COVID-19 DIGITAL ACCELERATION
5 predictions for Peloton and the future of digital fitness
Last September, CNBC analyst Jim Cramer referred to Peloton’s upcoming IPO as, “the kind of thing that will be exciting for today, tomorrow. And then I think we’re going to look back and say, ‘What were we thinking?’”
Flash forward to July 2020, Peloton’s stock has more than doubled since its IPO and the company has shifted from a luxury bike producer to an exercise lifeline bought by Americans earning $75,000 or less. Thanks to social distancing brought on by COVID-19, the entire fitness industry is rushing to pivot to a Peloton-like model with streaming classes and connected equipment at home.
What does this hastily digitized industry look like now? And where is it going?
The digital fitness industry has actually existed for a long time. Video programs like Beach Body and Insanity brought boutique fitness home, while apps like Strava and Nike+ connected communities to run together and track their performance. Video workouts actually date back to the 1950s, when Jack LaLanne, often described as “The Godfather of Fitness” shared guided exercises over black-and-white TV programs. Actress Jane Fonda brought video workouts mainstream with her top-selling workout tapes in the 1980s.
Today, the difference is the level of adoption of digital fitness, and the level of integration across different products.
There are two main elements needed to enter this rapidly evolving market: content, and the means to distribute said content. This can be as simple as you uploading a workout regimen on YouTube, or Barry’s Bootcamp launching its own direct-to-consumer streaming service. The ease of entry means that new participants are likely to emerge. Meanwhile, current leaders are focused on grabbing market share while consumers are still adapting to the new reality of fitness at home.
Digital fitness players differentiate themselves in two ways, with connected equipment and ‘celebrity’ instructors:
- Connected equipment: This is your Peloton bike, Hydrow rower, or Fitbit smart watch. The investment in connected equipment drives loyalty (if you buy a $2,500 Peloton bike you’ll probably use it) but it also offers an incredible value proposition to customers. Instead of just watching a video workout, owners of connected equipment have a sensory experience, as well as a raft of fitness statistics to personalize their workout and encourage them to reach a new personal best. Mirror, a digital screen that plays workout videos in your home, can track your heart rate and offer real-time, personalized encouragement to users during a workout via its heart rate monitor.
- Celebrity instructors: Attractive personalities and physique combined with encouraging coaching is key to attracting and retaining users. The Sweat with Kayla program (which raked in $77 Million in 2018) is built off the celebrity of one Kayla Itsines. Peloton has managed to turn its portfolio of instructors into quasi-celebrities known on a first name basis. The insight that good instructors drive demand for classes compelled Peloton founder John Foley to start the company after he struggled to get into classes with his favorite instructors. Today, Peloton’s instructors are carefully selected for their potential star power and ‘relatability.’
Mapping the connected fitness sector
With content and distribution as the main elements, and connected equipment and instructors as additional differentiators, you can start to map where each digital fitness player operates:
At the top in End to End Providers you have Peloton (which has both the connected bike and recently introduced treadmill, plus a popular no-equipment streaming service), and Equinox’s soon-to-be-launched Variis, which combines an enviable portfolio of brands including Equinox, PureYoga, and SoulCycle onto a digital platform, as well as a SoulCycle bike and its bevy of beloved fitness instructors.
Wall Devices Mirrror and Tonal offer a similar breadth of workouts to Peloton and Variis, but these platforms have yet to turn their instructors into celebrities. Their future success or demise may hinge on their ability to select and promote their fitness coaches.
Digital streamers include Netflix-like video-streaming platforms Obé, Fiit, and Beach Body OnDemand.
At the bottom, ‘Peloton for x’ includes Peloton-like competitors for specific verticals, including Hydrow (rowing) and Fight Camp (boxing).
In the middle is where things get interesting. Different players are beginning to partner to offer different elements of the value chain (e.g. boutique gym 1Rebel offering connected classes on Technogym equipment), while fitness influencers and cult brands like Les Mills are carving out their own digital audiences.
Where is the digital fitness industry going? Predictions for the future 🔮
1. Peloton will continue to expand and dominate
If you liken the streaming wars to the fitness wars, Peloton is similar to Disney, while the rest of the players are Netflix, Hulu, Peacock and everyone else. By this I mean that Peloton has the widest set of assets (physical and digital), and these assets are self-reinforcing.
Consider Disney’s model. Disney can pay $4 billion for Star Wars simply because they can monetize Star Wars more efficiently than anyone else. Each dollar spent on Star Wars turns into a movie franchise, a theme park, a Disney+ tv show, live entertainment, and merchandise.
