A plan that claims to save New York City $50 million over the next 5 years was announced today in the joint effort of Microsoft CEO Steve Ballmer and NYC Mayor Bloomberg. Microsoft will do the city’s cloud computing, powering all of the city’s computer resources, software and information.

Mayor Bloomberg signed a new executive order, initiating a new agency that will manage the city’s information technology sector, calling it the Department of Information and Technology or DoITT. Different agencies individually handling their IT and software licensing would be wasteful, citing a hypothetical situation of how inefficient it is to have each of the Department of Education’s buildings individually handle their plumbing needs. Microsoft will serve all of the city’s computer need from servers, storage and licensing. From Mayor Bloomberg:

“To deliver services efficiently and function at the highest level, City employees need the same technological resources that top private sector businesses provide to their employees. By capitalizing on the city’s buying power, consolidating dozens of separate City agencies licensing agreements into a single one and paying for software based on use…we’ve found ways to offer our employees Microsoft’s newest, state-of-the-art computing tools while reducing cost to taxpayers.”

New York City gave cloud computing a warm welcome, and it’s a big opportunity for Microsoft.  The cloud initiatives Microsoft is pushing got a major kick start with yesterday’s announcement of Office 365.  This is yet another way Microsoft is seeking gains in an area Google has hoped to dominate.  Both Microsoft and Google are going after city organizations to increase their government contracts, and with this deal Microsoft has landed a big fish.