Tired of having their market share siphoned off by electronic gadgets and video games, the toy industry seems to have adopted an ‘if you can’t beat ’em, join ’em’ attitude. Tech had an impact on just about everything at Toy Fair this year, from light and sound applications souping up traditional playsets, to a stampede of animatronic pets.

The tech toy takeover came as no surprise to NPD Group entertainment analyst Anita Frazier, since this category was largely responsible for propping up toy sales in 2004. Cornering slightly more than US$1 billion in sales, youth electronics and handheld tabletop games brought in 46% more dollars last year than in 2003. Red-hot performances from SKUs such as Wowee’s Robosapien and Hasbro’s VideoNow have triggered a sharp increase in retail interest in higher-tech offerings, and toycos are doing their best to meet this demand. ‘It’s largely a reaction to the fact that kids are spending more time with video games and consumer electronics,’ says Frazier. ‘Toy companies want to tap into that trend to keep kids involved with traditional toys.’

The sophistication of the cell phone market is reflected in Mattel’s new My Scene Nokia SKU (US$50), which hits shelves this summer. The phone comes with 30 minutes of prepaid airtime, and girls will be able to download free ringtones, wallpapers and games from the My Scene website.

Hasbro is firing back with its ChatNow Communications System (US$75), a set of two devices that build on walkie-talkie technology to let kids talk and send text messages and black-and-white photos to friends within a two-mile range.

Not to be outdone, MGA is launching several new consumer electronics SKUs under its Bratz banner this fall, including a portable DVD player (US$149.99) and a 256-megabyte MP3 player shaped like a lipstick (US$79.99).

But tweens aren’t the only demo getting hit with a barrage of teched-up product this year. TekNek is targeting preschoolers with its CoolP3 player (US$29.99), which holds an hour of music and four playlists and comes with a remote control for adjusting and locking the volume setting. ‘Kids are demanding the real thing, but parents don’t want to drop US$300 on an iPod or an expensive cell phone,’ says Reyne Rice, a toy analyst for the Toy Industry Association. ‘These products have a similar payback, but they’re not going to set them back as much.’

As the cost of producing computer chips continues to come down, toycos have been able to add increasingly sophisticated interactive elements to their products without shrinking their profit margins. This axiom was apparent in the animatronic pet category, which is flooded with new lines this year.

Several companies are offering robotic puppies that whimper and bark for attention and perform tricks on command. Mattel is giving its revamped Pound Puppies line an interactive twist in June. Here Puppy, Puppy! (US$34.99) uses IR sensors that trigger the pup to come when it’s called and find its own way back to the doghouse if it’s left alone too long. Meanwhile, Toy Quest is catering to fashion-forward girls with a line of purse dogs called Foo Foos (US$19.99) that actually shiver until you comfort them. Hasbro’s iDog ($24.99) is what you’d get if you crossed an iPod with Sony’s Aibo; the digipet plugs into an MP3 player and grooves to the beat. Hasbro is also bringing Furby back this fall (US$39.99) with six times the memory and a much more interactive face.

But if digital people are more your speed, Mattel is gearing up for the summer debut of PixelChix, a line of virtual gal pals who live in 3-D toy houses on LCD screens. The Chix eat, sleep, chat and hang out, and if two houses link together, they leave their own abodes to go visiting.

Rest assured that tech toys haven’t completely cornered the market on innovation this year. Rebounding from an 18% sales drop in 2003, construction toys stabilized last year to finish flat. Now the goal is incremental growth, and category specialists are exploring new play patterns and shapes that look less like blocks and more like action figures to make it happen.

To build on the 7% increase in net sales it posted last year, MegaBloks is launching a new line called Pyrates in the fall. These six playsets (US$3.99 to US$49.99) come with highly detailed molded pieces, giving the final constructions a higher-end look. For example, the skeleton pirate figures look like they’re actually made of old bones, and the ships all come with canvas sails. Each of the small, skull-shaped sets is also packaged with a 15-minute animated DVD to help weave back-stories involving treasure-hunts and ghostly adventures on the open seas.

K’Nex is working on a similarly innovative packaging angle to draw younger consumers to its Kid K’nex Story Pals building sets (US$14.99). Hitting shelves in September, constructible classic storybook characters such as The Ugly Duckling come in packaging that incorporates a picture book. And the company’s June-launching Flex K’nex kits (US$19.99 to US$29.99) let kids construct flat designs of vehicles such as fire trucks and rockets, which then bend up and lock in place to become 3-D replicas.

Lego, meanwhile, is hitting the custom-design hook hard this year, building on the December launch of Legofactory.com. The on-line warehouse gives kids the opportunity to create their own virtual Lego structures, and starting in August, Lego will be taking orders to manufacture fully constructed versions of these kid designs. The site hosted a vote-off to pick the best of the bunch in March, and the 10 winning designs will be manufactured and shipped to retail this summer.