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Yesterday, the U.S. General Services Administration (GSA) announced that it's adopting Google Apps and moving to the cloud. The government agency will move its employees and contractors to Google's (Nasdaq: GOOG ) web-based email and productivity apps in an effort to save money, estimating that it will reduce its IT costs by 50% over the next five years.
By itself, the GSA contract is small potatoes, both for the winner, Google, and the loser, Microsoft (Nasdaq: MSFT ) and its Office productivity suite. According to the GSA, the contract awarded to Google partner Unisys Corp (NYSE: UIS ) , which will implement the software migration, is worth $6.7 million. As you probably guessed, $6.7 million is a rounding error on either Microsoft's or Google's financial statements, or roughly equivalent to the loose change in Bill Gates' sofa. So who cares, right?
Despite the small dollar value, the GSA contract is a meaningful sign of things to come for a few reasons. First, the GSA is the only federal government agency to opt for a complete -- all 17 offices and 17,000 employees and contractors -- adoption of Google Apps and a cloud-based solution to date. Its seal of approval makes it more likely that other government entities will follow suit, and a 50% cost savings will be hard to ignore in the current budgetary climate, even if the absolute dollars in question are small.
Second, like it or not, as the government adopts cloud-based productivity solutions, it lends credibility to them. If a private sector IT manager is evaluating similar solutions and is concerned about the security of the cloud, seeing U.S. government agencies choose such a solution makes it seem less risky.
Finally, small losses like this one add up over time, taking a toll on Microsoft. Today, Google Apps is not a material contributor to the company's bottom line, even with 3 million businesses using it, and it's possible it never will be. But don't assume that Google's small gain equals a small pain for Microsoft -- Microsoft's pain will likely be disproportionately large relative to Google's gain.
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