Flying drones for the consumer market might be cool, but their prices -- which range from $800 to $5,500 -- are putting a ceiling on their sales potential. Enterprise drones, on the other hand, are an entirely different story.

In this week's episode of Industry Focus: Energy, Taylor Muckerman talks with Dylan Lewis from the Tech show about where the drone business is today, and where the market for them is going to be in the future. Find out why GoPro (NASDAQ:GPRO)  had to recall its first-ever drone, the Karma, shortly after its release; how investors might want to buy into in the drone market's huge potential; why drones are such an appealing value proposition for oil giants like BP (NYSE:BP) and Total (NYSE:TOT), and more.

A full transcript follows the video.

This podcast was recorded on Nov. 17, 2016.

Taylor Muckerman: Welcome, Fools! This is Taylor Muckerman, host of Industry Focus, the podcast that dives into a different sector of the stock market every day. I'm joined by Dylan Lewis today. It's November ... 18th?

Dylan Lewis: 17th.

Muckerman: 17th. Either way, we'll get there eventually. We're talking about crossover week. You're from the tech side, I'm from the oil side.

Lewis: I think we can tell it's crossover week because you're sitting in the host chair. That intro was a little different from what our listeners might be used to.

Muckerman: I know, I don't have the host voice like Sean O'Reilly does.

Lewis: I don't think any of us do.

Muckerman: No. He's got it going on.

Lewis: He has a certain carry to the way he speaks, it's really excellent. But yeah, this whole week is crossover week.

Muckerman: Yeah. So, you're joining the Energy show. We're going to try and figure out what energy and tech have in common.

Lewis: I think drones. That's what I want to go with.

Muckerman: A lot of people might not realize that, so that's why we're talking about it. Drones, obviously very consumer-facing right now. I'll get to the industrial, and oil and gas implications in a minute. Why don't you kick off, for some of our listeners that might only tune in to the Energy show, a little bit about GoPro, what's going on with them. Then, we'll get into some applications beyond just the consumer side.

Lewis: GoPro is one of the names in the market that a lot of people were expecting big things from. They recently launched their Karma line in late October.

Muckerman: This is their first drone, right? 

Lewis: Yes. This is their first attempt at a drone. And it didn't go so well, as it turns out. Earlier this month, they announced that they were recalling 2,500 units of the Karma drone. Sold for about $800 to $1,099, depending on which model you got. But, what was happening was, they were falling out of the sky. (laughs) 

Muckerman: (laughs) Not quite the entrance to the market you want to make.

Lewis: Yeah. There were some power-failure issues. As a result, I think GoPro is smart to very proactively recall everything. You compare the way they handled it to the way that Samsung handled the exploding Galaxy Note 7s ... I think they were conservative, and that was good. But, obviously not the product launch that you want, especially heading into the holiday season, which is when consumer tech companies do the lion's share of their annual sales.

Muckerman: Yeah. And even leading up to this drone release, they had issued dour guidance for the fourth quarter, just on the camera market alone, which is what people probably recognize this company as, with their Hero series of virtually indestructible action cameras, then the online content management systems where you can edit videos, and GoPro can do whatever they want with your content, which might be the only feature of this business. So, looking at these drones now falling out of the sky, what are they doing? Are they giving people new drones? Are they just reimbursing folks? How are you going to recover from your first-ever drone failing?

Lewis: This is a full refund situation. They're not replacing units. I think part of the issue is they need to figure out what's going on.

Muckerman: Yeah, they might not have inventory to replace, either, because they're probably planning on selling what they have.

Lewis: Right. So, until they can address that issue and make sure that, on a technical side, everything is fine and we won't have those power-failure issues during operation, they're going to hold off on issuing anything new. Like I said, it's problematic for a business that's looking to make a huge splash during the holiday season. I think a lot of the GoPro bulls were saying, "This is the product segment we can get really excited about." Like you alluded to, the action-camera market has not been particularly great for them. I think in some ways, the action-camera market forecasts what we might really see on the consumer side, with drones. Time and time again, we've seen these more niche-type devices seem like they have humongous market potential, and people get really excited about them, and they hit saturation a lot faster than people realize because they don't have mainstream appeal.

