Nokia (NYSE:NOK) recently returned to the first-party hardware market with the Ozo, a cantaloupe-sized virtual reality camera equipped with eight cameras. At $60,000, the device is being marketed to professional filmmakers instead of mainstream consumers. Nokia recently told The Wall Street Journal that the Ozo was the first VR camera "ready to go out of the box" -- a clear jab at GoPro's (NASDAQ:GPRO) $15,000 Odyssey, which consists of 16 GoPro cameras to be attached to a circular rig.

Nokia's Ozo. Source: Nokia.

Nokia didn't disclose how many Ozo cameras it had sold so far, but it plans to release a cheaper version for hobbyists in the near future, along with better scene-stitching software for live broadcasts. Those strategies also clearly target GoPro, which declared that it would launch its cheaper 6-camera Omni rig, a "more casual" spherical camera, and better editing software later this year. Can Nokia gain ground in this fledgling market and kneecap GoPro's similar efforts? Or is there enough room in the market for both companies to thrive?

What VR cameras mean for GoPro
GoPro stock has fallen around 70% over the past 12 months due to ongoing concerns about fading action camera sales. Analysts currently expect GoPro's sales to fall 15% this year, compared to 16% growth in 2015 and 41% growth in 2014. The company hopes that four catalysts will rejuvenate its sales -- the discontinuation of three cheaper cameras in April, and the launches of the Karma drone in the "first half" of the year, the Omni VR rig this summer, and the new Hero 5 cameras by the holiday season.

Mainstream interest in the Odyssey rig, which launched September, could climb as YouTube and Facebook's 360-degree videos and VR headsets help more consumers experience VR videos. If that happens, demand might rise for a cheaper, stand-alone spherical camera, which GoPro CEO Nick Woodman hinted at during CES this year. But as I mentioned in a previous article, competitors like Kodak, Nikon, Ricoh, and 360fly have already launched similar devices. Kodak's PixPro SP360 can film 360-degree 4K content for just $499 -- the same price as GoPro's Hero 4 Black. These single-device solutions arguably make GoPro's rigs look bulky and clumsy.

GoPro's Omni (L) and Odyssey (R). Source: GoPro.

GoPro's VR efforts already have some big supporters. Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Google uses GoPro's Odyssey for its "Jump" VR initiative, which encourages content creators to capture and share content on YouTube's 360 channel. Facebook also partnered with GoPro to produce 360-degree videos for its News Feed. Since several Hollywood studios have already used GoPro cameras in feature films and experimented with short VR films, they might buy GoPro VR rigs to shoot 360-degree videos.

What VR cameras mean for Nokia
Nokia nearly abandoned the consumer hardware market after selling its handset division to Microsoft in 2014. Despite that big setback, Nokia licensed its brand to Foxconn for the N1 tablet last year, and hinted that it could sell new smartphones in the same way after its non-compete clause with Microsoft expires at the end of this year.

The Ozo camera, however, isn't a licensed device produced by another company. The device was developed from an in-house prototype by Ramzi Haidamus, the President of Nokia Technologies -- a unit which was established shortly after the sale of the handset unit to collect patent royalties and license new technologies. Sales from that unit rose 170% annually last quarter and accounted for 11% of Nokia's top line. Since the unit has much higher margins than Nokia's core telecom equipment business, it generated 44% of the company's operating profits. However, a shadow fell over the business in February after an eagerly awaited patent settlement with Samsung yielded lower-than-expected royalty payments.

On its own, the Ozo probably won't generate meaningful growth for Nokia Technologies, which is mainly dependent on royalty revenues. But over the next few years, Nokia might expand the Ozo line into a wider range of VR cameras to generate more revenue.

A $90 billion market opportunity
Tech M&A advisory firm Digi-Capital estimates that the VR market will grow from nearly nothing today to $30 billion by 2020, with much of that growth to be driven by sales of VR headsets like Facebook's Oculus Rift and related games, films, and experiences. If sales of VR headsets pick up, demand for 360-degree videos could rise and persuade content creators to buy VR cameras like the Ozo or Omni.

It's far too early to say if GoPro will lose this market to rivals like Nokia or Kodak, but GoPro's reaction time to recent threats hasn't inspired much confidence. There could be plenty of room for the Ozo, Omni, and other VR cameras to co-exist, but GoPro needs to keep a close eye on these rivals to avoid falling behind.


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.