Ranjan here, and in honor of the Peloton S-1, I'm going to repurpose a post on my love for the bike that I wrote in Feb 2018. For the last 1/4 of the newsletter, I'll give some quick thoughts on the IPO.
My co-host Can told me I sounded a bit overly excited in this writing, but I can promise you, I was. For a brief moment, Peloton had generated in me a genuine excitement for flashy tech startups. That’s an accomplishment worth exploring.
Iron Maiden and Dry Heaving
On the evening of October 18th, 2017 I did not want to work out at all. Then I got a text from my brother-in-law about a Peloton class with all heavy metal music.
29 minutes later, “Run to the Hills” by Iron Maiden is blasting in my headphones, and I’m physically pushing myself to the point of dry-heaving loudly enough that my wife walked in to check on me. All because I’m asynchronously racing against my brother-in-law, who actually took the class a week before.
Even cooler — I can show you the exact moment this happened:
The Peloton bike is one of the most incredible technology experiences I’ve encountered in a long time. As a longtime Apple fanboy, I am very, very hesitant to say a company reminds me of Apple. This one does. Even more, as someone who is hugely suspect of any expensive product that promises a vague sense of self-improvement, I really do believe in this one. Hear me out.
A lifeline for new parents
(Note - this is from Oct 2018, I'll give the Aug 2019 usage update at the end. And as Margins readers may have seen, we had another kid since!)
After my daughter was born, it became increasingly difficult to make it to the gym, especially for my wife after she went back to work (bow down to mothers, everywhere). We decided to take a chance on the Peloton.
It delivered. The most important validation that “it just works” is that we’re still using it. I’m nearing 50 rides after three months (which includes a few weeks away over the holidays) and my wife is closing in on her pre-pregnancy weight, while her old clothes are all fitting her again. For a pair of exhausted new parents, it’s a game-changer. We both feel really good.
The reason I would dare compare them to Apple is how they sew together physical and digital elements into a perfect experience. There are a number of (literally) moving parts that have to all be in sync. There have been so many times I was barely motivated to work out, but the moment you get clipped in, there’s no turning back.
The bike is sexy, and I cringe as I write that word, but I’m not sure how else to describe it (sleek? futuristic? solid?). Everything just works: the knob handles itself fluidly, the touchscreen responds like an iPad, and the pedals move properly. However, this alone wouldn’t instill long-term confidence in the company, as my initial thought was this could easily be knocked off.
Which make it even more important that….
The software and hardware work perfectly together
As soon as you turn the resistance knob, or the moment your effort changes, you see the numbers change on the screen. The metric feedback is instantaneous and perfect. The video streaming has always worked perfectly. Navigating the system is intuitive, and they are continuously updating the OS with features that show they understand their users and have serious product chops — showing you the latest song playing, a cool progress bar up top. And the tablet seriously works, and every giant touchscreen tablet I've ever used, never really worked.
But hardware and software can still be cloned. Which is why you need:
They instructors are incredible. They somehow have to force you to lose your sense of place and become convinced you’re in the studio, even when you’re crammed into a corner, surrounded by white wall. They’ve built a perfect arsenal of personalities that allows you to choose between “spinning can change your life” versus “it’s the 4th quarter, are you going to win” versus the “(instructor keeps quiet and lets you mostly listen to music)” routines. These people exude celebrity and are a major component to what makes it all work. They are also very good looking. One time I saw Dennis walking down the street, and actually, like a nervous tween, walked up to him and said I was a fan.
You can’t copy this.
And you definitely can’t copy:
The competitive aspect
This is what does it for me. Whenever I don’t really feel like exercising, they provide a variety of ways to compete. It can just be competing against myself — planning for an ‘average’ ride, but getting caught up in the music and seeing your personal record within striking distance with five minutes to go. It can be competing against unknown people — sometimes I just shoot for being in the top 15% of the leaderboard” and let that guide how hard I push.
