Boot up those PCs and stock up on batteries: The electronic toys category continues to flourish beyond retailers' and suppliers' early expectations.

According to the NPD Group, sales of handheld electronic games and electronic learning aids (ELAs) have skyrocketed in recent years. The youth electronics category surged from $890 million in 2004 to $1.1 billion in 2006—the fastest growing segment of the U.S. toy business last year. In addition, electronic handheld games saw an increase from $226 million to $249 million in that same period. And frankly, who in the industry is surprised?

With adults and kids alike toting cell phones, iPods, MP3 players and other hi-tech toys, both work and play are increasingly fueled by the myriad advancements in technology that make it possible to take photographs with phones and listen to more than 1,000 songs on a gadget the size of a credit card.

As the toy industry embraces this rapidly growing phenomenon, Playthings spoke with several major players in the manufacturing community about their experiences in the digital toys marketplace, their predictions for the holiday season and their expectations for the tech toy segment in 2008.

Take one look at the shelves of any major retailer, and you're bound to notice a wealth of space devoted to handheld electronic games, digital cameras, music players and similarly tech-driven devices. Manufacturers agree that not only has the electronics category exploded in terms of the number of products, it as also grown in the number of players.

“We're seeing other people adding electronic learning components to other products,” says Julia Fitzgerald, vice president of marketing for the Arlington Heights, Ill.-based VTech Electronics North America. “Electronics are creeping into a lot more traditional categories, including infant products.”

Don Light, president of Kidz Delight, Downers Grove, Ill., concurs. “The market has grown tremendously,” he says. “It encompasses a lot of more elaborate electronic products in existing toy categories and new ones, from DVD games to electronic puzzles, robotics and musical instruments.”

Isaac Larian, president of Van Nuys, Calif.-based MGA Entertainment, notes that electronics has morphed from a standalone entity to an integrated component of nearly every children's product category. “It's no longer an optional feature; it's an essential part of most products,” he tells Playthings, pointing out that his own company's Bratz doll line now has a dedicated Web site, Be-Bratz.com, where girls can play games and trade clothes using their dolls' customized keys.

What's more, high-tech toys are becoming more readily available as the cost of materials declines, says Christopher Miller, vice president of marketing for Emeryville, Calif.-based LeapFrog.

As manufacturers clamor to get their electronic toys onto buyers' radar screens and into consumers' hands, they must consider alternative channels that continue to reshape the traditional retail landscape.

“It continues to be a very competitive business with everyone battling for shelf space,” notes Light. With the introduction of new distribution channels in the last five years, he says buyers are in search of greater innovation in tech products.

While VTech counts Wal-Mart, Target and Toys “R” Us as its top customers, specialty electronics stores like Best Buy and Circuit City are also gaining greater attention as they expand into the electronic toys space. To wit: Both electronics retailing giants have slowly but surely crawled their way into Top 10 positions in Playthings' annual ranking of the nation's largest toy retailers.

As the electronic games category continues to grow and adapt to the changing marketplace, product development must keep pace with improvements in technology, as well as the shift in kids' play patterns.

VTech's Fitzgerald sees more toys coming to market that are able to connect to the Internet through parents' personal computers so that kids can mimic grown-up behavior. “Parents are buying things that do what they do,” she says. “These toys can look like what mom or dad are doing, but are still kid-appropriate.” She points to VTech's Kidizoom Camera, which works just like a “regular” digital camera, but has added elements for extra kid appeal. “Kids can edit their photos to make them wacky or switch the camera to game mode,” says Fitzgerald. “It's all about taking a cool form factor and making it great for kids.”

Focusing on fun is key when designing standalone electronic toys, agrees Kidz Delight's Light. “While the educational aspect of electronic toys is still important, entertainment value is just as important,” he says.

Gaming has amassed a tremendous following among all age groups, says LeapFrog's Miller, as parents continue to seek out “good-for-you” game systems. At the same time, “social networking sites are gaining momentum as they link the world of play with the ability to connect with [one's] peers,” he adds.

As products have become more interactive, consumers are seeing more sophisticated technology and appeal that is spreading beyond its traditional fans.

“Historically, the category has focused a bit more on boys, which is now changing; products are targeting even younger children,” says Light. As evidence of this trend, he notes a strong reception for Kidz Delight's infant and toddler offerings launched earlier this year. The company's interactive Animal Cubes and Alphabet Cubes let children insert one of five cubes into the toy's platform, and are then rewarded with the names and sounds of the corresponding animals or letters. Another product that has garnered accolades, Light says, is the Magic Mirror Laptop for ages 12 months and up. Upon opening the laptop, a child sees his or her reflection on the screen.

