How one firm may use Obama jobs bill

Federal tax breaks could provide further boost to already fast growing start-up

Tech businesses could be helped some, but not dramatically, with the signing of a bill yesterday by President Barack Obama that offers companies tax incentives to hire unemployed persons and to purchase capital equipment, say analysts.

Technology companies, such as rapidly growing BlueLock LLC, appear to be getting a much bigger boost from the growing corporate interest in cloud-based services.

BlueLock, an Indianapolis-based cloud infrastructure provider, plans to add nearly 120 new workers to its 30-person workforce by 2014, according to an agreement with the state of Indiana that provided the firm with a $1.4 million tax credit. The state said the tax agreement, announced this week, is contingent on the company's meeting agreed-upon goals.

BlueLock's has based its hiring projections on expectations that its rapidly accelerating revenue growth will continue beyond this year. The privately-held firm claimed some $9 million in revenue last year, which it said is 400% higher than 2008. The company said it reached profitability in 2009.

BlueLock is forecasting $17 million in revenue for this year.

The rapid growth is due mostly to fast-growing demand for cloud infrastructure services, company officials said. BlueLock customers are using its cloud environment to host software-as-a-service applications, disaster recovery and other services running in VMware, Windows and Linux environments.

The Hiring Incentives to Restore Employment (HIRE) Act signed into law by Obama on Thursday provides BlueLock and other businesses with a new source of tax help.

The legislation provides an exemption from Social Security payroll taxes for every worker hired this year who has been unemployed for 60 days. It also provides an immediate tax writeoff on up to $250,000 worth of new equipment purchased this year.

BlueLock is now looking to hire technology professionals experienced in networking, server operating systems, project management experience, among other skills.

The legislation encourages a company to hire employees sooner to get more of the tax benefit, but BlueLock's "thrust will be to hire the best qualified candidate" regardless of whether they are unemployed or not, said Brian Wolff, vice president of sales. The average wages paid to the newly hired BlueLock workers will be $33 an hour.

The capital equipment tax credit could accelerate BlueLock's equipment purchases scheduled for first quarter 2011 to later this year, said CFO Brian Modiano. "To the extent that we are able to realize those benefits, it will probably spur additional investment on our part."

Congress has approved accelerated tax credits during prior recessions, and Andrew Bartels, an analyst at Forrester Research Inc., and those did change the timing of purchase decisions by companies. "[The new legislation] will certainly have an impact," he said, "will it make a really big difference for the tech sector? Probably not," he said.

BlueLock sells both Cloud infrastrucure services and system administration support to companies looking to use hosted services but don't have the IT staff, or the resources to hire personnel, to manage cloud services.

There is a rising number of companies that provide customer support in cloud environments, such as Rackspace, Inc., said Melanie Posey, an analyst at IDC. But the growth in cloud services isn't necessarily new money but a shift from managed hosting providers, she said.

Nonetheless, the cloud services business is growing by about 15% to 20% a year, said Posey. "The hosting space wasn't hit as hard as the overall IT market" during the downturn.

BlueLock plans to invest nearly $36 million to upgrade its 20,000 square-foot data center. The company agreed to make the investment as par tof the tax agreement with Indiana.

In announcing the tax credit, Indiana Gov. Mitch Daniels called BlueLock a "great technology-based Indiana success story that is showing confidence in the business environment and workforce of our state."

Patrick Thibodeau covers SaaS and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld. Follow Patrick on Twitter at @DCgov, or subscribe to Patrick's RSS feed . His e-mail address is pthibodeau@computerworld.com.

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