Why microphone activity light are uncommon?

Microphone activity lights can allay fears around microphones listening on to conversations, which has become a very popular idea in recent years. Software indicators don’t solve the problem as well as an hardwired light does.
Hardware kill-switches are bulky, and it is understandable why they are not common, but an led light is very tiny, and microphones are usually located towards the outside of the body of the smartphone.

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It’s not worth the added cost, it’s not going to sell more phones.

The new Pixel phone has a feature to temporary block mic access from all apps. Also, Android phones have an option called “Sensors Off” in developer options, which blocks the apps and system from accessing camera, mic, and accelerometer.

However, I think these software blocking features are only bypassed if you’re receiving a phone call.

And what is preventing software with enough privileges from just re-enable the microphone?

You can already deny apps access to the microphone, or use software to disable the microphone, which is why it really isn’t an issue for the 99%.

There is a tiny minority for whom there is real threat of state sponsored hackers attacking their phone, at which point a software disable probably is going to do much.

I will just like to say I don’t think the tiny minority argument is a good argument. The people who are at most risk of state sponsored surveillance, are the very people the society needs to work the hardest to protect. Would you like a hostile intelligence agency to gain blackmail on key individuals in your country?
As the Jeff Bezos case demonstrates, it is simply impractical to not use mainstream devices in today’s day and age, no matter how rich or powerful you might be.
A ruling Monarch was one of the potential individuals targeted by the Pegasus spyware, along with India’s opposition leader. This is serious business.
I know this rant is kind of off-topic and not directly related to your reply, but I had to say this.

Maybe the solutions is that the tiny minority who have access to state secrets don’t use consumer electronics.

They would not be if it was practical. I don’t think it is. From Trump’s lawyer to The Queen of Jordan, I have come across too many instances of the high and mighties using the same devices as us plebs with the probably the same security issues. Are we simply handing over power in our society to anonymous agents in covert intelligence agencies? Maybe these devices are hardened, but I doubt how much these people actually listen to disable Javascript esque impractical advice given by security agents. Imagine being a security agent trying to explain to Sophie Trudeau that she cannot play the latest Super Auto Pets beta because it is too much of a security risk. Security measures like a hardwired microphone activity light is a simple thing which takes at least some bite out of the threat posed by connected devices.

Did you see that video of Ed Snowden literally opening his phone and removing the microphone and camera modules?

Yes, you can buy phones with microphone and camera removed, this is nothing new.

You just made it sound like some button that turn on/off the microphone is going to make a difference.

Android and IOS both have indicators when microphone is accessed. With Android 12 you can even block microphone access/ motion sensors. I don’t think a physical Microphone activity light is needed on top of all that.