"The icing is the license acquired for the software application, which are ready, but the basic cake still has to be developed," he said, adding that the adoption of cloud computing was increasing with time.

Pay as you use
The emergence of cloud computing could also usher in a paradigm shift in the revenue models of IT firms, requiring them to shift to a pay-per-use model from their current model of annual or bi-annual contracts.

"Clients want somebody who can put the money to build hardware and product capability, bundle it as a service and make it a pay for use kind of model," V. Balakrishnan, chief financial officer of Infosys, said at the summit.

Cloud computing removes the technology and the investment risk for clients, giving them a pay-for-use model which is a preferable, clear, variable cost structure, Balakrishnan added.

Web-based business software sales are growing briskly, with SaaS sales outperforming traditional software as the economy worsened.

Gartner Research now expects 2009 SaaS sales to grow 18 percent to $7.5 billion. The SaaS market is expected to grow at an average annual rate of 19.4 percent through 2013, easily outpacing the projected growth of the overall business management software market.

With such attractive growth rates, the Indian firms' larger rivals, like IBM Corp, Hewlett-Packard Co and Accenture Ltd, are increasing their presence in the cloud.

While hardware firms like IBM are setting up centralized cloud computing centers across the globe, the likes of Accenture are partnering with Microsoft to build applications with cloud capabilities.

Big names such as Amazon, Google and Microsoft also deliver a range of pre-packaged software services, while hot web companies like Facebook use cloud computing to deliver services.

However, as with any new technology, teething problems such as acceptance by clients, large-scale adoption and start-up costs are likely to arise.

"The profit margins may not be too good and may be lower in the initial phase of the business," said Gupta of IDC India.

"But as the number of customers increases, the profits will increase and may even be better as compared to traditional IT services models, because of the economies of scale realized from a shared resource pool."