“Easily the best indoor workout.” – Barron’s
“The Best Cardio Machine” – 2015 Annual Fitness Awards, Men’s Health
“It’s addictive, effective and easy to use.” – Sports Illustrated
You might not expect these accolades for a company described by its CEO as primarily a “software development shop” and “hardcore technology company.” But Harvard Business School graduate and Peloton co-founder/CEO John Foley is reinventing the at-home fitness market by delivering live, immersive spinning classes straight to customers’ living rooms.
The startup, which raised $75MM from Catterton Partners earlier this month, will reach 20,000 subscribers by the end of the year.
Peloton’s value proposition to customers is straightforward: enable in-home access to immersive, high energy indoor cycling classes while saving customers time and money. Many customers are introduced to spinning by learning about or experiencing first-hand the energy of a spin studio such as Soulcycle, which in its IPO prospectus describes each class as “tribal,” “primal,” and an “emotional journey.” Riders care about the perceived intensity of the workout as well as the verbal motivation and music playlist provided by the instructor. But for the most extreme users, spinning studios can be expensive and difficult to access. Soulcycle, for example, charges an average of $32 per class – nearly $130/month for those who ride once per week, and that’s before factoring in the value of time required to travel to the studios.
By focusing on technology and digital content, Peloton has reduced the cost and increased the accessibility of spinning without sacrificing the unique energy present in in-person classes. After purchasing a $1,995 state-of-the-art spin bike and $39/month subscription, Peloton customers can enjoy unlimited rides (for the buyer and his/her family), delivered live and on-demand via a massive tablet mounted on the front of the bike.
Peloton’s 20,000+ subscribers are all served out of one studio in the Chelsea neighborhood of Manhattan. On the surface, the studio appears similar to many others: a lounge with upscale coffee, juices and snacks, luxurious locker rooms, and a small clothing store. But behind the scenes is where the magic happens; the real purpose of the studio is to provide a “set” for the broadcasting of live classes.
Each class features an instructor (for motivational speech and instruction), a live DJ, and a cast of riders populated by walk-in, paying customers. A film crew manages the broadcast, which is distributed to hundreds of other concurrent riders via bike-mounted tablets. The tablets provide an immersive high-definition view into the studio, which could be tens, hundreds, or thousands of miles away. Camera positioning and angles are dynamically managed by the film crew.
Peloton’s 17 software engineers likely comprise the most sophisticated software engineering team in the at-home exercise equipment industry. To enable the at-home immersive experience, Peloton had to develop infrastructure to broadcast high definition video and audio, a custom Android variant with Peloton’s application, and technology to manage a competitive leaderboard and save statistics to user profiles. Riders can measure themselves against others in the same class and video-chat with Peloton friends. In addition, the product works seamlessly with third-party heartrate monitoring devices.
Peloton from time to time will feature unique programming such as holiday-focused rides (to burn off unwanted calories, or “haunted” and “asylum” rides around Thanksgiving, for example) and rides with professional cyclists.
Operating Model / Business Model Alignment
Peloton is an example of effective alignment between operating and business models. Peloton’s assets – coaches, DJ’s, software, video producers, and its studio – form the basis for production of engaging digital content which is in turn distributed to Peloton bikes (purchased by the customer). Customers pay a monthly fee for access to the live classes, streamed 12 times a day and stored in a library for later on-demand use. Customers respond to the sense of community, even if they may be pedaling remotely.
As Peloton scales, the firm will benefit from economics typical in digital content and software businesses. Whereas most firms in the home exercise equipment market maintain little to no contact with the customer beyond initial equipment purchase, Peloton receives recurring revenue and is able to measure user activity and engagement and use data to inform programming decisions. Peloton could theoretically scale from 20,000 to 100,000 users with minimal additional cost, as the marginal cost to distribute video content to one additional rider is low (save for customer support and minor overhead expenses).
It’s easy to imagine the potential to bring other interactive, immersive exercise experiences into the home, especially with the rapid progress being made in virtual reality, augmented reality and motion sensing technologies.
- Soulcycle IPO Prospectus: http://www.sec.gov/Archives/edgar/data/1644874/000119312515399023/d844646ds1a.htm#rom844646_9