Toyota and Microsoft will build applications in Azure, which is Microsoft’s online development- and infrastructure-as-a-service platform. That means Toyota will pay for computing based on usage, won't have to use its own data centers around the world to deliver services, and will have scalable capacity without having to buy a lot of excess servers. Ballmer said it'll help Toyota launch services in emerging markets without having to add data center capacity.

But what will get really interesting about the Azure platform is who else Toyota lets onto it.

When I asked if Azure allowed anything new that wasn't possible without a cloud platform, Ballmer said (after first saying "everything's always possible with software") that it should make it easier to combine data streams from multiple sources. If a driver's really going to tell her car to charge overnight when the rates are lowest, that'll take combining data from the car with a data stream of electricity prices coming in from an energy company. That integration would happen in Azure.

Neither executive used these words, but in theory the Azure platform also could become something like an app store for a Toyota vehicle, letting third-party developers innovate software for the vehicles, if Toyota allows them.

Ballmer said the focus right now is to get the platform for delivering apps to the vehicle right. "If you look at the partnership, we're working on an enabling technology for Toyota Media Service to build a wide range of telematics," Ballmer said. "So getting the platform right opens up possibilities certainly to Toyota, to Microsoft, but also as Mr. Toyoda had a chance to say, also to other companies whom Toyota may choose to work in partnership with."

Microsoft already has a big stake in the auto business with the Sync platform, which Ford has made a major element of its marketing strategy. Sync, built on Windows Embedded software, is an in-vehicle software system that lets people connect their phones and music players to the vehicle, providing features such as voice-activated controls to answer calls, hear messages, and search for music.

Ballmer said its effort with Toyota is different because it's a cloud-based platform for delivering data to and from the vehicle--which could be to the car's in-dash navigation system, to a phone that's inside the car, or out to a PC or data center outside the vehicle.

This deal won't turn on the initial apps that Toyoda and Ballmer laid out this week. An app to monitor and control the charging of an electric or plug-in hybrid vehicle will be the bare minimum needed to bring those vehicles to market in 2012. To really succeed, the partnership needs to do what Mr. Toyoda describes: Make cars and trucks more valuable to their drivers by turning them into "information terminals."

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InformationWeek: April 25, 2011 Issue