The 3!

Cloud Computing is the convergence if three major trends

Virtualization
Utility Computing and
Software as a Service

This is how the story goes,

We got the internet and broadband got very cheap.Some smart folks realized that not everyone had to build in house data centers. They realized that the computer running the application can be pretty far away from the person using it and only a fast connection was needed between them. This led to Software as a Service.Essentially something like a big fast machine on some one else's data centre running an application that we access using our familiar web browser.

Someone owns the application and we pay a fixed subscription fee.

Utility computing provides on-demand infrastructure with the ability to control, scale, and configure that infrastructure.

However a one size fits all approach did not fit enterprises with large and complex requirements.Thus came Virtualization to the rescue.

With Virtualization application and infrastructure were independant allowing servers to be easily shared by many applications to run virtually anywhere.
Virtualizing an application is packaging the application with everything it needs to run namely databases, middleware and operating systems.

This self contained unit of virtualised application can run pretty much anywhere.

In a turbulent economy cloud computing is more attractive.Why pay for more computing capacity than you need ? Only pay for what you use.