I have a confession to make: I’ve left my one-time beloved SoulCycle for a younger bike. For a Peloton.
It’s fitting that the two places I keep seeing Peloton ads are on cable news commercial breaks and in my social feeds: Because that’s where all my unhealthy election angst is generated, and there’s no greater way to deal with that angst than 45 minutes of balls-to-the-wall intense cardio.
“Y’all came to slay!” my favorite Peloton instructor likes to say as if he can see my sweat through the tablet screen. Yep, slay my workplace stress and slay my fear of Donald Trump being president—all in one spot. That marketing can’t be an accident.
Peloton– in case you don’t spend as much times in those mediums as I do– is the in-home answer to the boutique fitness craze. It leverages technology to recreate the live studio’s inspiration of a charismatic instructor and sense of community with other people while ultimately giving you the flexibility to work out in your own home on your own terms.
Companies like SoulCycle have been talking about figuring out an in-home option to their cult-like, high-energy workouts for years. Meantime, Peloton is the first thing I’ve seen that even comes close.
The company was started in 2012, and it took two full years of development to get to a decent prototype. It had to combine lots of elements: A high quality bike that wouldn’t break down easily with wear and tear, a tablet-style screen integrated into the bike’s controls, software streaming platform, and a full production studio on the other end to create the content.
Like so many startups, Peloton grew out of what the founders wanted: A way to recreate the boutique fitness feel for new parents and time-pressed professionals who can’t work around a studio’s schedule.
This was not an easy problem to solve, as boutique fitness is so heavily focused on the in-person experience and connections between riders and instructors.
Peloton raised $120 million along the way– most of it in a $75 million private equity round in December of 2015. One of Peloton’s few classic venture-style investors is Jon Callaghan of True Ventures. “The company is on fire,” he told me in a recent interview, crediting the resonance with customers to the fact that Peloton wasn’t just experiential and community driven– like SoulCycle– wasn’t just about technology, but wasn’t just about content either. All of the above has to work for Peloton to succeed.
And the team needed to find a way to make all that affordable. The bike is just $2000, which Peloton doesn’t make money on. Instead, they make it off a $39 a month subscription to the classes. It’s a big upfront payment, but if you are a devotee of boutique fitness or indoor spinning working out several times a week, it pays for itself in a matter of months.
Of course, that’s a big “if.” How many times do we come up with a grand fitness plan we don’t execute on. I refer to to Liz Lemon’s wedding dress that’s hanging on her treadmill.
Getting people to buy the bikes was yet another challenge and one that involved the very thing that Peloton was originally trying to avoid: Building out a brick-and-mortar presence of showrooms. The showrooms have proven crucial to moving bikes, says Co-Founder and CTO Yony Feng.
Feng was an interesting choice as the company’s technical co-founder. He didn’t come from the hardware world or the fitness world, rather his experience was on the technical aspect that would prove the most crucial and bedeviling to Peloton: Making sure streaming worked for a huge number of distributed riders, no matter where they’d positioned their bikes in their homes.
Earlier this summer, I did two interviews with Feng: One before I got a Peloton and one after the first conversation sort of sold me on the purchase.
Is it as great as that idealized mom who works out in her gorgeous home before sitting down to a gorgeous breakfast with her gorgeous family that you see in the commercials?
Well, my home doesn’t look like that, but Peloton does deliver on a great workout with plenty of variety and if you turn out the lights and close the shades you can trick yourself that you’re in a studio and not your bedroom.
I am a huge fan of SoulCycle and Peloton certainly doesn’t replace everything I used to get from SoulCycle. I like the SoulCycle instructors and ethos better. The Peloton instructors I frequent are not surprisingly former SoulCycle instructors.
But in the six weeks or so I’ve had one, my boyfriend and I have done north of 60 rides between us. That means it’s far more economical for us, and the flexibility to hop on the bike after my kids go to bed means I have no excuse not to work out pretty much everyday.
I didn’t imagine I needed for another “screen” in my home, but Peloton proved me wrong. My dream scenario now that I’ve sunk the two grand is that SoulCycle buys Peloton to solve it’s “at home” challenge and give the trainers I miss in the new flexible and affordable environment I love.
But while great for me it’s a catch 22 for SoulCycle: It would solve SoulCycle’s problem of reaching people in cities without the density or demographics for its $30 a class retail strategy to make sense, but it might also erode the value of SoulCycle’s audience in cities like New York, San Francisco and LA.
Regardless: Peloton is a potent threat to the burgeoning boutique fitness movement, once again moving the model from pay-per-class to subscription.
