“Cloud” computing has become the latest buzz in the information technology (IT) world. What does it mean? Is it real? Not easy questions to answer at this point. There’s a lot of airy discussion about the subject, but the harder outlines of the issues are beginning to emerge from the fog.

The Motley Fool investment site has been touting cloud computing as the “next big thing” in IT for a couple of months. The popular website enthused that “experts say it’s going to upend a $1 trillion industry. Yet very few investors understand just how huge it’s going to be.” Huh? Let’s get definitional.

A recent Reuters article offered a good starting definition: “ ‘Cloud computing’—one of the hottest buzz words in Silicon Valley—refers to a variety of ways in which technology companies offer computing services over the Web from remote data centers, seemingly from the cloud of the Internet.” In short, cloud computing moves applications and data from local, enterprise servers and computers to remote web servers.

In October, The Economist magazine defined the concept this way: “The idea is that computing will increasingly be delivered as a service, over the internet, from vast warehouses of shared machines. Documents, e-mails and other data will be stored online, or ‘in the cloud’, making them accessible from any PC or mobile device. Many things work this way already, from e-mail and photo albums to calendars and shared documents.” But not much in the way of corporate data. That may be next.

The website Whatis.com offers some finer brush strokes: “A cloud service has three distinct characteristics that differentiate it from traditional hosting. It is sold on demand, typically by the minute or the hour; it is elastic—a user can have as much or as little of a service as they want at any given time; and the service is fully managed by the provider (the consumer needs nothing but a personal computer and Internet access). Significant innovations in virtualization and distributed computing, as well as improved access to high-speed Internet and a weak economy, have accelerated interest in cloud computing.”

Technology writer Nicholas Carr, in his book The Big Switch, and in an earlier Harvard Business Review article, “IT Doesn’t Matter,” likens the coming of cloud computing to the revolution that Thomas Edison concocted when he moved the world from small, local electric generation to large, central-station plants. In a March interview with InfoWorld, Carr said, “The rise of cloud computing in general reflects the fact that a whole lot of the IT that companies have been investing in is really better run centrally and shared by a bunch of companies than it is maintained individually.”

Analyst Mark Bowker of the Enterprise Strategy Group has a down-to-earth take on the cloud. It is, he writes in a blog post, “nothing more than a service (ideally self-service) model where business workloads are deployed and transparently executed internally or somewhere on the Internet with businesses only paying for what they consume.”

Cloud computing, says Bowker, “is ultimately all about operational efficiency that leverages a highly dynamic, self healing, automated IT environment that can grow and shrink on demand—enabling the right size environment all the time.” When I read that observation, I immediately thought of utility customer and outage information services, so customers and the utility could equally access information about outage reports, where repair crews are working, time schedules, and other useful information. And maybe it wouldn’t involve a bunch of English speakers in Bangalore. Am I wrong in this?

Cloud computing is a profound threat to internal company IT departments, note Bowker and others. “IT is at risk,” Bowker writes. “Application owners, engineers, and developers are already starting to consume resources from the likes of Amazon and Google. Why? It’s easier and they don’t have to step through a lengthy process to get what they need, when they need it.” Say goodnight, IT.

But it’s not all clear sailing for cloud computing. There are risks, as many analysts have outlined. Writer Christina Torode has noted, “There are many benefits to the various cloud computing models. But for each benefit, such as cost savings, speed to market and scalability, there are just as many risks and gaps in the cloud computing model.” Security is a chief concern.

Bowker writes, “When companies adopt cloud … they want to know if their data is really protected. If it were lost or stolen, could it compromise the company’s position, brand, or intellectual property?” In a regulated environment such as electric utilities, that could become a major issue with regulators.

Another issue, Bowker point outs, is auditing and compliance. “The minute you adopt a public cloud offering [using a third party, such as Amazon or Google to hold your data], you may be saving costs on hardware or on computing, but you’re going to be increasing your risk of not being able to comply with discovery requests or regulatory audits.” That’s scary to a lot of energy companies.

Those potential problems, Bowker says, can be overcome, and “large enterprise IT organizations are investigating cloud strategies to help lower operating costs, improve IT service levels, and really focus on their strengths. Many organizations have already begun adopting cloud and may not even know it or don’t use the term ‘cloud.’ ”

How will this cloudy concept develop further in major companies? Carr told InfoWorld,  “It’s a 10- to-15-year period of transition. Particularly if you look at large companies, big enterprise users, that’s probably about the right timeframe. They have huge scale in their internal operations, and it’s going to take quite some time for the utility infrastructure to get big enough and efficient enough to provide an alternative to big private datacenters. I completely agree that we’re in a transition period that’s going to take some time. And I’d say at this moment that the hype about cloud computing has gotten a bit ahead of the reality. Still, the uptake of cloud services over the last year has moved faster than I would have expected. So there is a lot going on, but there’s still a long way to go.”

—Kennedy Maize is executive editor of MANAGING POWER magazine.