In the world of techno-toys and gadgets, it’s easy for companies to think that taking cutting edge hardware and wrapping it in an elegantly designed package will go a long way to making their product successful.

That was clearly what Sony had in mind when they built the PlayStation 3. Their PlayStation 2 game console was the undisputed market leader, easily besting both Microsoft’s original XBox and Nintendo’s Gamecube. Sony wanted their new console to deliver a knockout blow to their rivals, and went all-out on both hardware and design. They took the incredibly advanced “Cell Processor” multi-core CPU (developed jointly with IBM & Toshiba), a custom graphics chip set developed by nVidia, a RAMBUS designed memory interface, and a BluRay disc player for both games and movies, and packaged it in a sleek, curved, glossy case offering digital audio and HD video as standard features. It was a far cry from the boxy, plastic look of consoles past. Sony was so confident in the PS3 that they were willing to give Microsoft nearly a year lead in the market with their XBox 360 – and a $100 price advantage – to make sure they could bake all of this technical goodness into their console.

And they didn’t even consider Nintendo to be in the competition.

But to the surprise of many people, things haven’t worked out quite the way Sony planned. In fact, neither technical firepower nor case design have proven to be a factor in the success of any of the current generation of gaming consoles.

So how have things turned out in the marketplace?

Sony’s PS3, the most powerful of the three main gaming consoles, takes third place with 20 million units sold. Microsoft’s XBox 360, built using high-end but more mainstream components, takes second with a little under 30 million units sold. Claiming first is Nintendo’s Wii, a relatively modest technology platform estimated to have sold somewhere between 35 and 40 million units.

In short, low-tech and boxy handily beat hi-tech and sexy.

While price may play some role in this – the Wii sells for just $249 compared to $399 for the PS3 – I don’t believe it’s the main factor behind it. Microsoft lowered the XBox 360′s price to $199 almost a year ago but hasn’t seen any real gain in market share as a result.

What really propelled Nintendo from also-ran to market leader was their decision not to fight the battle on Sony or Microsoft’s terms. Instead, they decided to risk everything on an unproven, innovative design with the potential to shift the market in their favor. While both Microsoft and Sony built their consoles with the traditional hard-core gamer in mind, Nintendo choose to focus on expanding the gaming market to include an entirely new demographic – casual gamers.

Nintendo’s innovative wireless Wii controller changed the nature of console gaming. It swapped out complex button presses for intuitive gestures. It turned traditionally sedentary game play into a physically challenging social activity. It created a buzz that helped them build awareness and momentum. It gave game developers an exciting new model to design games around. It promised a whole new way to look at gaming.

And most importantly – it delivered on that promise…

Nintendo’s launch of the Wii console is a case study on the power of disruptive innovation. They were able to jump from last place to first, with their Wii beating out two technically superior products funded by companies that placed massive marketing muscle behind them. But despite it’s success, Nintendo can ill afford to become complacent. There is a new competitor with an equally disruptive approach now entering the gaming arena.

Apple…

Gaming on Apple’s iPhone and iPod Touch is really starting to take off. Apple has already sold over 30 Million of these devices, all of which are capable of playing fairly innovative games based on multitouch and motion sensing.

Apple’s approach to gaming is unique and compelling for more than just the innovative interface their devices offer game developers. Each iPhone and Touch comes with a built in software storefront – the App Store. The App Store lets any user shop for software right on their device, buy it with a single click, and have it downloaded in a matter of minutes. Apple handles all of the fulfillment and administration associated with the transaction for a percentage of the sale price. This gives even individual developers a way to reach a mass audience – all they need is talent and a great idea. It democratizes console game development in a way that no other platform vendor has attempted to do.

Apple’s approach to gaming will also let them grow the audience for gaming to what I’d call the opportunistic gamer – someone with a few minutes to kill while waiting in a line or sitting in a cab. Both the iPhone and Touch are multifunction devices you are likely to carry with you all the time, making them ideal platforms for this type of gamer. And as a potential marketplace, the opportunistic gamer probably represents the the biggest demographic ever targeted by any platform.

At the end of the day, success in the gaming arena will depend on innovation. This innovation can happen on many different fronts – technical, social, and commercial. We are just at the beginning of what will likely be a period of rapid innovation in the gaming world. Some will be evolutionary. Some revolutionary.

And a rare few may be disruptive enough to transform this entire industry…