Description
Dis1 7 file
Describe a situation that would trigger a medical insurance claim. Describe the path taken to resolve the insurance claim and any time limits that must be met in resolving the claim. Why do you think these specific time frames are important?
Dis 2 7 file
Review the following article for this week’s discussion:
Sama’a, H. A., Alfayez, A. S., Alanazi, A. T., Alwuhaimed, L. A., & Hamed, S. S. B. (2021). Autonomy, accountability, and competition: the privatisation of the Saudi health care system. Journal of Taibah
Discuss the various governmental entities involved in the privatization of healthcare in the Kingdom of Saudi Arabia. How are these entities helping meet the needs of healthcare in the Kingdom? Include anything you found surprising in the article.
dis 3 2 file
Discuss how epidemiology contributes to the understanding of COVID-19. What tools and methods are epidemiologist uniquely able to contribute help contain the pandemic?
dis 4 2 file
Creating and Sustaining Competitive Advantage
Read Case 1: Peloton Interactive, Inc.: Creating New Market Space in the Home Fitness Sector (R. M. Grant, Contemporary Strategy Analysis, 11th edn., Wiley, 2022).
Remember that a case study is a puzzle to be solved, so before reading and discussing the specific case questions below, develop your proposed solution by following these steps:
Read the case study to identify the key issues and underlying issues. These issues are the principles and concepts of the course module which apply to the situation described in the case study.
Record the facts from the case study which are relevant to the principles and concepts of the module. The case may have extraneous information not relevant to the current course module. Your ability to differentiate between relevant and irrelevant information is an important aspect of case analysis, as it will inform the focus of your answers.
Describe in some detail the actions that would address or correct the situation.
Complete this initial analysis and then read the discussion questions. Typically, you will already have the answers to the questions but with a broader consideration. At this point, you can add the details and/or analytical tools required to solve the case.
Discussion Questions:
Discuss the two general types of competitive advantage, and which type(s) does Peloton Interactive, Inc. possess?
Discuss how other companies in the home fitness equipment market attempt to gain a competitive advantage?
Discuss strategies that fitness businesses can use to differentiate themselves from competitors and create a strong brand identity?
Directions:
Discuss the concepts, principles, and theories from your textbook. Cite your textbooks and cite any other sources if appropriate.
Your initial post should address all components of the question with a 500 word limit.
Reply to at least two discussion posts with comments that further and advance the discussion topic.
Discussion Rubric
Unformatted Attachment Preview
Case 1 Peloton Interactive,
Inc.: Creating New
Market Space in the
Hon1e Fitness Sector*
During the early months of 2021, Peloton Interactive Inc. was continuing to ride the
craze it had unleashed for its internet-connected, exercise bikes and treadmills supported by streamed instructor-led classes. Fueled by a surging demand for home
exercise equipment during the COVID-19 pandemic, its revenues had almost tripled
during the second half of 2020 (as compared with the year-ago period). Its stock
market valuation stood at $34.7 billion on March 12, 2021 , an increase of 366% since
its market debut on September 25, 2019. Eight years after co-founding Peloton with
$327,000 raised from Kickstarter, CEO John Foley had joined the ranks of America’s
billionaires. (Exhibit 1 outlines Foley’s pre-Peloton career.)
However, surging demand was imposing severe growing pains. By March 2021,
limited manufacturing capacity at Peloton’s Taiwan plant and shipping delays had
extended customers’ wait times to over 10 weeks. Peloton attempted to boost supply
by adding manufacturing capacity- it acquired a leading US competitor, Precor, for
$422 million at the end of 2020- and by air-freighting its Taiwan-manufactured bikes.
The additional costs incurred were squeezing Peloton’s margins. More serious was the
potential loss of customers to Peloton’s many competitors. These competitors included
established providers of exercise equipment such as Life Fitness and Technogym,
John Foley: Career Summary
1994: BS Industrial Engineering, Georgia Tech.
20 10- 20 12: Head of e-commerce, Barnes & Noble
1995- 1997: Industrial eng ineer, Mars Inc.
