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When Tien Tzuo founded an online billing company called Zuora last spring, he had his head in the clouds.

Mr. Tzuo didn’t buy any powerful computers to store data. That meant he didn’t have to hire computer experts to keep them running. He didn’t even buy software like Microsoft’s Office for his employees’ computers.

Taking advantage of what’s becoming known as “cloud computing,” Tzuo bought all the computing services for his 42-person company at a nominal cost from Google, through a program called Google Apps. (Google also offers a similar service for free, if users are willing to deal with ads.)

All the computing is done online. Besides using Google’s familiar e-mail system (Gmail), employees at Zuora’s Redwood City, Calif., headquarters and its remote offices in places such as Beijing can collaborate on documents, share calendars, chat, and send instant messages to each other online. The employees feel close together, despite the huge distances between offices, Tzuo says.

“Any start-up that doesn’t use cloud computing right now is at a competitive disadvantage,” he says.

Like “Web 2.0” before it, “cloud computing” has become a controversial buzzword in the online world.

Some say it represents the most important change to the Internet since its inception. Others say the term is so wispy and ephemeral that, like a cloud, it’s impossible to grasp. Still others scoff that it’s only a fancy new term (fast wearing out its welcome) being attached to cyberspace trends that have been under way for years.

Whether people think about it or not, most already operate “in the cloud.” The inboxes for e-mail accounts from Google, Yahoo, or MSN are stored online, not on the user’s computer. Many people also post and share information at social networking sites like MySpace or Facebook. They may back up their PCs with online data storage companies or squirrel away photos at sites like Picasa, Shutterfly, or Flickr.

Some individuals also use the free Google Docs service, online programs that function in much the same ways as Microsoft’s popular Word, Excel, and PowerPoint programs, but allow users to access their documents from just about any computer they like.

“If you can walk into any library or Internet cafe and sit down at any computer, not caring what operating system or browser you’re using, and access a service, that service is cloud-based,” says George Reese, an online businessman whose book on cloud computing will be published next spring.

Traditionally, businesses, especially large ones, stayed away from cloud-computing services that left their sensitive, proprietary data on someone else’s computers. They wondered: What happens if my data is lost or stolen, or the cloud company goes bankrupt?

Amazon.com is credited with changing that when it launched the Elastic Computing Cloud in 2006. The online retailer had developed a massive “farm” of servers, computers it needed to run its business. It decided to sell its excess computing capacity to others on a “pay as you go” basis. Google has taken a similar approach with the unused power from its gigantic server capacity, originally built to run its search engine.

With these two successes, businesses are starting to leap into the cloud. Spending on information technology cloud services will grow almost threefold to $42 billion by 2012, says IDC, a technology tracking firm based in Framingham, Mass.

Only the massive will succeed
The concept of “the cloud” is turning computing into something more like a standardized commodity. Just as utilities provide electricity to a wide variety of businesses and individuals, a few giant computing companies may eventually provide computing services to everyone.

“The cloud will be dominated by a fairly small number of companies,” says Nicholas Carr, author of “The Big Switch: Rewiring the World, from Edison to Google,” widely considered to be the most influential book so far on the cloud computing movement.

Besides wondering what Google or Amazon might do with their information, companies also worry about performance. It’s vital to them that their data is always available.

“Performance of the [cloud service] companies is going to have to be at an extremely high level – at a level we expect from any utility,” Mr. Carr says. “But it doesn’t have to be perfect. It just has to be very, very good.”

The early track record has been good, with few outages. In some ways, using the cloud can be more reliable than trusting an in-house technical team, argues Matthew Glotzbach, product management director of Google Enterprise, which is trying to entice more businesses to use its cloud-computing services.

Even the best internal tech staff must regularly schedule down time for maintenance. Google never needs downtime, Mr. Glotzbach says. Its vast array of servers back each other up. Just as Google’s search is never “off-line,” neither are Google’s computing services, he says.

Could a wheezing economy inflate the cloud?
The current economic crisis may push another group of businesses into the cloud to save money, Mr. Reese says.

“In the last two weeks … interest in the cloud has just exploded,” he says, as companies look to avoid having to find lenders to finance new computer hardware and software. “I think that lack of capital has created a very serious sudden interest in the cloud.”

Microsoft, which has made a fortune selling popular software for PCs, said late last month that it would join the competition by launching Windows Azure, a cloud-based operating system. It also says it will extend its Office programs onto the Web by offering stripped-down online versions of Word, Excel, PowerPoint, and OneNote.

Cloud computing is going to have a “revolutionary influence on culture and the way we do things,” Reese says. Though the Web is frequently the source of wild predictions, “I haven’t said that about any other technology before,” he says.

Four ways to live among the clouds
Apple MobileMe service uses cloud computing technology to transfer data, such as a calendar, e-mail, or contacts, between a user’s computers (home and work, for example) and cellphone or other mobile devices. It also provides online storage for photos or videos. The MobileMe service was introduced in July and updated last week after suffering technical glitches.

Google Docs allows users to go online to create, edit, and store documents, visual presentations, and spreadsheets. These free services have many features in common with software installed on PCs, such as Microsoft Office. An online e-mail service such as Gmail or Yahoo! Mail is a form of cloud computing, since the messages are being stored “in the cloud.”

Amazon Elastic Compute Cloud (AEC2) provides online computing services to companies of all sizes, letting them buy computing power on a “pay as you use” basis, with no upfront costs or contracts. For businesses, the service can be offered at attractive prices compared with the cost of buying and maintaining their own computer network.

Microsoft Azure, which was announced two weeks ago, will bring the software giant into the world of cloud computing services for businesses. Microsoft also announced that simple versions of its popular Word, Excel, PowerPoint, and OneNote programs will be available online.

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