In just four years, camera phones have entered the mainstream. More than 300m camera phones where shipped in 2005, according to Gartner, the research group, and at current growth rates there could be an extraordinary 1bn camera phones in use worldwide by 2008.

In some countries, it is now difficult to buy a mobile phone without a camera – but not yet impossible. “We still make phones without a camera for price-sensitive consumer markets and for corporate users who specifically do not want a camera,” says Satu Ehrnrooth, director for cameras with Nokia’s multimedia division.

Corporate users may need a camera-free phone because many businesses – including, ironically, phone manufacturer Samsung – have policies prohibiting the use of some camera phones on their premises because of corporate espionage or privacy concerns. Nevertheless, two out of every five phones sold in 2005 had a camera, and worldwide sales of mobile phones with embedded cameras will outpace non-camera phones this year, according to ABI Research. In advanced Asian markets, that crossover point was reached some time ago.

It is not hard to see why such devices are so popular. Instead of having to carry a separate digital device, a camera phone kills two birds with one stone. According to Nokia, 44 per cent of camera phone buyers use the phone as their primary camera. “In emerging markets, the figure is much higher, and reaches 90 percent in India,” says Ms Ehrnrooth.

For the digital camera industry, which is facing over-capacity and declining sales, that is a chilling statistic. Now, it seems, the sector can no longer depend on the emerging economies to re-ignite growth.

For most people, the sheer convenience of having a camera in their mobile phone outweighs the limitations, particularly in areas such as usability and picture quality. The quality of the photographs taken with a camera phone was once noticeably inferior to that of a dedicated digital still camera. But today, all but the cheapest camera phones have sensors with resolutions of 1m pixels or more. And by 2010, most camera phones will come with four-megapixel sensors or better.

Samsung, for instance, is already ahead of that target. Last year, it unveiled the world’s first seven-megapixel camera phone. It drew gasps of surprise from the still camera industry, which had taken several years to evolve conventional digital cameras up to a resolution of seven megapixels.

More recently, Samsung has moved even further. It has just unveiled a camera phone with 10 megapixels, more than that offered by many sophisticated digital SLR cameras – and better than what most users realistically need, according to Nokia’s Ms Ehrnrooth. “Our latest multimedia phone has a five-megapixel sensor and with that resolution you already get excellent quality,” she says.

Apart from the trend to multi-megapixel sensors, the other big development in camera phones is the advent of phones optimised for use as cameras – in some cases, they even look like cameras. Earlier this year, for example, Sony Ericsson introduced its K800 and K790 phones, the first handsets to carry the well-regarded Cybershot brand – used by Sony for its best-selling line of digital still cameras. Both cameras have a 3.2-megapixel sensor, autofocus lens and a user interface similar to that of a standalone Cybershot device.

Not to be outdone, Nokia recently unveiled two camera phones, the N93 and N73, which sport 3.2-megapixel sensors and Carl Zeiss optics – a first for a camera phone.

But sensor resolution and optics are only part of the problem. Users of digital still cameras know that images taken with camera phones often do not look as sharp as they could. A lot of the time, the problem is due to blurring caused by natural hand jitter, especially in low-light conditions.

While makers of digital still cameras add circuitry to electronically stabilise images, camera phone circuitry is tightly packed, requiring small and expensive components. As a solution, InvenSense, a US company, has developed a tiny low-cost gyroscope that it claims can reduce camera shake.

Another challenge is adding features such as autofocus and zoom lenses, which are taken for granted on digital still cameras but cause big headaches for makers of camera phones. One radical solution is to substitute the conventional mechanical moving parts of a zoom or autofocus lens with a so-called liquid lens, which reduces size, cost, weight and power consumption.

Varioptic, a French company, has been trying for some time to get phone makers interested in its liquid lens technology, but so far no one has publicly committed to use it.

“We are looking at all emerging areas of camera phone technology, but the biggest challenge is making sure the technology is reliable,” says Ms Ehrnrooth.

Another big challenge is getting consumers to actually use the technology. In the UK, for example, M:Metrics, the mobile market researchers, found that 53 per cent of the mobile phone population takes a photo once a month, but only 30 per cent use network services to send the photo (or video) to someone else. That’s bad news for the mobile operators who have invested in functions such as Multimedia Messaging Services (MMS) to encourage people to use the networks for more than just talk.

In the US, where camera phones are less common, the figures are even worse. Only 27 per cent of US mobile phone users take a photo at least once a month and only 15 per cent use network services.

When it comes to uploading photos and videos to the web – immensely fashionable thanks to the blogging and YouTube phenomena – it is a similar story. Only 2.8 per cent of the UK’s mobile phone population are uploading videos to the web, according to M:Metrics.

Nevertheless, Paul Goode, an analyst at M:Metrics, says these figures are averages and usage varies tremendously depending on the handset. For example, more than 92 per cent of those who own the W800, Sony Ericsson’s popular Walkman phone, take a photo at least once a month. What’s more, a record 25 per cent upload a photo to the web. Why? “The W800 comes with a great application called ShoZu that helps you upload the photo and create a blog if you do not have one,” says Mr Goode.

While the technology in camera phones has made giant strides in recent years, the industry has belatedly realised that advanced features count for little unless they actually get used.

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