2012: Establishes Pelto n Interact ive together w ith former
2001: M BA, Harva rd Business School
colleagues fro m IAC
2001- 2010: Manager w ith IAC/Interactive Corporation,
running subsidiaries Evite.com, Gifts.com, and Pronto.com
*This case w as pre pare d by Ro be rt M. G rant. © 2021 Ro be rt M. Grant.
338
CASES TO CONTEMPORARY STRATEGY ANALYSIS
suppliers of home fitness apps (including those from Apple, Google, and Nike), startup imitators such as Echelon Fit, and fitness studios, which were reopening their doors
as COVID-19 restrictions were being loosened . In a post-COVID world, Peloton’s
ability to sustain its growth would depend upon whether its “first-of-its-kind
subscription platform that seamlessly combines the best equipment, proprietary networked software , and world-class streaming . .. content”1 supported by its vertically
integrated business system truly offered a superior user experience that rivals could not
emulate.
Peloton Interactive: A Brief History
John Foley outlined the origins of Peloton as follows:
I founded Peloton in 2012 to solve a challe nge in my own life . My w ife, Jill, and I
knew great fitness experie nces made us feel like better versio ns of ourselves, but
the re were countless barrie rs to working out regularly. We loved going to boutique
stu dio fitness classes like cycling, running, boot camp, a nd yoga. We were addicted to
the fast-paced e nergy, the motivational instructors, the thoughtful programming, and
the way exercising w ith a group pushe d us harder. These classes left us feeling energized, refreshed, stronger, and ready to take o n anything . However, w ith demanding
jobs an d two small children at home, just getting to the gym became harder and
h arde r. Classes w ith our favorite instructors sold out quickly a nd were prohibitively
expensive. We also had to acconrn10date someone e lse’s schedule at someone else’s
location. And we were often left w ithout time, w ithout optio ns, a nd w ithout the
feeling of “being o ur better selves” that we sought.
I figured that there must be a way to make these workouts more convenient, more
affordable, and mo re accessible . There had to be a way to bring fantastic, high-ene rgy,
instructor-led group fitness into the home, to be experienced o n my time, any time
I wanted. And my hunch was that if I could make it possible, others would want it as well. 2
Initially, Foley believed that “to re-create the intensity of an in-class experience
while allowing riders to compete and benchmark against other riders,” a software
application would suffice . However, he soon realized that an interactive, communitybased, software platform streaming inspirational classes needed to be integrated with a
custom-designed bike capable of delivering the sensory and emotional workout experience he envisaged. Moreover, communicating this integrated experience and making
it hassle-free would also require exclusive retail showrooms and a dedicated delivery
and installation service.
To create Peloton, we needed to build wh at we believed to be the best indoor bike on
the m arket, recruit the best instructors in the world , and e ngineer a state-of-the-art software p latform to tie it all together. Against prevailing conventio nal w isdom, and despite
countless investor confe re nce rooms full of very sm art skeptics, we we re determined
for Peloton to build a vertically-integrated platform to deliver a seamless e nd-to-e nd
expe rience as p hysically rewarding a nd addictive as attending a live, in-studio class. 3
CASE 1 PELOTON INTERACTIVE, INC.: CREATING NEW MARKET SPACE IN THE HOME FITNESS SECTOR
Peloton’s vertical integration would extend from the design of the bike and the
production of software and streamed content, through to retail showrooms and
its own delivery and installation service. However, this capital-intensive, vertically
integrated business model did not appeal to venture capitalists: “… for some potential investors the vision fe lt too far-fetched, that we were trying to be too much.
However, my co-founders and I could see w hat needed to be done not only to fill
a gap in the marketplace , but also to create an entirely new category and so we
kept going.” 4 In the absence of venture capital interest, Foley and his co-founders
raised $327,000 on Kickstarter in 2013. In the following year, Tiger Global invested
$10 million.
In May 2014, the company launched its Peloton Bike at $1995 together with a
$39 per month su bscription service. The bike featured a 21-inch, high-definition
touchscreen offering live and on-demand classes from Peloton ‘s New York studio,
a variety of user metrics, and a leaderboard comparing the user’s performance to
that of other spinners either currently taking the class or having taken the class
previously. It also op ened its first re tail showroom in Short Hills shopping mall,
New Jersey.
