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Apple appears to be preparing an all-out assault on the handheld gaming market, moving to snap up gaming industry insiders from Microsoft to go with its growing team of graphics-chip specialists.

News that Apple has poached Richard Teversham from Microsoft's Xbox business this week is only the latest sign Apple has gotten serious about the gaming business. Teversham, who was senior director for insights and strategy at Microsoft's Xbox Business, drove the "three year strategy for the Xbox business" in Europe, the Middle East and Asia, according to his LinkedIn profile.

Earlier this week Apple ( AAPL - news - people ) hired Bob Drebin, chief technologist at Advanced Micro Device's graphics group and the creator of the Nintendo ( NTDOY.PK - news - people ) Gamecube's graphics processor.

That move came as IBM ( IBM - news - people ) chip designer Mark Papermaster began his role as head of Apple's iPod business last month after a long legal tussle with IBM.

Apple is also putting some of its huge pile of cash into semiconductor technology. In December, Apple purchased 3.6% of U.K.-based ImagInation, licensing its PowerVR graphics technology. And last year Apple purchased processor designer PA Semi for $378 million (See "Apple Buys Chip Designer ").

Where will those investments be put to work? Apple Chief Executive Steve Jobs said in an interview last year that he plans to put his PA Semi designers to work building silicon for the company's iPhones and iPods. And while Apple keeps its hardware roadmap to itself, iPhone developers such as Damon Allison figure the iPhone and iPod's hardware will evolve in at least three areas.

First, the iPhone will almost certainly get a better camera and multi-media capabilities. That could unleash a new generation of applications that integrate video and still images into games and social applications, as Nintendo's new DSi has done.

Second, sooner or later the iPhone and iPod touch will get a new, faster processor, most likely an ARM-based design customized by Apple's in-house designers. The result will be snappier, better looking games.

Third, Apple will experiment with new form factors, launching a netbook or tablet computer that may use the same software that powers the iPhone and iPod touch. Such a device might be a terrible phone--it's hard to imagine shoving a 10-inch screen in your pocket--but it could be an ideal platform for games and social networking.

Of course, guessing what Apple will do next is a tricky business. The problem with Apple is that while it appears to plan long-term--keeping projects such as its 2005 shift to Intel ( INTC - news - people ) processors under wraps for years-- it says very little about even its short-term plans.

However, talk to a few of the thousands of developers who have flocked to build software for Apple's iPhone since last year and they'll say that Apple's instructions have always been very clear: Build your applications so that they're compatible with different screen resolutions and screen sizes.

"Apple has told us from the beginning to be sure to write our new software in a way that will accommodate different resolutions and screen sizes," Tapulus Chief Executive Bart Decrem says.

Translation: Today's iPhone applications will be appearing on bigger, sharper displays sometime in the future.

And those developers are building applications that are wildly different from the quick and casual games that have appeared on mobile phones in the past.

That's in part because of the device's lack of buttons. Neil Young, chief executive of gaming startup Ngcomo, is betting that the iPhone's touch screen can handle more complex, fast-moving games than are found on today's mobile phones or handheld gaming consoles possible. "You've got a lot more fine control," Young says. "It is a very precise interface."

So he's betting big on a pair of games based on genres that have had mediocre success, at best, on small gaming devices. "Live Fire," slated for later this year, is a fast-moving shoot 'em up. Then there's "Star Defense," a real-time strategy game where players protect a planet from swarming invaders.

Such games are certainly a preview of what's to come as developers continue to explore the iPhone's possibilities. They might also be the best hint at where Apple's hardware could go next.

Nintendo's Low-Tech TV Is Long On Charm
You almost have to feel sorry for Microsoft and Sony. After pouring powerful technology and all sorts of extra features into their video-game consoles, the comparatively simple Nintendo Wii and its cutesy family-oriented games proved the bigger hit with consumers. Now Nintendo wants to put pressure on its rivals with a dedicated video service, one that seems riddled with technological and content-related weaknesses but which might still win over consumers with its low-tech charm and demographic reach.

Nintendo's planned video-on-demand service--reportedly called "Wiinoma"--has some obvious disappointments. It is so far only slated for launch in Japan, potentially excluding a large chunk of Wii owners. Even if the service spreads to Europe and the United States later in 2009, don't expect to be watching favorites like Lost or The Wire straight away. Only videos exclusively made for the Wii will be available, with media firms like Fuji Television (other-otc: FJTNF - news - people ) and Nippon Television (other-otc: NPTVF - news - people ) reportedly planning cartoons, entertainment shows and other original programming for the launch.

The Wii console itself has its limitations when it comes to video playback, a sign that Nintendo (nasdaq: NTDOY - news - people ) never really intended to sell it as a mixed-media box. You can't play DVDs on the Wii, and its puny 512-megabyte storage memory is barely enough to store game downloads and save positions--let alone video footage. Trying to sell the Wii as a video-focused console will therefore be tough, no matter how many Japanese cartoons or cookery shows are available for streaming.

