are still stuck paying big maintenance fees. "Doing nothing is so expensive," he said. "You are paying, and paying, and paying ... there is a better way."

The better way, according to Fried--not surprisingly, given Google's business model-- is the cloud. He noted that the search giant used to operate seven different email systems before standardizing on its own, cloud-based Gmail service. That freed up much of Google's IT staff from routine support functions, and it can now concentrate on more strategic projects. "What can we do to accelerate the mission of the company?" Fried said is the question that now guides the company's IT projects.

[ Great products and proven innovation aren't enough to conquer the enterprise. See Google Enterprise, I'm Not Impressed. ]

Fried said the move to Gmail was about more than just Google eating its own dog food. The move was part of a broader strategy, under which Google strives to create an open IT environment that gives users as much choice and flexibility as possible while encouraging collaboration.

"The most important thing people need to do is work with other people in the enterprise," said Fried, who spent 13 years in Morgan Stanley's IT department. Fried said that Google's wealth of collaboration tools has led to the company making desk phones optional. "You have to ask for one," he said.

Google has also instituted a number of other unorthodox IT practices that Fried said make employees more productive while saving the company money. Among other things, workers receive a monthly, itemized statement that shows how much their IT usage costs. Staffers are encouraged to give up software or devices that they aren't using, and Google has created processes that make it easy for them to do so.

The program saved Google $400,000 in software license and support costs in the first two hours it was launched, said Fried. "This stuff really works."

Some of the money saved goes to ensuring that Google employees get state-of-the-art equipment to work with. He frowns when he sees workers from other companies lugging around outdated laptops and other old tech. "What does that say about how you feel about them?"

Google workers can choose whether to work on a Mac, Windows, or Linux PC, "and we will give you a great device ... I want it to be something that inspires people to work," said Fried. The strategy may be working: Google earlier this week became the world's second most valuable company.

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