I think it's important to bear in mind that the phone doesn't have to beat the full-frame camera at this game. It only needs to be "good enough". The fact that the phone is much more convenient to carry and use already gives it a huge leg up. What's the saying? "The best camera is the one you have with you"

If someone can make a phone that gives convincing fake bokeh and covers wide, normal, and tele focal lengths while producing images that are even remotely comparable to a "real" camera in an 8x10 print... that person will demolish what's left of the camera industry.

  "The best camera is the one you have with you"

Right, which is why the low end consumer camera market has basically died. For average use, a phone is already "good enough".

So another plausible path is that the damage has already been done, and what is left of the prosumer and pro level stuff will remain stable.

Note, I'm not saying that I think that is what will happen, I haven't thought about it much. But there is nothing in current tech development that suggests the phones will bridge that gap (to prosumer level image quality) any time soon...

I think you might be right. A lot of the damage already has been done... but the pro and prosumer camera markets are still shrinking pretty quickly.

It's a concerning trend, which makes me hope that camera manufacturers get ahead of the trend by introducing features that I feel are lacking in "real" cameras.

Well, if you look at Nikon DSLRs: if you are shooting landscapes or portraits and are ok with the ergonomics of your gear/not printing _really_ big posters: your D750 is still state of the art (6 years old), so why buy new. What is a little bit disconcerting is, that everyone is jumping the full-frame wagon and not going the niche/mini-series way, they should probably go (this might lead to a disruptive change with a lot of knowledge lost in bankruptcies – which would be bad).

basically, except for the family pictures application, documentation (traffic accident) or "art"/hobby, noone needs a camera anymore, because today, everything there is, is already documented a thousand times, available in the mediocre quality for free, anytime, with an internet connection.

The first two categories are well served by any smartphone camera nowadays, which leaves the third. And here I think that this is still served best by a dedicated device because you are basically really interested in taking pictures of a certain quality. And no, the current state of the art in fake-bokeh will not really hit this group (it's a very small group though and the instagram-people with their nice portraits will probably go for the fake too. Though they probably could just do a 3D-scan of the person and then do a render (no more bad hair. no more bad skin. pure perfection). Doesn't necessarily have a lot to do with photography though).