GoPro (GPRO 2.58%) doesn't want to be known only for making action cameras. At the recent Code tech conference in Los Angeles, CEO Nick Woodman discussed two new areas of growth: virtual reality and consumer drones.
To help consumers create their own VR videos and images, GoPro unveiled the Six-Camera Spherical Array, a ball-shaped accessory that mounts six HERO4 cameras in different directions.
The videos and photos can then be stitched together with software by Kolor -- which GoPro acquired in April -- and viewed in a VR headset, mobile app, or interactive YouTube 360 video. The device is expected to arrive later this year; Woodman didn't reveal its price or give an exact launch date.
Woodman also confirmed earlier reports that GoPro was developing a consumer drone. He didn't discuss the drone's price or design, but stated that it would arrive in the first half of 2016 and be aimed at mainstream consumers.
Expanding into VR videos and drones sounds exciting, but will these new businesses generate meaningful revenue for GoPro and diversify its top line away from action cameras?
The business of virtual reality
The virtual reality market is worth nearly nothing today, but a recent study by Digi-Capital claims that the augmented reality (AR) and virtual reality (VR) markets could generate $150 billion in combined revenue by 2020.
$120 billion is expected to come from the AR market, consisting of devices like Microsoft's HoloLens, which adds digital overlays to real world objects. The remaining $30 billion will come from VR, with over half of that going to VR games for platforms like Facebook's Oculus and Sony's Project Morpheus. Less than a quarter is expected to come from VR hardware, and even less is expected to come from VR film.
Despite its niche appeal, even claiming a small piece of the VR hardware and film market would be a nice boost for GoPro, which is expected to generate $1.7 billion in revenue this year. However, GoPro's stake in that market could be a small one limited to professionals willing to buy six high-end GoPro cameras (at $500 each) and a mount. It also isn't a new market -- 360Heros already sells similar mounts for about $500 to $600. Kodak sells a 360-degree camera for $300, which could be a more affordable way for mainstream consumers to create VR content.
Even if GoPro's VR accessories and software don't generate meaningful revenue, they could enhance the GoPro Channel, the core of its media expansion efforts, with content that could be popular with VR headset users.
The business of consumer drones
Like the virtual reality market, the consumer drone market is a fledgling one that could grow significantly over the next few years.
Last year, revenue at DJI Innovations, the world's top consumer drone maker, roughly quadrupled to $500 million, according to The Verge. This year, that figure is expected to double to $1 billion. If GoPro's drones are as well-received as DJI's, they could diversify its top line away from action cameras.
However, many consumer drones are already equipped with GoPro mounts. That widespread compatibility could prevent consumers from specifically buying a GoPro-branded drone.
The drone market is also evolving rapidly. A new generation of "throw and shoot" drones recently arrived with the Lily Camera, which automatically follows and films a user at up to 25 miles per hour. Since Lily is autonomous, users don't need to worry about crashing it. It also doesn't face regulatory pressure from the FAA, since it always remains in the line of sight while flying below 400 feet. Similar devices like Nixie, AirDog, and HexO+ are also being developed.
When GoPro enters this market, it will likely launch something comparable to Lily for two reasons. First, it won't have to compete directly against DJI and cannibalize the market for GoPros mounted on larger drones. Second, an autonomous drone is well suited for GoPro's core customer base of sports enthusiasts, who would probably love to see a third-person view of the action.
The road ahead
GoPro's expansion into VR and consumer drones is fascinating, but neither plan addresses a more immediate threat: the rise of cheap action cams like Xiaomi's Yi Action Camera and Polaroid's Cube. If those devices force GoPro to lower its prices, as they already did once with the $129 entry-level HERO, GoPro's profitability and premium reputation could suffer.
Meanwhile, GoPro is arguably becoming a follower rather than an innovator. The company had a first-mover advantage with action cams, but it's now following others into the VR and consumer drone markets.
On the bright side, demand hasn't slowed down yet. Last quarter, GoPro's revenue rose 54% year over year as its net income soared 98%. If GoPro can maintain that momentum and charge into the VR and drone markets, it could turn both into long-term pillars of growth.