Now consider Peloton. Peloton has the strongest IP in the digital fitness sector with their raft of celebrity instructors. They have the in-person experience with their bike (and upcoming equipment), as well as physical studios. They have the Disney+ equivalent of digital content with their Peloton digital app (no bike required) and enviable 1 million+ subscribers. They’re also expanding to merchandise with their clothing line. And, they’re building out global events with their recently announced ‘Pelothon.’
Like Disney, every incremental piece of content that Peloton creates can be monetized far more efficiently than any competitor. A Peloton video is an in-person class, it’s a live-streamed class, its an on-demand class, and it’s an opportunity to sell clothing and merchandise. In the future, Peloton branded workouts could become in-person fitness courses (à la Tough Mudder) and hotels (à la Equinox).
2. A great bundling of boutique brands onto a single platform
In-person boutique gyms like Barry’s, Orange Theory, and Fhitting Room have all rushed online as a way to survive the pandemic. However, to access these classes, a customer has to have a subscription to each of them. Previously, I could drop into a SoulCycle class on Monday and a Barry’s class on Tuesday. As brands develop their online audiences, there will be a demand for a single online subscription to aggregate these classes.
Similar to how DoorDash and Deliveroo aggregate restaurants onto one delivery platform, aggregators will arrive to assemble boutique fitness brands into one place. Classpass is a likely choice here. The top brick & mortar studios like Barry’s tended to avoid paying Classpass fees because they could fill their classes on their own. However, online is different. There are unlimited seats (or bikes) in an online class, meaning every additional booking is pure profit. In that case, it makes sense to pay Classpass for extra bookings. In fact, COVID-19 may prove to turn Classpass into the profitable aggregator it always hoped to be.
3. Players will expand to offer a full wellness package
Fitness brands are expanding to offer more than just workout content. Peloton is breaking into mental health with a selection of meditation classes. 1Rebel offers beauty treatments at some studios. And Lululemon’s $500M purchase of Mirror points to using Mirror content to push Lululemon leggings. As digital fitness players grow, they are likely to continue to offer their captive audience a selection of adjacent categories like fitness clothing, workout equipment, beauty treatments, and nutrition.
In the not-too-distant future you may see a line of Peloton high-performance meal kits, Classpass partnerships with Headspace and Calm, and personal training platforms that also offer life coaching and therapy. An Equinox dating app may not even be too far off.
4. Acquisitions by Big Tech
It’s unlikely that the captive audiences held by digital fitness players have gone unnoticed by big tech (namely, Amazon, Apple, Facebook, Google, and Netflix). There are a few potential moves by big tech to capture their piece of the fitness market (and the customer data):
Apple acquires Peloton: There are supply chain synergies here (both Peloton and Apple produce beautiful tablets) but the real synergy here is the audience and data. Peloton and Apple both target the same middle-to-high income, design-minded customer. As Apple pushes further into health with its Apple Watch, and further into digital content with Apple+, Peloton is a perfect acquisition target to offer high-end health and content to a customer base Apple is already working to lock into its ecosystem. Peloton’s sleek design and Apple-like studios don’t hurt.
Google splits YouTube into its own fitness platform: Google is already a big player in the digital fitness space by way of YouTube’s fitness content and its acquisition of FitBit. Google could easily push YouTube’s top workout content onto its own app, and connect this with Fitbit data so customers can track their performance during a workout. A connection to Google’s health arm Verily may soon follow.
Amazon acquires digital fitness streaming players Fiit or Obé and rolls it into Amazon Prime: Digital fitness streaming services are a perfect fit for Amazon, as they offer the opportunity to target the sale of fitness products and nutrition directly to customers who are consuming fitness content.
5. Celebrity instructors as customer acquisition
As discussed above, celebrity instructors are one way for fitness platforms to differentiate themselves. However, celebrities are not IP in the same way HBO owns Game of Thrones. Celebrity instructors can easily move platforms, and bring their loyal audience with them. As Google prepares to launch its own Youtube-fitness streaming service, it may look to poach Peloton’s Cody Rigsby to headline the launch. Celebrity instructors will become a strategy to pull in audiences. Could an NFL Mahomes contract be on the horizon?
We are only in the third inning of the rapidly evolving fitness industry. More players will enter, while current leaders will focus both on expanding their breadth of offerings, and pursuing a land grab to lock in subscription audiences. It will be exciting to see the digital fitness market develop, particularly as COVID-19 continues to call into question shared spaces and equipment.
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