ClassPass: Workouts just got easier
ClassPass has revolutionized traditional fitness classes by developing a two-sided marketplace attracting both studios and end-users to its platform.
The unused gym membership has long been the bottomless pit of lost funds. Given shifts in working behavior, especially for millennials, the ability to maintain regular workout schedules has been difficult, particularly when it comes to instructed classes. Enter ClassPass, a marketplace for fitness classes. For $99/month, ClassPass offers users the opportunity to try as many classes as they’d like at multiple studios within their city (up to 3 classes per month at a given studio), without having to commit to a specific gym in the process. ClassPass has launched operations in over 30 cities around the world.
ClassPass’s marketplace dynamic benefits from strong network effects. ClassPass initially signs up studios and gyms offering classes within a specific city, which then begins to attract customers who may be interested in those classes to the ClassPass network. From there, the growth of customers attracts more studio partners, both in terms of additional classes from existing partners, as well as adding new studios altogether. Now that it’s taken off, ClassPass has over 4000 partners around the world.
Value creation
From this two-sided marketplace, ClassPass creates value for studios and gyms, as well as end users. Gyms generally operate with excess capacity, meaning they don’t absorb fixed costs at full utilization. Any additional customer for a specific class therefore directly impacts a studio’s bottom line, holding all else equal. ClassPass serves as a way for studios and gyms to better utilize their existing class offerings by featuring open classes on the ClassPass site and allowing one-off individuals to attend, in addition to their monthly subscribed customer base. ClassPass then pays the studio a portion of what it would have charged a normal customer, with estimates suggesting studios may be paid anywhere up to 50% of what a traditional customer would be paid. While the studio is technically making a loss relative to a full-blown customer, it’s still able to monetize on an otherwise empty class spot. Additionally, ClassPass brings in new customers to studios, providing new avenues for customer acquisition. The one caveat is that studios often need to siphon off class spaces for ClassPass, which potentially may take away spots from traditional customers who would be willing to pay full price for that class. This requires that studios pay attention to their sell-out rates to ensure they don’t cannibalize their existing revenue streams.
For users, ClassPass creates convenience; it allows people with busy schedules to still get in their workouts at multiple locations across a city, and also allows users to use their membership in other cities as they travel. ClassPass also features a variety of offerings, including classes covering yoga, Pilates, cycling, barre, etc., and provides users with an opportunity to try new classes they would have otherwise been unable to experience with a traditional lock-in gym membership. And finally, ClassPass offers a heavy discount on traditional pricing for active users. A traditional studio class may cost an upwards of $30 per class. With the $99 monthly subscription, ClassPass effectively pays for itself for any customer who attends 4+ classes a month. All of this, combined with an elegant mobile app for on-the-go booking and seamless integration with desktop accounts, and continuous feedback loops around user experience and studio performance, provides a flexible and simple end-user experience for ClassPass subscribers.
Value capture
ClassPass captures value from users through their monthly subscription fees, and also offers users the ability to put their account on “hold” for only $19, while still receiving access to one class per month (which is still cheaper than the average cost of a single class). While it does share revenue with its partnering studios and gyms (an expected $100M will be transferred to partners in 2015 alone), ClassPass has already hit a $60M run-rate revenue as of earlier this year, and currently holds a $400M valuation.
Sources:
http://techcrunch.com/2015/02/27/with-a-60m-revenue-run-rate-classpass-may-be-the-next-uber/
http://www.businessinsider.com/classpass-400-million-valuation-2015-5
http://money.cnn.com/2015/04/29/smallbusiness/classpass-small-business/
This is a great assessment of the ClassPass value creation on both sides of the funnel. I particularly appreciated that you didn’t shy away from the potential downside: class seat cannibalization. This has been a big hurdle for ClassPass and its competitors in establishing partnerships across cities.
