GoPro: Capturing a New Audience
By: Gary Wu & Jackie Wang
The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.
Missing the Shot
Founded in 2002, GoPro was the first brand to produce a mainstream camera that was both compact and shock-resistant. In its early days, this was enough to give GoPro a distinct advantage in the market of athletes and thrill seekers wishing to capture their experiences. This no longer holds true. Between 2015 and 2017, GoPro’s revenues declined from $1.6 billion to $1.2 billion and the company’s share price fell nearly 90 per cent.
A key driver behind GoPro’s declining sales has been the rapid advancement in smartphone camera technology. For example, the iPhone 4 was released in 2010 with a simple 5-megapixel camera; a mere six years later, the iPhone 7 boasted a 12-megapixel rear-facing camera and a 7-megapixel FaceTime HD camera. The popularity of using smartphone cameras to capture footage was further fueled by the prominent use of social media platforms such as Instagram and Snapchat. Over the past five years, Instagram has quintupled its monthly active user base to more than one billion while Snapchat has quadrupled its number of daily active users to more than 180 million. While smartphones offer users the convenience of instantly editing and sharing footage on social media, GoPro cameras lagged in providing this feature. “We failed to make GoPro contemporary and failed to align GoPro to the smartphone movement,” admitted CEO Nick Woodman.
Another factor causing GoPro’s sales decline is the availability of cheaper alternatives in the market. For example, AKASO’s EK7000 camera has comparable specifications to GoPro’s flagship HERO7, but retails for less than half of its price. Desperate to compete, GoPro implemented an $80-million price slashing strategy during its worst holiday season in December 2017.
A Venture into Video Analytics
GoPro’s reliance on hardware as a sole revenue stream is unsustainable. To ensure future success, GoPro should combine its existing camera technology into an enterprise software offering. Footage from its cameras would be analyzed in real time to generate insights useful to businesses. By offering this software on a subscription basis, GoPro can access a source of recurring revenue, providing the company with more sustainable growth prospects than its traditional one-time purchase model.
A potential end market for this service consists of large retailers that want to better collect data on their operations and customer service. Many retailers rely on opt-in surveys and human observation to drive business understanding, but this leaves many insights untapped. Furthermore, it fails to address costly problems, including dissatisfied customers. While 96 per cent of unhappy customers choose not to voice a complaint, 91 per cent of those same customers will never return to the store, resulting in substantial losses.
GoPro should provide retailers with cameras that can be installed on store shelves and discreetly worn by customer service staff. The footage collected by this in-store camera network would be analyzed in real-time, leading to business improvements through sentiment analysis, audio processing, and inventory management.
Sentiment Analysis
Advances in machine learning now enable the analysis of facial expression and tone of voice to deduce an individual’s emotional state. Sentiment analysis from GoPro audio and visual footage would enhance retailers’ understanding of customers’ emotional response to their shopping experience.
Specific customer reactions can serve to signal when additional assistance should be provided. For example, GoPro footage showing that a customer is distressed following an employee interaction could immediately serve as a trigger to dispatch a manager. Improving customers’ in-store experience is a strong value proposition for retailers, as estimates show that a customer is four times more likely to turn to a competitor if they experience a service-related, rather than product-related, problem.
Retailers can use this software to gauge how customers feel about certain products and promotions within the store. Cameras in a particular aisle frequently detecting negative sentiment could indicate that more staff are needed to serve that section of the store or that the aisle’s product mix requires adjustment. Retailers could also sell this data to the brands they carry, since the data serves as a powerful market research tool.
Audio Processing
Alongside a customer’s tone of voice, the content of their speech could equally yield insight. Specific keywords and phrases uttered by customers could help the retailer understand and address problems. For example, the phrase, “this is ridiculous,” has been found to be the most telltale sign that a customer is becoming dissatisfied. GoPro cameras recording the word “ridiculous” a notable number of times in a specific area of the store or at a specific time would indicate that an underlying issue needs to be addressed.
Another promising use case for audio processing lies in assessing the effectiveness of a retailer’s marketing efforts. Querying for the frequency of phrases such as, “this is so cheap,” or, “the ad said...” can tell the retailer whether its pricing strategies and promotions are appropriate. Inventory Management Inventory management is crucial in maximizing profitability, with CNBC reporting that out-of-stocks, overstocks, and returns cost retailers nearly $1.75 trillion per year. Ineffective inventory management systems were a critical component in Target’s failed Canadian expansion attempt, with a $941-million loss attributed to the markdown of excess inventory. GoPro cameras could use video analytics to monitor inventory and immediately provide an alert when a product’s inventory levels are running low or have become fully depleted. The network of cameras in a store would further serve to enable depth perception and enhance the effectiveness of this technology.
Case Study: Axon
The success of such a strategy can be seen through the case of Axon, whose business now consists of manufacturing tasers and body cameras for law enforcement professionals as well as hosting video footage on its website. Prior to 2009, hardware was Axon’s sole source of revenue. The company then decided to launch Evidence.com, a subscription-based software service, to store and manage digital footage recorded by its body cameras. In a recent investor report, J.P. Morgan applied a 7.0 times revenue multiple to Axon’s storage and cloud revenues and a 1.0 times multiple to remaining software and sensors revenues. This compares favourably to the current 0.8 times multiple applied to GoPro’s total revenues.
