Engadget asks if Android can save the point-and-shoot camera industry and I think it is a valid question.
I think the issue really comes down to this: is it still another device you need to carry with you? If you can’t eliminate a device, then I don’t think this is going to save anything.
Yes, it can take better pictures than the camera on your phone, but that tiny little camera keeps getting better and better and we are at the point where the difference is worth not having to carry along another device. With limited space and more and more gadgets to carry with you, convergence will happen around those devices that can easily be combined without losing functionality (or gaining some). Cameras and phones are the best case of this.
There are always going to be cheaper point-and-shoot cameras around, but the days of that market growing are pretty much over. The real advances will be happening in the phone and higher-end space.