Nintendo's share price promptly crashed, which is worth bearing in mind next time someone starts giving you a dull lecture on the wisdom of crowds. As it turned out, the crowds were clueless - as we all now know, Nintendo's low-tech solution turned out to be the most successful hardware platform of the decade, while Sony's PSP, although by no means a failure, finds itself somewhat lost in the wilderness.
A couple of years later, of course, the same scenario repeated itself with the Wii and the PS3 - but with the subsequent departure of Ken Kutaragi, whose engineering background had led Sony Computer Entertainment down a technology-obsessed path, there was a widespread belief that the company would never make this kind of mistake again.
Yet Sony's love of cutting edge technology continues to burn, undiminished by the rocky path of recent years. From some perspectives, of course, that's fantastic. Many gamers are ardent fans of cutting-edge tech, obsessed by frame-rates and visual fidelity, delighted by games and hardware which push the boundaries of technological achievement. Sony is their kind of company; they are Sony's kind of consumers.
They are, however, only a fraction of the market - arguably even a dwindling fraction, at a time when more and more developers are willing to make the formerly lunatic assertion that "graphics technology no longer sells games".
Faced with that, how does a company whose whole history is based on being on the bleeding edge of technology adapt? Nintendo turned up at E3 with a successor for the DS which is low-cost, low-tech and yet laden with extraordinary, headline-grabbing features. Sony, meanwhile, touts technologies costing thousands of pounds - and its own handheld effort, the PSP, languishes in no-man's land, its most recent iteration, the PSPgo, being little other than a costly and embarrassing failure for the company.
Sony executives would argue, undoubtedly, that what they showed off at E3 and similar events over the past year is the future of home entertainment - and they're absolutely right. Sony's technology is the future - 3D in the home isn't a pipe dream, it's a technology which is on its way, and Sony is on the vanguard of that movement.
If Sony feels aggrieved at being outmaneuvered, it's not because its technology isn't the future - it's because its technology isn't the present. The present is what Nintendo is very good at. It creates devices which are cheap to make right now, rather than betting the farm on cost reductions in three years' time. They're easy to develop for, because their power is familiar to developers. They're easy to sell, because their price points fit well with the market. Yet through clever selection of technology and design elements, they remain exciting enough to grab headlines and wow consumers.
This is the lesson which Sony still has to implement across its entire business. It's great that the company can show off future technology - there's a real thrill at seeing the latest fruits of the labours of Sony's world-class engineering teams. Its rivals, however, have perfected the art of creating products that fit the market as it stands today. Nintendo's scoffing at Sony's 3D efforts doesn't hit home simply because they're criticising the unpopular 3D glasses. It scores a bullseye on Sony's true weak point, which is that it remains too focused on the cutting edge of technology, and often loses sight of what consumers really want: entertaining products at competitive price points.
If you work in the games industry and want more views, and up-to-date news relevant to your business, read our sister website GamesIndustry.biz, where you can find this weekly editorial column as soon as it is posted.