This clearly demonstrates the potential benefits if GoPro implements the same recurring revenue strategy for its wearable cameras. Similar to Axon, a subscription-based service could introduce a new revenue stream for GoPro. This would furthermore increase shareholder value, as incremental GoPro revenues from recurring service sources would likely be valued at a premium to current revenues.
Akin to Axon’s first-mover position in the law enforcement market, GoPro can be the leader for the retail segment. GoPro has already built the mass manufacturing capabilities for production, invested considerable capital into software that facilitates management of camera footage, and established a strong brand name. This allows the company to stand out relative to any competitors entering this market.
Acquiring Software Capabilities
Rather than developing these analytics capabilities in-house, GoPro should either partner with or acquire existing companies. Software development and data analytics are not core competencies for GoPro, and hiring talent to develop these competencies internally would prove challenging. As of September 30, 2018, GoPro sits on more than $143 million of cash and cash equivalents which could be deployed for acquisitions. The company furthermore has previous experience acquiring and integrating businesses.
One company that serves as a viable partner for GoPro’s sentiment analysis service is Cogito, a software company whose primary product assesses the tone of employees and customers at call centers. This partnership would prove attractive for Cogito as GoPro would diversify the company’s revenues beyond its current business line and serve to validate the effectiveness of its technology. Similar opportunities for visual sentiment analysis and audio transcription could be found in companies such as Affectiva and Trint.
After acquiring the requisite software capabilities, GoPro should conduct a pilot program of its services at several small retail stores. This would help GoPro develop best practices for installation and setup, providing the company with tangible results evidencing the efficacy of its services before growing into large chain retailers.
Pricing Structure
Purchasing the large quantity of GoPro cameras necessary to equip a store is a large upfront expense for retailers. As such, GoPro’s standard offering should provide the necessary equipment in exchange for a recurring monthly fee. This fee would scale based upon the required investment, determined from metrics such as number of employees and store square footage.
To appeal to large retailers who have the ability to make substantial upfront investment and may prefer to build a camera network internally, GoPro’s value proposition should emphasize its newly acquired expertise in machine learning and data analysis, capabilities these retailers likely lack.
Defending Against Backlash
GoPro and retail stores should take steps to address potential risks that may arise from the proposed business model. Of crucial importance, companies in the U.S. must fully understand the legal implications of recording audio and video, and must fully comply with consent laws. Since retail stores are open to the public, shoppers cannot assume an expectation of privacy, making it lawful to record video. However, the company should mitigate legal risk by placing signs in stores explicitly disclosing to customers that they are being recorded.
Audio recording laws are more restrictive. While most states have one-party audio recording consent laws, permitting employees to record audio when interacting with customers, 11 U.S. states have all-party consent laws. To avoid liability, GoPro should only process audio in those states with one-party consent and when doing so, must ensure that all necessary consent is obtained.
This strategy risks consumer backlash from customers who are unreceptive to being recorded. However, with upwards of 30 million security cameras installed across the U.S. alone, the surveillance of retail customers is inevitable. Modifications to the existing GoPro chest harness design would reduce the size of the camera and make surveillance practices more discreet, helping to alleviate shopper concerns. Retail stores should make clear that customer data is anonymized and not stored once it has been used to generate insights. By emphasizing relatively inoffensive applications of the software, like reducing stockouts and improving customer experience, companies can better preserve their customer relationships. In addition, clear policies about private and sensitive off-limit conversation topics should be implemented for on-camera conversations.
By adopting the following policies, companies can ensure they respect the rights of every customer:
Customers should have the right to control how a company collects, uses, and discloses their data, and should have the option of withdrawing or limiting data collection consent;
Retailers should provide an upfront explanation of what data is collected, for how long it is stored, and with which third parties it might be shared;
Retailers must mandate clear rules on how consumer data is anonymized and protected from hackers, thieves, and other unauthorized parties; and
Customers should have the ability to see and correct the information being collected and stored.
It is important to note that both GoPro and retailers would still inevitably be subject to some form of public backlash after implementing increased surveillance in stores. However, these steps can minimize the damage to brand image and help put customers’ minds at ease.
Another potential source of backlash is from retail employees who are unreceptive to being constantly monitored on the job. While intended to improve employee accountability, this increase in micromanagement has the potential to result in lower morale and productivity. Retailers could counter this effect on their workers by implementing an incentive system rewarding top performers primarily based on customer experience rather than efficiency.
GoPro should take steps to preserve its youthful, adventurous brand among its existing customers. The proposed expansion should be launched as a separate line of cameras specifically for enterprise to establish a professional reputation to appeal to businesses. It is important for the two camera lines to be independent of one another to allow GoPro to build a unique reputation in each industry and prevent possible brand dilution.
Potential Expansions
In the future, GoPro could expand its end markets to include industries such as the sports training industry and the public service sector. In these industries, body cameras and video analytics could improve training processes by providing more nuanced, first-person insights. The expansion into new markets is essential for GoPro to successfully diversify its customer portfolio and increase revenues.
Picture Perfect
To date, GoPro’s current niche market of athletes and thrill seekers has been insufficient in sustaining the company. The proposed business-to-business expansion plan would allow GoPro to diversify its consumer base and benefit from recurring revenues, transforming the company into a disruptor of the digital age.