He described it as a new Windows offering at the "Web tier" -- think of it as Windows in the cloud, Ozzie said. It's a new service-based operating environment specifically targeted for the cloud.

It's aimed to strike a balance between allowing Windows developers to utilize existing skills and code to write applications for the Web. Ozzie called the service, which launches today as a Community Technology Preview in the U.S., as a "fundamentally open environment" for development.

"It will be our highest scale, most economical and most environmentally sensitive way of hosting services in the cloud," Ozzie said.

Windows Azure will form the base of a broad services platform. It will underpin the company's Live Services, .NET Services, SQL Services, SharePoint Services and Dynamics CRM Services.

Update, 9:10 a.m.:

Amitabh Srivastava, a Microsoft executive who has been working on Windows Azure, which was code-named Red Dog, is on stage providing more details on this highly technical announcement from the company.

"What we have built is the kernel of the Microsoft cloud platform," Srivastava said "... We have built a platform that allows you to build your killer apps."

This offering handles the behind-the-scenes computing needed to provide software applications via the Internet. It will take advantage of the expertise and data center infrastructure Microsoft has built up to support its own Internet services such as Windows Live, Microsoft.com, MSN and others.

Windows Azure will allow independent software developers to deliver their applications over the Internet regardless of their size, whether they require a fraction of a server or several, Srivastava said.

Yes, this is a direct competitor to Amazon's Elastic Compute Cloud. So much so that Ozzie gave a hat tip to Amazon's Jeff Bezos for the company's innovation in this area.

"Across the industry, all of us are going to be standing on their shoulders," Ozzie said.

Update, 9:21 a.m.

As a Microsoft developer gives a demonstration of how software developers will use this, let me take a moment for a quick observation: Washington State is well on its way to being a center of this new era of computing.

We have the headquarters of leading cloud computing company Amazon, and, of course, Microsoft, which today is moving full-bore into cloud computing.

We also have several of the giant data centers that are the engines of cloud computing. Microsoft, Google and Yahoo are some of the companies investing hundreds of millions in data centers in Eastern Washington and Oregon, taking advantage of the cheap hydroelectric power generated by the Columbia River and Bonneville Power Administration.

The expertise needed to build and efficiently operate those data centers is a foundation for this new era of computing.

Update, 9:55 a.m.:

Bob Muglia, senior vice president of Server and Tools at Microsoft, is on stage talking about how Windows Azure will be useful not only for independent software developers writing applications to deploy on the Web, but also for enterprises and for Microsoft's own products itself.

"We can see the opportunity in literally dozens and dozens of apps to leverage the capabilities in these new platforms," Muglia said.

One thing we haven't heard yet: What does the business model for Windows Azure look like? Presumably it would be a subscription model, in which ISVs pay Microsoft a regular fee, depending on the size of their application -- how many servers it requires, what geographies its used in, etc.

I wonder if Microsoft will offer a free entry-level service as Google does with its App Engine. It gives developers "up to 500MB of persistent storage and enough bandwidth and CPU for 5 million monthly page views" for free.

Update, 10:05 a.m.

Microsoft just sent a strong signal that an online version of Microsoft Office is on the way.

David Thompson, vice president of Microsoft Online, is explaining the links between the company's services products for enterprises and Windows Azure. Recall that Microsoft now offers hosted versions of some of its key enterprise products: Exchange, the server software for e-mail; Sharepoint. for collaboration; and, Dynamics CRM, the company's customer relationship management service (a direct competitor to software-as-a-service poster boy Salesforce.com).

For a while now, Microsoft has been asked regularly where is Office Online? Thompson just indicated, albeit obliquely, it's coming.

"In the future all of our enterprise software will be delivered, as an option, as an online service," he said.

Update, 10:15 a.m.:

Ray Ozzie is wrapping up and just addressed the business model question: It will be "straight forward," he said. The cost will be a function of two key factors: an application's resource consumption and a specific service level Microsoft agrees to provide. There will be a variety of offers and service levels to address the breadth of developers and markets Microsoft expects to do business with. But, Ozzie said, Microsoft's prices will be competitive with the broader marketplace.

Update, 11:37 a.m.:

For more background on cloud computing and the challenges Microsoft faces in attracting developers to its new platform, check out this story from today's paper.