We're going to look back at this era and wonder how we did without this other kind of computer in the cloud."

That's Microsoft chief software architect Ray Ozzie, in an interview with InformationWeek, just after Microsoft laid out how its most important products--Windows and Office--will change to stay relevant in "the cloud," where a lot of business computing is done outside a company's own data center.

Microsoft is creating Windows Azure, an operating system that will let companies run Windows applications and store files and data using Microsoft's data centers. It's also promising the Azure Services Platform, services that developers can use to establish user identities, manage workflows, synchronize data, and perform other functions as they build software programs on Microsoft's online computing platform.

The next version of Office will offer a browser-based option so users can read and edit documents online, as well as the ability for users to collaborate using Web, mobile, and client versions of Office. "It's not an adjunct, it's not a little thing off to the side," Ozzie says, promising that Office 14 will have "software plus services" at its core.

After two years of touting software plus services, and dribs and drabs of unimpressive product details, Microsoft's broad vision is welcome. Ozzie's right--an era is ending, one dominated by on-premises software. But his vision didn't come with a delivery date. When will Microsoft deliver cloud computing products, and will it come in time for Microsoft to retain its software industry leadership?

Microsoft isn't a leader in the cloud. That status goes to companies such as Amazon.com, Google, and Salesforce.com, which are further along in delivering what's coming to be known as cloud platforms or "platforms as a service." Salesforce lets developers build and sell applications on its online platform, and its Dreamforce conference this week will draw thousands of developers from big companies and startups. Google already offers online documents and spreadsheets, and encourages developers to build features for those and other online software, using its Google App Engine.

Amazon Web Services is selling server computing power and storage, for which it recently added business-friendly reliability guarantees. Even Ozzie acknowledged Amazon sets the standard, saying in his keynote address last week at Microsoft's Professional Developers Conference that "all of us are going to be standing on their shoulders."

Businesses are only starting to figure out how they might move more of their computing into the cloud, so Microsoft--and other big vendors with fledgling cloud initiatives, such as IBM, Oracle, and Sun--may have time to get it right. Companies aren't convinced cloud providers have solved all the problems of security, data control, reliability, and latency. "This is why you should put your toe into the water," Ozzie says. "It's not a panacea, and it's not something people should fear."

Cloud computing promises to cut operational and capital costs and, more important, let IT departments focus on strategic projects instead of keeping the data center running. The current downturn could increase the cost-cutting appeal.

Two tech companies that have tested Azure show how Microsoft's cloud might be used by early adopters. Infosys has created an auto industry "integration hub" using Azure's SQL Server database services for dealer-to-dealer information sharing and Web mashups. Infosys principal architect Jitendra Pal Thethi says the India-based service provider plans to build other business-to-business hubs using the same approach. ERP vendor Epicor last week demonstrated an application that extends ERP search capabilities to mobile devices via Azure services.

Ozzie says he expects enterprises to begin using Azure directly to host Web applications, and eventually to experiment with which enterprise apps they can build and host there. But Microsoft hasn't approached many companies yet, even as beta users. "Now, we can begin to have the conversation with IT," Ozzie says.

Today's cloud computing competition, at least for companies that fancy themselves "platforms," will be for developers, getting both startups and big software makers to build applications that run on their clouds. Microsoft is courting them--it announced Azure at its Professional Developers Conference--but it faces some obstacles.

First, Microsoft has been working toward these announcements since 2005 but won't commit to a release date--or even a release year--for Windows Azure and many of its related services. A test version of the cloud OS was made available last week, but Microsoft won't even have a timeline for Azure's release until next year. "We just don't know," Ozzie says.

Second, pricing and packaging are unclear, making it difficult to lure startup software developers when offerings such as Amazon's EC2 and Google App Engine have simple pricing plans they can build a business plan around. Microsoft says Azure's pricing, like rivals', will be based on usage and service-level agreements. Ozzie promises "competitive" pricing.