Since then, Peloton has expanded its offerings and its geographical scope:
• 2015 : Peloton Digital offered as a standalone fitness app for $29.49 a month.
•
•
•
•
•
Live and recorded video and audio workouts expanded to include walking,
n mning, yoga, strength training, floor exercises, and meditation.
2016: Moves into new corporate headquarters in West 25th Street, NYC; holds
first “Homecoming”-members converge on NYC to meet in-person with
instructors and one another.
2017: Introduces upgraded version of Peloton Bike for commercial customers,
priced at $3000; contracts with Westin Hotels to supply Peloton bikes for use in
guest rooms.
2018 : Launch of Peloton Tread priced at $4295; expands into Canada and the
United Kingdom.
2019: Expands into Germany; opens London fitness programming hub to produce content for the European market; acquires its primary Taiwanese bike
manufacturing partner for $47.4 million.
2020: Launches The Bike+ with 24-inch rotating screen , hi-fi sound, and
upgraded software for $2495; original Peloton Bike reduced to $1895. Peloton Digital greatly expands content for floor-based exercises- including
classes in strength-building, yoga, and Pilates. Acquires Precor, a US-based
supplier of exercise equipment and services with the intention of making
Precor responsible for developing Peloton’s business with commercial customers including hotels, apartment buildings, colleges, and corporate gyms.
The acquisition includes Precor’s two US plants with 625,000 square feet of
manufacturing space.
Tables 1 and 2 show Peloton’s financial and operational performance during
2018- 2020.
339
3 40
CASES TO CONTEMPORARY STRATEGY ANALYSIS
TABLE 1
Peloton Interactive Inc., selected financial data
12 months to June 30
6 months to
Dec. 31 2020
2020
2019
2018
Revenue
1823
1826
915
435
of which: Connected Fitness Product s
1472
1462
734
355
35 1
364
181
80
Gross profi t
754
837
384
190
of which. Connected Fit ness Product s
545
629
304
155
209
208
73
35
Operat ing profit
128
(81)
(202)
(48)
Net profi t
133
(72)
(196)
(48)
Cash and cash equiva lents
1248
1035
162
151
Accou nts receivable net
54
35
19
9
Inve ntories net
523
245
137
25
Tota l current asset s
2860
2159
582
204
Property and equipment net
405
242
250
36
Tota l assets
391 1
2982
865
271
Current liabilities
1384
772
291
170
of which: Accounts payab le
721
362
92
28
Total lia bilit ies
1982
1304
462
462
Shareho lders’ equity
1928
1678
865
(539)
Cash flows from operat ing activities
511
376
(109)
so
Cash flows from investing activities
(347)
(741)
(298)
(57)
$ millions
INCOME STATEMENT
Subscription
Subscription
BALANCE SHEET
ASSETS
LIABILITIES
CASH FLOWS
Peloton’s Business
In its first annual report as a public company, Peloton described its business as follows:
Peloton is the largest interactive fitness platform in the world w ith a loyal community o f
over 3.1 millio n Members as o f Ju ne 30, 2020. 5 We pioneered connected, technologyenable d fitness, and the streaming of immersive, instructo r-led boutique classes to our
Members anytime , anywhere . We make fitness entertaining , app roachable, effective ,
and convenie nt, w hile fostering social connections that encourage our Members to be
the best versio ns of themselves.
