Peloton: Winning the fitness battle, losing the economic war

Can Peloton win as a physical and digital product? Will the community aspects of the experience help it to stay afloat? The app might just eat the bike. Read on.


Peloton’s customer value proposition is clear for current users: a highly interconnected fitness experience that starts in your home and can be as private or as public as you want. Durable hardware, integrated software, on-demand high-quality content, a curated pool of instructors, and an interactive, supportive community are critical to the delivery of this value proposition. Through the Peloton App, users can access the digital training content and exercise, even when they do not have Peloton equipment.

So far, Peloton’s value creation proposition allowed the company to garner 1.4 million subscribers and revenues of $915 million in 2019, and a net promoter score of 91(which is higher than Apple and Netflix). However, as the company scales up, questions remain on whether the company can grow its operations and market share in a way that allows it to capture the value it creates. While the community aspect of Peloton is valuable, it seems uncertain whether this community will be durable and scalable in the long run. 

Peloton’s hardware (e.g., bikes, tread) comes with an everpresent risk of technological obsolescence. As the company designs newer models of touchscreens and updates software, the upgrades compel users to buy the screens. The last screen purchase cost $750 ($350 for users with a discount code), which is almost one-third of the value of the bike. This replacement/upgrade was met with mixed reviews by users on Peloton’s community. Since we expect iterative cycles of product development to enable the best-in-class experience for new users, Peloton will have to market harder to convince users that upgrades in screen functionality are worth shelling the periodic amounts of capital. Additionally, the company will have to contend with users who refuse to upgrade their hardware. Peleton can internalize the costs of support or surcharge non-upgraded users for the added service.

Peloton selected a “both… and” strategy that ensured it was present as an app and a relatively expensive physical product. The core idea would be to use the app as a means to enhance the triability, allowing users to experience the product before eventually trading up into the full ‘bike’ experience. This strategy enables the company to benefit from the multiple revenue streams- while spreading out their fixed costs across more users. However, it also exposes Peloton to revenue cannibalization and substitution from its app. App users pay $12.99 per month to access a broad suite of classes, which they can take on any spin bike and derive the fitness benefit. It not uncommon to hear app users contend with whether to get the benefits of the app while using a more affordable bike option- as opposed to the pricey bike. 

On the other hand, bike users spend $39 per month for the added value of a dashboard of metrics on one’s workout history and the convenience of having your bike. Is this value difference sustainable? Highly unlikely. With more ‘Fitbits’ and workout trackers, the value of the “metrics” dashboard will decrease since users will be able to substitute the utility. This other technology also takes into account their other workout activities, e.g., walking in a way that hardware in 1 place cannot. 

As competition increases, the primary users who remain on the bike/rower infrastructure will be users who value convenience or prefer not to go to the gym. This market is constrained in urban areas by the physical size of apartments (to buy more high-end equipment, you need to have space to put it in). In more rural areas, profitable growth is constrained by supply chain challenges e.g., costs of delivery, servicing machines, internet speeds, and the complexity involved in moving heavy equipment over vast distances in the US.

The “One Peloton” maxim captures the vision of a digital space where all users can go for advice on workouts, to share milestones, complain and engage with instructors. While one could argue that community engagement is another defensible moat for Peloton, the community itself is not immune to the effects of scale. In a world of increasing political divides, trolls, and international tensions, there are posts on the Official Member page with users sharing about negative engagements e.g., harassment by other users. Users often advise each to go to subtribes to find support and avoid hostility. The social media experience of users is not entirely in Peloton’s direct control, even though it affects their brand. Cultivating a healthy culture on the internet is difficult- primarily when people hide behind their keyboards and cannot be held accountable for their effect on the community. 


Membership Pricing, Peloton:

Membership Pricing, Peloton

Photo Credits: Peloton responds to backlash over holiday ad, says it was ‘misinterpreted’,,



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Student comments on Peloton: Winning the fitness battle, losing the economic war

  1. Interesting post, I haven’t used Peloton myself but I would like to get one in the near future. I agree with the analysis regarding the obsolescence with their equipment, and how to keep those users into the subscriptions. I wonder if they can create features that link to their app and platform in ways difficult to replicate for competitors. Also, I would like to see how they make money: is the recurrent subscription the source of revenues and profits? or is the equipment? If they’re selling the equipment at cost, just to attract customers the idea would be to lock them up with the app, making the obsolescence argument less relevant. Another issue is differentiation against competitors, this could end up like online mattresses, with 200 bikes and apps that do the same thing.

  2. Thank you for writing on this topic! Your post highlighted a number of the concerns I personally have as a potential customer – and that I’m sure many other of their target buyers are having. It also brought to mind two other issues they are grappling with they may call into question their “winner” status:

    (1) Choice of exclusivity vs. inclusivity – Peloton has received significant flack in recent months for appearing too elite and exclusive (i.e. featuring only thin, young, rich people with large houses). As a brand that prides itself on community, I think its going to be careful about how it curates a community that people are proud to be a part of vs. hide in their back room when guests come over).

    (2) Rise of at-home fitness competition – many other companies are entering the connected at-home fitness arena, namely Fight Camp (boxing) and Tonal (weight lifting). Going forward, Peloton will have to compete with these folks for the dollars, time, and floor space of a limited, urban, affluent customer base.

  3. I enjoyed reading this post because I myself have been quite confused by Peloton’s strategy. In fact, when I first tried Peloton (at its studio in NYC) in 2017, I was already confused about why I needed one account to sign up for class, and another (on a different site) to log in on a bike. That particular issue was probably minor, but to me it was a symbol of Peloton’s want-to-do-it-all strategy. I personally won’t buy the bike, because it is really just an expensive bike with an iPad attached. However, I would be open to using the app for workout videos (if they were free), or ride on one of their bikes when I stay at a hotel that partners with Peloton. Maybe the company should spend some more time to think about their digital strategy, so that it actually lives up to the number of times the word digital was used in their S-1 prospectus.

  4. I’ve been wondering about so many of these questions as well! In addition to the space issues SR2020 brought up, I’m interested to see how Peloton’s digital strategy pans out with the rise of boutique fitness studios and the community element so deeply ingrained in them. I rarely experience Core Power or Barry’s go-ers show up, work out and leave without talking to one or many people. Grabbing a coffee or smoothie after a tough workout is part of what makes it worth it, and I wonder how many people are willing to forgo that social experience in favor of a more convenient workout.

  5. Thanks for this thoughtful post! I’m also curious to see how the Peloton strategy shakes out over the long term, but I think one aspect that is missing here is the value of the trainers and instructors that Peloton has built. While other studios like soul cycle and barry’s might have similarly loyal followings, Peloton through it’s digital app and in-person classes has allowed people to feel like they have a “personal trainer”. In my mind, the value proposition is less about the community feel and more about having a personal cheerleader to guide you through workouts and the convenience to do it at your own time and in your own space (or at the gym). For the trainers, it’s given them a broader more global stage to encourage and empower which is what their taught to do. I think the new competitors coming out have yet to be a serious threat as most of them are addressing a specific type of workout (HIIT, rowing, boxing). Peloton in seeing this has been expanding it’s selection of classes across a variety of exercises yoga, outdoor running, meditation, etc.

    I agree your question on how big can this truly grow and will they be able to figure out the economics are questions worth digging deep into, and will ultimately determine Peloton’s fate..

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