You look at what's been going on with GoPro's main segment, the action cameras -- I believe they're down 40% year over year the last couple quarters in their top line. Most of the fact there is just, they've hit saturation with that market. Some other historical examples that prove that out: You look at Garmin, this was a company that was a GPS manufacturer and a smartwatch manufacturer. I looked at the books, they have less money coming in on the top line now than they did in 2007.

Muckerman: They were blindsided by Google Maps on your phone, absolutely.

Lewis: So, in that case, they lost out to all-encompassing technology that really rendered their main product obsolete. But any time you're looking at something that has a very dedicated single use, I think you have to wonder: Are those really gaudy numbers we're seeing analysts forecasting reasonable, or is this more of a hobby device?

Muckerman: And with drones, I've flown one or two, and getting behind the controls can be intimidating, especially if you're talking about a device that costs more than $1,000. Maybe a little bit nervous about being the cause of it falling out of the sky, much less the drone being the cause. When you look at this industry, GoPro might be, maybe, the only public-facing way that investors can get into it right now.

Lewis: Which is unfortunate.

Muckerman: Yeah, they're brand new to the segment. I mean, you have companies like DJI, which might make the best consumer drone, I'm not sure. It has a great reputation.

Lewis: I've seen their market share number floated somewhere between 40% and 60%. So, they own the drone market.

Muckerman: Yeah. So, maybe they'll be bought by a company that's public. But at the moment, GoPro is really the only accessible way for an investor to profit if this industry grows.

Lewis: If you're looking at manufacturers, specifically, yes.

Muckerman: Yeah. There's sensors and everything, right?

Lewis: Yeah. You have a name like Ambarella, and they are basically video processing chips. The nice thing about them is, you are not anchored specifically to one manufacturer or one device type. They're outside of drones. They supply GoPro, they supply DJI, they also supply TASER's Axon body cameras. So, they're a little bit more diversified there. But yeah, I think a lot of people were hoping that, with GoPro, there'd be some way to publicly invest in drones. I think, if you're still looking for that, I would hold expectations a little bit, just because, if you take the run-rate that they were on -- like I said, 2,500 units over two weeks, you put that over the course of a quarter, and that's during a launch, so you would think demand has to be pent up ...

Muckerman: As heavy as it can get.

Lewis: You say, roughly, they'll sell about 16,000 units during a quarter. Assuming people buy the more expensive bundle with the camera included, that $1,099 price point I talked about, that means they're bringing in around $18 million on a quarterly basis. This is a business that does over $200 million in revenue per quarter. So, it's a 10% increase or so, but it's not something that's dramatically going to move the needle in a really impactful way. We don't know exactly what those margins would look like, either. So it's tough to know how that would trickle down to the bottom line. Point is, it didn't go well for them when they tried to launch.

Muckerman: No, crashed and burned so far.

Lewis: It'll be interesting to see how they handle it. But, if you're still banking on GoPro being a really great drone play, realize that they have a lot of work to do to recover. Even if things had gone swimmingly, it still wouldn't have been a huge part of the top line for them.

Muckerman: Yeah. When you look at expectations, the market knew they were coming out with this product, probably baked it into some of the pricing. So, now you're going to see some ramifications of that being backed out of the top line, since now they're having to fork over some cash, and maybe some writedowns here in the coming quarters, as expectations aren't going to be met.

So, I guess we could turn it to the enterprise side here, the oil and gas industry.

Lewis: I'll say, I'm definitely a little bearish on the consumer side of the drone market.

Muckerman: Kind of like 3D printing -- you see tons of enterprise opportunity, but it's kind of floundered on the consumer side.

Lewis: Yeah, we talk about the price points. I looked at a study from droneanalyst.com, they did a survey in early 2016, so it's a little outdated, but they found that 70% of drone buyers paid more than $1,000 for their devices, and the vast majority fell between $1,000 and $4,000. That's kind of an inaccessible price point for a lot of people. I think it makes it tough to jump into something where you're like, "What's the use case for this?" If you're a professional photographer, it totally makes sense.

Muckerman: Yeah, you make your money back very quickly because it's an added value to your services. But if you're a hobbyist, it's going to sit in a closet most of the time.

Lewis: Yeah. Our man behind the glass, Austin Morgan, owns one, and he does a lot of video work, so it totally makes sense.

