The following is take from an new firingsquad article, and i think its pretty spot on:
"The bottom line is that it’s too soon to come to any definitive conclusions on either technology. There’s no denying the potential cost advantage of the GPU-based approach if the performance impact isn’t too significant. In this regard I really do think that AGEIA may be out of touch with the market. From the outside looking in, it really does seem to me that AGEIA’s based their entire approach around 3dfx’s original Voodoo Graphics accelerator. There’s nothing wrong with that, as the Voodoo Graphics was the pioneer of an entirely new industry. And while it’s true that Voodoo Graphics initially launched at $300, it was a niche product at that price point. Personally, I gladly paid $300 for my Diamond Monster 3D when it first came out, but Voodoo Graphics didn’t really take off until:
Memory prices came down. Remember that the original Voodoo Graphics required 4MB of memory
Additional board partners came onboard. 3dfx initially launched with only two board partners, Orchid and Diamond Multimedia
GL Quake. Before GL Quake debuted, there were only a handful of titles with 3dfx support. Most notable of them was Tomb Raider. Once id finally released GL Quake, 3dfx finally had a killer app that was relevant among the hardcore crowd: I was the buzz of my college dorm once I booted up GL Quake for the first time. Everyone who was into PC gaming dropped by for at least one demonstration. GL Quake looked better than VQuake too, and thus 3dfx’s Voodoo 1 was a more justifiable purchase (remember that 3dfx’s card sold for considerably more than Rendition’s).
In my opinion, AGEIA needs all of this to happen for them in order for PhysX to really take off. They need more board partners so that prices can come down, and just as importantly, they need a killer app that will drive hardware sales. This killer app not only needs to deliver better performance, but more immersive gameplay as well. 3dfx managed to pull all this off with Voodoo Graphics, AGEIA will needs to pull it off also in order to be successful, especially now that larger players like ATI and NVIDIA are now essentially getting into the physics business. And with ATI and NVIDIA constantly delivering new GPUs, AGEIA’s going to have to remain on their toes for the foreseeable future.
3dfx didn’t run into this problem until much later down the road, and we all saw what ultimately happened to them once they faced it."