The smartphone is going to be the death of the dedicated handheld. That’s the line being fed to us by pretty much every analyst these days. The handheld defense league would refute these claims, but mobile proponents now have cold, hard numbers on their side.

A recent report from IDC and App Annie has revealed that the total money spent on iOS and Android has surpassed the total money made by dedicated handheld software – digital and physical – during Q4 2012. It’s significant because it shows that mobile revenue has caught up and surpassed the dedicated handheld market which has long been the stalwart leader in the space.

What’s interesting about these numbers is that App Annie only counted total app sales through game sales and in-app purchases. The amount made would probably be much more if the numbers counted how much is made by advertising in the numerous free games available on mobile devices.

It’s clear that mobile gaming has become an unstoppable force of mindless consumerism. It doesn’t hurt that the install base for mobile devices far exceeds that of the 3DS, DS, PSP and Vita. That’s because dedicated handhelds doesn’t enjoy the same benefits that mobile devices do, such as subsidized hardware and cheap or free software.

Those on the mobile side of the business will tell you that Nintendo should stop making their own hardware, and start making games for mobile devices. The thinking is that anybody would want to play a Mario or Pokemon game on their iPhone or Android device, and that thinking is probably right. Nintendo probably won’t do anything of the sort, however, as it has always been a company focused on building hardware that compliments its software.

As for Sony, the company is more open to embracing the rise of mobile. It introduced PlayStation Mobile last year to bring high quality games to mobile devices. It hasn’t exactly taken off for them just yet, but there’s definitely promise there.

All that being said, Nintendo and Sony have a chance to emerge as leaders in handheld entertainment if they embrace ideas from mobile and apply them to their own products. Mobile devices have been enjoying millions of sales thanks to carrier subsidies. Nintendo and Sony could very well subsidize their own hardware with a monthly subscription just like Microsoft does with the Xbox 360.

Of course, that doesn’t fix the problem of software being too expensive in the minds of the mobile gamers used to spending $1 on games. Nintendo and Sony both need to better demonstrate the value of their software, and prove that it’s worth the investment by offering experiences that can’t be found elsewhere.

Are dedicated handhelds ever going to take back the lead over mobile? Probably not, but these devices can stay relevant in their own little niche of the consumer market. I’d argue that it’s incredibly important that they do as well. Without them, mobile gaming would become a barren wasteland of derivative running games and physics-based flingers.

[h/t: The Next Web]