The action cameras that made GoPro (NASDAQ:GPRO) a hit with consumers are experiencing flat, if not declining, demand as smartphones and competing camera makers improve their video capture capabilities. To keep GoPro on any sort of growth curve, the company needs new products to inspire consumers once again. And there are three products GoPro could have success with in the future if it can get them right. 

Image source: GoPro.

Software that makes GoPro easier

Over the past 18 months, it's become clear that GoPro needed to improve its software, from downloading images off of GoPro cameras to editing and sharing those images. 

Some improvements have been made, particularly with editing apps like Splice and Quick. And GoPro Plus makes uploading images to the cloud easy, although the $4.99 per month cost is pretty lofty. 

Despite improvements, GoPro needs to take giant leaps forward in its capture, editing, and sharing apps. Until it's second nature to capture and share images from a GoPro, consumers will continue to trend toward software that's already included with smartphones. That's the gap GoPro needs to cross to make using a their products easier, and I'm not sure there's an easy answer on how to get there. 

A drone that doesn't crash

The Karma drone was supposed to be GoPro's big product introduction for 2016, but a recall just 2,500 units into sales has investors and consumers alike worried. The good news is that GoPro got out in front of an issue that could have led to drones losing power while they were flying, but there are valid questions about whether or not GoPro has the product development chops to move beyond the camera market. 

2016 was always going to be a test year for GoPro and drones, figuring out what consumers want and how much inventory to build. Early on, the test isn't going well. What'll be key now is getting a design solution to this power failure problem and developing the next-generation drone with obstacle avoidance and an advanced tracking feature. If GoPro can learn what the market likes and doesn't like about Karma and then apply those lessons to the next-generation device, the product could be a success long term. However, the market's confidence that GoPro will ever make an industry-leading drone is now more questionable than ever. 

Omni camera rig. Image source: GoPro.

The future of virtual reality

One area in which GoPro has quietly developed a strong market position is virtual reality video. The Omni system for fully immersive 360 video includes Kolor software for viewing and post-production of videos, and the GoPro VR app allows that video to be shared with the world. Odyssey is the company's stereoscopic panoramic rig for another 360 video option. 

Both Omni and Odyssey are on the leading edge of 360 video, but competitors are improving products quickly, and the market is still in a state of flux. GoPro needs to find a way to make these products the industry standard -- much like it did with the Hero line of action cameras. That means a better, cheaper camera than is being offered today and continued improvement in software. 

Long term, virtual reality could be a huge market for GoPro, but the company has to get the products right -- and soon. 

What's the price of developing the future? 

A major challenge GoPro faces is that developing software and hardware products is expensive. For 2017, management expects to spend $735 million on operating expenses like R&D and sales. To put that into perspective, if the company has a gross margin of 40%, it will need $1.84 billion in sales just to break even. That would be up significantly from an expected $1.27 billion in sales in 2016. 

GoPro simply doesn't have enough cash coming in from sales to cover the cost to develop new products. That's why it needs these existing products to be a hit, or the company is in real trouble. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.