Cloud computing provides a new mode of use and of offer of IT resources. Such resources can be used “on demand” by anybody who has access to the internet. The resources are offered in a “utility-like” manner by providers based on actual-use-based prices. It is expected that cloud computing will change the way how organizations will use IT and think about IT: ultimately, cloud computing may relieve organizations from owning their own IT environment. In this article we show that cloud computing can be seen as the next step in an evolution from isolated computers over clusters and beyond grids. We suggest a definition of clouds by abstracting their most important characteristics. The current set of cloud offerings is organized in a layered structure, and we propose an additional layer on top of that allowing to build applications in a composite manner (“composite as a service”). The distributed architecture of such composite cloud applications is derived by considering the structure of the individual services being composed. Finally, we argue that predefined points-of-variability are of utmost importance for cloud applications to be able to easily adapt them to the different requirements of the huge number of cloud customers.