I made a little tweet about this yesterday, and apparently I need to expound upon the idea a little from all the negative response it got.
In the next couple years, maybe even this year, the niche market that netbooks and UMPCs have been working to fill will shift to the new generation of smart phones including the iPhone and the Android G1.
Next week at CES, it is undoubted that many new phones of this class will be announced and shown to the world. Motorola is already working on moving most of their new high-end smart phones to the Android platform, and surely other companies will be doing the same. This new class of phone is hard to define right now, but lets just say the iPhones and the G1 are pretty much the only phones that qualify at the moment. The Blackberry Storm tries to do it, but from reports I've seen it doesn't quite make the grade and worthless little knockoffs like Samsung's Instinct are definitely out. Eventually though, a common name will come up for the class, we may even want to go back to the dated term "pocket pc" at some point, or perhaps just MobilePC would suffice since apparently outside of the US most people already refer to cell phones simply as "mobiles."
Now, the primary purpose a netbook or UMPC is supposed to fill is to allow you full fledged web browsing on the go. Some may say the UMPC never really took off here, and for the most part you'd be right, but Nokia's N700 and N800s have sold fairly well, even if the more powerful (and more expensive ones) didn't. Clearly the iPhone and G1 already meet this requirement, albeit a little slower with the current gen's lackluster processing power and RAM. The only thing they are both missing is Flash support, which for many sites is an absolute requirement. I'm fairly confident this will change in the next year, if not for the iPhone, then definitely for Android powered phones.
The next thing netbooks/UMPCs are used for is email/chatting/IM, which both the iPhone and G1 already have numerous options thanks to their app repositories. Some would argue Android is lacking here with no support for things like Microsoft's Exchange server, but businesses aren't really the ones buying netbooks and UMPCs in the first place.
Some people use their UMPCs and netbooks for multimedia (primarily video or music playback) and obviously Apple's iTunes/iPod inspired iPhone does this to a pretty decent extent assuming you are using the Apple approved file formats. I'm not sure what the state of this is on the G1 right now, but I'm sure it can hold it's own.
Now, anything beyond these features really goes outside the scope of what these devices are being sold for. Yes, you can take notes and write papers on the netbooks, but forget about it on a UMPC. In fact many people still complain the keyboards of most netbooks are still too small to do any "real" typing. In the case of our smart phones many people are already working on solutions to the problem, although they're still not quite there yet. I personally think a nice roll-up keyboard would be the perfect accessory for these phones if they had proper USB ports and support from their OSes.
Another thing people complain about is that these phones' screens are still too small, and I guess that's really subjective. I currently own an iPhone, and 9 times out of 10, the screen size really hasn't been a problem for me like I thought it would. There are rumors right now of 4" and 6" models of the iPod Touch coming out this year, so if that turns out to be true, Apple will probably try the same with their 3rd generation of iPhones too (current model is just over 3"). Just remember, at the end of the day, no matter how big we would like these screens to be, at some point it stops fitting in your pocket. I think 4"-4.5" is the sweet-spot personally.
Now obviously these smart phones can boast they have things most UMPCs and netbooks (not counting what are referred to as ultra-mobile notebooks....that's a different class) can't do, like play videogames, work as a camera/camcorder (jailbraking required in the case of the iPhone) and of course, making phone calls.
No matter how much we fight it, people love convergence. The ability to carry just one device in your pocket is great. Just a few days ago on New Years Eve I saw one of my friends carrying around both a semi-smart phone and a separate digital camera and it's sad because you would think that'd be the easiest thing to add to a smart phone. There are already some cell phones, like the Nokia N82, with nice camera abilities, but they're still too expensive. My current gen iPhone's camera is damn near pathetic at only 2 megapixels, no flash, no zoom...but I'm sure the next revision will have to finally try a little harder in that department if Apple knows anything about what its customers want. And with the diversity Android brings to the table, there's no doubt a few companies will get it right.
The only other hurdles right now are price and wireless availability, and I don't think these will be much of a problem for too much longer. In fact this is the one part of my prediction I'll be so bold to say will definitely happen this year... AT&Ts 3G service is already plenty fast, and many other companies are already working toward 4G. Sprint already started rolling out their WiMax service in a couple test cities last year, and hopefully we'll see AT&T and Verizon do something worthwhile with the 700Mhz spectrum they bought up almost a year ago now. Even here in rural Mississippi, there are many places where you can not get a broadband land-line, but you can pick up a decent signal for broadband wireless (3G/EVDO/etc...but I don't count Edge, it's pathetically slow).
In the price department, we were already close in 2008. The iPhone 3G sells for $199.99 and the T-Mobile/HTC/Google G1 sells for just $179.99 (with a two year contract of course). This year, I can almost guarantee you'll find someone drop these guys down to $100 or less, and that's when these things will start to go mainstream. Remember when the Razor came out and people ooh'd and aaahh'd, but no one bought them because they were $500 at launch? Then when they dropped below $100, everybody and their momma (literally) had one. Expect the same thing to happen when iPhones and Androids hit that price point.
At the end of the day, people just want a small portable computer that they can get online with no matter where they are, and while the netbook took on that mantle briefly this past year, I think they've already hit their saturation point and the new gen of smart phone WILL fill that need in 2009. If these phones aren't capable of doing what you want/need, then a netbook or UMPC wouldn't have cut it for you either... I can't wait to see what new unknown goodies get announced next week ;)