Also catering to the infant/toddler crowd is LeapFrog's Learn & Groove line, an ensemble of bilingual musical instruments that debuted in 2006 and aims to teach numbers, letters, colors and shapes. This year, the addition of the Learn & Groove Animal Sounds Guitar, for ages 12 to 36 months, enhances the multisensory experience by combining animal sounds with basic musical instruction. According to Miller, the product builds upon LeapFrog's philosophy of providing “optimized, customized learning experiences. The technology … is a central enabler of learning and play, not just a way to add some bells, whistles and blinking lights.”

As manufacturers reach out to even the youngest consumers, they have also stepped up efforts to market to preschoolers, a demographic well represented in the ELA category. The challenge of appealing to this particular segment is making “the content age-appropriate and the product easy to navigate, resulting in a rewarding experience for the child,” says Bill Uzell, vice president in charge of early learning products at Oregon Scientific, Tualatin, Ore. The company's line of licensed electronic laptops and globes garners the attention of both boys and girls through such classic properties as Barbie, Hot Wheels and Star Wars.

Disguising an educational component behind play makes the learning process that much more engaging for the younger child, notes VTech's Fitzgerald. Her company's Whiz Kid PC Learning System strives to teach kids “all the early preschool basics” on a portable pad, or plugs into a home computer “just like their older brother or sister would,” and through which they can connect to a site that offers more games. “The sneaky thing is they are learning as they are playing,” Fitzgerald says.

While toy makers may be able to entice early learners into educational play, marketing to the notoriously discriminating tween market is an entirely different ball game. LeapFrog's Miller believes the biggest difference between the two is the primary purchaser. “Parents buy for their preschoolers, but by the time kids are in their tweens, they are the ones asking their parents to make the purchase,” he says.

Fitzgerald concurs, noting that ever-changing interests make tweens a tougher group to nail down. “As kids get older, they tend to want more electronic entertainment and are less into toys that teach,” she explains. Adhering to this theory, VTech designed its lines of laptops with adult-like features that have a fashionable look and feel. Its ColorBlast Notebook for ages 7 to 10 has lost its grey scale in favor of a color screen, while the Nitro Notebook series now comes in teal blue and hot pink, which Fitzgerald likens to the color schemes found on Apple's iPods.

MGA, too, has updated its laptops for tech-savvy kids, particularly girls. With the Bratz Cyber Style Laptop, Larian says girls “feel like they're using a real laptop” with keyboard, mouse and screen as they learn math, reading and writing.

As electronics manufacturers head into the fourth quarter, many are hopeful that the holidays will produce their own share of good cheer: strong sales in both handheld games and ELAs.

In fact, atop Toys “R” Us' annual Hot Toy list, several electronic playthings found a prominent place this year, including the Made for Me MP3 Music Player from Playskool, the ClickStart My First Computer from LeapFrog and the Easy Link Internet Launch Pad from Fisher-Price.

With education being top of mind for so many consumers, companies believe this will carry over to the cash register. “We expect that parents will continue to want to purchase products that help their children learn while they are having fun,” observes Miller.

Oregon Scientific, LeapFrog and Kidz Delight all expect continued sell-through with their existing product portfolios, while MGA anticipates strong sales for its electronics-enhanced Little Tikes line.

As for determining when consumers will make the majority of their holiday purchases, some expect a continuation of the buying pattern that has developed over the last few years. “The interesting trend is that consumers are buying a little bit later to wait for the real deals,” says Fitzgerald.

Looking ahead, companies are gearing up for an equally successful year and are putting the final touches on their game plans prior to Toy Fair 2008.

Fitzgerald says buyers can expect to see more of VTech's affinity for electronics make its way into more of its kid-oriented items. “Watch for us in areas that require more sophisticated technology,” she says of the company's 2008 plans.

According to Uzell, Oregon Scientific has plans to enhance the content on its line of learning laptops and expand its SmartGlobe platform next year. “We will also continue to strategically partner with licensors who have great brands that fit our product development initiatives,” he says.

Re-launching its core reading business is on the agenda for LeapFrog in 2008, as is the growth of its educational gaming business, Miller says, noting, “Just imagine how surprised some parents will be to learn that a video game system can be an effective way to teach kids important school skills.”