The Department of Defense has been steadily increasing its spending on cloud services during the past few years in an attempt to reduce the high costs of maintaining and managing large amounts of redundant premise-based systems. The DoD spent $676 million on cloud-based data center hosting in 2011, according to Frost & Sullivan.

These investments are expected to increase at a compound annual growth rate of 3 percent through 2016, eventually reaching $740 million, the report said. Once initial cloud investments begin, the DoD will be able to modify myriad services during the next four years to meet evolving security demands.

"Industry standards-based clouds can enable the DoD to permanently eliminate the IT generational gap between legacy and state-of-the-art commercial technology," said Frost & Sullivan senior research analyst Brad Curran. "In addition, clouds will cut response time and simplify engineering, integration and training while lowering costs and allowing the DoD to commoditize many parts of network security."

Similarly, the Army is in the process of migrating to the cloud and is estimated to save nearly $250 million during the next five years by utilizing cloud storage, scalability and security.