For a low monthly fee, you don’t have to worry about bare metal (physical) servers or infrastructure. (Its about outsourcing the data center, also know as Infrastucture as a service)
Cloud computing and virtualization technology is leading to the next
generation of hosting and SAAS. Think of virtual servers instead of physical
servers. There are a number of advantages to this technology, such as rapid
deployment, flexibility, and ease of changes. For example, with the Amazon
EC2 model, you only pay for the resources that you need, and the capacity is
dynamically expandable. You can deploy, or remove servers at will, on any platform you chose.
They are templates with applications already installed, which can be copied into the cloud. (see previous posts from turnkeylinux and bitnami). Then you can customize. Of course, this is much easier to do with open source platforms and applications because you don’t have to worry about licensing. But there is no reason you can’t use the same technology for proprietary, legacy applications and platforms. (windows and all the linux flavours are supported)
I think the early adoption will be for disaster
recovery warm sites, development and staging environments, demos and
testing. When it is more proven, there will probably be more companies using
this technology for production applications, (initially non-mission
critical). Companies can start with cloud based applications and then move
them in-house if they like. Unlike the current generation of SAAS, they will have full control over the
virtual server environments, for things like customization etc.