Muckerman: Not the GoPro. He owns a drone. He's much more of a savant than that, I guess you could say.

Lewis: He knows the market better than we do.

Muckerman: That's right. Again, not a publicly traded company that he owns, but he's also interested in the DJI market. Interesting there. But, when you look at these drones, $1,000, $2,000, 4,000 even, not so much when you're Chevron or BP, companies that have been using drones -- not from a GoPro or a DJI. They're using companies that are small and niche players that are focused on delivering drones that have these capabilities to inspect offshore oil wells, inspect pipelines, inspect construction sites. Intel even has a drone that's specifically made for construction and field inspection. 

Lewis: Isn't GE one of the big players in the drone space, and they just launched something? 

Muckerman: They very might well have. I know the Internet of Things is very important to them, and sensor development. So sure, they're definitely in the business of driving technology in the oil and gas space, because oil and gas is a very important side of their business. They just teamed up with Baker Hughes in one of the largest deals that we've seen in some time in the oil and gas services sector, which is a sector of the oil and gas industry that I could really see thriving on drone usage. Some estimates out there for enterprise use of drones are near $150 billion total market opportunity. So, there's definitely some legs here.

Lewis: For context, that is a sliver of the expectations for the consumer market.

Muckerman: Yeah, absolutely. When you're looking at this, this is all about cost savings, safety and efficiency for these companies. Some estimates out there are saying that a drone performing inspections of an offshore oil rig could save up to 80% in terms of cost and efficiency, versus a manned operation.

Lewis: What do those inspections look like?

Muckerman: They're covering the entire well. These wells are miles offshore, very turbulent waters. When you have a manned inspection, these can last anywhere from a few weeks up to seven weeks, and they have to transport these fellows back and forth either on a helicopter or by boat. It's expensive. They have to feed them, house them. So, when you look at a job like this taking up to seven weeks -- or seven two-week shifts, even, so 14 weeks -- and a drone, they're saying, could do it in less than a handful of days, at a tenth of the cost. 

Lewis: And I'm guessing it's a lot less risky to have a machine out there, rather than having humans out there doing stuff.

Muckerman: Yeah. And you can contract folks. It's somewhat of a growing job market right now, where people are becoming certified drone pilots, and being contracted ...

Lewis: It's kind of a sweet gig.

Muckerman: Yeah, it is. If you're interested, you can do it -- not entirely online, but you can get a head start online. I believe the FAA discussed this in their Part 107, which they announced in January, the Summary of Small Unmanned Aircraft Rules, basically saying they can't be more than 55 pounds, you have to have a visual line-of-sight, 400 feet is the max altitude unless there's an obstruction, then you can climb 400 feet above it, and then, 100 mph ground speed is the max there. But, certification doesn't seem to be all that difficult, so you're seeing folks who aren't necessarily in the oil and gas industry coming on board to fly these drones, do these pipeline inspections, do these oil rig inspections, and it's saving a lot of money here in the sector. Total is even building the 11th fastest and most powerful supercomputer in the world, as an oil and gas company, just to process a lot of the data that they see coming forth because drones and the visual data they're able to provide is going to be the largest supply of data these companies are expecting. BP is spending $100 million to amp up its own supercomputer in the next year or two. So, they're getting ready for it, and it seems to be wise to cater to companies that are making tens, twenties hundreds of billions of dollars a year, where this is actually a cost savings rather than a hobby for them.

Lewis: Yeah. I think investors are naturally going to think, "OK, on the enterprise side ... " we threw out some big names, like GE and Intel. Their enterprise drone segment might not move the needle all that much. I think the way you have to look at it is, as an energy investor, you want to see the companies you're invested in putting money and resources toward these types of things. It seems like, that's what the best-in-class type technology is at this point. You're going to be more efficient. There's some exploration type of stuff that people are doing with drones as well, right?

Muckerman: Yeah, they're strapping on some 3D-imaging capabilities to these drones, seismic capabilities to these drones. When you're talking about where they're looking for oil nowadays, it's not necessarily in the plains of West Texas. It's in the Arctic, it's in very deep offshore fields -- places where it's not very hospitable to send a human. That might be the forefront of the forefront right now -- is the use and exploration. But, that's definitely the future here. Because the low-hanging fruit is obviously inspections. You're on the rig already, you're flying around, you can see it, and it's just capturing images rather than analyzing data in real time as the drone itself. So, I think exploration is definitely the future of drone use, but right now, the low-hanging fruit is inspections, and that's vitally important because, if you look at the BP explosion in 2010?

