We knew that Gaikai would be a key part of PlayStation's future when Sony bought the streaming video game company for $380 million this year. Now we have an idea of how Sony's just-announced PlayStation 4 will leverage the cloud. Dave Perry, game industry veteran and CEO of Gaikai, said the cloud technology will be used for everything from demos to localized cloud gaming to facilitating backward compatibility for older titles.

Storefront streaming

For one, the PlayStation store will use streaming tech so players can jump into a game instantly with the push of a button. The way cloud games work is that the actual game is hosted on a distant server -- not downloaded onto a local device like the PS4. "Try for free, share it if you like, pay only for the games you fall in love with," Perry said. He also stressed all kinds of social functionality. Partnerships with Facebook and Ustream will allow players to share content with one another.

Spectating and sharing

More interesting is how Gaikai will facilitate not just playing, but spectating between players. Players will use the share button on the new DualShock 4 controller to broadcast in real-time to friends. Friends can also interact with you while playing, and they can post comments to their screen, for example. Perry also said PS4 players will be able to virtually hand a controller over to a friend over the PlayStation Network, allowing that friend take over gameplay. It's that social aspect that was a theme during Sony's whole event tonight -- the company wanted to make clear that the new hardware is intended to facilitate social interaction between users of PlayStation products.

Remote Play and the second screen

Gaikai's tech will also be used for the second screen experience. The PS4 will be able to become essentially a game server with Remote Play, and the handheld PS Vita a client for games, as well as other media such as music and movies. Perry said the long term goal is to make every PS4 title playable on the Vita. He and game industry veteran Mark Cerny showed a real-time demo of the PS4 to Vita second screen functionality.

Backwards compatibility

Finally, Gaikai and Sony are working to make the PS4 backward-compatible with older PlayStation games. PS3 titles are not natively supported by PS4 hardware, but cloud technology can allow remotely-stored PS3 games to be played on PS4. Long-term Perry said Sony wants to put PlayStation 1, 2, 3 and PlayStation Mobile titles in the cloud so players can play them on Vita and PS4. "This would fundamentally change the concept of longevity," Perry said.