At the PDC Microsoft announced its answer to Amazon and Google's cloud computing services.

This answer has two parts: the Azure platform and hosted applications.  Unfortunately people confuse these two aspects of cloud computing although they do have some features in common.

The idea behind Azure is to have a hosted operating systems platform.  Companies and individuals will be able to build applications that run on infrastructure inside one of Microsoft's data centers.  Hosted services are applications that companies and individuals will use instead of running them on their own computers.

For example,  a  company wants to build a document approval system. It can outsource the infrastructure on which it runs by building the application on top of a cloud computing platform such as Azure.  My web site and blog do not run on my own servers, I use a hosting company. That is an example of using a hosted application.

As people get more sophisticated about cloud computing we will see these two types as endpoints on a continuum. Right now as you start to think about cloud computing and where it makes sense,  it is easier to treat these as distinct approaches.

The economics of outsourcing your computing infrastructure and certain applications is compelling as Nicholas Carr has argued. 

Companies will be able to vary capacity as needed. They can focus scarce economic resources on building the software the  organization needs, as opposed to the specialized skills needed to run computing infrastructure.  Many small and mid-sized companies already using hosting companies to run their applications. The next logical step is for hosting on an operating system in the cloud.

Salesforce.com has already proven the viability of hosted CRM applications.  If I am a small business and I need Microsoft Exchange,  I have several choices. I can hire somebody who knows how to run an Exchange server. I can take one my already overburdened computer people and hope they can become expert enough on Exchange to run it without problems. Or I can outsource to a company that knows about Exchange,  the appropriate patches, security issues, and how to get it to scale. The choice seems pretty clear to most businesses.

We are at the beginning of the cloud computing wave, and there are many legitimate concerns. What about service outages as Amazon and Salesforce.com have had that prevent us from accessing our critical applications and data? What about privacy issues? I have discussed the cloud privacy issue in a podcast.  People are concerned about the ownership of information in the cloud.

All these are legitimate concerns. But we have faced these issues before. Think of the electric power industry. We produce and consume all kinds of products and services using electric power. Electric power is reliable enough that nobody produces their own power any more. Even survivalists still get their usual power from the grid.

This did not happen over night. Their were bitter arguments over the AC and DC standards for electric power transmission. Thomas Edison (the champion of DC power) built an alternating current electric chair for executing prisoners  to demonstrate the "horrors" of Nikola Tesla's approach. There were bitter financial struggles between competing companies. Read Thomas Parke Hughes' classic work "Networks of power: Electrification in Western society 1880-1930". Yet in the end we have reliable electric power.

Large scale computing utilities could provide computation much more efficiently than individual business. Compare the energy and pollution efficiency of large scale electric utilities with individual automobiles.

 Large companies with the ability to hire and retain infrastructure professionals might decide to build rather than outsource. Some companies may decide to do their own hosting for their own individual reasons.

You probably already have information in the cloud if you have ever used Amazon.com. You have already given plenty of information to banks, credit card companies, and other companies you have dealt with. This information surely already resides on a computer somewhere. Life is full of trust decisions that you make without realizing it.

Very few people grow their own food, sew their own clothes, build their own houses, or (even in these tenuous financial times)  keep their money in their mattresses any more. We have learnt to trust in an economic system to provide these things. This too did not happen overnight.

I personally believe that Internet connectivity will never be 100% reliable, but how much reliability will be needed depends on the mission criticality of an application. That is why there will always be a role for rich clients and synchronization services.

Hosting companies will have to be large to have the financial stability to handle law suits and survive for the long term. We will have to develop the institutional and legal infrastructure to handle what happens to data and applications when a hosting company fails. We learned how to do this with bank failures and  we will learn how to do this with hosting companies.

This could easily take 50 years with many false starts. People tend to overestimate what will happen in 5 years, and underestimate what will happen in 10-15 years.

Azure, the color Microsoft picked for the name of its platform, is the color of a bright, cloudless day.  Interesting metaphor for a cloud computing platform. Is the future of clouds clear?