You also touched on new customers as an avenue for customer acquisition, but I’d just open that a bit further because I think it’s a huge source of additional value creation. I would imagine that as the ClassPass user base grows, the (albeit harder to quantify) marketing exposure on the ClassPass platform is well worth the margin shave on early ClassPass partnership for smaller, niche studios. It’s such a low-risk way for users to come to your studio and give it a try. Even if you don’t have many spots available, the brand awareness could be invaluable as the studio grows.
I’ve used ClassPass and enjoyed it, but I’m curious to see if they will continue to win the game if competitors move into the space. I wonder how easy it would be for a competitor to come in at a cheaper monthly fee and / or offer users more than 3 classes at a specific location. While ClassPass has created a large network of partners, it is not impossible for another company to replicate the business model.
I am also curious to see where ClassPass ultimately positions itself. Does it attempt to replace studio/gym memberships all together, or is it more of a ticket to trying studios until a user finds one he/she wants to become a member to? Some of the answers to this question could be seen through the churn rates of it’s current users. I was quite surprised that ClassPass did not try to offer users a reason not to leave when I tried and successfully cancelled my ClassPass membership, and I’d be interested to see what % of their customers drop off after 3 months.
The UX on ClassPass is definitely a plus, however the actual experiences/variety varies widely between cities and studios.
I think ClassPass makes a lot of sense for classes at gyms, but I wonder whether it could hurt studios in the long-run because there is a human face to potential cannibalization – part of the reason many people go to studios is because of the community, and studios differentiate themselves partially based on the community they build.
Personally, belonging to the community at a studio has been a life-changer, and the idea of using ClassPass to move from studio to studio seems like it would offer great variety, but at the expense of community. I think it would be a great way to find a studio to stay with in the long-run. Building community requires that students spend much of their time with one studio, which goes against the ClassPass model.
Another thing working against ClassPass – the importance of routine and habit. Starting to work out is very hard at first, and while we all need variety, having a regular “spot” at a gym or studio is a great way to build accountability. If no one is expecting you in class, you might be less likely to go.
As a consumer I am absolutely in love with ClassPass – their app resides on the main screen of my phone, I have tried out 30+ different studios over the summer alone, and I have recruited so many of my friends to join that I regret they haven’t introduced a word of mouth reward yet. The value proposition – as you nicely outline – is clear and takes the customer no time to buy into.
As an investor however, I am quite cautious. I am not saying it is a BAD business model, but I want to see it make a real return and survive beyond the lifespan of the GroupOn fad before I join in with the optimistic crowd. I would want to see ClassPass making profit on the sustained operation, not just from growth. I also would be interested in understanding their attrition rates, especially following a recent monthly fee raise, from $99 to $125.
I am a huge fan of class pass and used it this summer when I lived in NYC as a short term gym solution. I love the variety and ability to try new places but I do think they could lose clients to some of the studios that they introduce them to. I wonder if perhaps their is a way to monetize this but getting kickbacks from studios that people end up joining after attending via Class Pass? I think the value creation is super obvious for the customer as well since they have variety and ability to go to very expensive places such as Barry’s and Flywheel for a fraction of the price. I wonder if there is a hybrid they could offer to solve the issues mentioned above around community. Something along the lines of the ability to attend a more traditional (and perhaps lower end gym with treadmills/etc and no classes) on an unrestricted basis while continuing to offer the class flexibility on the other hand? I’m also curious to see how some of their “mini” memberships perform (the ones that allow something like 4-5 classes per month only). Very excited to see how they do; I would definitely consider this as my “main gym” after school!
I have used ClassPass and enjoyed the 1-month trial. I think the app is great for exploring new gyms and studios especially for people who are new to a city. However, I doubt the sustainability of their business model as many users churn after finding their favorite gym(s) through ClassPass. Due to the limitation on the number of times a user can visit a certain studio on ClassPass, users have little incentive to continue using the service once they settle on a place and want to keep coming back to it. ClassPass will have to refine its business model to reduce churn and provide more value beyond the initial exploratory phase.