An Industry Insider’s Analysis of GoPro’s Karma Strategy

By Bill McNeil

GoPro unveiled their new drone, Karma, September 19, and a week later, DJI released the Mavic Pro, a similarly priced prosumer quadcopter.  Karma has a few unique features but there really isn’t much of a comparison between the two drones. Mavic flies faster, farther, higher, longer, weighs less, is smaller, and has object avoidance technology and follow me autonomous flight.

Image Source: GoPro

Erinn Murphy, a Piper Jaffary analyst, estimates DJI has a backorder of between 300,000 and 500,000 Mavics. During the same approximate period of time, GoPro was forced to recall all 2500 Karmas shipped because of power failures. As a result of the recall, Dougherty analyst Charles Anderson cut his Karma 2016 sales estimates to zero from 30,000 units and lowered his 2017 Karma sales estimate to 50,000 units from 80,000. In addition, several law firms have filed class action lawsuits, claiming the recall may have violated securities and exchange regulations. The actual recall didn't violate any regulations, but lawyers are saying that GoPro's management misled investors by making positive statements about Karma and then, within weeks recalled Karma.

Image Source: GoPro

 

But hold on, there is more. Although Karma is compatible with GoPro’s newly announced Hero5 Black and Hero5 Session, and their older Hero4 Black/Silver cameras, the bundle does not ship with any of these cameras. In fact, no camera comes with the Karma. This means you can’t use the detachable stabilizer or the see First Person View on the controller screen because both require a camera. 

Image Source: GoPro

So let’s see, $799.99 gets you a drone with no camera, cool components you can’t use, and no object avoidance technology or follow me antonymous flying. In other words, the only market for Karma in its current configuration are GoPro customers who own a Hero4 Black or Silver edition.

Could it get any worse for GoPro’s new drone? Its features are marginally competitive, delivery is currently indefinite, GoPro may face multiple lawsuits, and the $799.99 Karma doesn’t even include a camera.

Any one of these issues would ground a drone startup but they are merely a bump in the road for GoPro. For one thing, shipping a drone without a camera actually makes sense because it enables GoPro to not only mine their existing user base but it also promotes sales of their new cameras. The chart below was sourced directly from GoPro’s annual report. Of the 5.2 million cameras sold in 2014, 2.4 million were purchased during the fourth quarter. This tracks with the fourth quarter release of the Hero4. If we add these 2.4 million cameras for 2014 plus 6.6 million sold during 2015 and something like 2.6 million capture devices shipped during the first three quarters of 2016, you get a total of 11.6 million. GoPro does not breakout sales by model but, for the sake of this exercise, let’s say only 15% of 11.6 capture devices shipped during this time were Hero4 cameras. That calculates to 1.74 million Hero4 cameras that are compatible with Karma. If only 5% of these Hero4 owners purchased a Karma drone in 2017, GoPro would ship over 87,000 UAVs without acquiring one new customer.

Source: GoPro 2015 Annual Report

The point being, Karma doesn’t need to compete with Mavic to become a major player in the prosumer drone marketplace. The path to their success is through buyers who want an accessory for their Hero5 camera, not for customers whose first priority is a drone that includes a camera. Owners of the Hero4, 5 or Session are far more likely to buy a drone that is compatible with their existing camera and equipment. This is a cumulative effect because a 2016 Hero5 owner could be a 2017 Karma buyer.

Distribution and brand recognition are other reasons Karma will succeed. Per their annual report, GoPro has 40,000 sales outlets in 100 different countries. Through 2015 they shipped approximately 20 million capture devices and there have been approximately 24 million cumulative downloads of the GoPro App. Facebook and Instagram followers have surpassed 10 million. Third quarter 2015 social media views of GoPro content reached almost 179 million, a year-over-year increase of 30%. International views on Facebook and Twitter grew 130% and 83% year-over-year, respectively. GoPro has a powerful and far-reaching consumer marketing engine that no other drone company, including DJI, can match.

GoPro’s user base plus their brand recognition and extensive distribution network will make them the largest U.S.-based prosumer drone company in 2017. This is a fairly low bar considering 3DR, current U.S. leader, is now concentrating their efforts on the enterprise marketplace.

It is also worth noting that Karma is not going to save GoPro or make a significant contribution to their bottom line. The company posted a third-quarter loss of $104 million compared with a profit of $18.8 million a year earlier. GoPro may become the largest U.S. drone company but there is no way Karma sales will overcome a 40% loss of corporate revenue. 


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Published Wednesday, November 30th, 2016

Written by Bill McNeil


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