Spinning and Winning: How Peloton is revolutionizing fitness, technology, and everything in between

From Fitbit to P90X, SoulCycle to Equinox, gone are the days when the average fitness addict is satisfied with a 3-mile jog on the treadmill. Enter Peloton.

Peloton (noun) – the main group of riders in a bicycle race[1]… “riders in a peloton work together, conserve energy, and perform better because of one another”[2]

Founder Yony Feng and others inspect a bike prototype. Source: https://www.pelotoncycle.com/company/
Founder Yony Feng and his team inspect a bike prototype. (Source: www.pelotoncycle.com/company

Introduction: In 2012, John Foley and three co-founders started on a journey to “create a new concept in fitness” that would “create a world-class indoor cycling experience on your time, and in the comfort of your own home”.[3] Just three years later, news outlets like Biz Journal and Bloomberg Businessweek are speculating on the IPO of the young and fresh-faced Peloton (who just received their second round of funding of $75 million from PE fund Catterton) and what the future looks like for this Fitness, Tech, & Media company.

Peloton sells its state-of-the-art indoor bikes (complete with 22-inch screen, about the size of 4 iPads) to customers for at-home use, but they are no ordinary pieces of fitness equipment! Unlike your typical stationary bike, riders clip into their Peloton and can access both live streaming and an extensive library of on-demand spin classes, broadcast from Peloton’s brick and mortar cycling (AKA spinning) studio in Manhattan’s Flatiron district. In addition, Peloton operates twelve retail showrooms across the U.S., a number they hope to double by the end of 2016.

Competition, value proposition, & business model: Foley chose to found Peloton’s flagship studio and headquarters in “Silicon Alley” knowing that New York City is the “media mecca of the world”. A skeptic of Peloton’s decision to launch in 2012, in New York City no less, might point to an immensely crowded and competitive boutique fitness market, lead by industry beast SoulCycle, which is soon expected to IPO for almost $1 billion.[4] However since January 2014, Peloton has sold and installed approximately 20,000 bikes in homes in twenty-two countries, separating itself in both value proposition to its customers as well as its operating and business models.[5] Bikes cost riders a lofty price of $1,995 and Peloton charges a $39 per month via a subscription model, which costs the customer approximately $2,500 in the first year of use but only $468 (12 months x $39) in years after.[6] Peloton is expected to book $50 million in revenue in 2015, a five fold increase from its 2014 revenues.[7] In founding Peloton, Foley sought to capitalize on several realities:

  • The at-home fitness competition comprised DVD’s by mail such as the Insanity and P90X programs, effective programs but “out of date” according to Foley, who saw an opportunity to innovate in both the hardware and software of at-home fitness equipment.[8]
  • As SoulCycle and Flywheel devotes raise families and have less time to operate according to studio schedules and step away from their homes, an at-home experience provides increasing value to a fitness devotee still seeking an addictive, high-quality, interactive experience.
  • “We are more than just a class, a cycling studio, and a bike. We deliver a fully engaging experience with the technology to make every workout effective, and the social connection to make every workout addicting.”[9]

Peloton riders who purchase and use the bike at home benefit from the “interactivity” element that allows riders to track their metrics against other riders in remote locations (using a leaderboard), even video chat with other riders if they chose! The platform offers “thousands of on-demand classes”, which include varying lengths (15-, 20-, 30-, 45-, and 60- minute) as well as ride themes (Metrics, Rhythm) and music themes (Adele vs. Sia, Live DJ). In 2015, Men’s Health awarded Peloton “Best Cardio Machine” of the year calling it “the best cardio machine on the planet”.

So what makes Peloton different, why are they succeeding to date, and why does Foley believe that they are fundamentally unique from competitors and changing the industry?

Alignment of their Operating and Business Models:

  • A service-oriented business: Despite the high price-point of roughly $2,000 for a Peloton bike, Foley has been very transparent that Peloton sells their bikes at cost and this is not where they make their money. To this point, it appears that Peloton is selling a product, a stationary bike, to its customers. In reality, Peloton is much more focused on the service it delivers to its consumers (its value proposition and strategy). Similar to companies like Netflix that operates on a subscriber-based model and Keurig that earns its money through selling K-cups rather than actual coffee machines, Peloton is transparent that, “the hardware, while key, is not where the money will be made… cash will come through subscriptions”.[10] Peloton has put its money where its mouth is, investing heavily in its engineering teams to support its software and platform. While spin studios like SoulCycle and Flywheel invest heavily in their corporate offices and instructor talent, Peloton’s model requires it to operate differently in terms of who they hire and what they need to operate. (of their 90-person back-office team, 17 are engineers and another 15+ work in Operations, Customer Experience, & Production) and operating a 24-7 service model around its platform, to ensure high-quality rider experience.
Investing in Tech: Peloton’s Control Room in New York City
  • Rider experience and scalability: Peloton considered early on having a fake set with actors to record classes for at-home riders, but quickly realized that streaming live classes with the “visual stimulation of the dark setting” was critical to making riders feel like they were in the class: said a founder, “the authenticity was important to us”. Furthermore, Peloton’s ability to stream to unlimited riders in 50 states and across the world will only allow it to successfully scale and improve its bottom line in future quarters. Unlike traditional spin studios that are limited to earning revenue on 40-60 riders per class, Peloton will never face this challenge and can bring their service to a wider audience.

