I saw a lot of misinformation yesterday about what the MS Cloud servers means for the game market or in a overall for the world what the Cloud Services means.
So I will try to give a overvill of this new marketing and fashion word used by big companies... you can ask and disagree because I don't own the truth and I'm just sharing my personal experience.
WTF CLOUD?
Cloud is a word used for any service running in the internet instead of your local computer.
Eg.
Cloud Storage: Internet Virtual HD instead of your own HDD
Cloud Computing: Internet Virtual CPUs instead your own CPU
Cloud Streaming: Internet streaming of Video/musics/Games instead of your own hardware running these videos/music/games.
Just some examples... so my eMail is a Cloud service? Yes... since your emails is storaged in internet server you are using the Cloud.
CLOUD is a bussiness model rather than a new technology
Most people thinks Cloud is a new technology or a new magical system that will give infinite power but it is not. Cloud compution (or any other Cloud based service) is only a new business model created to cut cost in your internet service delivery.
What the difference in the Cloud business model and the old model?
Years ago when you need some Service to be published in the internet you need to buy your own servers or make a contract with a company to host servers for you... these servers are dedicated to a specific task that you will define (eg. I can have a server just to storage and show my family photos).
So you have a fixed hardware working for you on the internet and if you need to increase the processing capacity (CPU), memory capacity (RAM), storage capacity (HDD) or anything else then you need to stop the service, make the changes and then run again the server with the new chances.
Cloud business model change that.
Now you have a company that no more give you a servers to work but only resources (CPU, Memory, HDD, etc)... so you will contract how many CPU, Memory, HDD, etc you need to run your service.
Companies like MS, Amazon, Google, etc created a big cluster of dedicated servers to be shared between all the possible customers they will have... in a physical terms they have maybe 100k dedicated servers running in a cluster and they only allocate to you the numbers of resource you want to use.
There resource are called Virtual (that why you need Virtualization technology to host a Cloud service)... so if you contract 2 CPUs, 8GB RAM, 30GB HDD the company will allocate virtually just these resource and you give you a Virtal Host for you use... for you consumer it will be invisible if these resource come from 1, 2, 3, etc physical dedicated servers or not.
The model work really good in a business way because if you want more resource for the Holidays you just pay for them this period and the contractor allocate these resources for your virtual host... if you don't more all the resource you contract then you can decrease the number of resources contract.
It is cheaper for the consumer to change the virtual resources of the contract.
And it is cheaper for the contractor because they have a lot of custumers... so when one is not using all resources they can allocate for othe consumer and vice-versa... they just need to maintain these 100k custers of dedicated servers.
Here where I work we rent virtual host for we consumes... it is not called Cloud because it is not a Internet service but for example we have a cluster of AIX where one of the machines have a POWER CPU with 8 cores plus 64GB RAM... and this machine virtually host three consumers... two of them just use 2 cores of the CPU and 16GB RAM and the other uses 4 cores of the CPU and 32GB of RAM... for the consumers it is like they are using a physical machine with the number of CPU/core and RAM allocate for them while we are maintaing only a physical dedicated server.
This is a example only... we cluster of AIX is a lot bigger than 1 physical hardware... there are a Command Center like in movies with graphs and etc to management all these machines and delivey all these virtual hosts... I think good part of the financial processing in the world is hosted in we virtual servers... we have mirrors servers in others places (countries too)... so if one stop to word the others clusters substitue the stooped one in seconds.
I can give more examples.
So what the difference of the Cloud Servers and Dedicated Servers?
Except the more dynamic and flexible way to allocate more resources (virtual hardware) and cheaper model... both will delivery the same... because what will run in the service is you that will create.
In easy terms the same code you created to run in a dedicated server will run in a Cloud virtual host... there is no difference in terms of what you can do... your imagination (code) is freedom to create anything you want to run in these servers.
In game terms what that means?
Like I said all the parts are benificied by the Cloud... so for a company like EA to use the Cloud Virtual Host is cheaper because they can change the resources allocated based in the activity of the game.
Eg.
Today I have 1000 players per day... so I have a Virtal Host with 2 CPUs / 32GB RAM
Next month I will have 5000 players per day... so I will increase if need the Virtual Host to 8 CPUs / 128GB RAM
A year late I will have 100 players per day... so I will decrease my Virtual Host to 1 CPU / 16GB RAM
The money you will pay is based in how many resources you will use... so instead to maintain all the resources of a dedicated server until the game shutdown spending the same amount of money every year... I will spent a flexible amount of money every year based in my real activity... overall it will be cheaper.
For the MS it will be cheaper too because they can use the free CPUs / RAM / etc to host others games.... so when a game like Titanfall decrease the activity I will launch Halo that will increase the activity... so the allocation of the resources to Titanfall will be used in Halo based in the activity.
That's how the Cloud model works.
There are any downside in the use of Cloud Model instead the old one?
Yeap... the amount of resources needs to be a little big than what you need on a dedicated server because the virtualization process put some overhead... so the same CPU in a vitualized Cloud give you less performance than the same CPU in a dedicated server... but the difference is little (below 5%) and the money saved is a really good amount... so the Cloud model is a way better model for the future.
For exemple... Oracle recommends the Oracle Database to be installed in a dedicated server because you can have performance issues in a virutalized host... we use a virtualized host for some clients and we face some performance issues not found if the Database is installed in a dedicated server.
What magical power the Cloud will give to Xbone?
The magical power won't come from the Cloud itself but what the developers will run in the virtual hosts... there is no difference in what you run in the Virtual Host of the Cloud and a dedicated server.
The developer will create the magic... the code running no matter the place is what make a game special or not.
So the devs needs to be innovatives and creatives to delivery this magic.
That's it... any question? Sugesction? Agree or disagree? That's how works the fammous CLOUD.
PS. The text can contain some error or mistakes... the examples are purelly fictional... the numbers are noway near the realitty 
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