Microsoft Chief Executive Steve Ballmer gave his first speech at the University of Washington on Thursday morning and said Microsoft is betting the company on cloud computing.

In the strongest language yet, Ballmer signaled the Redmond software company's total embrace of cloud computing, the evolution from a company still primarily known for its PC software Windows and Office to a cloud computing company.

"This is the bet for the company," Ballmer said. "For the cloud, we're all in."

Ballmer spoke to an audience of several hundred students and professors at the Paul G. Allen Center for Computer Science and Engineering. UW President Mark Emmert called it "hanging room only" as he introduced Ballmer, with students watching from the upper-level balconies as the Microsoft CEO spoke in the foyer.

Cloud computing is being heralded as the next-generation shift that combines the Internet and computing so that software, content and data can be stored in remote servers run by other companies and accessed from computers, phones and TVs through the Internet. Many consumers are already using cloud applications such as iTunes, Web e-mail such as Hotmail, Flickr and Facebook.

Microsoft began selling cloud software and services Windows Azure and SQL Azure at the start of February.

Ballmer began the speech with a video asking UW students how they defined the cloud. After several fuzzy answers, the interviewer asked UW football coach Steve Sarkisian. First he sketched out a football play on a whiteboard in a cloud shape. Then he said, "The cloud's a computing model where the physical model is extracted to enable people at work or play to have access to data across devices."

Ballmer went on to outline several dimensions of cloud computing:

• The cloud creates opportunities and responsibilities. "For years in the pre-cloud era I spent my time meeting with software developers who had a brilliant idea and said we have written an application and we have two customers right here in Dubuque. Can you help us find customers in Des Moines and Seattle?" Ballmer said. "You think about infrastructure that will now support a wide class of creators." He also spoke about the need for privacy and security.

• The cloud learns and helps you learn. To illustrate it, Microsoft did a demonstration of Bing Maps, which incorporates user data, photos and information such as hyperlocal news and mashes it up on a map. A zoom on a North Seattle neighborhood pulled up a blog report that a taco truck had a fire, for example.

• The cloud enhances your social and personal interactions. "I think we will have succeeded with cloud the day we agree that virtual interaction in the cloud is as good as being here," he said. Microsoft also did a demo of Xbox Live where the Xbox avatars of Ballmer, Emmert and Microsoft Chairman Bill Gates sat in a living room and talked trash while watching television. While the service is not yet available, it shows how Microsoft wants to position Xbox as a social-network television hub.

• The cloud wants smarter devices. "PCs don't look like PCs five years ago, and the cloud has a lot to do with it," Ballmer said. "Phones don't look like phones five years ago." Microsoft, which has been trailing Apple's developments with iPhone and Google's Android, recently announced a redesign of Windows Mobile, renaming it Windows Phone 7 Series. The new phones will start selling before the end of the year, but are not yet available.

• The cloud drives server advances and vice versa. Microsoft brought a "cloud in a box" to the UW campus — a shipping container filled with 10,000 servers. What many companies promise with the cloud is that companies will no longer have to manage their own servers. Microsoft, Salesforce.com, Amazon and Google will manage and run servers. "There shouldn't be people babysitting all these machines," Ballmer said.

• The cloud fuels Microsoft and vice versa. "About 75 percent of our folks are doing entirely cloud based or entirely cloud inspired," Ballmer said. "A year from now that will be 90 percent." This full embrace of the term cloud computing is new for Microsoft. Up until now Microsoft was still pushing the term "software as a service" to describe cloud software.

Ballmer also took a dig at Google without actually saying the company's name. "It's great to know about 83 million sites, but if you're trying to find something specific ..." he said. "As part of the U.S. health care debate, I decided I need to learn about health care for society. Try that one out" with a search engine, he said.

He talked up Microsoft's search engine competitor Bing. "We may only have our little 11 percent market share but — vroom — we're keeping our heads down and we're hiring."

An audience member said in the Q&A session after Ballmer's speech that Microsoft has been late to the Internet and now with the cloud.

Ballmer said, "I think we're at the front or tending to the front. ... In the phone case and certainly in the search case we've got work to do."

Carlos Marin, a senior computer science student, said the talk was interesting. "Everything was based on the cloud which Microsoft is now focusing on." Marin got Ballmer to sign his mug after the speech.

Still, Marin believes Microsoft is lagging in other areas of innovation.

"I think they're always a little bit behind," Marin said. "Now they're doing Windows phone, which is going to be just like the Apple iPhone. They kick their butt a little."

Another computer science student, Erik Milneson, watched Ballmer speak from the third-floor balcony. "It was great," he said after the speech. He is excited about the shift to cloud computing. "It's individual computer power versus cloud computer power, and it's just so much more powerful and valuable."