CASE 1 PELOTON INTERACTIVE, INC.: CREATING NEW MARKET SPACE IN THE HOME FITNESS SECTOR
TABLE 2
Peloton Interactive Inc. , operational and business metrics
12 months to June 30
3 months to
Dec. 31 2020
2020
2019
2018
1,667,223
1,091,100
51 1,200
245,600
0.76%
0.62%
0.65%
0.64%
Tota l workouts (in mi llions)
98.1
164.5
52.2
17.9
Average monthly workouts per Connected
Fitness subscriptio n
21.1
17.9
11.5
8.4
Subscription gross profit (in $ millions)
117.5
208.0
77.4
34.7
Subscription contribution (in $ millions)
127.2
232.1
91.9
38.0
Subscription gross margin
60.3%
57.2%
42.7%
43.3%
Subscription contribution margin
65.3%
63.8%
50.8%
47.5%
Net income/(loss) (in $ millions)
63.6
(71 .6)
(195.6)
(47.9)
Adj usted EBITDA (in $ millions)
116.9
11 7.7
(71.3)
(30.4)
Adj ust ed EBITDA margin
11.0%
6.4%
(78)%
(7.0)%
Ending Connected Fitness subscriptions
Average net monthly Connected
Fitness churn
We are an innovation company at the nexus of fitness , technology, and media. We h ave
disrupted the fitness industry by developing a first-of-its-kind subscriptio n platform
that seamlessly combines the best equipment, proprietary networked software, and
world-class streaming digital fitness and wellness content, creating a product that our
Members love.
Driven by our Mem bers-first mindset, we built a vertically integrated platform that
ensures a best-in-class, end-to -end experien ce. We have a d irect-to-consumer multich annel sales platform, including 95 showrooms as of June 30, 2020, w ith knowledgeable sales specialists, a high-touch delivery service, and helpful Member support teams.
Our world-class instructors teach classes across a variety of fitness and wellness d isciplines, including indoor cycling, indoor/outdoor running, and walking, bootcamp,
yoga, strength training, stretching, and meditation. We produce hundred s of original
programs per month and maintain a vast and constantly u pdated library of tho usands
of original fitness and wellness programs. We make it easy for Members to find a class
that fits their interests based on class type, instructor, music genre, length, available
equipment, area of p hysical focus , and level of difficulty. 6
Peloton was at pains to emphasize its identity as a “technology company” that
meshed “the physical and digital worlds to create a completely new, immersive, and
connected fitness experience.” At the same time, Peloton acknowledged that:
We are also:
•
a media company that creates engaging-to-the-point-of-addictive original
programming w ith the best instructors in the world.
341
342
CASES TO CONTEMPORARY STRATEGY ANALYSIS
•
an interactive software company that motivates our Members to achieve
their goals.
•
a product design company that develops beautiful and intuitive equipment that
anticipates the n eed s of our Members.
•
a social connection company that enables our community to support
o ne another.
•
a direct-to-consumer, multi-channel retail company that facilitates a seamless cu stomer journey.
•
an apparel company that allows Members to d isplay their passion for Peloton.
•
a logistics company that provides high-touch delivery, set up, and service for
our Members. 7
However, the key to creating Peloton’s overall user experience was the integration of
these individual activities. At the heart of this integration was Peloton’s unified design
of its hardware and content:
• The hardware. In terms of mechanics, Peloton’s exercise bike features a carbon
steel frame, a near-silent belt drive, and magnetic resistance-none of which are
unusual among high-end exercise bikes. However, it is its interactive connectivity that most distinguishes it from competitors-including its p atented leaderboard allowing comparison and competition with other users. Like the bike, the
Peloton treadmill emphasizes ergonomics and compactness, but its audiovisual
streaming performance is the key differentiator.
• Content. Peloton uses its members’ data to understand their workout habits and
optimize classes in terms of type, length, music, and instructor characteristics.
With over 40 instructors at the beginning of 2021, Peloton offers live classes
from its three production studios in New York City and one in London. The
instructors play a critical role, they are “… not only authorities in their respective areas of fitness, but also relatable, magnetic personalities who inspire passionate followings. We offer a diverse cast of instructors that allows us to appeal
to a broad audience of Members.”8 Peloton’s content library comprises thousands of classes that vary in length , difficulty, and fitness preferences ranging
from fun and flexible to structured and highly technical. They are hosted and
streamed by third-party cloud providers.
