For innovation there's companies sticking heat cameras and molecular scanners in handsets. We could do with some decent optical zoom and quality audio. Project Tango might be a thing. I'm a fan of any upcoming device that may offer a degree of ruggedness married to some decent specs (not achieved by sticking an iPhone in a rubber sleeve). Maybe we could do with a different shape that's not so razor-thin that if gives me cramp after holding for a while. Or build in one of those ring things on the back that are trending (yet ridiculous). What would be truly innovative would be some crazy new battery technology. Heck, even stick a solar panel in the back so those of us in sunnier climes can charge up on the windowsill sans cable. And that's all just hardware.
Software, specifically the raft of digital assistants, looks like being where the manufacturers see the fight being. Do I want my phone say, tracking how many times I've Google Pay'd a pint that evening then automatically ordering me an Uber before I make a tit of myself? Probably not. But I can see how stuff like that may be cool.