Toys are a $22 billion-a-year industry, so it only makes sense that some of the biggest innovators in tech are racing to cash in. Insiders at New York City's annual Toy Fair claim the future of toys is in the hybrids that merge traditional, physical toys with video games and smartphones, reports CBS News correspondent Gigi Stone Woods.

Anki co-founder and CEO Boris Sofman said his goal is to transform the toy business.

"I think that the toy industry is one of those industries that hasn't evolved nearly as much as it should have over the last few decades," Sofman said.

He developed the company's toy, Drive, and upcoming Overdrive with fellow Ph.D. graduates from Carnegie Mellon's robotics institute.

"When people see the products we make for the first time, it feels like science fiction to them because it shouldn't exist," Sofman said.

Unlike classic slot race cars of another era, Anki cars aren't limited to the skill of the player since they can think for themselves.

"They sense the environment 500 times per second. They have 50 megahertz computers inside of them. They understand where they are and they communicate," Sofman said. "When you're playing the game, whichever cars you're not controlling, they actually come to life and are self-aware and they compete against you."

Powered by a sophisticated, artificial intelligence technology not typical of a toy, the $150 Drive starter kit is America's second best-selling toy next to dolls from the movie "Frozen."

The co-founders said they spend more time than they should on playing video games to check out the competition.

"We call it research," Sofman said.

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Merging traditional toys with artificial intelligence