Peloton (Part 1): Product & Competitors
Episode 18: The first part in a series on Peloton Interactive
Every company wants to be like Apple. A coveted core physical product with an ecosystem of profitable services and subscriptions around it. Few if any can even come close.
Apple is able to charge higher prices and has a cult-like following because historically it offered the best product.
Similarly, one can argue whether Peloton is worth double the price of competitors and a 2-3 month wait, but it’s generally accepted Peloton has the best product.
I guess the best things in life you have to wait for…
Peloton wants to be the Apple of fitness, and it might have a shot.
Part 1: In the first part of this series on Peloton I’ll cover it’s products, content, community and the competitive landscape for at-home fitness.
Part 2: The next part discusses Peloton’s marketing, business model, Precor acquisition, as well as upcoming challenges/opportunities.
Part 3: The third part finishes with Peloton’s business model as well as upcoming challenges/opportunities.
Enjoy!
Products
First things first — the product. Peloton offers three main products right now:
Stationary Bike: Peloton Bike ($1,895) & Bike+ ($2,495)
Treadmill: Peloton Tread ($2,495) & Tread+ ($4,295)
Digital App: $13/month
None of these products are particularly innovative in their basic specs. Stationary bikes and treadmills have been around for decades and there are thousands of fitness apps. Combining high quality hardware with engaging classes completely changed how the product was viewed however.
Apple combines the best hardware and software. Similarly, Peloton combined the best hardware, software and content.
Let’s walk through Peloton’s hardware (Bike and Tread) and software (Digital app) options, then we’ll get to content.
Bike
Peloton launched the Bike as it first and main product in 2014. In order to improve over competitors and offer a lower cost version, it dropped the price of the Bike in 2020 to $1,895 and launched the Bike+ for $2,495.
Here’s the latest updates Peloton made for the Bike+:
These are all smart changes but none stick out as being significantly better than competitors. It’s still a stationary bike with a screen.
That is until you actually start using it. r/pelotoncycle on Reddit is filled with 50+ posts asking '“Is Peloton worth it?”
Each one has comments upon comments with users sharing success stories, backing up claims, giving detailed personal reviews, etc.
If you go to competitor Echelon Fit’s Reddit page, most posts are about the issues users face. Quite a few posts are actually about how to set up your Echelon Fit bike with the Peloton app.
Variis, the Soulcycle bike for at home, has similar posts about issues with the bike, but users seem to like the bike and experience more.
Just like with smartphones, the little things matter. A smooth resistance knob, a HD screen, seamless performance tracking make a difference. But, Peloton is only slightly ahead on these features. Almost every review sums up to something like this…
For sure, Peloton is way, way ahead in terms of raw features, but SoulCycle is a rapidly improving fast-follower. The best choice for you really does depend on what you prefer and the kinds of classes you prefer to take. Your decision is inherently personal, and, frankly, you can’t go wrong with either option.
Even after the above reviewer admitted Peloton is way ahead on features he still swapped his Peloton for a Soulcycle bike.
Even though many reviews admit Peloton may be the best they suggest alternatives for price or preference reasons.
The question, it seems, is what Peloton can continue to do to separate itself from the others so there’s no reason to choose based on price.
(Peloton is on the right track with its recent improvement, and I will have some suggestions in part 2.)
Tread
Peloton launched a connected treadmill in 2018, the Tread+ priced at $4,295.
While it has gotten good reviews, it seems clear it was not the success they hoped. Jake Singer speculated a couple good reasons why the Tread is selling slowly:
The bike has about 32x more reviews on Peloton’s own site than the tread does.
I took a cursory glance at recent bike rides and treadmill workouts, and compared the number of ratings each had (users are prompted to rate a ride as soon as its finished). Bike rides on average had 4-5,000 ratings within 2 or 3 days. Tread runs had fewer than 200.
Given the above it’s likely that Peloton is selling 25 bikes for every treadmill. Peloton realized this early on and is working on a lower priced version ($2,495) coming out in the Spring.
The big question for Peloton is whether the demand is there at a lower price. It’s possible that more people prefer stationary biking. If demand isn’t strong for either Tread version Peloton might be stuck as a one trick pony.
Yet, for Apple, the iPad and Watch are not nearly as successful as the iPhone, so maybe it’s compliment to call Peloton a one trick pony.
Peloton Digital
Peloton’s app with yoga, cardio, bootcamp and other classes has significantly benefited from millions of Americans quarantined. I’m not sure it would’ve broken 200K subscribers this year if not for gym closures. But instead it has 500K, which is 5x the number of users since this time last year!
Will Digital Subscribers stick around after people can go back to gyms? Peloton’s app is even less differentiated than the bike and on a monthly subscription it’s very easy to switch or cancel.
On the positive side, it's a great sign that digital subscribers were taking advantage of the different workouts in 2019, not just due to quarantine.
On the negative side, higher competition and less differentiation means churn is likely very high. It’s so easy to tape someone giving a workout that the apps biggest competitor may be YouTube. (That’s where I get most of my yoga and strength classes)
Peloton’s connected products have churn of ~0.64% per month (that means ~6 subscribers out of 1,000 stop using the Bike/Tread each month). They don’t release churn for digital, but my guess is it’s much higher and will only increase as gyms start to fill up.
Right now Peloton doesn’t seem too worried because as John Foley, Peloton’s CEO, says the app is just a way to get more connected subscribers…
“While we believe we have the best digital fitness experience with the broadest and deepest assortment of high-quality programming, we continue to focus on Digital as an acquisition channel, and added value for our Connected Fitness Subscriptions. And we're excited to say that Digital is emerging as our fastest, growing lead generation channel.”
