Ok, this will take a while... damn you, quoting system!

"Gaikai host a game instance on a server, then streams the video to a client. For each person who wants to play a certain game, an instance of that game is created. Think of this like having multiple virtual machines. For example sake, lets say 5 virtual or even hardware machines each one running a version of windows and either sharing or have its own vid card. So when a users request a game, the virtual/hardware machine spins up an instance of that game. Software behinds the scenes take the outputted video, compresses it and streams it to a client. There is software on the client end that docompresses the video, and display the results while capturing input data and sends it back to the server. The software does not perform any computations of game code nor does it distribute it resources among multiple different servers."

Ok, Sony said you would be able to play ps3-games. To me there is no virtualizing. They would need an emulation of the ps3 in some way to make this scalable which I don't see. They will, in my opinion, need exactly one ps3 for every user who wants to play a ps3-game. There is no "sharing" as the hardware is too specific, Cell and

"Cloud Compute execute code or jobs like your CPU/GPU would natively on your console. Think of how the Cell processor works. Developers create multiple jobs which are just snippets of code that they send to the different cell processors to work in parallel. The Cell processor works on each code independent of the other processors and sends back it's results. From here the main processor takes the finished code and deliver the results depending on what was calculated like, AI, physics, lighting you name it. With cloud compute, MS is able to leverage thousands of servers each having a number or processors and each processor able to execute multiple threads.  The way that MS cloud platform works is that all of these resources are virtual.  They are not tied to any particular hardware for fault tolerance.  "

First, no, the cell doesn't compute independently, because they have common ressources the spus have to share.  But anyway this is not what you can "off-load" because bandwidth and latency are magnitudes better than whatever internet you will have. What you are trying to say is not possible because the computing units need data fast - in time and amount.  If it would be that easy they could also build a system with a pentium2 and offload everything to the cloud. Local hardware wouldn't be necessary at all (even with dedicated hardware). Also 300k servers would be way too less for the amount of users they are expecting.

People have stated that why would MS go down this route when you have games able to do the calculations upfront.  As I was doing a little digging on my break. I stumble on this intel project to do ray tracing using cloud compute.  The article presents some interesting ideals on the type of rendering techniques that could be performed on the cloud that you would not see within your current or even next gen console.  Here is the link

http://software.intel.com/en-us/articles/experimental-cloud-based-ray-tracing-using-intel-mic-architecture-for-highly-parallel"

As I understand it they are talking about the benefits of calculating of calculating in the cloud and offering a stream of this to the user: Gaikai/Onlive.

This is different to what MS wants us to believe.

Yes, I read the articale all the way through.  Do not forget that they are not using a compression scheme like H.264 but Dxt. They are not using the more bandwidth/latency technique like the Tiled Based rendering but the scene based one.  They do mention the different compression schemes and do remember that the X1 has dedicated hardware to perform those actions.  Also the article is a proof of concept and more than a year old.  I use it as a means to show the different rendering techniques that could be implemented by using the Cloud that is not realistic or possible on current or next gen hardware.

 Also this is not similar to Gaikai as Gaikai host a game instance on a server.  Gaikai cannot split different processing of a game code like this solution as Gaikai can only just execute a game just like you would on your PC. The games are run as if you ran them on your PC and they are not distributed amoung other servers for load balancing or distributed work.  Also Gaikai cannot change the rendering, physics, lighting or AI of a game which this solution would.  The only simlar part is how the fame is sent to the client machine as a compressed video.

The Intel implementation  is actually running game code which is the rendering peiece on multiple servers.  Its distributing the work amoung multiple servers.  As the artile states, it takes either a piece of a frame and distribute them or it can have each server process individual frames.  This is eactly the type of setup MS is talking about.  MS cloud compute can take individual code and execute them amoug multiple servers.  It can split the task and create new instances to process the work.  MS cloud compute can be the rendering engine just like this Intel demo or it can process, other parts of code.  All of this is done based on the AI Intel created for their rendering engine which probably would like the Orleans setup within within Azure.

Think of this demo as an example of MS cloud compute actually rendering a scene within a game using cloud compute and ray tracing.  It doesn't stop there as mentioned witin the article, other highly CPU intensive task like Voxels or point rendering could also be done using cloud compute.  I guess the key is that Developers will have a host of options on the rendering from besides the ones mentioned within the EG article and given into the hands of talent developers could prove impressive. 

There are other articles on doing raytracing over the cloud including MS Azure being the platform for Pixar rendering farm.

I totally agree.  I would love to see how Sony is able to have Gaiikai play PS3 games when they get the system setup.  The only way I can see them doing this is to have a PS3 setup also for each gamer as emulation would be too slow.  I can see racks of PS3s within a datacenter who knows, with the XI basically being a PC , MS might actually be literally creating Xi ranks within their datacenters so developers will have 3 of those babys for each XI sold.

But how would cloud compute solve the problem of 800 man fleet battles? It's the client struggling to render all the data that's coming from the server. Or your connection not being able to keep up with the amount of data the server is sending.
MMORPGs mainly have a limited player size to protect for overcrowding. Throwing everyone together on a distributed server system is not rocket sience, not having 10k people come to the same area so all the clients crash is the problem. Like the good old days of staring at the floor trying to navigate the Bazaar in Everquest, look up and the sight of hundred's of player traders brought any client to it's knees.

The only solution is to switch to an OnLive/Gaika type solution where the data stream and effort on the client side are constant at the cost of a bit of extra lag.

They don't need the whole ps3 ofcourse, racks of ps3 motherboards networked together would be sufficient. Big promise anyway, huge expenditure. Maybe not needed for all games, can psn games run on an emulator perhaps?
I would not want to use it for gt5 or wipeout HD or anything else that requires quick responses. Lag would kill those games. Maybe they're banking on people quickly getting bored of it... E3 can't come soon enough.

In EVE it's not the client that is the bottleneck, it's the server because of the computations of lots of ships, physics, modules, etc. going on at the same time.  Maybe true in other MMORPGs, but EVE is pretty light client side, and in fact EVE will slow down time server side to keep up with the calculations.  Just having a distributed server model might have made it go more smoothly to scale up demand when there is a huge spike in system.

But psn-games are ps3-binaries, too. If you can emulate psn-games you can also emulate other ps3-games. And yes, games that require quick responses seem very unlikely playable to me.

Maybe some were made with a different SDK with an abstraction layer between the hardware and the software, a ps3 DirectX or something. That would make emulation a lot easier. Some might not even use the spes at all. And I guess it shouldn't be too much trouble for Sony to ask for the source code and recompile to a different binary.

The thought of producing tens of thousands of ps3's for streaming seems so horribly ineffecient. Although after googling ps3 supercomputer, I guess it is quite feasable... They didn't even bother to produce the boards seperately. All those wasted blu-ray players, wow.