GoPro Inc. (NASDAQ:GPRO) is in the midst of its biggest transition yet as a company. It needs to fend off rivals in its core market, and simultaneously expand into some very tough markets in virtual reality (VR) and drones. And failure in any of these markets, or all three, is very possible. Here's what investors need to watch.

A VR image of a skier with a 360-degree view

VR images are a potential growth market if GoPro can get its products right. Image source: GoPro.

Competitors come after action cameras

GoPro is built on action cameras, and if it lost its market lead in the space, the company would be in real trouble. And competitors are coming out with better products than ever before.

Garmin entered the action-camera space recently with a compelling camera called VIRB Ultra 30 that includes a touchscreen, voice control, image stabilization, and live-streaming. It can even pair with Garmin watches to enhance data and control.

Eastman Kodak has developed action cameras and VR cameras that compete with GoPro's Omni VR rig. Kodak may not be a hot name in cameras today, but with a long history in film, it's an important name to watch.

Sony also has a line of action cameras that match most of GoPro's features and price points. And live-view remote is a nice feature that GoPro only clumsily offers with connection to a smartphone.

It isn't as if competitors haven't come after GoPro in the past; there's always been a threat from more established names. What's different now is that GoPro isn't able to offer massive leaps in video quality year after year, which kept customers coming back and paying high prices for cameras. Competitors can offer similar products at similar price points, which will pressure margins, something we've already seen in GoPro's results. Enough pressure on margins and sales, and the company could be in real trouble.

The Karma drone crashes and burns

Karma was supposed to be the big growth product for GoPro in 2016, but it's been delayed at the very least. The drone is an effort to move beyond cameras and into a more holistic vision of experience capture, but the product was recalled shortly after being launched. Karma may eventually make it back to the market (according to management) but even if it does, there's no guarantee of success.

Before it was recalled, Karma was getting fairly poor reviews; DJI has taken a clear lead with more impressive drones. We've seen commercial drone competitors like Lily Robotics and 3D Robotics fail in their attempts at entering the market.

Making drones is a lot harder than GoPro bargained for when it got into the market. The industry is littered with companies that have failed, and GoPro could be next if it can't fix Karma's problems.

GoPro loses the VR battle

The next area of the market GoPro is trying to grow into is virtual reality. It bought software company Kolor in 2015, and has the Omni rig that turns 6 GoPro cameras into a VR capture device. But competitors like Kodak are introducing their own VR cameras at much lower cost than GoPro's $4,999.99 price tag for Omni.

GoPro could still become a player in the VR market, but it'll need to make rapid improvements in camera/rig size, cost, and editing capabilities. It would also be wise to partner with a VR platform like Facebook or Google's YouTube, instead of trying to keep customers in the GoPro VR app, which seems destined to be a bit player in VR.

If GoPro doesn't improve the Omni product in the next year, it will likely be surpassed by competitors. And that would limit growth opportunities in a VR market GoPro should be a big part of, long-term.

There's a lot of opportunity ahead if GoPro can get its product development right. But there's no guarantee of success, especially after its flops over the last 18 months.

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.