If that's their strategy then the Digital Subscription is an amazing way to experience the Peloton community without spending $2,000-4,000 on a Bike or Tread. By letting users try yoga, strength, cycling and other classes Peloton introduces people to their instructors, makes them feel part of the brand, and helps them feel invested in the community. Hopefully they go on to purchase a Bike/Tread!
Content
While Peloton Bikes and Treads may have slightly better hardware (screens, resistance level feedback, styling, etc.) than competitors, where it really stands out is content and community. These two factors help replicate the feeling of being live with your favorite instructor and friends.
Volume: Peloton has thousands of classes available with ~70 added per week.
Variety: 10 different class types with filters for length, music, instructor and more.
Moments: Peloton partnerships and special rides are Neflix-esque in their ability to create organic enthusiasm around the event.
Instructors: Peloton instructors are LOVED. There are blogs, Facebook groups, and sub-reddits filled with users promoting their favorite instructors or suggesting new ones.
Content-wise Peloton is the best on the market. Far surpassing Echelon Fit, NordicTrack and others, with its only real competitor being Soulcycle. Soulcycle has an equally passionate fan base but is behind on volume and variety (though it’s closing the gap).
Community
From a user community perspective Peloton is even more differentiated. On investor day Peloton highlighted these metrics showing how much they matter...
Most of this may seem like vanity metrics or tricks Peloton is running to increase engagement, but when you dive into the communities it’s a different story. Facebook and Reddit have real users actively answering questions, connecting with each other and promoting the brand.
For example, in the Facebook Group one user posted about reaching 100 rides and got 400 likes and 60+ comments on her post within a day. That's pretty motivating!
Check out this resources page from the Peloton Community on Reddit:
This is all user created. Peloton does basically nothing!
‘Soulcycle At Home’ on Facebook has an equally engaged community but not nearly as many active members (just 3K compared to Peloton’s 300K).
Similarly, here's one user's take after trying Apple Fitness+:
"It doesn't show any user names (that's by design as a privacy feature) and instructors don't shout out encouragements for hitting milestones like a 100th ride or workout. I just love the community feel in Peloton and themed classes like the holiday and Thanksgiving rides where instructors might even dress up or play holiday music. I hope that comes to Fitness+ too."
Peloton also makes hradware changes to specifically increase community like adding a video camera to the Bike+ so you can ride with a friend.
All these little details add up to a 0.64% churn rate. If you choose Peloton you’re not switching to a competitor.
Competitors
Similar to how Reed Hastings (CEO of Netflix) once said "We compete with (and lose to) 'Fortnite' more than HBO," Peloton's biggest competitors are any type of fitness activity, not just a bike or treadmill. Here's some of it's major competitors:
Fitness apps: Apple Fitness+, YouTube, Aaptiv, Barry's At Home, Nike Training Club, etc
Apple Fitness+: $10/month or $80/year for up to 5 devices — way cheaper than Peloton and integrated into Apple products (Just launched with bare bones offering, and you must be part of Apple ecosystem to use Fitness+, which limits their reach)
Aaptiv offers a yearly subscription for $100 – 36% cheaper than Peloton (does not have Peloton's brand but aggregates quality content)
YouTube: FREE, and significantly more content. The one positive is that because YouTube is free, many users have no problem paying for Peloton and using YouTube. It does raise their chances of churn though. (Has ads!)
Peloton will have a tough time competing on with the many fitness apps if it's priced at $13/month per device
Connected Fitness Products: Echelon Fit, Nordictrack, Precor, Life Fitness, Variis (SoulCycle)
The brand and product quality gives Peloton the edge, as long as customers aren't too price sensitive.
Gyms: Equinox, SoulCycle, Flywheel Sport, 24 Hr Fitness, YMCA, Barry's Bootcamp, etc.
Many people prefer the 1:1 or 1:few connection that their local gym offers. Peloton can probably only hope to be a complement to these places. (Gyms are significantly higher priced)
It's generally assumed that post-covid: work will be hybrid office/home, commerce will be omni-channel, and healthcare will be a hybrid tele/office model. My guess is that fitness follows that path. Therefore Peloton’s toughest competitor will likely be SoulCycle.
Equinox has 800K members between all its brands: Equinox, Soulcycle, Blink, Precision Run, Pure Yoga and more.
It can offer the same breadth of classes as Peloton with the benefit of a physical gym like Equinox or Blink when people start fully heading back to gyms.
It's surprising Peloton isn't offering classes in it's 75+ retail locations. Well, not surprising given the cost and complexity of having studios an instructors at all those locations. But, that's what SoulCycle will have.
Either way, Peloton has doubled down on driving as many people as possible to it's connected fitness products because they offer the best experience, highest profits and lowest churn. It needs to make the sure the hardware, content and community quality is significantly differentiated to beat lower cost and omni-channel competitors.
If it can the connected fitness market could look a lot like this, with Peloton taking Apple’s place…
Overall, there are infinite types of workouts humans enjoy (parkour anyone?). Peloton's job is to make as many of those happen on its platform. Each additional hardware improvement, piece of content, or way of connecting with users makes the subscription more valuable.
As a reminder, here’s what’s covered in Parts 2 & 3:
Part 2: The next part discusses Peloton’s marketing, business model, Precor acquisition, as well as upcoming challenges/opportunities.
Part 3: The third part finishes with Peloton’s business model as well as upcoming challenges/opportunities.
Recommendations
🎬 Movies/TV — Been watching a French show called The Bureau. It’s a realistic political thriller about France’s version of the CIA. Highly recommend.
🗒 Twitter Thread — This Twitter thread making fun of Peloton ads may be the first place most people heard about Peloton: