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kowenicki said:

Totally different of course.

Streaming is where everyone will go eventually, that way they can monetize backwards compatibility much better.

Gaikai is, first and foremost, a better way to make money than backwards compatibility,

I can't disagree with you more.

Emulation is absolutely necessary as a going forward effort for Microsoft if it wants to offer backward compatibility.  

How are Sony or Microsoft going to offer an online service like PlayStation Now (Gaikai) without emulation?  A data center full of PS3s or Xbox 360's?  No.  It's proposterous.  The long-term viability of that type of service would be impossible to predict because the failure rate and supply vs. demand for the service.   Your hardware doesn't last forever and the supply of it is decreasing against the potential for a high demand.  You have to emulate.

Whether or not Microsoft offers consumers an Xbox or Xbox 360 emulator is an interesting question, but an Xbox 360 emulator is financially imparative to Microsoft so that it can not only offer a service like PlayStation Now, but it can do so without a 1:1 ratio of hardware to user.  With emulation Microsoft would be able to serve more than one user to a server, subsequently driving down the cost of the service, while ensuring the supply meets demand.  As well, there is no question as to whether or not the hardware will be available three, five, ten, or twenty years down the road.  The emulator exists and as long as it's maintained to be compatible with existing hardware the emulator will exist.

I know you or someone else will suggest recompiling software, but that's often an impossibility with developers going out of business or source code going missing.  While Sony or Microsoft could ask a a developer/publisher to reissue a version for them that provides a console overlay, so a PC game looks like it's running on the respective console, that's an expensive task as well as not always possible. 

While I would personally like local emulation, rather than through a service, I firmly believe emulation is absolutely necessary for both Microsoft and Sony.  Especially when you consider they only have a few years before their respective consoles won't be available.  Yes, I'm aware that they'll still have the ability to produce them, but the cost of manufacturing them will make them profoundly more expensive than they currently are.