If quality were an issue they would use real cameras. But in an age where photos are viewed on screens or in dimensions smaller than even a 4*6 print nobody notices the difference . Nevermind the resolution is worse too.
People have shown they are more than willing to accept inferior quality in exchange for convenience.
Even before smartphone cameras, people who cared about quality weren't using P&S cameras. P&S was always for cheap and convenient, not quality.
When everyone already has a smartphone they take everywhere, there's not a lot of market for cheap and convenient standalone cameras; no matter how cheap they are, they aren't cheaper than "I already have it", and matter how convenient they aren't more convenient than not having to carry another device.
People have shown they are more than willing to accept inferior quality in exchange for convenience.