Nintendo has always dominated the hand-held market. I don't see that ever changing.

You mean Nintendo?

Someday we might see a Nintendo competitor that beats it in the handheld space. This will not happen, however, until we see a competitor that understands handheld gaming better than Nintendo, and this has yet to happen.

The most basic truth that Nintendo's competitors fail to understand is this: a handheld system is not just a smaller console. Even Sony has failed to grasp this basic truth, as shown by their attempts to, as they themselves put it, "bring handheld gaming out of the ghetto." The problem with this philosophy is that there is no ghetto. Handheld gaming is by necessity very different from console gaming: not inferior by any stretch of the imagination, but merely different. Nintendo's competitors have tried to make small consoles at every step, and that is why they have failed.

Of course, that's just a broad philosophy. There are many specifics in which Nintendo's competitors fail, and these specifics are surprisingly close to universal.

1) Power -electric, not computational- is everything. Nothing else about a handheld console matters if it will not turn on: it becomes an expensive brick. This makes it imperative that the user be able to be reasonably confident that the machine will work even if it hasn't been used in a while, and strong battery life is an absolute must for that. The PSP has, to its credit, managed to do better than the Game Gear in this regard, but its battery life is still horrible.

2) Contrast is your friend. Portable games, by their nature, are often played in suboptimal-to-poor lighting conditions, not because of too little ambient light bit because of too much. There is only so much that backlighting can do to fix this problem, such that it may not even be worth including given the costs power-wise.

But the result of this is that even with backlighting, more attention needs to be paid to the color scheme of portable games. The bloom-ridden color schemes dominated by a single color that are so fashionable in console gaming today simply don't cut it on a portable; it becomes too hard in too many situations to tell what is going on.

3) Long periods of concentration are NOT your friends. Again by its nature, portable gamers face many interruptions as they play. The needs and circumstances of reality simply intrude more often when you don't have the walls of your home to block them out. This affects game design, because a really good portable game needs to be something that you can put down and pick up again quickly at any point, because users will have to do that.

A good portable game also has to account for breaks in the user's concentration. Such breaks will happen regardless of the user's skill or mental acuity, and therefore they must not have fatal consequences in the game.

4) Many gamers can't hear you. This is not just an issue of background noise, though that obviously takes its toll as well. There are simply many situations where the sound in portable games must be turned off, due to basic courtesy or other pressing needs, and headphones can only do so much. Rhythm games often have driving bass lines to help counteract this, but the small size of portable systems precludes that: the speakers would need to be bigger than the rest of the system combined.

5) People will drop your system. It happens, and not just to butterfingers: reality intrudes. Make sure your system is durable enough to withstand such shocks. A 1-meter drop (a little over three feet) should be taken as the absolute minimum here, but a 2-meter drop is better, just to be sure that even really tall people can safely drop the system.

6) Measure your users' pockets. Not all gamers can get or want specialized game cases. If your system cannot fit into, at the very least, the front pocket of a pair of blue jeans, the proper response is to redesign the system until it can. Being able to fit into smaller pockets is even better.

The PSP doesn't fail in all of these ways; for example, it (barely) fits into a large jeans pocket. But these points are the common threads that Nintendo's failed competitors share, one way or another, because they have tried to tackle portable gaming as nothing more than consoles done small. When they stop doing this, then they might someday stand a chance of beating Nintendo. Until then, it simply won't happen.

I don't think talking about losing marketshare is a realistic way to look at it.  DS is going to outsell every previous Nintendo handheld or console but the way you phrase things a person reading what you have written would think DS sales have shrunk from GB or GBA sales due to the presence of PSP.  But that is the complete opposite of what is happening.  

It's now aluminium because apple are such a green and caring company (snoring)

I think Sony should be able to by the PSP 3, but they need to expand their first party studios to make more unique games for the system.

no...unless nintendo starts making a hand held out of baby seal skin..it will never happen

So DS will stop selling and PSP will more than double its lifetime sales in the next year?

I think Sony's only failure with PSP was UMD. It tarnishes battery life and makes the system a little to bulky. However I can understand the decision because some users do wanna play epic style games on the go and it was probably the only cost efficient manner of delivering such an amount of data at it's release when memory sticks and other SD cards were more expensive.

Lack of truly portable games I wouldn't blame on Sony. They and a few others are trying, Patapon, Locco Rocco, Exit, Crush, Lumines.

For the PSP2 I'm hoping they ditch the UMD drive for 2 to 4GB memory sticks holding the data for games( I would think they would be cost effective by then and it gives Sony another way to plug their proprietary format). Hopefully with the ability to download titles we will see more developers making new,fun, and simple PSP games because of lowered risk. Successful titles can be shipped to stores to bring about even more success.

It may have taken a lot of financial pain but I do believe Sony is learning from their mistakes and making strides that will inevitably increase competition. First go 30-33% share maybe a 40-50% next go around.

I think actually Sony is going to go download only for PSP, as they have announced that all future PSP 1st party titles will be downloadable (in Japan at least) so if they could cram in a 40GB SSD or flash memory, then it would be great for multimedia and games, but this will not be PSP 4000 IMO

The only way you can defeat any company that holds the majority share in a market where you cannot brute-force buy success is with disruption or Blue Ocean Strategy. Handhelds are very much a market where brute-force does not work: a handheld with top-of-the-line hardware on it would have horrible battery life, massive size, and be entirely too fragile to use as a portable.

The marketing method doesn't work so great either, because if the product you've made falls short as a handheld in any key department, the flaws stick out far more sharply than they do on a home system. This is what kept the Game Gear from having significant market impact: the screen was so blurry and the battery life so short that the market rejected the product in favor of the older but more reliable Game Boy.

The only ways left, therefore, are disruption and Blue Ocean Strategy. If you change the market in a way that puts the existing methods of the market into a state of clear value inferiority, then you can claim the market from any incumbent. If you add new values entirely to the market that hold more worth to users than the existing values, then you can also claim the market from any incumbent. So far, no company has shown much inclination towards either, save Nintendo of course.

The real problem is that disruption and Blue Ocean Strategy are customer-oriented, while the vast majority of businesses are product-oriented. Instead of finding out what customers would find to be a valuable change in the way the product works, most companies listen to what their existing customers say and just improve the existing product to better suit said customers. But making a product better for existing users rarely draws in new users unless there was a key flaw in the product originally that existing and non-customers alike would like to see fixed.

In short, anything is possible, but most things aren't likely. Unless another company emerges with authentic creativity and even more customer-oriented policy than Nintendo, we won't see a non-Nintendo handheld dominate.