I have been following news about the upcoming PlayStation Vita handheld gaming system and, as its release date nears, I wonder more and more if its success will receive a similar lackluster release as the Nintendo 3DS.

The Vita is quite a technical powerhouse and looks like what the PSP should have been. And while it has an ample software lineup on release to avoid a lack of interest due of content, this new iteration is too little too late. The handheld gaming market has now expanded to include mobile phones in a very big way and the market that the Sony PSP and Nintendo DS once competed in has become vastly different.

The issues jeopardizing success are not due to a nonexistant market, but rather due to a nuanced market. In fact, the market for video games, is evident by the 24 hour, $400 million profit, Call of Duty: Modern Warfare 3 just raked in. The obstacle instead, is due to the advent of smartphones, causing the market for a standalone handheld gaming devices to become a bit redundant.

Adding to this hurdle is the young adult demographic the Vita caters to. It’s not that it doesn’t have titles for the younger audience, but with enhanced graphics, 3G connectivity, dual analog sticks, and multiple touchscreens it is certainly selling specs that an older market tends to care about. But this is a demographic that is already connected and invested in their smartphone. The key value of that last sentence being “connected.”

Take the recent success of Call of Duty. This was not a result of it having a profound story– in fact, the story is so fragmented and schizophrenic it’s sometimes hard to even get into. It did not sell so well because of groundbreaking graphics– it uses the same engine as the last Call of Duty and is certainly not the most visually stimulating game available in the market. No, Call of Duty sells because of its multiplayer. It is a game that breaks sales records and moves consoles because it offers a connected experience—an attribute that is very much an identifier of the mobile market.

Often, in both messaging and product development, companies miss the vital fact that no one switches for something they believe they already have. Sony might soon experience, as Nintendo’s 3DS has been experiencing, that the market might not have been pining for a new generation of handheld gaming systems, but instead might believe the phone that they own is the only handheld gaming device they need.

Everything seems to be taking an economic hit these days and the latest loser is U.S. videogame sales.

Should this be too much of a surprise? According to industry experts it should not. They tell us that the reason for the decline vs. last year is due to “a tough comparison from a year ago” when highly anticipated deep content games like “Grand Theft Auto 4″ and “Mario Kart” were released.

Personally, I think the market has been over-saturated with users. If so, growth in the future will be more dependent on deeper penetration with current gamers than with expanding the market to new non-gamers.

While Wii still is the largest seller of consoles in the US, its growth has slowed considerably. This is just another indication of a change in the tenor of purchasers. In these tough times, consumers are making choices about what they need vs. what they want, and so the purchases of new consoles and new games are therefore resultantly slowing. 

In real terms, discretionary income has not diminished all that much. What has changed is the way we spend that cash. To those brands that develop in the psyche of what drives purchase decisions beyond just talking about new and better, there is opportunity on the horizon. However, if you play the same old marketing game, as SONY demonstrated in its earnings last week, the future is not all that bright. 

Because consumers are demanding flexibility, non-compatible formats seem inefficient and cause customers to choose from what seems to be an artificial barrier. Sales skyrocketed when Apple switched to the Intel processor that enabled Windows users to run their favorite OS natively on a Mac. The same dynamic will drive the next big winner in gaming. There simply is not room in this economy for competing platforms. Look what happened to HD DVD and Blu-ray

Therefore, it would behoove the gaming industry to follow a few easy rules in this new economy:

1. Simple is better 
2. Compatibility is preferred
3. and the consumer is definitely in charge