Looking ahead: With scalability on its side as well as potential for network effects (each marginal user on the platform creates more value for other riders and increases barriers to entry for other market movers), things are looking up for Peloton. With potential to be a leader in fitness (competing in both the at-home & boutique studio spaces), technology (a major disrupter), and media, I would say that they have pulled ahead of the pack, at least for now.

Footnotes:

[1] http://www.merriam-webster.com/dictionary/peloton  [2] https://www.pelotoncycle.com/company/ [3] https://www.pelotoncycle.com/company/ [4] http://www.bloomberg.com/features/2015-peloton-spin-cycling/ [5] http://www.bloomberg.com/features/2015-peloton-spin-cycling/ [6] Given the average $30~[6] price point of leading boutique fitness industry classes, after the first year, a Peloton customer only needs to hop on his/her at-home bike 15 or so times before they begin to make their money back versus going to a class at an actual studio. [7] http://www.bloomberg.com/features/2015-peloton-spin-cycling/ [8] http://www.ft.com/intl/cms/s/0/bc6ff286-5794-11e5-9846-de406ccb37f2.html?siteedition=intl#axzz3tsjO8PnY [9] https://www.pelotoncycle.com/company/ [10] http://www.ft.com/intl/cms/s/0/bc6ff286-5794-11e5-9846-de406ccb37f2.html?siteedition=intl#axzz3tsjO8PnY

Other Sources: 

http://www.bizjournals.com/newyork/news/2015/12/02/peloton-pedals-toward-ipo-grab-75m-private-equity.html

http://www.racked.com/2014/10/1/7574819/peloton-stationary-bike-spin-class-home-fitness-equipment

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8 thoughts on “Spinning and Winning: How Peloton is revolutionizing fitness, technology, and everything in between

  1. Nice article, Charlotte! I think this is a fascinating concept and business model! As a previous Peloton user, I found that many users were in more rural areas where these sort studios would never open shop. I think it’s a great way to capture untapped markets.

    1. Thanks Megan! I found the same thing. We had a Peloton in Evanston, IL last year because moving from New York where we had access to all these great boutique classes, living in a suburb of Chicago we got a lot of use out the machine and could find time to fit in high-quality workouts without compromising a lot of time and effort 🙂

  2. awesome post. I recently watched an interview with the co-founder who interestingly stated that he wished soulcycle continued growth/success as he believes the two company’s can co-exist/compliment each other. He also mentioned that he believed the market for peloton was larger than soulcycle and alluded to a desire to perhaps acquire them in the future.

    Separately, it seems to me Peloton will need to develop/maintain a technological edge/competency in virtual reality in order to succeed. Do you know what they’re doing to develop this competency?

  3. Really interesting write-up Charlotte. I will be interested to see how they fare. I think the razor and razor blade model is an interesting fitness concept, but deciding to go after the “at-home” exerciser is a brave choice. I often hear the story of how the $500 treadmill turned into the $500 clothes hanger after a few months; I wonder if this subscription model will incentivize people to stick with the Peloton through those times when they are just “over” cycling, or working out in general.

    It also seems that a driver of CrossFit and Soulcycle’s success has been their almost cultish following. I imagine this varies from box to box (or studio to studio), but that type of network effect/peer pressure might be hard to replicate digitally.

  4. Super interesting business! I am curious what Peleton would say about the “atmosphere” which SoulCycle and FlyWheel cite as critical to the overall user experience. Although the classes you are watching on the tv are live and in the dark, what if you’re sitting in your house with the sun shining in and your kid running in and out? Are you going to get the same or even a similar experience, and if not, will you continue being a user?

    Another concern would be the death of the other at-home workouts you cited above (Insanity, etc.) – what makes Peleton that much different other than the fact that cycling is trendy right now?

    I hope that they can scale the business and grow to be in many households, but am curious how they will tackle these challenges.

  5. Love Peloton! My parents bought one for their house in the suburbs this year, and I have used it quite often when I go visit. I find a few of the above comments raise concerns that I’ve seen realized in my own house. To Joe’s comment about the $500 clothes hanger treadmill, this has definitely become the case for the Peloton bike for my parents now that the novelty of “dropping” into live classes has worn off. To Pandanation’s comment, it is a completely different experience than being in the atmosphere of other spin studios, but I think the target customers for Peloton are specifically those people who don’t need the in-person workout. While there is a big question to me about the stickiness and ability to keep customers using the bike consistently, I’ve seen firsthand the value Peloton brings, especially to those who do not feel comfortable or “in-shape” enough to go to these cultish spin studios. Peloton allows riders to exercise and build stamina at their own pace in the comfort of their own home.

  6. Very innovative concept. Thanks for the write-up, Charlotte! As Joe said, very interesting the application of the razor/razor blade model to fitness. Though I do wonder if this could be a fad. I think most group fitness fanatics like being present in the classroom and I wonder if the novelty of the virtual reality wears off after a while? That said, VR has been huge in gaming and definitely seems to be the way of the future. I wonder if the social/chat functionality helps maintain engagement longer term. Will be interesting to see what happens. Maybe some synergies with Jenny’s SoulCycle!

  7. Hey Charlotte… not sure what happened to my previous comment!!! Love the post…

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