It was revealed at E3 last month that Microsoft  was building a cloud gaming system. A report today calls that system Scarlett Cloud and it’s only part of Microsoft’s next-gen Xbox strategy. And it makes a lot of sense, too.

According to Thurrott.com, noted site for all things Microsoft, the next Xbox will come in two flavors. One will be a traditional gaming console where games are processed locally. You know, like how it works on game systems right now. The other system will be a lower-powered system that will stream games from the cloud — most likely, Microsoft’s Azure cloud.

This streaming system will still have some processing power, which is in part to counter latency traditionally associated with streaming games. Apparently part of the game will run locally while the rest is streamed to the system.

The streaming Xbox will likely be available at a much lower cost than the traditional Xbox. And why not. Microsoft has sold Xbox systems with a slim profit margin, relying on sales of games and online services to make up the difference. A streaming service that’s talked about on Thurrott would further take advantage of this model while tapping into Microsoft’s deep understanding of cloud computing.

A few companies have tried streaming full video games. Onlive was one of the first; while successful for a time, it eventually went through a dramatic round of layoffs before a surprise sale for $4.8 million in 2012. Sony offers an extensive library of PS2, PS3 and PS4 games for streaming through its PlayStation Now service. Nvidia got into the streaming game this year and offers a small selection of streaming through GeForce Now. But these are all side projects for the companies.

Sony  and Nintendo  do not have the global cloud computing platform of Microsoft, and if Microsoft’s streaming service hits, it could change the landscape and force competitors to reevaluate everything.