In order for a camera to play an integral part in our digital lives, it has to perform increasingly complex functions. I believe we agree on that. It therefore requires a more sophisticated operating system. Choosing the Android OS is a very natural choice to expand functionality and increase current and future compatibility with all kinds of other software, devices, and networks.
Sales will likely continue to drop for some time, although I do believe there remains a gap between smartphones and system-cameras that can easily be filled with a pocketcamera. However, the times of indiscriminately producing a multitude of similarly spec'd pocketcameras with no apparent discernible differentiation, are hopefully over.
Manufacturers now need to bring the number of models down to more basic choices that clearly represent the type of use. The functionality of these devices will simply be limitless in a relative sense, so there is no reason to produce different devices for slightly different functionality. The OS and UI layers define the ability of the user to demand simpler or more complex behavior.