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Refocusing cameras are so last year: Is Lytro at risk of losing its magic?

Last year, Lytro knocked everybody’s socks off with its seemingly magical camera that could refocus an image after it has been taken. Known as a plenoptic or light-field camera, Lytro’s device uses a series of micro lenses to capture as much light information in a scene as possible, allowing software to handle the refocusing trick afterward – not magic, but really cool science. So, how does a company with a breakthrough technology suddenly find itself in a predicament? 

Despite capitalizing on a unique technology that its founder, Ren Ng, researched heavily at Stanford University, Lytro, like every other camera maker, isn’t immune to consumers’ shifting preference toward smartphone cameras for casual photography. Since Lytro’s camera went on sale, other companies including Toshiba, Pelican Imaging, and DigitalOptics are developing refocusing camera modules for smartphones. Nokia is planning to release not hardware, but software that could achieve the same trick – an app simply called Refocus. There are free apps like Seene, which can download to create photos with a parallax 3D effect – a feature that was added to the Lytro camera earlier this year. Now, the latest news is that Apple has been awarded a U.S. Patent for a light-field camera system that could one day show up in an iPhone or some other new Apple device. The point here is that Lytro’s magical camera is no longer unique – your smartphone will soon offer Lytro-like features.

It doesn’t help that Lytro itself has been fairly dormant in terms of new hardware. The one product has remained the same, although several firmware upgrades have updated the software to include new features like animated GIF creation, Wi-Fi connectivity, and 3D capture for viewing on 3D-capable TVs or standard displays through 3D glasses. All nice features to have, but Lytro cameras still aren’t flying off shelves (it might help that it’s now sold at the Apple Store). But Lytro also had to deal with a small layoff of employees and leadership change that saw founder Ng step down as CEO to concentrate more on research and development, bringing in a new CEO with more business savvy. It also doesn’t bode well that a new Lytro product may not show up until 2014, leading us to wonder if Lytro is a one-trick pony.

So, is Lytro at risk of closing up shop? A shutdown is always a possibility in the business world, but to say it’s done is premature and unfounded. The company does have money: It raised $50 million from venture capitalists earlier this year, and last month it pulled in an additional $40 million from investors – obviously, there are people who are bullish about Lytro’s future. Let’s look at some of the potential directions the company could take.

A brand new camera

This isn’t a speculation but a fact. New Lytro CEO Jason Rosenthal promised new breakthrough products when he took over. Rosenthal hasn’t revealed what these may be, only to say that the first product would come out in early 2014. But a person privy to Lytro’s development told Bloomberg that the new product will look like a traditional digital camera with a touchscreen display.

We don’t know if this is another point-and-shoot or something more advanced like a mirrorless camera. With smartphones taking over the low-end and camera makers seeing growth in the high-end market, we can’t imagine Lytro would want to put out another point-and-shoot camera. We would like to speculate that it could be a more full-featured model, perhaps even one that uses interchangeable lenses (although light-field technology technically makes lenses unnecessary). Regardless, in our review of the Lytro camera we found the small screen inconvenient and difficult to use, the zoom to be annoying, and the image quality to be average at best – three areas we think Lytro will improve upon. In terms of camera type, anything is possible.

Rosenthal has said that the first camera was about introducing the technology to the public – to get it “out of the lab in Stanford and into the hands of consumers,” he told Bloomberg. So we think it’s highly unlikely the next Lytro camera will be another version of the first.

A brand new something else

Notice that Rosenthal mentioned, “new breakthrough products,” plural. While Lytro is associated with light-field technology, nobody ever said it’s the only thing they can make. A year of relative silence at Lytro HQ could be interpreted as development of new products. We can assume that Lytro will elevate light-field technology to the next level, but like many other companies it could be exploring other opportunities. Take, for example, Nest: The company reinvented the thermostat, but few people would have imagined that it would tackle the smoke/carbon monoxide detector next. With this theory and Rosenthal’s comments, Lytro could have a new suite of products in 2014.

Go commercial

The consumer business can be hard to tackle, which Lytro has discovered. But the company could go into the commercial space as a business equipment maker and/or original equipment manufacturer (OEM), like Samsung and Sony. Panasonic recently ditched its money-losing consumer TV business to concentrate on the business sector, a potentially lucrative sector that Lytro could get into. Remember, it’s not hardware, but a technology that’s a possible goldmine for Lytro to tap into – why get saddled with manufacturing when you can license it out?

When we spoke with analyst Ed Lee of InfoTrends last year for his thoughts on Lytro, he said, “Light-field photography is very interesting and I expect that we will see more under the guise of computational photography. Lytro has an interesting product; however, I see more applications for their technology in other imaging fields, like security, medical, etc. These application areas could use the variable focus points in many more ways than consumer photography.” Panasonic said it will focus more on the security surveillance business (and it has invested in refocusing camera module maker Pelican Imaging), but it’s a lucrative business that Lytro could also get into by developing its own security camera or license its technology to existing manufacturers.

It seems Lee was prescient in his outlook. Rosenthal told Bloomberg that its technology has a broader use than traditional camera technology, and has more appeal to filmmakers, medical-device makers, and even smartphone makers. With rival OEM manufacturers developing refocusing modules for smartphones, it’s a business that Lytro may want to get into.

Go bust

Even though we don’t think Lytro will go out of business, despite having major investors like North Bridge Venture Partners and Andreessen Horowitz, realize that $90 million can disappear very quickly. Research, development, and manufacturing are heavy expenses for any device-making company, and finance is probably something Lytro is carefully juggling with – it helps that CEO Rosenberg has experience in running companies, but we wouldn’t say its former business, Ning, was that huge of a success.

Innovative companies going bust isn’t completely unheard of – just look at the dot-com bubble burst of the late 1990s and early 2000s, with names like Pets.com, InfoSpace, and the Learning Company. There are plenty of brilliant concepts, but getting them to make money is another story. (Ask yourself: has Facebook and Twitter actually made significant profits? Not even Amazon, despite surges in sales, has realized profits.) But Lytro has a useful technology to sell, not just a camera, so comparing it to eToys.com or Kozmo.com isn’t fair.

Building on first-gen products ins’t easy, and it’s a good thing Lytro is still a private company, allowing it to innovate on its own schedule. As analyst Chris Chute of IDC told us, Lytro is not a large enterprise that seeks to satisfy shareholder sentiment. However, with Rosenberg only saying that the company’s new products are going to “be awesome,” it doesn’t exactly build confidence if you’re an investor. Lytro wowed us last year – we gave it our “camera of the year” recognition – and we hope it will wow us again in 2014 – if it makes it that far.