John Foley should have been on the Conference Stage at OMR20 this past May. It would have been fantastic to see him in-person discuss Peloton, but the story he would have told, would have been markedly different than the one he tells now. Six months and one global pandemic later, we finally caught up to Foley, who has seen his much ballyhooed startup explode into a bonafide juggernaut on stationary wheels. Delivery of a Peloton bike takes several weeks, revenue is through the roof and the company is valued at round about USD 30b. How success initially looked like a long shot, why comparisons with Netflix are warranted and how a corona vaccine is expected to impact Peloton, all of that and more in this episode of the OMR Podcast.
The way Peloton started, it sounds as if Foley was fed up with coming up short and determined not to be on the wrong side of digitalization. But to be a creative disruptor behind a new digital platform and an even smarter business model that would inject new life into a stagnant sector.
An epiphany in the gym
Before Foley launched Peloton, he was a manager at a large chain of US bookstores. Here, he witnessed first hand how the Kindle and other eReaders radically changed the market, permanently altered people’s reading habits and set the death of the bookstore into motion. One day, while working out at his gym, he had the moment that would change his life: What if, you could transport the experience of working out in a gym to your living room using modern tech?
Together with a pair of partners, he began developing a concept for a spinning bike that featured a massive display via which personal trainers, Peloton calls them instructors, could spur on clients. Essentially recreating the gym experience, but with a much larger selection of courses available without having to change physical locations. In addition to the hardware, clients would take out subscriptions to access the courses, making them, just like in traditional gyms, sources of permanent revenue.
Pitches fail to find footing
What seems like a no-brainer in retrospect failed to gain any traction among investors at first. Foley says that he pitched his idea to 400 VC firms and hundreds more angel investors without generating so much as a penny, Foley says. The biggest question preventing investors from getting on board was one that they all had: “Where is there a market for a 2000 dollar stationary bike?” “The market did not exist back then,” Foley says today. “I tried explaining that no one wants a 2000-dollar bike, but that it is just a piece of hardware. What people want is an exceptional workout experience.”
Peloton creates this experience for its clients through software. To be more specific, through courses played through the display embedded on the Peloton bikes, and through the community aspects that help course participants connect with each other. “Rupert Murdoch once said that ‘content is king.’ The fitness sector is no exception,” says Foley. “Our content is unique. And that is what our clients are paying for each month.”
Breakthrough at the mall
Demand was scant at first, Foley says. In fact, it was not until Foley opened a pop-up store in a mall that business slowly got into gear. At first, people had a need to touch and try out the bike before they would buy it. A realization that has impacted the way Foley and Peloton launch in new markets, like in Germany, our home market, where stores were an important aspect of the rollout concept. Foley now says that word-of-mouth is the biggest revenue driver and the vast majority of purchases are made online—sans haptic.
Peloton content is created in two studios, one in NYC and one in London. From these two locations, instructors stream courses to audiences around the world. These audiences include some major names from a variety of walks of life, many of whom post about it—all organic stresses Foley. According to him, there is another reason for the excitement and enthusiasm: Celebs like working out at home, where they can concentrate on the workout and aren’t disturbed by paparazzi. This has led to them posting pics of their workouts on their own.
In addition to the first bike and the courses, Peloton now also offers a second bike model, a treadmill and additional course offerings, such as yoga, which does not require any hardware and can be subscribed to separately. In doing so, Peloton has put itself in the running in an enormous market, the size and scope of which predates COVID. Accordingly, competition is fierce.
Is Apple the biggest competitor?
In Apple, there is a new player on the fitness streaming market, whose ambition for premium products and perfection is on par with those of Peloton. But Foley is undeterred: “They announced that they’d be streaming a few fitness courses. But streaming courses on an iPad is just a fraction of what we do.” He points out the integrated business model that ranges from hardware to the subscription model and the community aspects. “Nothing that Apple has announced will come close to that.”
While Peloton initially launched with an air of being a fitness device for the elite, it is now focussing on the mass market. The option of buying a bike in installments is a move directed at penetrating this market. Foley says that in the US, nearly 70% of all bikes sold are done so with some kind of financing. That has helped Peloton grow its subscriber base to 1.3 million members—and Foley feels that the potential is far from being exhausted.
Making fitness studios irrelevant
Around the world, 250 million people have some form of a gym membership, says Foley. “My theory is that no one wants a membership to a fitness studio. You pay money, because you want to be in shape.” He says that you have to make an alternative offer to such people, to make working out in a more comfortable place an option at a better price. “Everyone,” Foley says, “would cancel immediately and switch.”
Check out the entire episode of the OMR Podcast with John Foley to find out how Peloton can afford to spend up to USD 1000 on each new client, why its bikes are not available on Amazon and why Foley sees Netflix one of the biggest sources of inspiration for Peloton.
At a glance:
- How Foley came up with the concept of Peloton and what impact his previous role in books had
- Why Foley struggled initially to find investors and was forced to go to Kickstarter
- Why Foley views Peloton as a media company and what role content plays
- How expanding into new markets is set up and why stores are key
- Why Foley views the company’s initial positioning in the upscale segment as a mistake and what impact financing plays
- What role the Chief Content Officer at Peloton does and how many instructors the platform now has
- How Influencers have helped establish the Peloton brand
- Why Foley is not concerned about revenue being skewed towards bikes and treadmills
- Which the impact of app and connected TV subscriptions have on business
- Why Foley is unfazed by Apple’s new fitness program regarding Peloton’s market share
- How he views the announcement of COVID vaccines and that they will lead to gyms reopening permanently
- How the bike design came about and where they are manufactured
- Why Foley sees a pool of 250 million people as his potential client base
- Why Peolotn is pivoting its marketing mix stateside away from performance and towards branding
- Why the churn rate among subscribers, despite the option of monthly cancellation, lower than one percent is
- What potential does Foley see in other markets, e.g. in Asia
- How often he takes a spin on a Peloton bike