Peloton: the Netflix of boutique fitness

Peloton is making a splash in the boutique fitness industry. Launched in 2011 by founder John Foley, Peloton is a NYC-based cycling studio that offers spinning classes in-studio, as well as an online subscription model for riders to stream classes from home while using Peloton’s proprietary stationary bike equipment. With this dual approach, Peloton sets itself apart from many replicable, copy-and-paste fitness businesses by creating a unique value proposition for its customers. Peloton is an example of a company with complementary business and operating models that jointly contribute to its growing success.

Business Model

Peloton first opened its doors in the Chelsea neighborhood in New York City with a studio seating 60 riders and a rotating weekly schedule of spin classes taught by certified instructors. In these classes, Peloton creates value for riders in the same way as competitors like FlyWheel, SoulCycle, or even Cambridge’s HandleBar – by offering fun, high intensity workouts taught by seasoned instructors. With classes priced at $30 a pop, Peloton’s brick-and-mortar locations are sustainable businesses independently and can quickly recoup fixed costs to turn profits. With an increasing number of studios in high traffic locations, Peloton captures value by bringing in more volume of riders.

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What bolsters Peloton’s overall business and sets it apart from the competition though, is an online subscription business that complements the live spin class experience. Each studio is equipped with a high tech recording hub from which the digital team records, edits, and streams classes directly onto Peloton’s media platform. Loyal cyclists can purchase a Peloton branded stationary bicycle and register as a subscriber to the platform for $39/month in order to stream classes straight into their homes. Priced at $1,995, the bikes are video-enabled, equipped with waterproof tablets powered by Google Android, and specially integrated to host Peloton’s full inventory of recorded classes. With a Peloton bike at home, riders can choose to electronically “join” live classes and post their live stats to the studios, or have the flexibility to workout whenever is more convenient with a pre-recorded class. In this way, Peloton captures incremental value from a secondary source – and upholds two symbiotic business streams.

Operating Model

Peloton has found success and enthusiastic support from investors as a result of an effective operating model.

Starting with the base business of the physical studio, Peloton has fixed costs of real estate, spinning machines, and labor to attract top quality instructors. However, unlike other studios – and other parallel industries like airlines or hotels – an empty seat in a Peloton class doesn’t necessarily mean missed revenue. Peloton’s operating model ensures that each class maximizes revenue and reach, culminating in an impressively sticky revenue-driving cycle (pun intended).

Peloton instructors teach live classes that can then be streamed on-demand from riders’ homes and recorded to add to the growing class inventory. Here, Peloton maximizes impact from every dollar of labor costs. Meanwhile, real estate assets have heightened impact as well; the physical studios act not only as independent businesses, but also as a storefront to the online business. These locations attract new riders, build the brand, and give customers that first-hand live experience that motivates them to sign up for the subscription program. Once inside the studio, riders use and grow accustomed to the Peloton stationary bikes. Each class functions like a “test ride” for the equipment and increases a rider’s interest in purchasing a bike for home. Post-purchase, these stationary bikes act as a loyalty incentive to Peloton’s favor. Once a customer invests in a bike, they are likely to become a loyal repeat user. Finally, when a rider begins riding at home, they are engaged in with a lively online community. Peloton’s media platform houses a full inventory of classes and supports the network of riders with resources to help in achieving fitness goals. This model benefits immensely from a network effect as Peloton grows, with more classes and riders uploading on to the platform. All these factors culminate into a powerful and enjoyable experience for riders – at home and in studio – to engage and find a sustainable, flexible workout routine whatever their preferences. And so runs the self-propelling cycle of Peloton’s business and operating model, turning fixed costs into exponential earnings.

Looking Forward

This past April, Peloton successfully raised $30M in Series C funding to fuel its expansion. They are on track to have $50M in revenue and expect to have 10,000 bikes in the market by the end of this year. To quote board member Jon Callaghan, Peloton has found success by building “beautiful hardware, immersive content, and a robust community.” With such self-reinforcing business and operating models, Peloton has been able to capitalize on its assets to build a business and a brand that expands beyond the studio walls.

Sources:

• http://www.nytimes.com/2015/04/17/business/dealbook/cycling-start-up-peloton-raises-30-million.html?_r=0
• http://www.ft.com/cms/s/0/bc6ff286-5794-11e5-9846-de406ccb37f2.html#axzz3svTNXhPx
• https://www.pelotoncycle.com/
• http://www.crainsnewyork.com/article/20150416/TECHNOLOGY/150419893/high-tech-spinning-startup-peloton-raises-30m-to-open-eight-showrooms
• http://www.slate.com/articles/technology/technology/2014/05/peloton_cycle_launch_spinning_classes_beamed_into_your_home.html
• http://www.bloomberg.com/features/2015-peloton