SAN FRANCISCO (Business 2.0 magazine) -- All hell broke loose in Manhattan last week. Mobs of strangers roamed the streets around Broadway trying to assassinate each other with orders received via text messages.

Giant games of Pong and Space Invaders were projected on the sides of city skyscrapers, with players using their bodies as controllers (run left, run right, and jump to shoot).

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People raced each other to snap photos of designated landmarks that were uploaded to a screen in Times Square, and played a 21st century version of tag - in which the eternal question of who's "it" was determined by their iPod Shuffles.

All of which was part of the first-ever Come Out and Play Festival, a showcase of roughly 25 technology-enabled street games that may just be the future of entertainment.

How so? Because "pervasive" games address an inviolable truth: as enjoyable as it is for gamers sitting in their living rooms to immerse themselves, Matrix-like, in ever-more static and isolated virtual realities, it's always much more rewarding to go outside and run around.

To be sure, virtual reality has never been more mainstream.

Last week MTV Networks, a Viacom (Charts) subsidiary, launched virtual "Laguna Beach," an interactive counterpart to its hit reality show set in tony Orange County. Meanwhile, Sony (Charts) is just weeks away from rolling out its much-anticipated PlayStation3, a videogame console whose breathtaking graphics and computing capabilities are a generation ahead of even the Xbox 360.

And with the success of handheld gaming devices like the PSP and the Nintendo DS, the move this month by Apple (Charts) to sell $5 downloadable games for the iPod, and the $3 billion-and-counting market for games on cell phones, you'd think we're becoming a nation of virtual-game zombies.

Clearly, traditional gaming isn't going away. But technology-based games don't have to glue us to our screens, and that signals a wide-open opportunity for enterprising companies.

An outfit called YourWorld Games, which Geoff Keighley wrote about in the March issue of Business 2.0, is about to launch a game called "The Shroud," which forces players to move about with GPS-enabled cellphones.

"The Shroud" requires gamers to visit real-world locations in order to slay demons, uncover treasure, and do cellphone-based battle with fellow players. YourWorld is betting it can profit big from businesses willing to pay to be a real-world destination. So intriguing is the game's potential, and so positive are the early reviews, that Sony BMG jumped at a co-publishing deal with the tiny startup.

And then there was "I Love Bees," the curiously-named pervasive game which turned out to be a giant commercial for Microsoft's hit videogame, "Halo 2." A mysterious website, www.ilovebees.com, popped up last year, listing the GPS coordinates of payphones around the U.S. and the time at which they would receive a call.

Microsoft, of course, was the behind the stunt, which was chock full of allusions to its original "Halo."

Unaware of the Microsoft connection, however, more than a million people rushed to the site and formed teams consisting of hundreds of people to man those phones and uncover the mystery. Among the gaming cognoscenti, Bees got more buzz than the product it was designed to promote.

The use of payphones was smart. So widespread yet so ignored in the age of cell phones, traditional public phones may be key to a whole new world of pervasive street entertainment.

In fact, one of the most highly-rated games at the Come Out and Play Festival was "Payphone Warriors," a variation of Capture the Flag.

Players would pop a quarter into one of a few hundred payphones, call a designated number, and a computer at the other end would keep track of how long that phone was "owned" by the player before the opposing team captured it by calling its designated number.

The further we get into the online era, the more its leading luminaries recognize that the real world is not going away.

"We are physical, gregarious animals," Amazon.com founder Jeff Bezos told an audience at MIT on Wednesday, explaining his surprising contention that the majority of products will always be sold in brick-and-mortar retail stores rather than sites like Amazon, no matter how big the virtual world gets. "We like to get out and move around."

Indeed we do, especially when enabled by new and potentially limitless technologies like GPS, Bluetooth and Wi-Fi.

Even solar power is getting in on the outdoor act: witness "Solar Boy Django," the Game Boy Advance title from Nintendo (Charts) that gets players into the sunshine by requiring their virtual weapons to be powered up via a light-sensitive cartridge.

The more for-profit games like "The Shroud" pop up and display their money-making potential, the more game technology is going to unplug from the living room TV and move outside.

So don't be surprised if you soon see hundreds of people yelling obscure assassination commands on a street near you. If you see a nearby office block hosting a game of Pong, be sure to join in.

I'll see you out there.