For businesses, there's a full range of offerings. Hosted email is the most popular but it's possible to use Microsoft Office tools completely on the web as well. Companies can deploy applications on the web via Azure and even some or all of their computing infrastructure in managed datacenters. Major enterprises have already signed up to do just that.
For consumers, they can use the new and improved Hotmail or Live email and even create their own domain name for free. Your favorite Office applications are also available as web applications.
While Google gives you a their cloud or nothing proposition, Microsoft allows business and individuals to chose where they want to use their applications and where they want to store their data. Companies can even deploy a Microsoft based cloud infrastructure within their firewall and integrate their in-house datacenter with a Microsoft or partner (think HP/Dell/IBM/Accenture/Etc) datacenter.
Here's some links to the above:
Microsoft On-line offerings for business: http://www.microsoft.com/online/
Microsoft Infrastructure and Development for the cloud: http://www.microsoft.com/windowsazure/
Microsoft Office in the cloud for consumers: http://www.officelive.com
Good, because I wouldn't trust it with Microsoft. These are people who think it's okay to upgrade a SAN infrastructure without having a backup. T-Mobile customers were pissed!