But my favorite thing, and it's what I opened this post with: the asynchronous competition. You can race friends who did the class months before, yet it feels like you’re right there, fighting each other with each pedal stroke. (Side note: the first real perfect asynchronous digital competitive experience I saw was the app QuizUp. This feels the same). I only know 3 people with bikes and even that has been the driving force behind a number of my rides. I can only imagine the network effects if this really catches on.
But the real long-term potential lies:
In the data
Whenever I hear the “real value is in the data” related to a tech company, I dry heave (seems to be a theme in this post). With this company and product, I believe it.
Peloton already allows for the full export of all your data. It’s motivating to see yourself improving, and somewhat entertaining to see your endurance drop off after a Christmas week of excessive consumption. We also noticed I have taken 85% classes with female instructors while my wife has taken 80% male instructors….
The road to highly personalized workouts cannot be too far off. The system should easily be able to tell you when you’re slacking off, and when you’ve done a great job. Simple additions like recommended riders to follow/race must be in the pipeline. Every exercise app (along with every business) is promising a future full of data-driven, personalized experiences. Given what they have already built, I have faith if any company can deliver this, it’s Peloton.
Update: August 2019
I wanted to include my older piece in its entirety to reflect the genuine excitement I felt at the time. We're still using the bike, but I acknowledge, with the 2nd kid, even after moving to a 2br, it's become a lot harder to get rides in. There have been times my 2.5 year old wandered in while I was in a Pelotonic trance and I became afraid I would slice her head off with the pedals.
(a hilarious thread mocking the incessant commercials)
But, I've still amassed about ~150 rides in the 20 months I’ve had it, which would certainly count for decent gym usage. I still read the Reddit forum actively, get excited about seeing what new features they’ll add, and even went to the physical studio for my 100th ride just to hear Jess give me a shoutout in person (how’s that for a moat?). More importantly, when I look at the total output metric (274 for a 30 min ride) in the image I started this newsletter with, that would be very routine now. That means the bike really is working.
It’s still a great product and continues to blow my mind just how motivating it is once you’re clipped in. But keeping people clipped in remains a great product challenge, and my even bigger concern is probably consistent with my general skepticism around 2019 tech: realizing a $4 billion valuation is a huge problem. Like every other tech IPO, Peloton has boxed itself in where it can't simply sell a really good, stupidly expensive exercise bike, then go IPO at a couple hundred million and slowly launch additional business lines. They will have to deliver on so much more.
Instead, they launched that treadmill. I can only imagine the amount they’ve paid to target me, an already existing customer, with online ads, because they are nonstop. They lost $196mm on $915mm of sales on what should be two super high-margin products (the bike and streaming content).
The bull case here is their new suite of streaming fitness classes. The short stretching classes and longer yoga classes have been a godsend. They solved the problem of getting me to engage with them even during the summer, when I don’t particularly love being on an indoor bike. This could be an important part of them filling into that valuation, and kind of amazingly places them even more perfectly alongside Apple’s strategic shift.
When capital is cheap, and you have a great product and story, you can certainly raise gobs of it. But executing on turning a fantastic exercise bike into a multi-product, global connected fitness and lifestyle behemoth is certainly walking a very high tightrope.
I'm still rooting for the company, and love the bike. I'm going to end this with a few good articles and threads covering the S-1. To conclude, as any regular Margins reader will understand, the fact that I'm rooting for a luxury-branded self-improvement, hugely venture-funded company to succeed could be as bullish a signal as it gets.
This was the thread everyone in my feed was citing. Note - to add to the churn sketchiness, it seems like if someone sells their bike and the buyer creates a new subscription, it would not count as subscriber churn. There must be some enterprising financial analyst who is scraping craigslist for Peloton secondary market data.
The "average monthly workout" number is a bit misleading, because they introduced 5 minute stretching routines, etc. in 2018 which, I'm assuming, count as full workouts.
This introduces us to the incredible metric knows as ANMCFC, or average net monthly connected fitness churn.
The music licensing battle is going to be a really interesting one, as this article taught me: But Peloton has it much worse: In addition to obtaining rights to play the music on its machines, it also needs so-called “public performance rights” since the music acts as a backdrop to a live-streamed class, which, in this case, is legally considered to be a live concert.