Streaming like this makes the most sense for backwards compatibility. I know the tech seems pretty young and OnLive did bomb, but it has a lot more potential than people are giving it credit.
Everybody in the future will be doing something similar to this. It just makes the most sense from a hardware perspective. Making backwards compatibility on new hardware is costly for the R&D and then ups the price of the device. This is much easier as the device in question only has to run software, no need for extra hardware.
What killed OnLive was the price, lack of games, and general business strategy. Their target, PC gamers, didn't see any real benefit from having OnLive. Not only is there the issue of latency, but there was also the issue of price. Games were full priced on OnLive and you couldn't have a local copy of the game. It was marketed to the wrong people. PC gamers don't have as big of a need for backwards compatibility as there are entire services out there dedicated to getting older games to run well on modern PCs (Good Old Games being the biggest). Furthermore PC gamers were getting better graphics without the effects of compression.
With the consoles it's different. Backwards compatibility is an issue and this is a great way to solve that. Sony was pretty smart to pick up Gaikai and I'm sure Microsoft has something similar in development on their robust cloud network.
The issue again will be price. Nobody is going to want to pay a lot for a worse experience. I wouldn't mind paying a bit for game access for older titles, but that access will have to be permanent so in 10 years I can still play the games I purchased on the system on any platform Sony supports. So if the PS5 is out by then I can still use Playstation Now to stream PS3 games that I purchased. I would also love the ability to activate games I already have a physical disk for, or at least get a sizeable discount as I really don't need to buy the game again, I just need Playstation Now access of the game.
Anyways I don't think this is any sort of threat to Microsoft and they'll be showing off their own version of this soon enough. Backwards compatibility is great for nostalgia but doesn't really drive sales. We saw at the beginning of the 7th gen that the vast majority of new console owners didn't care about backwards compatibility. It's really more of a customer service rather than a selling point.
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