According to Microsoft, Visual Studio Online uses the same code as Team Foundation Server, with minor modifications, and implements the most recent features. VSO requires no setup. A user logs in using a Microsoft Account (previously called Windows Live Account) to begin application development. The main differences between the VSO and TFS involve customization and extensibility. For example, the on-premises version allows organizations to customize process templates, while VSO does not.
The nature of the cloud allows some cloud-based capabilities that TFS does not have. These include an automatically scalable build farm (TFS users must configure build servers, whereas these are readily available in the cloud) and virtually infinitely scalable load testing (TFS requires configuration of each machine used for scalability testing). Finally, new features developed in three-week development cycles are added to the cloud version first. These features migrate to TFS as updates, at approximately three-month intervals.
On 13 November 2013, Microsoft announced the release of Visual Studio Online, a software as a service offering of Team Foundation Server which would be hosted on Microsoft Azure.