Today it usually does. As I said, though, since green-field development is required either way, there is nothing preventing the 'cloud' from being client-side encrypted, and there is also nothing preventing it from being open. (Well, other than political inertia, but I'd hate to see that compromise a technically superior solution. :/) Think of ownCloud...
Yeah, as long as companies can profit from mining your data, the wealth of cloud services will be built that way. And consumers' obsession with "free stuff" only encourages it. I've played with ownCloud extensively, though Sandstorm.io is the new hotness that I think has a lot of potential down the line.
