Internet search giant Google beat out rival Microsoft in a bid to provide e-mail services to all Los Angeles, Calif., government workers. The contract is expected to increase support for Google's cloud-computing services.

Under the $7.5 million contract approved by L.A.'s City Council on Tuesday, Google will provide both e-mail services and on-demand applications to the city's 30,000 municipal and state workers. While the size of the deal isn't significant for Google, the win over Microsoft and support for its cloud-computing services is.

The concept behind cloud computing is to make computer resources scalable, with applications and data on third-party servers accessible on the Web. Google has been pushing its cloud services and the deal may help gather support from those who doubt the security of cloud computing.

While the L.A. council voted 12-0 in favor of the Google deal, it wasn't without complaints and questions from the city attorney's office, the L.A. police union, and privacy advocates who raised concerns about the security of data stored online.

Black Cloud

The Electronic Privacy Information Center, a public-interest group in Washington, D.C., has long questioned cloud computing. In March, EPIC asked the Federal Trade Commission to investigate services such as Google Docs to determine if there are adequate privacy and security safeguards.

The FTC has cited EPIC's complaint as one of its leading areas of interest, but has yet to rule on the issue.

Google has had more than one instance of breeches in its cloud-computing services.

In January 2005, researchers found that usernames and passwords for Google accounts allowed hackers to steal log-in information, allowing outsiders to snoop on users' e-mail. Another flaw exposed Google users' personal data to malicious Internet sites, EPIC says.

Microsoft had its own cloud-computing mess when subsidiary Danger lost the personal information of hundreds of thousands of T-Mobile Sidekick users.

Security Incentives

L.A.'s contract with Computer Services, a system integrator, was crafted in a way that considers security breaches. To get the contract, Computer Services agreed to pay a penalty if a security breach occurs.

"It's forward-looking on the part of the L.A. City Council to consider the risks of cloud computing and to establish incentives for secure implementations," said Marc Rotenberg, president of EPIC. "The city council had several other requirements as well -- the government data will be encrypted, it will be segregated, it will be stored in the U.S., and access will be limited."

"More government agencies need to work through the privacy and security risks before moving to a cloud-computing model for applications services," Rotenberg added.