Compare this with the Sony (nyse: SNE - news - people ) Playstation 3 and Microsoft (nasdaq: MSFT - news - people )'s Xbox 360, which have trailed the Wii in worldwide sales since 2007. Both consoles can play DVDs, both offer movie downloads and both have online video stores selling television shows from the likes of Fox and TimeWarner. Hard-drive space varies, but customers can upgrade at their leisure or fork out for a big-memory bundle: the Xbox 360 offers a 120-gigabyte model, while the Playstation 3 can be bought with 160 gigabytes of storage space. Wii users are stuck with their 512 megabytes.

But Nintendo is no fool, and the company might find a different kind of advantage in a stripped-down, exclusive-for-Wii video service. Advertisers are already interested by the Wii's success, given that advertising agency Dentsu is launching the channel with Nintendo, and free-to-watch videos may end up doing more for the Nintendo brand and its products than pay-per-view movies and television shows would.

"Nintendo could have an advertising advantage," said Michael McGuire, an analyst with Gartner Research. "With the interactive nature of the games, you've got Wiis that are in homes and exercise classes, and that's a pretty interesting demographic."

Nintendo of America President Reggie Fils-Aime may have acknowledged that "Wii Fit" supplies will "fall short" this "holiday season," but that does not mean the 3.5 million balance boards lurking in living rooms are still seeing daily use.

Like any fitness program, it is suspected that most quit "Wii Fit" within two months. According to the Nintendo Channel--an online portal accessed through the Wii that is currently tracking some 1.3 million consumers--the average amount of time spent with the game is 15 hours and 41 minutes over 12 sessions. (See "How To Have Wii Fun.")

That is only a sample of "Wii Fit" owners, but one can guess that most of them are currently looking for some long-term storage for their oversized scale--at least until the Balance Board compatible "EA Sports Active" launches next March.

But don't be so hasty to find cupboard space. A wave of Balance Board compatible titles has hit stores this holiday season. Transform your Wii Balance Board into a skateboard, snowboard or toboggan with these Balance Board compatible games:

Sorry to spoil Santa's secret, but at least 2 million of you will wake up during the holidays to discover you're the proud owner of a shiny new Wii. During November, Nintendo sold an unprecedented number of consoles, reports the NPD Group, driving the total population of Wiis in the U.S. to 15.4 million. Nintendo's waggle-controlled consoles are now owned by some 20% of the U.S. population.

And of course you want a Wii; it is only the hottest holiday wish-list item since Hypercolor tees. And with the Wii's widespread appeal--bringing family members of all ages together for bouts of virtual tennis or bowling--its an easy gift everyone will enjoy. Kids want to be blasting away at on-screen targets with the Wii Zapper. Friends want to share their "Animal Crossing" experiences, live, over the Internet with the chat-capable Wii Speak. We all want to design our own Mii so we can watch its body inflate and deflate as we progress through "Wii Fit's" workout regimen.

It is not just the console, though, whose sales are soaring. The past two years have been a Battle Royale of sorts as consumers have stalked UPS delivery trucks and harassed GameStop (nyse: GME - news - people ) employees in the hopes of snagging an all-too-scarce Wii. With the steady influx of new owners, every old Wii game is new again. Unlike most videogames that, at best, have a three-month retail shelf life, six-month old Wii games still top the monthly best-sellers lists.

Personal trainer "Wii Fit," which was released last May, sold 697,000 copies this November. "Wii Play" is over a year old, but sold almost 800,000 units last month--rivaling sales of Microsoft's (nasdaq: MSFT - news - people ) Xbox 360. The six-month old "Mario Kart" sold over 600,000 copies. Conversely, the new "Guitar Hero: World Tour" sold less than half a million copies on the Wii.

"We are seeing a new paradigm where titles such as 'Wii Play' continue to perform in the top 10 month after month," says Cammie Dunaway, Nintendo of America's executive vice president of sales and marketing. "With so many new consumers discovering videogames, these titles are something they haven't experienced." Even "Wii Music," which had disappointing sales at launch, is "picking up steam," Dunaway says. That means Nintendo (other-otc: NTDOY.PK - news - people ) games are no longer constrained to the narrow "launch window" demand curve that the industry thought governed most videogame sales. And it puts Nintendo in the position of trying to craft new retail strategies to ensure its games remain visible amidst all the new titles popping out for the Wii.

That explosion of games creates something of a dilemma for new Wii owners. Some 306 games were released for the Wii console in 2008 compared to 264 for the Xbox 360 and 201 for the PlayStation 3, according to EEDAR's GamePulse database. This glut of content--much of which isn't very good--makes buying a Wii game a leap of faith. Publishers want to capitalize on the growing audience of Wii gamers, but few outside of Nintendo have learned how to make a good Wii game. The average review score for games on the console is 62 out of 100.

Nintendo products top Amazon's list of videogame best sellers.

You are going to get sick of hearing it: Videogames are recession proof. According to comScore, spending on videogame consoles, games and accessories also increased 9% during the first week of December. Meanwhile, sales of other home entertainment mediums--music, movies and videos--declined 24%. (See "Cyber Monday's Electronics Bonanza.")

What videogames grabbed the attention of budget-conscious consumers? Here were the hot sellers on Amazon.com (nasdaq: AMZN - news - people ) on Dec. 1, also known as Cyber Monday:

1. Midway's Game Party (Wii)

2. Wii Remote Controller

3. Wii Nunchuk Controller

4. Nintendo DS Limited Edition Pink Ribbon