In providing this integrated, technology-based, interactive experience, John Foley
argues that Peloton has created a new market:
No one is d oing w hat we’re doing , anywhe re in the world – combining the best software , h ardware , conte nt, and experien ce in on e place. We created the category and
we’re confide nt about the quality and uniqueness of the Pe loton exp erie nce, so we
sp end a lot more time thinking about how we can continue to innovate and delive r
the best p ossible exp erience to our me mbers globally than focusing on competition .9
Evidence of the distinctiveness of Peloton’s positioning is provided by the fact that
the great majority of Peloton users had not previously owned a home exercise machine
and that they remain ve1y loyal to Peloton. In the final quarter of 2020, its average
churn rate (subscription cancellations, net of reactivations, as a percentage of total
subscriptions) was 0.76%- about one-third of the average for gym subscriptions. 10
CASE 1 PELOTON INTERACTIVE, INC.: CREATING NEW MARKET SPACE IN THE HOME FITNESS SECTOR
Customer loyalty is also indicated by Peloton’s Net Promoter Score- a measure of customer’s likelihood of recommending a brand to others. Peloton’s is one of the highest
recorded for a consumer brand, exceeding that of both Apple and Netflix.
The Market for Fitness
Peloton perceives itself as competing in the “global fitness industry,” which, according
to the Global Wellness Institute, took in expenditures of nearly $600 billion .11 Peloton’s
estimate of its potential market is shown in Figure 1.
In this market, Peloton faces three main groups of competitor: fitness clubs, other
suppliers of exercise equipment, and suppliers of fitness apps.
Fitness clubs.
Growing awareness of the physical and mental health benefits from
personal fitness had fueled a massive boom in gyms and studios for Pilates and yoga
and other “wellness” activities. According to Statista, there were 201,000 health clubs in
the world in 2019 (38,000 in the United States) with 174 million members (60.9 million
in the United States), generating revenues of $96.7 billion . Leading US chains included
LA Fitness, Life Time, 24 Hour Fitness, and Planet Fitness. However, Peloton considers
its closest competitors to be the boutique fitness studios, especially those offering
spinning classes such as SoulCycle (owned by the Equinox Group) and Flywheel.
Indeed, it was these premium-priced, immersive, instructor-led, boutique spinning
classes that provided the model for Peloton’s product design.
Equipment suppliers.
The global market for exercise equipment was estimated
at between $11.5 and $14.4 billion in 2019. This was split between the home and
commercial markets (the latter included gyms and health clubs, hotels, and in-company
employee gyms). Historically, the commercial market comprised about 60% of the
FIGURE 1
Peloton Interactive: Global market potential, September 2019
Peloton Demographic:
households aged 18-70
with $50k+ total income
Peloton Total Available
67m. (45m.)
Peloton Serviceable
Addressable Market:
ho useho lds with interest in a
Peloton product aft er seeing
the price
t•—
Peloton current penetration:
577,000 connected fitness
products
Note: The first number shows t he number of households in Peleton’s cu rrent markets (US, Canada, UK, and
Germ any); t he number in parent heses shows US households only.
Source: Adapted from Peloton Interactive, Inc. Form S-1 Registration Statement, SEC, Septem ber 24, 2019:4.
343
344
CASES TO CONTEMPORARY STRATEGY ANALYSIS
market. The leading international suppliers such as Technogym SpA, Icon Sports, Amer
Sports, and Life Fitness had traditionally focused upon the commercial market. Table 3
lists some of the leading suppliers.
The home market is divided between low-priced fitness equipment mostly manufactured in China and a premium segment populated by the leading manufacturers of
commercial fitness equipment. The budget segment features a large number of brands:
Walmart.com and Amazon.com list a total of 36 different brands of exercise bikes in
the price range $145 to $300.
