GoPro Needs to Differentiate Itself

Sports camera maker, GoPro (GPRO), has had a harrowing year so far. Its shares have plunged 70% over the last year, and there’s seemingly no bottom for its free falling market capitalization driven by weaker than expected sales. Heading further into 2016, however, the company is hoping that its upcoming drone division would recuperate share losses incurred this year and ultimately set its revenue trajectory trending upwards again.

But it’s not that easy. There are a few challenges that GoPro needs to address first, for it to succeed in the drone segment.
Let’s take a closer look.

Barriers to entry

Let me start by saying that GoPro does not own any IP that creates a barrier to entry for its competitors.  The camera maker sources its ARM-based application processors from Ambarella, 1/2.3" image sensors from Sony and lenses from an unknown supplier(s). It was able to make a position in the sports camera industry in the past due to the lack of competition and its ability to provide physically robust Hero offerings in relatively compact form factors, but not on the grounds of novel inventions.

I believe that this very lack of technological prowess is going to limit GoPro’s growth in the drone segment, with DJI and Parrot already having replicated this commoditized manufacturing process. To put things in perspective, the world’s leading drone manufacturer, DJI, procures similarly sized image sensor from Sony, and far more capable ARM-based K1 application processors from NVIDIA for its Phantom 3 drones. Process is the same; only differentiating factors at this point are their image and application processors.

Taking a closer look at the specifications corroborates my statement; Sony x1000V, GoPro Hero 4 and DJI’s Phantom 3 cameras, all house 1/2.3” image sensors manufactured by Sony. The size of image sensors and quality of lenses used largely dictate the clarity of digital image capture devices. As gizmag explains:

“The size of sensor that a camera has ultimately determines how much light it uses to create an image. In very simple terms, image sensors (the digital equivalent of the film your father might have used in his camera) consist of millions of light-sensitive spots called photo sites which are used to record information about what is seen through the lens. Therefore, it stands to reason that a bigger sensor can gain more information than a smaller one and produce better images.”

Housing similarly sized image sensors essentially means that image capturing capabilities of all three devices is almost similar on paper. The only differentiating factor at this point are their image processors which are largely responsible for color profiles and image encoding. Even smartphones have started getting similar sized image sensors.

The point that I’m making is that GoPro doesn’t have a magic wand that makes it better than its peers; its tech is almost at par with competitors. GoPro has failed to technologically advance in its core business operating segments, which has allowed its competitors to catchup in terms of specifications. To put things in perspective, all three devices -- Sony x1000v, GoPro Hero 4 and DJI Phantom 3 drone – can capture 4k video at 30 frames per second.

House a larger sensor!

I believe that this commoditized business approach could work against GoPro’s drone expansion plans. The company can’t simply introduce industry-standard tech and expect to snatch away market from established market players without advancing or differentiating its offerings. With a wide range of sports camera SoC offerings coming to the market – from the likes of Ambarella, Allwinner Technology, Qualcomm and Alpha Imaging Technology – having 4k video recording capabilities at 60 frames per second could soon become the norm for high end drones. So merely equipping faster application processors won’t provide GoPro any differentiation.

GoPro needs to think out of the box and introduce drone cameras which are truly competitive if it intends to succeed in the segment. For instance, the company can break the industry wide norm and house its drone cameras with larger image sensors for better low light imaging capabilities. Sure the sensor would cost more than usual, and might as well lower the camera maker’s profit margins, but I believe that this small technical differentiation can provide GoPro much needed traction in the drone segment in its early stages.

Competition is heating up in the lower-end drone segment. For instance, we’ve seen xCraft receiving a lot of attention lately after it got funded by all five investors of Shark Tank last month. The upstart drone maker allows using smartphones to capture videos instead of requiring dedicated cameras. This could pose a challenge to GoPro, as latest smartphones are coming with powerful application processors and image sensors as large as 1/2.5” that are comparable with GoPro Hero 4’s 1/2.3” sensor. This is one more reason why GoPro should advance in image sensors – to avoid end up competing with smartphone equipped low-end drones.

And lastly, DJI’s Phantom drones already house mounts to accommodate GoPro cameras. Hence, people who already own GoPro cameras probably wouldn’t consider investing in a full fledged GoPro drone if it’s camera’s video recording capabilities are similar to their Hero 4’s. They’d rather prefer a standalone drone without camera, mount their GoPro on it, and get the job done. This situation could seriously hamper the demand for GoPro drones; consumers holding off their purchases or migrating to a competitor’s offerings is always a negative. This gives GoPro all the more reason to introduce drone cameras that can capture far more detail.

Final words

Sure GoPro owns a few color encoding patents that allow it to produce images with unique color profiles, but that can’t be the sole reason for purchasing its drones. The company needs to up the ante and make its place in the drone industry by leading in terms of technology. I firmly believe that this could be done by taking sports action camera to the next level, by equipping larger image sensors. Otherwise, introducing drones with commodity cameras won’t generate much consumer interest. The industry is already flooded with commodity offerings and GoPro might have to increase its marketing spend to attract consumers.

I advise investors to keep a close eye on GoPro’s upcoming drone camera specifications. Lack of technological differentiation would only result in dismal consumer response and commoditization of its offerings.
Published on Mar 30, 2016
By Business Quant

Copyrighted 2016. Content published with author's permission.

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