In the midst of the COVID-19 pandemic, I did ~9 hours of research into which at-home bike I should buy (I know\u2026a bit excessive). I was shocked with my thoughts during the purchasing decision. There were $300 bikes that seemed extremely similar to Pelotons, but somehow, I was still considering spending (wasting?) the extra $2,000 for the Peloton.<\/p>\n
So why is this the case, and how did Peloton work its way to dominating the at-home fitness market with more than 2 million users to date and $466 million in Q2 2020 revenue. [1]<\/a><\/p>\n While there are many factors that make the Peloton offering so compelling, I believe two are most instrumental:<\/p>\n 1) Network effects: Peloton is not about the bike \u2013 it\u2019s about the platform.<\/strong><\/p>\n The more people that are on Peloton, the more compelling it is for me to buy it. A huge draw for me is that my friends have Pelotons, so I can compete with them on a leaderboard on a Peloton. This adds a completely different element to the classes \u2013 one of being social with friends, almost like I am going to an in-person class.<\/p>\n If I go with the cheaper bike and save $2,000, I will have \u201cFOMO\u201d (Fear Of Missing Out for those at school born before 1990) because all my friends will be on the leaderboard together having fun.<\/p>\n So even though the physical bikes are similar, the network effects of the platform make we want to be a part of it with my friends.<\/p>\n 2) Quality (or perception of quality)<\/strong><\/p>\n There is no question that Peloton bikes have excellent quality. But their competitors like NordicTrack, Echelon, Sunny Bikes all seem to have great quality too.<\/p>\n Through price signaling, however, Peloton has guaranteed to its buyers that its quality is nothing short of exceptional. By investing in its brand and using a high price point, Peloton buyers know they will get nothing short of excellence. This is critical for riders from the perspectives of experience and risk of injury \u2013 even if it\u2019s just having peace of mind.<\/p>\n Probably a question from readers:<\/strong> What about the Peloton classes and app? You don\u2019t think those are critical?<\/p>\n Answer:<\/strong> Peloton\u2019s classes and app are fantastic, but you can take the classes and get the app with any<\/em> non-Peloton bike or even without a bike at all. So it’s not \u201ccritical\u201d for me.<\/p>\n Peloton creates value through the above two factors of platform and quality. And it captures value by leveraging those to enable it to charge a significant premium on competitors.<\/p>\n But SOUL recently announced a competitive premium at-home bike with a strong brand. So how sustainable is Peloton\u2019s offering?<\/p>\n In short, I believe Peloton\u2019s success is incredibly sustainable.<\/p>\n Why is Peloton\u2019s success sustainable?<\/strong><\/p>\n In an HBR article titled \u201cWhy Some Platforms Thrive\u2026and Others Don\u2019t\u201d, our HBS Professor Feng Zhu and colleague Marco Iansiti discuss five factors that allow some platforms to thrive.[2]<\/a><\/p>\n I believe that across each of these factors, Peloton performs well:<\/p>\n 1. Strength of Network Effects<\/em><\/strong><\/p>\n As discussed above, Peloton has strong network effects that make me want to take classes with my friends.<\/p>\n 2. Network Clustering<\/strong><\/em><\/p>\n The brief messaging here is that when networks are global, it makes them much harder to disrupt than if they are clustered in smaller areas. Peloton\u2019s network is global \u2013 if my friends in an entirely different part of the country are on the app, I can be on the leaderboard with them. This makes the barrier to enter for Peloton competitors much stronger. Of course, SOUL has the scale that they could compete well, but as we\u2019ll see in the next factor, it won\u2019t be easy.<\/p>\n 3. Vulnerability to multi-homing<\/strong><\/em><\/p>\n Both Peloton\u2019s and SOUL\u2019s products are so expensive that it simply doesn\u2019t make sense for someone to buy both. Additionally, because of Peloton\u2019s first-mover advantage, it is likely that most people who are both serious riders and high-earners have already bought a Peloton. Together with the strong network effects of these bikes, these factors make SOUL\u2019s journey to success much more difficult.<\/p>\n 4. Risk of disintermediation<\/strong><\/em><\/p>\n There is low risk of disintermediation because even if riders buy other bikes and still use the Peloton app to participate in classes, they will still be paying Peloton $39\/month to do so.<\/p>\n 5. Network bridging<\/strong><\/em><\/p>\n Peloton has already done a great job network bridging and is now integrated with Apple Watch and compatible with Amazon Fire Stick and many other platforms. They are adding value for users of many different platforms with this.<\/p>\n Conclusion<\/strong><\/p>\n Peloton has displayed genius in the way they\u2019ve built network effects into their platform. That shows in their incredibly impressive 93% 12-month retention rate.\u00a0[3]<\/a><\/p>\n So even with similar bikes that $2,000 cheaper, Peloton\u2019s mastery in platform-building has allowed its offering to be compelling and sustainable.<\/p>\n <\/p>\n Bibliography:<\/strong><\/p>\n [1]<\/a> Peloton Interactive, Inc. 2020.\u00a0Investor Relations | Peloton Interactive, Inc.<\/i>. [online] Available at: <https:\/\/investor.onepeloton.com\/investor-relations> [Accessed 24 March 2020]<\/a>.<\/p>\n [2]<\/a>\u00a0“Why Some Platforms Thrive And Others Don\u2019T”. 2020.\u00a0Harvard Business Review<\/i>. https:\/\/hbr.org\/2019\/01\/why-some-platforms-thrive-and-others-dont.<\/a><\/p>\n [3]<\/a> Peloton Interactive, Inc. 2020.\u00a0Investor Relations | Peloton Interactive, Inc.<\/i>. [online] Available at: <https:\/\/investor.onepeloton.com\/investor-relations> [Accessed 24 March 2020].<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" Peloton is dominating the market despite an offering that is $2,000 than similar competitors. How?<\/p>\n","protected":false},"author":11219,"featured_media":11595,"comment_status":"open","ping_status":"closed","template":"","categories":[2718,26,2068],"class_list":["post-11592","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-bicycle","category-fitness","category-peloton","hck-taxonomy-organization-peloton","hck-taxonomy-industry-bicycle","hck-taxonomy-country-united-states"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-digit\/assignment\/platform-business-challenges\/","yoast_head":"\n