The following are excerpts from my two conversations with Feng about solving the problems of this very particularly challenging hardware/software/content/fitness company.
Yony Feng: We were founded in early 2012, and I joined about two months into the formation of the company to help realize the first prototype and proof of concept. The idea was to bring indoor cycling classes to people’s homes, to have a virtual distributed cycling class at home. I joined to build the bikes and consoles on the bikes and the software on the consoles.
The first challenge was to define the experience. We had to play around with the video recording and streaming platform and set up a few testers. I remember testing the earliest bikes with hand-soldered devices and pre-alpha software on the other side of the office.
Sarah Lacy: What is your background?
YF: I moved from San Francisco to New York for Peloton. My background was at Cisco where I’d worked in the software group and then I moved to Skype to work on the text chat platform. Then I joined TicketFly, which among other things, sold tickets for BurningMan. I had spent my career solving huge, high-scale software platforms.
SL: “Hardware is hard” as they say in the Valley, especially with a high-ticket bike, and on top of that bringing a boutique fitness experience to home workouts was not an obvious thing that would work. What were those early days like?
YF: It was a rollercoaster of emotions. It was three or four of us in an office looking at each other saying “this is awesome we aren’t at a giant corporation.” We put in weekends and twelve hour days. I joined in May of 2012, and we delivered our first product in February 2014.
SL: Wow! That’s a long time to work on a product in the tech world.
YF: Yeah, the expected launch date changed two or three times over that period. We opened our New York studio in May 2014.
SL: The bike is just under $2,000 and the subscription is $39 a month. How do you think about the market? How many people want a $2000 bike in their home? How many can afford it?
YF: If look at our current customer base, the gender division is pretty equal and the median age is 42. 60% of them are aged 30-50. It’s not purely indoor cycling enthusiasts, it appeals to people who want to work out with the convenience of doing it in their own home. Suburban working mothers, outdoor cyclists who are time constrained, or people who just don’t have the luxury of going to a cycling class in person. People who see this as a way to stay active.
People see it as a long term investment, it’s usable for five to eight years and there are new classes added everyday. We think we could sell 18 million units in the US alone at this price point.
Good treadmills go up to $10,000 or higher. We’ve invested heavily in the braking system, the flywheel and the comfort of the seat. We are unlike other gym equipment manufacturing companies out there who are making their money on the initial purchase, because our business model is subscription based. We find value in subscriptions and people staying with us. It’s similar to Netflix.
SL: What happens to people who spend $2,000 on a bike hoping it’s a ten year investment, and Peloton goes under or acquired by someone who winds up shuttering or dramatically changing it?
YF: Well, with every month that goes by and every year that goes by the risk of that is diminished. We have sold 40,000 bikes and we have 3,000 on demand rides in our library and there are 12,000 rides happening on a daily basis. Our sales grew 5x from last year to this year. We only expected to grow 3x over the last year.
Gyms want you to pay and never go, we want you to pay and use it a lot. We are definitely not losing money on a per customer basis. We have a really engaged community. We had five thousand people come to New York to meet Peloton coaches and 10,000 people on the Peloton rider page on Facebook.
SL: Your experience is in making streaming technology work for big groups of people and be reliable. It strikes me this is the most important challenge Peloton faces now. You’ve nailed the bike and the experience. The price point is great for someone who is already a fan of boutique fitness. Go to market, getting people somewhere where they can try a bike is a challenge to scale. But the biggest problem is the streaming, because if it cuts out in the middle of a ride it destroys the experience.
YF: Streaming is the core experience. The worst thing we can do is have an interruption to the experience of riding. Over the past year and a half what we started building is a system where the tablet is sending anonymous metrics to us, such as, out of the last thirty seconds how did you buffer and how did you not buffer? The question we want to always know the answer to is: First, is every one of our users experiencing a streaming problem now? If so then the studio has a problem and it’s impacting the user base worldwide.
In a lot of cases streaming problems are a combination with some of the set ups people have. Think about the bike. It isn’t necessarily in the same location as your AppleTV, which is usually right next to the router or modem. There’s a combination of wifi density and distance from the router. We are looking at ways to long term solve that problem, maybe through a more powerful antenna.
SL: How do you think about expanding your physical presence? Obviously the beauty of Peloton over something like SoulCycle is you don’t have to expand to more cities and more locations to grow. But people frequently want to try the bike before they buy one so showrooms matter, and in New York there’s the experience of the live studio. Is that something you want to expand?
YF: We do look at retail showrooms as a key contributor to brand awareness and growth. And we do see a value to showrooms when we look at the demographic of people who value of luxury hardware. They want to touch it and try it and see it. From that perspective, we aren’t going to stop expanding showrooms.
