GoPro Inc (NASDAQ:GPRO) virtually invented the action camera category and, for a time, had the market pretty much to itself. But with the recognition that there’s money to be made targeting the extreme sports crowd and other action-seekers, competitors have been piling on.
The latest threat to GoPro domination? GPS giant Garmin Ltd. (NASDAQ:GRMN), which announced this morning that it’s introducing new, rugged VIRB X and VIRB XE action cameras.
Research firm IDC predicts the global action cam market will exceed $2.9 billion by 2018. At the moment, GoPro controls nearly 57% of sales worldwide in this rapidly expanding industry — a big reason why GPRO still sits roughly 85% above its 2014 IPO value.
The question is, with action cams developing into big business and attracting the attention of industry heavyweights like Garmin, Sony Corp (ADR) (NYSE:SNE) and rapidly growing Chinese manufacturers like Xiaomi (which now offers a $65 waterproof HD action cam), will GoPro be eclipsed in the market it created?
Possibly. In fact, the trajectory GoPro is on shows some disturbing similarities to that of Flip Video.
At a time when consumer video recorders used tapes, which were relatively large and bulky and cost a lot, Pure Digital Technologies introduced the Flip Video. The tiny handheld camcorders recorded directly to memory, included USB connectors for uploading video to computers and the video files created were ideal for sharing online on Google Inc’s (NASDAQ:GOOG, NASDAQ:GOOGL) YouTube. And they were affordable. In its first year on the market, the Flip Video captured 13% of the camcorder market.
The successful company was snapped up by Cisco Systems, Inc. (NASDAQ:CSCO) in 2009 in a $590 million deal, but competition and smartphones were combining to hammer the Flip Video.
Among the wolves at the door: Sony came after the compact video recorder in a big way with its Bloggie line of camcorders, while Eastman Kodak Co. (NYSE:KODK), RCA and others pushed out cheap knockoffs. Even as this was going on, smartphone sales increased and the built-in cameras in these devices got better at shooting video.
At the time of the Cisco deal, Flip Video cameras held 75% of the new market it had created for affordable, solid state camcorders. By 2011, Flip Video was dead after Cisco pulled the plug on its camcorder business.
Could a similar fate befall GPRO? After all, GoPro is also a company built around a niche video recorder that now faces competition from all angles.
It Could Happen: GoPro Could be the Next Flip Video
GoPro was able to build up a huge lead in the action cam market when it was essentially the only player. That dominance allowed the company to command high prices (and high margins).
Now it faces traditional camera makers like Sony fighting back and trying to grab a chunk of the market, competition like that Garmin VIRB from established activity gear companies and a rush of cheaper options. Even strongholds like the drone market — where a GoPro camera mount has been the de facto standard — are under attack, with top drone manufacturers now seeking to cut out GoPro and offer their own action camera instead.
Even worse, Apple (NASDAQ:AAPL) recently filed patents for a wearable action cam controlled by an iPhone. That news alone knocked 15% off GPRO when it surfaced.
GoPro’s recent $129 HERO camera is a response to the competition, but a cheaper action camera with the GoPro name risks margins and could cannibalize sales from more profitable GoPro models.
So yes, it’s entirely possible that GoPro could find itself a footnote in consumer electronics history, just like the Flip Video.
Where GPRO Isn’t Quite the Same
One of the biggest differences between the Flip Video and GoPro situations is the smartphone.
When those first Flip Video cameras were being snapped up by consumers, smartphones were in their infancy. Most consumers didn’t even own one. Early iPhones helped boost smartphone adoption, but shot crappy video. But by 2010, the iPhone 4 could take HD video, and uploading to YouTube didn’t require the additional step of plugging into a computer.
By 2010, Flip Video cameras were not only competing with premium compact camcorders released by the Sonys of the world and dozens of cheap knock-offs, they were going up against smartphones — which enjoyed a 75% worldwide sales surge in 2010.
GoPro is facing the direct competitors, but at the moment there is no must-have consumer electronics device that also incorporates an action cam. Technically, you could helmet-mount a new smartphone to get a similar effect, but few people will risk a $650 smartphone in this way.
In addition, GoPro has clearly learned a few lessons from the Flip Video failure and is taking actions beyond offering cheaper versions of its cameras.
To head off competition in the drone industry (and to expand into a new product category), GoPro is working on its own line of consumer drones.
Further diversification is evident in GoPro’s push to build a media empire — or as Engadget describes it, the “leap from selling cameras and accessories to content creation, curation and delivery.” This includes sponsoring professional athletes, commissioning original movies, operating GoPro-branded entertainment channels and publishing its own video editing software.
Bottom Line
Like so many tech stories, the future of GoPro is playing out before us and at this point, there’s no way to make a definitive call. GPRO skyrocketed after its IPO, indicating a huge degree of confidence in the company. Even after a year where the threats to its business became obvious and tough questions began to be asked, GPRO still trades at close to double its IPO value.
Still, amid the optimism about GoPro and the measures it’s taking to remain a leader, it bears remembering that Flip Video dominated its market in an even bigger way … just two years before it produced its last camera.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
