Customers often aren't willing to trust all their applications to a cloud vendor, Nadella noted. While a company might host a website on a cloud service, the same company may keep its core billing system in-house. This is due both to performance and concerns.

Nadella said the industry needs "great encryption technology for anything that is moving over the wire," adding that: "I think security will remain a big topic for the industry at large. But it's not just a cloud issue. It's an issue for anyone with any type of network."

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in Network World's Cloud Computing section.