Microsoft is in the process of building its own cloud gaming service not unlike Sony-owned Gaikai. The goal of the yet-unnamed project is to stream games to Windows devices including the PC and Windows Phone according to sources familiar with the project as reported by The Verge.

Sources say company officials recently demonstrated an early version of the service during an internal company meeting. Microsoft was able to stream Halo 4 on a PC and on a Lumia 520 smartphone from the cloud. The game reportedly ran smoothly on both devices as Microsoft managed to get latency down to just 45ms on the phone.

Microsoft reportedly used an Xbox controller tethered to the smartphone via an accessory to control the on-screen action. Perhaps an accessory of that nature might accompany the launch of the cloud gaming service at some point in the future.

If you recall, Sony purchased cloud gaming service Gaikai for $380 million a little over a year ago. The service is similar to OnLive in that it allows gamers to play top-tier games on demand using hardware that typically wouldn’t be powerful enough through the magic of remote servers and streaming.

Sony is hard at work preparing their cloud-based gaming service based on Gaikai technology. At last check, PlayStation Cloud was said to arrive on the PS3 and PS4 sometime in early 2014. Given the prototype state of Microsoft’s project, Sony likely has a substantial lead time and will make it to market long before Redmond does.