In his first time speaking at University of Washington—the giant Microsoft-endowed school in the company's backyard—Steve Ballmer explained "the cloud."

First, there was a goofy video showing how stoned most UW students are, conducted by a gal with shockingly platinum hair and bronze skin. Then Ballmer says it's something he's betting his company on, and that every company is betting their companies on, and that it's a $3.3 trillion industry. That's pretty serious. Here are his five key principles:

1. "The Cloud Creates Opportunities and Responsibilities" (In fairness, Ballmer admits it sounds like "some blah blah blah business term.") What he means is that creators don't have to come from big-ass tech companies to market cool software now. He says "Apple's done a very nice job" with the App Store, giving opportunities to developers, and that Microsoft is keen on providing those types of opportunities. How do developers who have worked on open-source or freeware apps finally get some money for their creations? (Does this mean Windows Phone 7 will follow a similar developer strategy? Who knows...)

He also says that the cloud is supposed to give more control to users, not just developers. Control over privacy and anonymity, that is. Ballmer doesn't mention too many examples, but cites Facebook—obliquely—as an example of the challenges of cloud-related privacy.

2. "The Cloud Learns and Helps You Learn, Decide and Take Action" Machine learning is key to cloud strategy. Ballmer says that when you look out at 83 million websites and try to find something simple but hard to search for, like "What do we as a society spend on healthcare?" you can easily get nothing. "It's only eight numbers," Ballmer says, but they're hard to find in one simple little chart. The cloud needs the intelligence to know what people are looking for, and know how to go and find that information on its own, or collaboratively with users.

Here, to drive the point, Ballmer invited a guy from the Bing team to demo Bing Maps' explore feature. It's live, so you can check it out for yourself. Drill down into the University of Washington, if you want a good representation of what they're doing.

3. "Cloud Enhances Social and Professional Interactions" This Ballmer admits is kind of an obvious notion, as we're already immersed in it, but he says that the innovations here will improve to a point where "virtual interaction through the cloud is as good as being here today." He doesn't mean "as good" in the sense of "as useful." He means that one day, an entire auditorium of activity would be able to be captured on 3D video and streamed live anywhere, like Harry Potter diving into a Pensieve. (That'd be my Potter fanboy analogy, not Ballmer's.) He also means, of course, that realtime data collaboration tools will get better and better. He didn't mention that they'd have anything to compete directly with Google Wave, but if they do, hopefully they'll focus on ease of use.

As a near-term social example, he brought a demo of Xbox Live TV, something already launched in England with the Sky Player. Imagine Mystery Science Theater 3000 done with Xbox avatars, under a screen playing a live show. In the Sky example, of course, sports are key. I am thinking there are very few live TV events anymore, but maybe a Lost episode or some (non-Olympic) sporting event would be a good example.

4. The Cloud Wants Smarter Devices This pillar of the Ballmer argument is the one that probably makes the most sense to Giz readers and people who have kept up with Windows Phone 7 (and Pink) news. As a student sitting near me just pointed out, the "smarter devices" angle is antithetical to what Google and others seem to preach, but Microsoft obviously cares about processing at the consumer end, and they believe that as long as processing is cheaper than bandwidth it makes sense.

Not surprisingly, his demo is Windows Phone 7, so I'll spare you any crappy photo and just link you to our comprehensive coverage.

5. "The Cloud Drives Servers Advances That Drive the Cloud" We tend to ignore the hardware demands of the cloud, but obviously, Microsoft's server business is a key part of Ballmer's reason for promoting the cloud. He speaks of service issues—systems able to deploy software instantaneously worldwide, without a hassle. "If a machine breaks, that shouldn't be your problem. There shouldn't be people babysitting all these machines." A call for QA, perhaps, and aimed as much internally as it is externally.

An example of the fruits of this is a UW project called Azure Ocean, which is constantly aggregating the world's oceanographic data, expanding constantly with sensor data every day, noting that it must have been a "very exciting period in the last few weeks" with the earthquake in Chile. No doubt no one will dispute the need for research tools of this scope now.

Ballmer also says that part of this server business is people having their own clouds. Governments and companies want to buy their own systems. Sometimes this is obvious, like for military or strategic purposes, but sometimes it's just a matter of preference, and Ballmer wants people to be able to buy "refrigerator"-sized water-cooled systems with net connections, if that's their preference.

Ballmer concludes with the sentiment that "the Cloud fuels Microsoft and Microsoft fuels the cloud." Take that as you wish.

My own quick take on this is that the cloud is as nebulous as you think, but at least these are areas worth thinking about more. The cloud isn't anything new, but it's taking shape, and clearly in the hands of only a few companies. Google is the biggest, and arguably Microsoft is #2. In other words, we need to listen to Ballmer, cuz he'll be driving it, at least for now.