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Right Before the Pandemic, Peloton Made a Quiet, Shrewd Pivot

Although its name is synonymous with expensive workout equipment, Peloton’s real future lies in apps and on-demand classes

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Photo: Roberto Machado Noa/Getty Images

When you hear the name Peloton, you probably think of a bike. In particular, you probably think of the company’s iconic stationary bike that streams fitness classes. Peloton’s physical products (which, besides the bike, includes a treadmill, yoga accessories, and a heart rate monitor) have been the primary focus of the company’s branding and marketing efforts to date. Its value proposition of “connected fitness” (access to fitness made more easily available to consumers at home via technology) is built on the foundation of selling high-performance equipment.

However, I believe that’s going to change. Years from now, when Peloton has fulfilled its destiny atop the fitness throne, I believe its sustained success will largely be traced back to a series of pivotal announcements made in early December 2019. Though not seen as earth-shattering at the time, these announcements signaled Peloton’s transition from a hardware company to a content company — a move that I believe is its key to fitness world-domination.

A price change and two new apps

On December 5, 2019, Peloton made three announcements: The company dropped the price of its mobile app, Peloton Digital, from $19.49 to $12.99 per month. It released an app for Apple Watch. And it released an app for Fire TV.

Peloton is decidedly making it easier and cheaper to access their classes without owning a piece of their equipment.

Peloton Digital features live and on-demand classes across a wide range of fitness categories: cycling, running, yoga, meditation, and more. The biggest difference between Peloton Digital and the app that comes with a Peloton membership is that the membership involves buying a Peloton bike or treadmill and allows customers to track their performance and see their position on a kind of communal leaderboard. Notably, the membership subscription is about three times the price of Peloton Digital at $39 per month.

The new Apple Watch app lets users track their heart rate and monitor their running pace and distance using Peloton’s UI, which tracks your heart rate in “zones” that instructors refer to in class to give guidance around workout intensity. The Fire TV app allows users to watch Peloton workouts on their TV rather than just their mobile device or Peloton machine.

In short, Peloton is decidedly making it easier and cheaper to access classes without owning a piece of specific equipment. That’s why these announcements suggest a different Peloton than the one we’re used to, and have big implications across the company’s addressable market, positioning, and product roadmap.

Opening the floodgates

Historically, Peloton has targeted the healthy and wealthy. Look no further than the now-infamous Twitter thread goofing on the bougie placement of Peloton bikes inside of multimillion-dollar homes in their ads.

The price change to the mobile app is a step in the opposite direction. While it’s only a difference of $7 per month, this price change alters the competitive characterization of Peloton Digital. At $19.49 per month, their app was priced at a 25% premium to competitors like Nike Training Club and Aaptiv. But at $12.99 per month, it’s priced at a discount. This removes a key psychological barrier to a type of consumer the company hasn’t traditionally targeted.

Though the previous cost of premium wasn’t egregious, it aligned with the high-end price points of Peloton equipment and membership, likely acting as a hurdle to consideration from more price-sensitive consumers. Now, curious users are far more likely to at least give the free 30-day trial a try, given the monthly fee is competitive with other options.

Offering compatibility with third-party devices also allows more users to access classes with whatever devices and equipment they have. Since releasing the Fire TV app, Peloton has added apps for Apple TV and Android TV as well. Using their own equipment along with the Apple Watch app, users can get closer to a full Peloton membership experience, at a more accessible price, than ever before.

It’s worth noting Peloton announced these decisions well before Covid-19 made drastically discounted subscription rates the norm. At the time, Peloton’s membership faithful were not happy, and many wondered why there wasn’t a similar price change for their subscriptions as well. As one Peloton bike owner wrote to Business Insider in December 2019: “If this was the current situation when I was deciding whether to order I would not have ordered the bicycle and bought a high-end spin bike using the app instead.”

The willingness to draw ire from day-one customers signals that Peloton is serious about this move and willing to pivot from the “Apple for Fitness” label it has previously been given, to a more hardware-agnostic strategy geared to get as many users in front of Peloton instructors as possible.

Intuitively, this also means a change in positioning — which is already well underway.

