With streaming video games becoming more common these days, especially with OnLive’s services and Sony’s PlayStation Now up and running on consoles, it’s pretty likely we’re going to see more companies jumping on board. And who’s up next? Perhaps Microsoft.

ZDNet has reported that Microsoft is hard at work on a new cloud-based streaming service called “Arcadia,” which would enable users to stream both video games and applications through a number of devices. The system would be based upon the company’s own Azure infrastructure, and is being worked on by a technological team within the company’s Operating Systems Group. The Arcadia codename may refer a United Earth Government colony in the Halo game, which perhaps hints at how this technology might be used.

This would replace the previously announced “Rio” technology, which the company hinted at during a meeting earlier this year. At that time, the company was about to get a demonstration of its Xbox 360 game Halo 4 up and running smoothly on a Windows device, while interacting with an Xbox 360 controller with very little problem.

With the service, Microsoft could effectively introduce the opportunity to provide backwards compatibility with the Xbox One console, similar to what Sony is doing now with its Gaikai-based PlayStation Now technology on the PlayStation 4. However, according to ZDNet, it’s capable of more than that.

Along with games, Arcadia could also make use of applications as well, enabling Windows and Windows Phone consumers to run Android apps and games without needing to download them physically to their devices. This would bring Android compatibility to Windows mobile devices, but it’s not known whether this will move forward even if it’s technically possible.

Microsoft hinted at a full-fledged cloud-based service long ago with a recent job posting in its Microsoft Careers section {link no longer active}, indicating that it was looking for a senior software engineer savvy in “non-MS platform (Android, iOS) experience.” No word yet on if a hire was made, but it appears that Microsoft is making progress. This raises the interesting possibility that game (or app) streaming could occur on iOS or Android devices as well as on Xbox consoles and Windows mobile devices and PCs. This appears to be more of a strategic business decision that Microsoft has to make, rather than one constrained by technology.

More information is likely to come next year sometime – perhaps even at E3, when Microsoft might surprise its growing Xbox One consumer audience with the announcement of the service, aimed primarily at games. We’ll see what the future holds over the next few months…