Back before the Covid pandemic, as Peloton’s star was rising, it inspired an ecosystem of connected fitness hardware with some upfront cost and then lock in to a $39 per month subscription plan for access to videos (and often for half the features of the hardware to work at all). Is the pendulum now swinging back to apps?
Pelo Buddy in the Summer of last year cited a fund raising deck used by the Peloton management team in May 2022 that highlighted the new CEO’s vision of focusing more on apps and less on hardware:
“Other talent additions expected across the org in the coming months, particularly as we shift our focus from being hardware to software-centric.”
At a JP Morgan event soon after, the CEO Barry McCarthy stated:
“We have always prioritized the $39 a month all-access subscription in comparison to the digital app. And we have never used the digital app to create awareness for the all-access product. But I think that’s a strategic mistake, and we’re going to try to invert the model. And the marginal cost of the digital app are de minimis. And so, it enables us to be able to think about a freemium-like product to drive the top of the marketing funnel to significantly broaden the flow to drive faster growth in all-access. And so, we’re in the process of rethinking our go-to-market strategy there.”
And now Lululemon is following a similar path. As reported in Athletech News this week, Lululemon has written off the vast majority of the equity in its acquisition of Mirror, and is now much more focused on its apps rather than the hardware mirror products. Lululemon isn’t eliminating hardware but plans to add an app feature to allow a guest to sign up, pay a lower monthly fee, and access the content without purchasing hardware. From Lululemon CEO Calvin McDonald:
“… since our acquisition, the at-home fitness space has been challenging … While members love our content, hardware sales did not match our expectations. And even though our CAC has continued to improve, it has not improved enough to maintain the current level of investment.”
“We think with the lower cost to entry, not being hardware-restricted and the 9 million Essential members that we’ve built and will continue to build, it will allow us to more easily migrate and attract guests into it … We did see an improvement in our performance with the launch of Lululemon Studio in October. But as we shared, it just didn’t meet our expectations.”
More brands are following suit:
· Tempo has been slowly moving to lower price points, with its new Core product being essentially a $245 iPhone docking stand with some dumbbells that use color coding to track weight during reps - just using the iPhone’s sensors.
· Hydrow has also launched an app that’s separate from its rowers, so has Cityrow.
· Liteboxer recently threw in the towel on hardware altogether, and has rebranded to Litesport with VR boxing and strength training apps designed for Oculus headsets, similar to Supernatural.
So what does this mean for independent studio owners?
Perhaps the most interesting insight is that expensive and proprietary hardware is increasingly not the answer for at-home fitness. The cost of customer acquisition is so high, and the market is kind of flooded.
Classes (live and on-demand) via an app is a model in which local studios can outcompete the giant D2C brands like Peloton and Lululemon, because local fitness is built on real life relationships - community and accountability.
At Tribe we continue to be big believers in what local fitness can achieve in digital given the right technical platform that sets them up for success. It has to feel premium and be super easy / low cost to operate.
That’s the goal for Tribe’s products - making omnichannel and at-home fitness easy and profitable for local fitness up to national brands.
Update 28 May 2023: As an update on this trend, Peloton just rebranded itself as a health company for all, with a much stronger focus on apps versus its famous bikes, adding multiple membership tiers in the app including a free tier. This is just one more conformational step in the transition we see - reducing ‘buy-in’ barriers of high ticket cost connected hardware to enable larger user communities.
