The transformation is now full swing. The paradigms are evolving. The rules have grown opaque. The old powers are chastised and humbled. The young princes fake humility. Now, they all pay obeisance to “the cloud.”

This is no fairy tale. This is about the gritty new reality in the world of high tech, of course. Once again, the technology industry is undergoing another of its periodic revolutions. It happens every 20 years or so: from mainframes to minicomputers in the 1960s, from minis to PC’s in the 1980s, from the desktop to the Internet at the dawn of this millennium.

Microsoft’s belated embrace of “the cloud” is a sign that the concept – broadly defined as information services provided over the Internet – is now fully mainstream. When Microsoft introduced Azure, its detailed road map for applications that work over the web last week, the biggest maker of packaged software ($61 billion in fiscal 2008) was conceding publicly that shrink-wrapped boxes may one day no longer be the best way to print money.

Although the tech industry loves to plunge headlong into the latest hot concept, the big guys know that this is going to be a long and painful process. With profit margins still running at 30 percent, Microsoft has plenty of time to figure out how to make money in the next era. And, of course, the idea of working at your desk with applications and files stored in a central location is hardly new to Oracle and SAP and Hewlett-Packard. Networks were the rule for the first couple of decades of the tech industry – until the PC triggered two decades of turmoil and chaos. But that revolution was fully domesticated by Microsoft.

Inevitably, dominance leads to rebellion. That’s when the new paradigm emerged. Continuous high-speed connections to the Internet spawned a revolution. What has made it different from the old mainframe-terminal paradigm of the 1960s and 1970s or even the client-server architecture of the 1990s is the power of the user; the user helps define the service while using it. And anyone has access to “the cloud”, not just those privileged few who were given access to a private network.

Whether you call it Web 2.0, SaaS, or the “cloud”, the new information structure depends on user input on a scale unimaginable just 30 years ago. Most computer users (and they were a minority of the population) worked before green screen terminals that ran programs stored in giant mainframes and minicomputers. The programs were rigid, requiring months or years to alter. Users had to book time in advance to do work and wait hours or days to see their results.

In the last two decades, the desktop PC has transformed itself from a simple replacement for that terminal into a powerful communications device, handling video, graphics, music, and voice as well as its original office functions. Now users expect colorful interactive programs, instant response and continuous improvement.

Revolutions anoint new heroes. In each upheaval, new players have emerged. IBM once ruled the world. Microsoft soared when it embraced its own Windows platform for applications faster than Lotus or WordStar, who had dominated the desktop in the DOS era. In the early part of this century, Google and Yahoo, Facebook and YouTube seized the advantages of the Web well ahead of Microsoft.

But heroes can weaken, or take their eyes off the dragon. Google is the brand most identified with the Web now, but the openness of the Web also limits loyalty. When he was pressed about Microsoft’s dominance, Bill Gates used to say the customer could always buy someone else’s software. Just in case, his company made sure customer options shrank each year.

No one can limit user options on the Web. The emergence of the netbook is a sign that the long-standing Microsoft-Intel axis is about to confront its greatest challenge. These new light and cheap notebooks just connect you to the web, so what operating system or what CPU they run becomes even less important. What you will actually use will reside on the Internet, not on the device itself.

And the Web itself continues to evolve in ways that can quickly turn even today’s current leaders into laggards. Consider for example, online video, which has exploded on the Internet. Research firm ComScore reports that Americans watched 11.4 billion video streams in September.  Besides threatening to choke the data pipes, such a surge opens new opportunities for video search leaders like Truveo (AOL) and Blinkx. It’s even made players out of the “old media” that were supposed to fade away gracefully. In September, Fox, Viacom, Disney, Turner and CBS showed up in the top 10 of video streaming, proof that even the grey heads can benefit from a technology shift.

So welcome to the era of “the cloud.” We’re in for a decade of blood and gore, lost crowns and shiny new thrones, bellows and screams, pain and triumph. Eventually, it will shake out into a new technology power structure with new borders, new players, and more than a few survivors. What fairy tale could match that?