Peloton's business model is breathtakingly good, but I wonder about the size of their TAM and their ability to have sustained, multiplicative growth in the future.
First, the business model. They sell you a $2000+ bike, which includes a year of live classes with some of the best spin instructors in the world. Afterwards, you pay for a $40/month subscription in perpetuity to make your $2000 investment more than a boring (although very high quality) stationary bike. Whether you're hooked on the (excellent) service or not, if you're the kind of person who's willing to drop $2000 on a bike, you're very, very likely to be the kind of person who's willing to pay just $40/month to make sure your bike retains its value (i.e., access to live classes), even if you're not using it that much. Doesn't hurt that in-person spin classes regularly cost $30-40 for a single class.
I imagine Peloton's subscription churn is extremely low. This is excellent, and I'm jealous.
But, growth.
How big is the market of people who are willing to spend $2000 on and have space for an indoor bike? What happens when Peloton captures nearly all the market? What happens when a lower-priced version of Peloton comes in and eats their lunch at the "bottom end" (so to speak) of it?
Once you've effectively exhausted the market for selling new bikes (when new customer acquisition slows), you've got three options: find a new market, sell new things to your existing customers, or charge them more for the same things.
Peloton's already doing the first two. They're trying to show investors that they can cross-sell and/or establish new markets: they sell a $4000 treadmill. (My theory about the treadmill is that nearly 100% of its purpose is to show the market that cross-sell is possible — I have doubts about whether they're selling). I have extreme doubts about the viability of this. I mean, how many workout machines are you going to put in your house? Rough estimate: this segment is no more than 10% of Peloton's existing customer base.
In addition to all this, they could (obviously) also raise prices, but at $50-60/month for the subscription, you start to put those great churn numbers at risk.
Either way, really interested to see what they do.
I am asking this in earnest: what makes a spin instructor a "best-in-the-world" instructor? I can see how an instructor for e.g. one of those classes where you do workouts with a weighted bar might have better techniques or routines than another, but from my naive perspective, it seems like a spin instructor can just tell you to pedal faster or slower. But I'm not just trying to dig at them! I really am curious. I'm more of a "get outside" type of person, so I don't know a lot about this sort of thing.
They know exactly what to say and when to say it to help you push hard at times when you're feeling ready to give up (at scale — they can't see you if you're not in the studio). They choose fun, energetic songs to keep you motivated throughout. They order their playlists in such a way that you push yourself just past your limit and have just enough time to rest.
Being a good instructor is like being a good comedian or even stage actor, where you're feeling the energy of the audience and optimizing for a given outcome. In comedy, it's laughs. In fitness, it's energy. In either case, people come back wanting more.
It's dead, sorry. They will need to pivot to something else.
My wife and her girlfriends used to be Peloton bunnies - one of the ones that you see in a studio in some of the ads. Two years ago classes were super hard to get into. They had the best instructors ( Peloton would overpay to steal the ones with following from Soul Cycle and FlyWheel ). The home invasion week got housewives from Midwest show up in classes with fifteen outfits because they thought they were going to be on TV or at least seen by the people at home. It was buzzing. Bikes were selling like hotcakes -- no discounts, no promos no anything.
Two years later, she barely goes there once a month. Classes now are meh. The studio is losing its luster. Home invasion week has classes available. There are discounts and specials on bikes, not to mention a talk of a bring your own bike option. Her friends that had the bikes at home sold them.
And competitors. Mirror showed up. Rumble showed up. FlyWheel and Soul Cycle are nibbling at its feet. Instagram is full of Pilates and Barre at home channels.
I hear you. Hard to disagree with that assessment. I didn't paint quite as bleak a picture because so far they've shown that they can execute really well, but I tend to lean in your direction when I think about their future.
Investors, founders, and early employees will make a bunch, but it's hard to see Peloton as a company that'll be with us in the long term.
First, the business model. They sell you a $2000+ bike, which includes a year of live classes with some of the best spin instructors in the world. Afterwards, you pay for a $40/month subscription in perpetuity to make your $2000 investment more than a boring (although very high quality) stationary bike. Whether you're hooked on the (excellent) service or not, if you're the kind of person who's willing to drop $2000 on a bike, you're very, very likely to be the kind of person who's willing to pay just $40/month to make sure your bike retains its value (i.e., access to live classes), even if you're not using it that much. Doesn't hurt that in-person spin classes regularly cost $30-40 for a single class.
I imagine Peloton's subscription churn is extremely low. This is excellent, and I'm jealous.
But, growth.
How big is the market of people who are willing to spend $2000 on and have space for an indoor bike? What happens when Peloton captures nearly all the market? What happens when a lower-priced version of Peloton comes in and eats their lunch at the "bottom end" (so to speak) of it?
Once you've effectively exhausted the market for selling new bikes (when new customer acquisition slows), you've got three options: find a new market, sell new things to your existing customers, or charge them more for the same things.
Peloton's already doing the first two. They're trying to show investors that they can cross-sell and/or establish new markets: they sell a $4000 treadmill. (My theory about the treadmill is that nearly 100% of its purpose is to show the market that cross-sell is possible — I have doubts about whether they're selling). I have extreme doubts about the viability of this. I mean, how many workout machines are you going to put in your house? Rough estimate: this segment is no more than 10% of Peloton's existing customer base.
In addition to all this, they could (obviously) also raise prices, but at $50-60/month for the subscription, you start to put those great churn numbers at risk.
Either way, really interested to see what they do.