Virtualization & Cloud Computing – Where to start

1. Virtualisation is basically one physical computer pretending to be many computing environments; cloud computing is many different computers pretending to be the one computing environment, hence allowing easier scaling. Of course, the cloud computers will usually be virtualised to optimise the use of resources. Both, however, can be considered forms of abstraction.
2. It depends on what you are measuring as the cost - for raw hardware it may be about the same but in commercial environments there is usually one administrator per forty servers but for the cloud that goes to one admin for 1,000 servers, so there is a labour cost. What a lot of people are buying with cloud is not just raw hardware but a computing platform, so the cost of the software is also offset. The real value propositions here are commodity pricing - you can start up without needing large capital outlay for servers, just a low monthly fee making it easy to get started - and flexibility - being able to scale up and down with varying demand. For example, the tax department servers get massively hit at the end of the tax year but are almost unneeded for the rest of the year. It would be wasteful for the tax department to have enough server capacity to handle the end of year load and have those servers sitting idle for the rest of the year.
3. It depends on what type of cloud service you are buying - raw infrastructure (such as hard disk space), platform (such as a virtualised server or cluster) or an entire cloud solution. Developing for a cloud vendor's API will require you to re-architect and re-develop your solution.
4. Cloud computing is a strategy, not a goal in its own right. If the benefits of the strategy align to your business needs then it may be the right solution but if you don't benefit from the attributes of cloud computing - flexibility to alter resources according to demand, commodity pricing (whether for you or your customers), or the ability to offer access to your systems to customers without requiring administrator assistance - then you may be better off just running your own servers, particularly if you simply have stable, long term demand.
5. The question here is does on-demand scalability justify the development cost for you?
6. REST and cloud aren't really very different in this scenario - they are both an API to a system that is scalable. The major difference in this scenario is that to scale it, you have to buy the next server and configure it whereas to scale the cloud solution you simply turn on another of your cloud provider's resources.
7. Again, this is up to you to decide if cloud storage offers advantages to you above and beyond a Sql database.
8. Control of your data is probably one of the biggest impediments to many systems going cloud. If your data is crucial, sensitive and private, then hosting it with a third party may not be an option, regardless of any other benefits.
9. The costs of one technology over another is just part of what you have to consider. Maybe hosting in the cloud in the short term is attractive because you can test the market for your service without buying large server farms. Once the demand has been verified, then you make the capital investment in servers.

Cloud computing isn't magic, it is a technology solution to a very specific market need - if you don't have that need, then you probably won't benefit from cloud computing.

Virtualization is convenient for cloud computing for a variety of reasons:

1. Cloud computing is much more than a web app running in IIS. ActiveDirectory isn't a web app. SQL Server isn't a web app. To get full benefit of running code in the cloud, you need the option to install a wide variety of services in the cloud nodes just as you would in your own IT data center. Many of those services are not web apps governed by IIS. If you only look at the cloud as a web app, then you'll have difficulty building anything that isn't a web app.
2. The folks running and administering the cloud hardware underneath the covers need ultimate authority and control to shut down, suspend, and occasionally relocate your cloud code to a different physical machine. If some bit of code in your cloud app goes nuts and runs out of control, it's much more difficult to shut down that service or that machine when the code is running directly on the physical hardware than it is when the rogue code is running in a VM managed by a hypervisor.
3. Resource utilization - multiple tenants (VMs) executing on the same physical hardware, but with much stronger isloation from each other than IIS's process walls. Lower cost per tenant, higher income per unit of hardware.