THIS POST REQUIRES AN UPDATE WITH CHANGES MADE TO SQL AZURE
For anyone that doesn't know what SQL Azure is, it's essentially SQL Server hosted in Microsoft Data Centers and accessible via the internet. Throw the word cloud in there if you want the executives and sales guys to listen. A competing product would be Amazon's SimpleDB.
SQL Azure is cool. No doubt about it. In a matter of minutes I can provision a SQL Server database somewhere in the ether and connect to it from my machine using the same familiar tools like SQL Server Management Studio and Visual Studio. Reporting Services has a SQL Azure connection type and SSIS allows for SQL Azure sources and destinations using ADO.NET type connection managers.
The benefits of having your database be a SQL Azure database are almost in lockstep with anything "in the cloud." You don't need your own hardware, you get high availability, no software patching/updating, etc. All that stuff becomes someone elses responsibility. Additionally you get scalability and you pay for only what you need. In the traditional, on-premise model of hosting your own database(s), if you have a business where you need to support peak load that only occurs a few days or weeks out of the year you have to pay for that horsepower in both hardware and software licensing costs. Move those same databases to SQL Azure and now you have a platform that scales to your needs on-demand and you only pay for the resources consumed. There's no doubt in my mind that this model will become ubiquitous just as virtualization has become over the years.
So let's move all of our SQL Server databases to SQL Azure! Well, not quite yet. There are some major limitations that will keep 99% of "real" applications off of this platform in the near-term. My biggest "deal-breakers" are listed below.
Database Size Limitations
SQL Azure databases are limited to 5GB for Web Edition databases and 50GB for Business Edition databases. Of course there are plenty of databases that might fall within these limitations but I wouldn't want to risk my job on deploying to this platform only to hit this limitation and have a catastrophe on my hands.
No Windows Authentication
The platform currently supports only SQL Server logins. Intuitively that makes sense since the server doesn't live in your domain but this can become painful if you're an organization that has standardized on using Windows authentication. It might also mean major rework of existing applications that rely on user-based permissions.
No local restore of backups
This one kills me and I think many others as well. While you can now restore a database to another SQL Azure database you cannot bring a backup to your local environment and restore it on a local server. I imagine this could make things rather difficult. Microsoft recommends trasferring your database locally by using SSIS. No thanks.
No Replication
For a lot of organizations this might not matter but if you are an organization that relies heavily on replication you simply can't move a subscriber or publisher out to the cloud.
No SSIS, SSRS, or SSAS
These services are not available on the SQL Azure platform. I would expect that they will be at some point but if I was a betting man I wouldn't put any money on them coming anytime soon. That doesn't mean you can't use these services on local servers while consuming Azure databases but this could hurt your bottom line. I know plenty of organizations that run any combination of these services on one physical machine without issue. So now if you're paying for the hardware to support SSRS why pay a subscription fee to move your database out to the cloud? Maybe you can make some arguments around high availability or scalability for you relational engine but if you're running them on the same server to begin with then these are probably not a concern.
Lack of Profiler
You can't attach a profiler instance to a SQL Azure database. That could get rather dicey when trying to track down all sorts of issues. Seems scary to me. There might be alternative but I'm not aware of them.
Bottom line: SQL Azure is cool, it will mature to the point that it will begin to become adpoted, but it ain't quite ready from prime time.
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