For the tech savvy audience, the answer is clear: hardware, hardware, hardware.

Compare Apple’s 8GB iPod Touch for $230 to Sony’s PSP Go for $250: the former outclasses the latter in so many ways that the PSP Go is basically a joke at this point. Sony is sticking to the old console compatability model where they make one hardware spec and cling to it for 5-10 years for forward compatability’s sake (Sony has improved hardware since the original PSP, but negligibly so compared to the smartphone world).

What’s really ironic is that during the launch of the PSP and the PS3, most of the online community was ridiculing Sony for being too focused on fancy hardware and non-gaming applications instead of focusing on games and affordability, yet people actually wanted more dazzling hardware and non-gaming applications rather than sophisticated games and budget pricing. In Sony’s defense, the PSP definitely has better studio talent making games for it, and the main PSP-3000 model is definitely cheaper than a new generation iPod touch.

On the flip side, I can hear a lot people pointing to the Nintendo DS. If PSP’s problem is old, boring devices, why is the even more underpowered DS doing so well? Simple. Because the main market of the DS, in the US at least, is mostly parents shopping for toddlers and non-technically savvy kids. That crowd doesn’t want to deal with online services, they want something that’s cheap, durable, and has simple brand-recognizable titles that can pacify a hyper-active kid on long car trips and the like.

There are credible rumors of an Android/PSP partnership: if they can combine new bleeding edge devices and hardware with Sony’s top game studio efforts, that will be a winner. But if it is simply a compatability layer for existing PSP titles written for legacy hardware, it will be much less interesting.