The collapse of commercial demand during the COVID-19 pandemic caused the
leading suppliers of quality, branded exercise equipment to shift their emphasis to
TABLE 3
Leading suppliers of exercise equipment
Parent company
Subsidiaries/brands
Upright exercise bikes
KPS Capital Partners, LP (U S)
Cybex, Life Fitness, Life Cycle, Ind oor
Cycling, ICG, Hammer Strength,
Scifit
Life Cycle bikes $1399-$6199 include HD console
offerin g a range of connected apps including
st reamed Life Fitness On Demand instructorled classes
Cybex bikes $2850-$6008 feat ure optio nal HD
touchscreen and interact ive services t hrough
Halo Fitness Cloud
Technogym SpA (Italy)
Technogym
World leader in exercise equipment for gym s and
studios. Group Cycle Co nnect offers “t otal ly
immersive riding experience”wit h “cutting -edge
connectivity” from $2590
Icon Fitness (US)
Nordic Track, Proforma, Freemotio n,
iFit
No rdic Track bikes $799- $2999 feature w ith 1011
monit or of 20″ touchscree n w it h iFit Coach t hat
offers clock health and fitness coaching, spi n
classes, and in structor-l ed o utdoor rid es in
different locations thro ug hout t he world
Nautilus Inc. (US)
Naut ilus, Bowflex, Universal,
Schwi nn Fit ness
Naut ilu s bikes $1199- $1499. Schw inn exercise
bikes $400- $1000 include LCD d isplay screen
Anta Sports (China)/Amer
Sports (Finland)
Precor,a Spinner, St ages (other
brands include Salo mo n, Atom ic,
Wil son, Sports Tracker)
Precor P30 (with LED d isplay) $2 744, P62 (with
10″ t ouchscreen) $4595, PSS (with 15″
touchscreen) $5595
True Fit ness (US)
True
With standard co nsole: $2399- $3640 (9″ or 16″
touchscreen console extra)
John son Healt h Tech Co.
Ltd. (Taiwan)
Vision, Matrix, Horizon
Matrix bikes (with interactive console): $2399$3299; Horizo n bikes $699- $1999; Vision 60 b ike
(with d isp lay screen) $2499
Peloton Interact ive Inc.
Peloton
Peloton Bike (wit h 22″ HD touchscreen and
stereo sound system) $1895; Bike+ (with 24″
rotati ng HD touchscreen and 4-speaker sound
system) $2495
Note:
‘ Precor was acq uired by Peloton in March 2021 .
CASE 1 PELOTON INTERACTIVE, INC.: CREATING NEW MARKET SPACE IN THE HOME FITNESS SECTOR
the home market. This required them to increase their retail presence both online and
through third-party retailers of exercise equipment and sporting goods. However, one
of the challenges faced by the premium-priced hardware suppliers was in providing
users with the software needed to complement their exercise machines. While most
premium-priced machines featured sensors and screens that monitored user bodily
functions, most had relied on connectivity to third-party applications to provide audio
and video streaming of exercise classes and more comparative performance analyses.
During 2019, Icon Fitness launched its iFit streaming service for its Nordic Track and
Proforma machines, while Life Fitness offered its Fitness On Demand streaming service. Technogym’s Technogym Live platform launched in 2019 allowed users to stream
training sessions from boutique studios such as Rumble in New York and iRebel in
London. In July 2020, Technogym added livestreaming and on-demand classes to its
Mywellness app.
Increasing investment requirements for R&D, global marketing, customer support,
and software development have driven industry consolidation. Johnson Health Tech.
Co. of Taiwan acquired a string of US, Japanese, and Chinese equipment manufacturers during 201 5- 2018. Finland-based, Amer Sports, was acquired by the Chinese
sports equipment company, Anta Sports Products in 2018. In 2019, KPS Capital Partners
acquired Life Fitness and several other exercise equipment brands form Bnmswick
Corporation.
Peloton’s success had encouraged a wave of imitators into the market. Some of these,
such as Echelon Fit, offered exercise bikes and interactive streamed classes that competed directly with Peloton. Others promised a “Peloton-experience” with other types
of exercise equipment. These included Mirror with its connected full-length mirror for
yoga and Pilates classes, Hydrow with its connected rowing machine, and Tonal “the
Peloton of weight training.”
Suppliers of fitness applications.
There are a large number of fitness apps available for mobile and laptop devices provided either free (supported by advertising) or
with monthly subscriptions ranging from $0.99 to $13.99 a month. However, to provide personalized guidance, the software needs to connect with individual biometrics
provided either by sensors in the exercise equipment or with a wearable device such
as a Fitbit or an Apple Watch.
