Microsoft is hoping to position itself as a cloud infrastructure and application services vendor. They are investing heavily in new datacenters, according to Business Week.
One of the interesting things in that Business Week article is that Microsoft has taken up Sun’s Blackbox idea, to build what I would describe as "clouds in a box". These are modular data centers tightly packed into highly engineered and (mostly) self-contained shipping containers at a much lower cost per-square-foot to implement than a traditional data center design. I’m sure we’ll be hearing a lot more about this initiative over the next couple of years.
I think one of the biggest challenges Microsoft will have to face with this computing model are the changes to software development methodology and product life cycle management that also have to take place. I’ll post more on this later, but in a nutshell, if you deploy a product on a highly dynamic, flexible architecture, you have to be prepared to have dynamic and flexible product development and management techniques as well. (ie, something like the Agile development model) For organizations like the software development bureaucratic behemoth that Microsoft is, such changes will almost certainly be fraught with some paradigm shift pain.