Windows Azure updates dominated the talk at the second day of Microsoft’s Build conference at San Francisco’s Moscone Center, following the announcement of a partnership with Platform-as-a-Service provider Engine Yard that will give developers more options for developing applications to run in Microsoft’s cloud.

Microsoft also announced that its Windows Azure Web Sites capability and Mobile Services are now in general release, with full enterprise support. The company also previewed its auto scaling service, which enables users to set up rules to dynamically grow or shrink the number of virtual machines running. This makes it easy to scale or downsize elastically for a better user experience, and saves money as well, according to Scott Guthrie, Microsoft corporate vice president in the developer division.

But the Engine Yard partnership took center stage, as Microsoft continued to show that its embrace of open-source projects and communities—as well as competitors—is more than lip service. During today’s keynote, there were demonstrations of an application being built for the iPhone using GitHub; compatibility with Google Chrome; and Box (a direct competitor to Microsoft’s SharePoint) running on Windows Azure.

“That shows the sort of openness we’re trying to embrace with Windows Azure,” Guthrie said. “We want to be a great platform for everyone.”

Through the Engine Yard partnership, Microsoft now can reach developer communities it wouldn’t normally attract to its platform, he said. Engine Yard cut its teeth in the Ruby on Rails world, but now also supports Node.js, PHP and other languages.

“We value choice, and our customers have been asking for choice. Specifically, they want Microsoft Azure capability,” said Bill Platt, senior vice president of operations at Engine Yard. He explained that the companies are taking a joint approach to reaching developer communities, with an eye to Engine Yard’s media and creative shops that do work on behalf of enterprise clients that want to deploy their applications in Windows Azure. “We bring a lot of open-source background to the table, and it’s a good combination with the more-commercial and the enterprise approach Windows Azure users have had.”

As an example, Platt pointed out that Engine Yard developers deploying apps into the Windows Azure cloud can take advantage of the Active Directory single sign-on capabilities and leverage the security it provides.

When asked if Microsoft’s goal is to host as many things as possible in the Windows Azure cloud, Guthrie said, “There’s an element of [wanting] to be able to host everything. But we’re focused on the cloud for the modern business. They have a lot of different needs. They want to run their business systems, integrate with a SaaS provider, do backup and dev testing, and we want to enable as many of those scenarios as we can.”

Engine Yard’s platform is expected to be available in the Azure marketplace by the end of July, according to Mark Gaydos, senior vice president of marketing at Engine Yard, which will enable Ruby on Rails developers to deploy their applications directly into Azure. Other language support will be enabled at some point in the future, he said.