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Will Snap Avoid or Repeat GoPro's Fatal Mistakes?

By Leo Sun - Apr 5, 2021 at 9:14AM

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Snap plans to launch a new pair of smartglasses and a drone -- but is it simply repeating GoPro's doomed expansion strategy?

Snap (SNAP -7.38%) could launch two new hardware devices in the near future, according to The Information. The first device will reportedly be the fourth iteration of its Spectacles smartglasses. The second device could be a selfie drone. Snap previously invested in Zero Zero Robotics, a start-up that developed a folding camera drone, and it could use its technology to build a similar device.

Snap's expansion of its hardware business could broaden its ecosystem and reduce its dependence on Snapchat's ads, but the strategy also bears a resemblance to GoPro's (GPRO -4.10%) doomed plans from several years ago. Let's see if Snap can avoid the same mistakes as it rolls out its new devices.

A woman wears a pair of Snapchat Spectacles.

Image source: Snapchat.

GoPro's misguided media and drone ambitions

When GoPro went public in 2014, it declared it would evolve from an action camera maker into an "exciting new media company." At the time, it believed it could build a media ecosystem with content from GoPro users.

GoPro launched lower-end cameras in 2015 to fend off cheaper competitors, boost its mainstream appeal, and funnel more user-created content to its YouTube channel. But that strategy was disastrous since its cheaper cameras cannibalized its higher-end ones.

In 2016, GoPro shut down its entire media unit and turned its attention to the VR and drone markets. However, GoPro's pricey VR rigs, which ran on multiple GoPro cameras, never gained much momentum.

GoPro's Karma drone was also repeatedly delayed before its launch in 2016. When it finally arrived, the initial models suffered power issues that sparked a full recall and relaunch. The Karma subsequently fizzled out against DJI Innovations in the drone market and was discontinued in 2018.

Snap has established a firmer foundation

When Snap went public in 2017, it called itself a "camera company" instead of a social media one. That philosophy supported the expansion of Snapchat's AR lenses and in-app video games, which differentiated the app from traditional social networking apps like Facebook (FB -5.12%).

Unlike GoPro, which tried to build a media and software ecosystem on top of its hardware business, Snap is leveraging the strength of its social media platform, which serves more than 265 million daily active users, to expand its hardware business.

Snap still generates nearly all of its revenue from ads, so it can afford to take a few risks on hardware devices. But GoPro generated nearly all of its revenue from its action cameras, which faced intense competition from cheaper cameras and smartphones. Moreover, Snap's sticky social media ecosystem, which also includes streaming videos and in-app games, gives it a much wider moat than GoPro.

For GoPro, its cheaper cameras and drone represented essential ways to generate fresh hardware revenue. For Snap, its new Spectacles and selfie drone only represent experimental expansions of its software ecosystem.

It probably isn't a risky move for Snap

Snap launched the first version of its Spectacles, which allowed users to take pictures and record videos, in 2017. It initially generated a lot of online buzz with its pop-up vending machines, but Snap overestimated its appeal and overproduced the device, which resulted in a $39.9 million writedown that year.

A man wears a pair of Snapchat Spectacles at the beach.

Image source: Snapchat.

Snap subsequently launched much smaller batches of its second- and third-generation Spectacles in 2018 and 2019, respectively.

It didn't report any more inventory-related writedowns on the device, but it said its revenue from Spectacles still wasn't "material" in its latest annual report.

Snap's fourth version of Spectacles will reportedly sport better depth-sensing and AR capabilities, and will primarily target developers instead of mainstream consumers.

Therefore, Snap will likely sell an even smaller batch of its new Spectacles, and mainly promote it as a tool for developing AR lenses or games for Snapchat. It will likely apply the same strategy for its selfie drone -- generate lots of media buzz for the device, but only manufacture a small batch to test the market.

Snap might succeed where GoPro failed

Snap and GoPro started in different places, but their interests are overlapping. Snap's Spectacles represent a natural evolution of GoPro's wearable cameras, and its selfie drones could be more sophisticated than GoPro's Karma drones -- which were basically flying accessories for its action cameras instead of significant improvements over existing drones.

GoPro's efforts were all aimed at selling more cameras, which ultimately throttled its ability to create more innovative devices. But Snap's hardware plans are aimed at expanding Snapchat's AR ecosystem, which is already accessed by over 200 million of its users on a daily basis.

That firmer foundation could enable Snap to succeed where GoPro failed. But even if Snap misses the mark, the consequences should be far less damaging for the company than GoPro's failed experiments with low-end cameras and unimpressive drones.

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Stocks Mentioned

Snap Inc. Stock Quote
Snap Inc.
SNAP
$22.73 (-7.38%) $-1.81
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Meta Platforms, Inc.
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GoPro, Inc. Stock Quote
GoPro, Inc.
GPRO
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