The question now is how it will package that technology and persuade service providers and enterprises to let Sun be their vendor of choice for the cloud.

"A lot of the enabling technology is there. It's how they are going to pull it together and take it to market that matters," said Jean Bozman, an analyst at market research company IDC.

CEO Jonathan Schwartz formed Sun's Cloud Computing division a few months ago and it now has several hundred engineers, Douglas said. Sun also hired Lew Tucker, who helped build Salesforce.com's online AppExchange, to be the division's CTO.

Sun sees three levels of cloud computing, Douglas said. At the highest level are software as a service applications such as Salesforce.com's CRM; in the middle are cloud development platforms such as the Google App Engine; and at the bottom are infrastructure services such as Amazon's EC2 (Elastic Compute Cloud).

Sun hopes to play a big role at the bottom two levels, Douglas said. It wants to provide the infrastructure that service providers like Amazon use to offer cloud services, but it may also offer on-demand infrastructure services of its own.