Shifting to software being hosted online as services in the Internet "cloud" brings enormous economic potential as well as serious questions about protecting data, according to Microsoft.

Companies should know where their data is sitting in the cloud and be guaranteed that they dictate who accesses it and when, according to Microsoft.

"We want to take the initiative in regard to our position on privacy in the cloud," Microsoft senior director of privacy strategy Brendon Lynch told AFP.

Microsoft released a "white paper" on the issue in conjunction with an International Conference of Data Protection and Privacy in Madrid.

"Cloud computing does raise a number of important policy questions concerning how people, organizations, and governments handle information and interactions in this environment," Microsoft said in the paper.

"Privacy protections are essential to building the customer trust needed for cloud computing and the Internet to reach their full potential."

Sales of packaged software have long been at the heart of the Redmond, Washington-based technology giant's empire's fortune.

Rivals such as Internet superstar Google have been wooing consumers and businesses with email, document, spreadsheet, and other applications offered online as free or inexpensive services.

The cloud computing trend gained momentum during the economic crisis, letting businesses save money by essentially renting applications hosted online instead of buying, installing and maintaining software on company machines.

Microsoft has responded to the trend with "client plus cloud" offerings that combine traditional packaged software with features hosted as services online.

"The next generation of cloud computing has enormous potential to create new jobs and economic growth," Lynch said. "Cloud computing is a very significant change; it provides unprecedented scalability and flexibility."

Consumers and businesses need to be assured that their online data is guarded by "robust" privacy policies and infrastructures safe from intruders, according to Microsoft.

Cloud computing typically requires companies hosting services to have data centers in various countries and time zones, raising challenges of dealing with varying regimes, police agencies, and laws, Lynch said.

"Data flows are becoming more global but privacy laws are local," Lynch said. "The full benefits of cloud computing will not be realized if there cannot be harmony and consistency with regulation."

Lynch equated the ideal cloud computing host with a warehouse landlord, saying the job is to basically rent companies space for data and keep the structure secure while the tenant holds the keys.

"Generally speaking, the data is their own and we are just hosting the box they put it on," Lynch said. "If we were approached by a government authority to gain access, we would try as much as possible to redirect the legal process to the customer to let them decide how to respond."

(c) 2009 AFP