Microsoft and EMC converged in New York City on Tuesday to announce a three-year extension of their alliance to work together on enterprise virtualization, storage, security and content management products.The two tech giants are pushing the use of server and storage virtualization as a way for cash-strapped IT departments to better integrate technologies and save money. One major area of interest for both companies is cloud computing, in which computing tasks are assigned to connections, software and services over the Web. Microsoft CEO Steve Ballmer and EMC CEO Joe Tucci sat down with CIO.com's Shane O'Neill at the event to discuss the advantages and potential pitfalls of storing, securing and managing enterprise data in the cloud.Here are their thoughts on how the cloud will complement today's data centers.CIO.com: It seems cloud computing will take virtualization to the next level. I know it's early on in the cloud computing game, but how does the Microsoft-EMC collaboration to fit into both your cloud computing strategies? Ballmer: There is no question for either one of us that the way both software and storage wind up constructed in the cloud will have different characteristics than what we have in the enterprise today.I think the new solutions that get pioneered in the cloud will also get retrofitted so they can be run on-premises by customers, because no customer is going to have everything in the cloud. People are going to have these kinds of mixed environments. One of the big areas of collaboration for us over the next couple of years is, as EMC pioneers what it's thinking about storage, and as we pioneer where we're going with products like SQL, Exchange and SharePoint for the cloud, the real onus on us is to bring that back together, both in the cloud and for customers in their data centers.Tucci: At the heart of our partnership is the belief that the big winner will be what Steve and I call the hybrid model. It's where customers aren't forced to put everything in the cloud. We think it's a combination of putting applications in your own data center, and then use the cloud to take out peaks, or you could put specific things in the cloud. But customers want that option, for existing applications and for applications that they'll build in the future.Ballmer: And there are some things they might not want to put in the cloud for security and reliability reasons. I don't think we're going to find the NSA [National Security Agency] putting a lot of stuff in the cloud the day after tomorrow. So, you've got to have these kinds of hybrid solutions.Tucci: And the choice. There will be a way to federate and work across the data centers of today, and the clouds that are in the service provider spaces. Microsoft will have a cloud, and we have a cloud today for PC backup. But they've got to work together, and we're firm on that. CIO.com: Do you feel that whenever cloud computing becomes more prevalent, you're going to have to step back and re-evaluate the way you help customers manage data?Ballmer: The answer is we're re-strategizing now; we're re-architecting our software, and Joe is re-architecting his software and storage infrastructure, so that's going on.You get the hybrid model that Joe described, but you also have to ask this question: Let's say the world was predominantly in the cloud, do you think any one company is going to run the cloud for most of the world's IT? I claim the answer is no. I claim that even if it's one cloud architecture, you're going to have multiple people running it. Not everything is going to be in a Google data center or a Microsoft data center or an EMC data center. There are going to be people who provide a range of services, which essentially means even the cloud looks a little bit like the on-premise opportunity, because when somebody puts together a cloud-based solution that's not Microsoft or Google or EMC, they're going to want components that come from companies like ours.I think if we can get the hybrid model that Joe describes correct, we can do almost anything well together, because you have a solution that's repeatable, can run in the customer's data center or a third-party cloud provider's data center or a Microsoft data center, or an EMC data center.Tucci: I couldn't be more convinced that what I call this hybrid model is going to be a winner. We both invest a ton in R&D \u2014 Microsoft a lot more than we do. But again if we can work effectively, because storage is going to be important in the cloud and security is going to be important, and virtualization is going to be important, and Microsoft has got its bets in what it's doing in those areas, and if we can collaborate and give customers this kind of federated experience, I think we'll be ahead of the game.CIO.com: What are some of the fears that your storage customers have about storing data in a virtualized atmosphere or eventually in the cloud? Tucci: Well, I think the big fear is security. You've got two things, which kind of cross each other. You've got privacy and security. This is going to sound crazy but they're slightly the same and slightly different, and I think it's around those two issues. Ballmer: I think you're right, it's sort of psychological. Even if when we have cloud solutions, there's something about physical control that makes people feel very, very comfortable. And on our cloud-based stuff, the guys told me there are five or six layers of security. We're doing it as well as we know how to do it, and probably doing it better than many of our customers will do in their own data centers. But at the end of the day if your data is physically unavailable to other people, that will give a certain layer of confidence, and I think that's going to be the case for a while, particularly for apps that are viewed as, quote, mission critical.