(Business 2.0) – There's a truism in the video-game industry: Fancy hardware doesn't sell game machines; it takes great games to sell fancy hardware. The current war between Sony's PSP handheld and Nintendo's portable DS system is no different.

Thanks to its sleek design and Sony's lavish marketing, the PSP has eclipsed the Nintendo DS in the public eye, but recently analysts have noticed a trend: Sales of the humble DS have been picking up--and in some markets, the system is even outselling the mighty PSP. According to Media Create, a Japanese market research firm, Nintendo's DS sold more than 44,000 units in Japan during one week in mid-October, compared with just 28,000 PSPs. Exact sales figures aren't available for the United States, but Nintendo is reported to be gaining ground here as well. "There seems to be an uptick in sales," says Envisioneering analyst Richard Doherty.

So what's the great game that's selling Nintendo's fancy hardware? Turns out it's a puppy. Nintendogs, a virtual pet game published by Nintendo earlier this year, takes full advantage of the DS's sophisticated hardware capabilities to showcase what the machine can do. Here's how Nintendo unleashed the hounds.

SOCIABLE NETWORKING Most portable devices (including Sony's PSP) use Wi-Fi for collaborative gaming among players scattered all over the world. Nintendogs takes a more intimate approach to wireless networking, thanks to a feature called "bark mode" that alerts DS owners when another Nintendogs player is nearby. Players can then introduce themselves to one another while their virtual pets frolic together onscreen.

INTUITIVE INTERFACE Game machine microphones are usually used to holler at fellow players during collaborative combat. Nintendogs uses the microphone as an integral part of the game experience--it's hard to go even a few minutes without cooing praise or practicing verbal training with your virtual pup. "The ability to speak commands makes the communication very lifelike," says Nintendo producer Hideki Konno.

A MORE HUMAN TOUCH To pet their dog or give it a bath, DS players rub the touch-sensitive screen. "The emotional connection wouldn't have been as effective without the touchscreen," says Konno. The hands-on puppy play has been hailed as the first truly innovative application for a gaming touchscreen. "The DS has a very radical design," says Envisioneering analyst Doherty. "It's taken developers a little while to take advantage of that."