Lewis: Deepwater? The movie just came out.

Muckerman: Yeah, it did. I haven't seen it and I probably won't see it. It's  a little too extravagant of a story for me, after reading a few books about it, I'll settle for that. No, I think that, when you look at the cost that BP incurred -- they're still incurring -- because of that, if even a small portion of that could have been prevented by the use of drones, and more in-depth inspections .... This allows them to be carried out much more frequently, too. If it's a tenth of the cost, even if you carry out five extra inspections, you're still saving off of just one inspection. I look at this as, that's the most important part, in my mind -- not only cost savings, but the preventative nature, in terms of saving lives, saving oil, saving the environment. So, there's huge implications, not just monetarily.

Lewis: Just like in healthcare, preventative medicine does the body well.

Muckerman: Absolutely. And they're talking about the companies that are analyzing the data from these drones being able to then take that and use it in a predictive nature, in terms of maybe predicting where corrosion might occur more frequently based on, maybe, drips that are supposed to occur, but they might occur in the same spot, repeatedly, constantly dinging the same part of the machinery, corroding some of the steel in the pipelines. You have people out there walking these hundreds of miles of pipelines right now. It takes weeks. And, the human eye can miss a lot. So, they're strapping infrared cameras onto drones, and buzzing right over these things.

Lewis: One of the things I thought I read was talking about how it's not only detection, but it's also severity, with this type of stuff. It can appreciate the magnitude of a leak, or something like that, which is a level that humans don't have. It's slightly different analytics.

Muckerman: Yeah, and it's real time, because you're sending that back to a human, or a supercomputer, like the one that Total has built -- it surprised me to see that an oil and gas company has the 11th most powerful computer in the world. Total is at the forefront of a lot of things. Very big owner of SunPower and renewable energy, but also still very heavily into oil and natural gas.

Lewis: Are they kind of the name to know, in terms of best-in-class, when it comes to this stuff?

Muckerman: It seems to be that. When you're looking at the integrated oil companies, that includes Exxon, Chevron, BP, Shell, Total. Yeah, I think, if you want the most diversified integrated oil and gas company, Total would be the one. They're a majority shareholder of SunPower, and they were one of the first to get on board with the use of drones in inspections. So, yeah, if you're looking for a company thinking about the future, and acting on the future, Total might be that one.

Lewis: Thanks for the energy lessons.

Muckerman: Yeah, there you go. So, unless there's anything else you have ...

Lewis: That does it for me.

Muckerman: That was a pretty good crossover. In honor of NBA season kicking off recently.

Lewis: Yeah. Who's your team?

Muckerman: I don't necessarily have one. I've been to a couple Wizards game already this year. They need a bigger crowd.

Lewis: They do, it's not fun.

Muckerman: No. I went to a Celtics game last week, and I thought, "Hey, Boston is close, maybe it'll be packed." There were definitely more Boston fans than Wiz fans, but it's still $36 for the lower bowl. It's a good time to be a fan. Casual fan, anyway, not a real fan. That wraps it up. Thanks for joining us on the Energy crossover show with Tech, Dylan.

Lewis: It's a pleasure.

Muckerman: If any of our listeners have any questions or comments, we have our Industry Focus handle on Twitter. Does tech have one as well?

Lewis: We have @MotleyFoolTech. You can get some news and insights there. Then, @MFIndustryFocus.

Muckerman: And, for anybody more interested in energy, we have @TMFEnergy. Hit us up with any questions on drones on the consumer side or the industrial and energy side. As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against stocks mentioned, so don't buy or sell anything based solely on what you hear. For Dylan, I'm Taylor, Fool on!

Dylan Lewis owns shares of Ambarella, ExxonMobil, and Taser International. Taylor Muckerman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Ambarella and GoPro. The Motley Fool owns shares of ExxonMobil and General Electric and has the following options: short January 2019 $12 calls on GoPro and long January 2019 $12 puts on GoPro. The Motley Fool recommends Chevron, Intel, Taser International, and Total. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.