Cloud computing is the concept of providing dynamically scaled services or resources to a variety of users over the internet.  These services can be infrastructure as a service (IaaS), platform as a service (PaaS), or Software as a Service (SaaS).  Technically cloud computing does not require virtualization.  However, in most cases variable work loads make the use of virtualization in cloud deployments almost a necessity.

For customers, cloud computing services typically offer lower costs and more flexibility.  When it comes to hardware, it allows customers to cut their total effective IT costs, as the cloud administrators will be able to more effectively manage the larger hardware pool and charge lower fees.  It also allows for more flexible use of the hardware in the pool.  Similarly, software can be deployed which leverages revenue collection schemes such as online advertising or content deals with service providers to offer the same software for free or at a reduced cost.  Virtualization helps lower these costs even further by making sure that your cloud vendor is efficiently using their resource pool, getting the most bang for their buck.

For providers of cloud services, there are numerous advantages as well.  In cases of internal use, a small cloud deployment can be able to serve company-wide applications over a broad range of physical locations, allowing you to lower local IT costs, save employee time, and reduce local storage expenses.  Internal hardware cloud services, while more ambitious, can offer similar savings.  By centralizing your storage and computing resources you can save on IT expenses and on hardware costs.

There are major pitfalls for internal deployments, though.  First, cloud services must be designed to communicate effectively over the internet, in order to offer true cloud support to multiple locations.  This means that the applications are chained to the bandwidth on-site, which may be limiting.  Similarly, cloud hardware solutions can limit access speeds to storage or can raise computing times, due to latencies of communicating requests over the internet.

Security is a final aspect to consider.  If you provide intersite cloud services, there's the potential that your programs or hardware could fall into the wrong hands if they're not properly safeguarded.

The same advantages and disadvantages can apply to inter-company or commercial deployments.  Cloud computing and virtualization can be used to affectively share applications between companies, and allow for mutual storage.  It can also be used to vend applications to the general public and/or to commercial customers.  Again, it is necessary to consider whether your application can be sustained on the bandwidth of an average internet connection, and steps to take if your application is bandwidth-starved.  The payoff, though is the potential to offer easier access, streamline intercorporate business, and, in the case of retail products, to possibly avoid retail fees such as shipping, packaging, and more.