But going into the Holiday season, we don’t want to distract ourselves too much with construction projects. We want to make sure our customer service is short and there’s no wait for bikes. We want to make sure our platforms streaming and data platform is all in good shape.
SL: What role do the showrooms play? Is it like Tesla showrooms where it’s a nice brand thing but no one is walking out with a Tesla, or does it heavily convert to sales.
YF: The showrooms definitely account for a very large chunk of our sales. They aren’t just an ad. They are doing a sizable portion of our sales; it’s a material contribution to our sales strategy.
Some people coming in are already a participant in the boutique indoor cycling space, but if you look at Peloton’s audience a lot of people are a little more shy about going to a studio with other people but they still want to find a good way to work out. Some are in really bad shape in terms of their health and they just need to get started.
One part that was surprising to us as well was to compare the distributed community versus the physical community. The distributed community is a little more diverse in terms of participants.
SL: For one thing, even though the bike is $2000, it’s more economical to pay $39 a month versus $30 a class.
YF: That’s true. It’s a lot more economical. The community online also plays a huge part in the experience which we didn’t realize in the early stages of building the company. People upload pictures of themselves, and their progress and what their doctors are telling them onto our Facebook page.
SL: You’ve basically created a new screen into my home and a pretty nice piece of luxury hardware… is there a platform opportunity here? Could my favorite yoga teacher for instance, teach me a class through my Peloton screen one day?
YF: We are open to partnering with others on content. We are not ever going to be a completely open platform like YouTube, where anyone can upload anything. We had some of our employees create users generated content for the bike once, and it was a far cry away from what we produce. When you jump on a bike you don’t want to go through a lot of crappy content before you find a good one. The instructors are the face of us to our users everyday. We care very much about the quality of that.
But we also know we are not going to think of everything. There are new ways of working out, new forms of working out. We are open to partnering on that.
SL: You’ve mentioned the upcoming holiday season a few times. How did it go last year?
YF: Last holiday season was overall good, but we definitely have some room to improve especially on the delivery side. The scheduling of deliveries and getting bikes to people in a timely matter was something we’ve invested heavily in this year. We have warehouses in close to 30 spaces across the country, ready to hold inventory for the holiday season. You will not be getting a bike all the way from New Jersey if you live on the West Coast this year.
We still have a lot of preparation to do. We have 16 showrooms and we are probably going to open a few more in upcoming months.
When people order the bike they need to get it in a timely manner and we are still working through that. If we don’t make enough bikes it’s a problem. We go through half a dozen factors to determine what that amount is. It’s a combination of awareness of our brand in a region, whether we have a showroom or if we are going to have one by the holidays. That factor alone materially contributes to the sales of that region. It also depends on our allocation of marketing spend.
SL: What would be a good holiday season for you guys? How many bikes sold?
YF: Well, my job is to keep the streaming working for everyone, so I’d rather that number be on the lower end. As a shareholder of Peloton, I feel differently.
We have a goal; it’s in the upper tens of thousands.
SL: What’s the value to having studios?
YF: A lot of features are designed for the in class experience. We want to work on using technology to make that experience translate more at home. Things like giving instructors what they need to do more intelligent call outs for people at home. We introduced leaderboard filtering a few months ago. [Where you can see how you compete not only overall but by age, gender and demographic.] We’re going to be releasing a number features like that that help people engage more.
In terms of the studio itself, we listened to feedback a year ago that some people wanted shorter classes. They don’t want to always ride for 45 minutes or want other types of workouts.
Over half the people on our platform do the on demand rides. Is it OK that people are taking on demand rides half the time? Would they rather do live rides if there was a studio in their timezone or their city? There’s not a terribly strong case I’d argue for opening up a studio on the West Coast, but if we have more intelligent call outs and people began to enjoy the live content more, that might make a stronger case for it.
We have a few features in the pipeline to explicitly address the time zone sparseness for the West Coast. I can assure you we are working on a lot of things that are new.
Sarah Lacy is the Founder and CEO of Chairman Mom and Pando Media. She's been covering technology for nearly 20 years, previously for BusinessWeek, TechCrunch and many other publications. She's the author of "Once You're Lucky; Twice You're Good: The Rebirth of Silicon Valley and the Rise of Web 2.0" (Gotham, 2008); "Brilliant, Crazy, Cocky: How the Top 1% of Entrepreneurs Profit from Global Chaos" (Wiley, 2011) and the forthcoming "A Uterus Is a Feature Not a Bug" (Harper Business, 2017). She lives in San Francisco.