JP Mangalindan

14 January 2021

6 min read


The new health economy

By Ryan Lawler & Mimi O Chun

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By Maya Kosoff

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Fitness device makers have strived for years to make their equipment more engaging and boost sales, but 2020 may be remembered as the tipping point in which stay-at-home orders led to an explosion of consumer demand for at-home workout solutions.

A slew of smart fitness products from companies such as Peloton, Tonal, Mirror, and Hydrow emerged in recent years. These smart fitness solutions combine Internet-connected equipment, high-quality content, real-time interactions with trainers, and a social community — basically everything you would need for the perfect workout at home.

For smart fitness companies, the opportunity to scale is enormous, as the global market is estimated to reach $29.4 billion by 2025. These companies have undoubtedly captured some of the 64 million people who previously worked out at gyms and training studios before the pandemic forced many to close their doors.

A decades-long evolution

When people paid to work out at gyms in years past, they faced three primary pain points: a limited number of physical locations, the inconvenience of leaving home, and the high cost of on-site training classes.

Solutions have come and gone over the years, with each trying to replicate the gym experience by bringing affordable equipment and a full training experience into the home. Without the live training capabilities, however, at-home fitness solutions often fell short of the in-person gym and training experience.

In the 1980s, fitness content became more widely available via VHS exercise videos from celebrities like Jane Fonda and Richard Simmons, but the lack of quality equipment, instructor interactivity, and social interaction ultimately led to a lack of motivation.

In the 1990s, innovation and lower costs from fitness equipment manufacturers meant access to better quality machines, many of which came paired with content. This time, Suzanne Somers helped consumers tone their upper legs with the ThighMaster, while Chuck Norris showed them how to get buff with the Bowflex. But again, a lack of instructor interactivity and community engagement often led to equipment gathering dust in the basement.

More recently, during the 2010s, fitness made its way into home video game consoles with Wii Fitness and Zumba dance parties, while fitness apps on mobile phones enabled online communities to engage with others.

Today’s smart fitness options build on top of all the benefits from previous efforts by layering on newer technologies that make the workout experience more compelling. The best of today’s at-home stationary bikes, treadmills, and other equipment now stream live workout sessions taught by instructors, provide a social experience with other users, and track user activity data.

Peloton, which launched its first stationary bike in 2014, is perhaps the best example of a smart fitness solution that has successfully married beautifully designed hardware with highly engaging content. The company’s efforts resonated with millions of Americans ordered to stay at home in 2020, as Peloton, propelled by a surge in demand, predicted that the fourth quarter of 2020 would be its first billion-dollar quarter.

Demand has been so high for Peloton equipment during the pandemic that delivery times for its bikes and treadmills at the moment typically range between four and eight weeks.

The company’s content component is as crucial to its success as the hardware. Over the last six years, Peloton has developed a robust catalog of content that is now streamed to more than 3 million users.

The company has also been extremely competitive in poaching instructors from training studios like SoulCycle and Barry’s. Its high-quality programming helps explain why Peloton users stay hooked. The average churn rate for monthly subscribers hovers at 0.75 percent, and the company predicts churn will remain under 1 percent for 2021.

How Peloton positioned itself for success

How Peloton achieved success in 2020 is a case study unto itself. CEO John Foley has said that during Peloton’s early days, he was turned down by more than 400 investors because they didn’t see any room in the fitness market for yet another exercise bike. But those investors failed to recognize how Peloton differentiates itself.

The company’s original stationary bikes were equipped with WiFi-enabled touchscreen tablets, delivering an abundant amount of live content each day. High-energy instructors and dashboards offered real-time guidance, feedback, and motivation. Meanwhile it created a sense of community — and competition — through digital leaderboards displayed on their screens.

Breaking it down further, Peloton offers all the primary benefits at-home fitness users look for, including the four key elements of a compelling at-home fitness experience:

  • Equipment. Peloton makes and sells award-winning equipment and high-end tablets.
  • Content. The company produces 12 hours of live content each day with top-notch instructors and has tens of thousands of on-demand workout classes to choose from.
  • Interactivity. Peloton’s instructors, dashboard, and equipment provide real-time guidance and feedback.
  • Community. Leaderboards and swarms offer competition and social engagement.

The entry-level Peloton bike costs nearly $1,900 — a price tag high enough to cause sticker shock — but the company offers a choice of financing it for $88 a month, including the cost of a monthly membership. That significantly lowers the barrier to entry for many people.

Peloton also offers financing options for its more costly equipment, including its upgraded Bike+ model, as well its two treadmills, which can cost as much as $4,300, or $111 a month.

Last September, Peloton reported more than 1.1 million connected fitness subscribers who pay a monthly membership to stream classes to their equipment, which represented a 113 percent increase year-over-year.

The company’s success proved there was a large market opportunity for at-home smart fitness solutions. It has also spawned copycats. When people see a company making significant headway in the market, competitors soon follow.

Since the launch of Peloton, comparable stationary bikes have emerged from Echelon, ProForm, and even SoulCycle, which soft-launched its own $2,500 at-home bike last March, just as the pandemic fully took hold in the U.S.

Other companies have taken a slightly different approach. Mirror’s full-length mirror, for instance, provides cardio, yoga, boxing, Pilates, and other free-form classes. Tonal focuses on strength and weight training. And Hydrow offers an immersive rowing experience. All of them more or less follow the model Peloton popularized.

Component hardware as service
A future of consolidation

While more players in the smart fitness market will fuel innovation, it’s likely that only a few winners will emerge due to the tremendous barrier to entry around producing great hardware, software, and content.

Manufacturing hardware is a capital intensive process, which could lead to a consolidation of large players — some that specialize in high-end hardware, and a few others that offer the lowest-cost devices to the masses. This dynamic has played out across various categories, including smartphones and TVs, and we will likely see the same trends in the smart fitness market.

Acquiring a community of regular users will provide an additional barrier. Once enough consumers join a smart fitness platform with a social element, the network effects can be extremely strong. Peloton’s community, for instance, is well-known for its loyalty, both on and off the platform. The company has a significant social media following, with 1.1 million followers on Instagram and more than 720,000 followers on Facebook all liking, commenting, and sharing its content.

Compelling content is also an important factor, as top talent is limited among fitness personalities and influencers. Just as there exists a finite number of top influencers on any platform or channel such as YouTube, Instagram, Twitter, and Twitch, consumers tend to gravitate towards specific verticals or interests led by enthusiasts and other engaged consumers.

A fitness platform led by trainers may ultimately boil down to a few platforms that control the best talent. Network effects could also contribute to those first movers maintaining a lead once the consumer base tipping point is reached.

Does smart fitness’ increasing popularity spell trouble for traditional gyms? The COVID-19 pandemic impacted many gyms’ revenues, forcing some chains, like New York Sports Club, to file for bankruptcy. We should expect gyms to continue to struggle in 2021 as people around the world await vaccinations, and members get accustomed to working out at home.

The maturation of the smart fitness sector — combined with growing consumer acceptance of the latest technology — may mean a permanent shift to the home.

This shift could also force gyms to become more innovative in luring back members who stayed at home during the pandemic. But whether consumers decide to fully embrace the at-home experience, return to the gym, or devise a new workout routine that combines the two elements, both fitness-minded people and smart fitness companies will undeniably benefit in the long run.

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