Just like CRM can be provided as a service by hosting providers outside of Microsoft, so will be true of Azure. This is fantastic in terms of empowering organisations or even governments.
Imagine you have a series of embassies around the world. A government would not want to host constituent or public servant data in the cloud on someone else's servers but now they could do it all themselves. They achieve the power of the cloud but maintain the security, or perceived security, of keeping the data on their own boxes.
Where I can also see this being used is with companies with offices on the USA west coast as well as offices in London. This puts the time difference at around 8 hours, perfect for a cloud server to run at a sustained level of use for 16 hours a day, rather than running two servers at capacity for 8 hours per day each.
Microsoft's overall strategy is very smart in that it allows people who are nervous about jumping into the cloud to dip their toe in the water on their own boxes first. When they get used to it, assuming it will be cheaper to do the same on Microsoft's offering than someone else's, they will then fully embrace the Microsoft Azure offering on Microsoft servers. Any perceived security fears will be outweighed by the economic considerations.
This lower of the barriers to entry and is a significant market differentiator in my opinion. For Force.com, Amazon's offering, and so on, you either embrace their servers or you don't. While the more technically savvy will have no issue with the jump, often the decision makers are less technically proficient and a lot more cautious. A DIY cloud is the perfect compromise.
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