Centering their model around classes on-demand

Until recently, Peloton has anchored its positioning to connected fitness, emphasizing the integration between high-performance equipment and elite classes. This is the basis for the Apple comparison, along with the fact that both companies center their marketing and branding on beautiful hardware.

The December announcements align nicely with a recent shift in positioning to classes on-demand. You can see this on Peloton’s website, where the company now gives its equipment and app equal billing and centers its messaging around classes rather than the exercise bike.

At their core, all of these at-home fitness apps are really content companies.

While not a perfect parallel, it reminds me of Calm’s shift from meditation to wellness, which enabled Calm to serve a much wider user base. Peloton’s combination of performance hardware and elite coaching talent made it an aspirational brand, but now it’s extending that reputation across a wider landscape than just cycling and running.

The Peloton Digital app offers classes across a range of categories, featuring programs and collections that provide cross-category workout recommendations to give users a balanced fitness regimen. Given the stellar reputation of its cycling instructors, it’s well-positioned to gain a foothold across other categories and develop celebrity instructors in other disciplines.

At their core, all makers of at-home fitness apps are really content companies. Price being equal, class quality is one of the most important deciding factors. By lowering the price and increasing compatibility, Peloton is democratizing access to its coaching talent, making for a rare combination of aspirational, affordable, and accessible classes. This bodes well for Peloton’s chances in this competitive landscape and gives it new levers to pull on the product side.

Shifting gears

Historically, consumers have viewed Peloton as a membership that you have to go all-in on. Simply put, the bike isn’t worth it unless you use it a lot. The data backs this up: In its most recent earnings report, Peloton reported that its subscribers averaged 17.7 workouts per month!

Peloton Digital has traditionally been viewed as a complementary offering for members, giving them the ability to switch up exercises so they don’t get tired of the bike or tread. The idea of attracting Peloton Digital users outside of the connected member base has been an afterthought until now — the new price and compatibility offers users a much more reasonable entry point into the Peloton ecosystem. No longer does Peloton have to be “all-in” or bust. At $12.99 per month, it’s not only cheaper than competitive offerings but also cheap enough to subscribe alongside other fitness subscriptions like Orangetheory, which has physical gyms as well as online offerings. The boutique or niche studio fitness subscription market is an especially ripe one for Peloton, and the price point makes it possible to work a Peloton Digital subscription into their fitness stack — if they choose to go back to their studio of choice at all.

As the Peloton Digital subscriber base grows, Peloton will collect data that will help inform future investments. The company can determine which classes to develop further, which instructors to anchor programming around, and even assess whether it makes sense to develop new hardware based on observed and measured workout trends.

It’s also easy to see a future in which a differentiated and upgraded version of Peloton Digital incorporates personalized data and benchmarks without the equipment, a “virtual personal trainer on-demand,” if you will. Broadly, these product possibilities mean Peloton can reach a far wider market than it has ever been able to, opening the top of its funnel to new users and encouraging them to utilize more products within the Peloton ecosystem over time.

By lowering the price and increasing compatibility, Peloton is democratizing access to their coaching talent.

The new Peloton customer

My wife and I were hardcore members of the boutique gym chain Orangetheory Fitness before the coronavirus pandemic struck. In the absence of classes, my wife tried Peloton Digital and loved the guided outdoor running sessions. When the trial was up, she promptly upgraded to a paid subscription.

We’ve talked about our new reality assuming things go back to normal, and she’s already set on cutting down her Orangetheory membership and replacing some of those classes with Peloton’s. Maybe one day I’ll subscribe, and sometime in the future, we might even buy an exercise bike.

But the point is that we didn’t even need to consider buying a Peloton bike to become Peloton customers. With the new focus on classes, Peloton can bring a completely new type of user into its ecosystem. As the company grows subscribers and continues investing in Peloton Digital, new monetization opportunities will arise, and most of them likely won’t require purchasing equipment. Down the road, when someone mentions Peloton, I expect many customers will think of an app on a TV or an iPad rather than a bike — and that, in the long run, is a good thing for Peloton.

A version of this article originally appeared in Good Better Best.

Written by

Strategist @ ProfitWell. Analyst @ https://goodbetterbest.substack.com/

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