Apple Fitness+ and Fitbit Coach have the advantage of linking to extended biometric
data supporting more extensive wellness programs; however, they cannot offer the
immersive experience that is provided by hardware- software integration in relation to
a specific activity such as stationa1y cycling or running on a treadmill.
In addition to fitness apps launched by many software start-ups, some of the most
popular are those offered by leading sports apparel and healthcare companies. These
include Johnson & Johnson 7 Minute Workout, Adidas Training, Map My Fitness by
Under Armour, and Nike Training Club.
Peloton’s Competitive Advantage
Peloton’s competitive advantage is the consumer appeal of a home workout that
replicates the atmosphere and engagement of top-class, boutique fitness studio . In
integrating exercise machines with streamed and on-demand instructor-led classes,
performance and biometric analysis, and connection with other Peloton users, the
345
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CASES TO CONTEMPORARY STRATEGY ANALYSIS
company considers itself “the pioneer of connected, technology-enabled fitness”-this
generated continuing network benefits:
… [O]ur rapidly growing and scaled Member base is a highly strategic asset. With our
first mover advantage, we have achieved critical mass, w hich improves our pla tform
a nd Member experie nce. As o f June 30, 2019, o n average, nea rly 6400 Members participated in each cycling class, across live and on-demand. As o ur community of
Members continues to grow, the Peloton fitness experie n ce becomes mo re inspiring,
more competitive, more immersive, and more connected. Over time, Members are
embedded in the Peloton community and we become a part of their lives, increasing
the opportunity cost of Membe rs leaving or potential Members n ot jo ining our
p latform. 12
According to Motley Fool, these network effects extended to Peloton’s relationship with
top instructors:
The company attracts some of the best fitness instructors in the industry to exclu sive
deals by paying them much more than com petito rs. As these sought-after instru ctors
join Peloton’s pla tform, it attracts more subscribers. Conse que ntly, as more subscribe rs
jo in and begin taking classes, top fitness instructors gravitate toward Peloton. As the
n etwork grows, it becomes mo re valuable to all participants. 13
Although established competitors and newcomers sought to imitate Peloton’s immersive, interactive exercise experience, Peloton viewed its vertically integrated platform
as difficult to replicate:
To create the b est p la tform, we design ed our own products, developed our own
interactive software, and created o ur own hig h production value fitness and welln ess programming. For full e nd-to-e nd Member support, we were also compelled to
develop our own customer e ducation, purchase and delivery, a nd services platform.
We sell o ur Connected Fitness Products exclusively through our knowledgeable
inside sales and showroom associates as well as o ur e -comme rce site. Our high-touch
d elivery team s ensure th at new Members are immediately set up and ready to work
o ut o n their new Bike or Tread. 14
A more direct barrier to imitation was Peloton’s intellectual property. In October
2020, Peloton had eight issued patents and 32 pending applications, the most important of which related to Peloton’s time-synchronized leaderboard which allows users
to compete against other Peloton users both in live-stream classes and previously
recorded ones. In June 2020, Peloton was engaged in patent infringement litigation
against several competitors.
John Foley believed that Peloton’s competitive advantage was crucially dependent
on its corporate culture- a culture that was encapsulated by the notion of a peloton:
“Riders in a peloton work together, conserve energy and perform better because of one
another.”15 Sustaining that culture would be a major challenge for Foley:
… [S]o me of the g reat companies that you a nd I study are n o lo n ger that, and have
gotte n too big … som e cultures just don’t have that hunger a nd that dynamism , and
tha t familial feel and the stuff that m akes Peloton great today. I’m n ervous th at we’re
going to lose it in th ree or four years, esp ecially if we transition into the public m arke t.
So, it is o ne of the biggest things that I’m focused o n right now.16
CASE 1 PELOTON INTERACTIVE, INC.: CREATING NEW MARKET SPACE IN THE HOME FITNESS SECTOR
The Future of Peloton
For its 2021 fiscal year, Peloton projected continuing strong growth: revenues were
expected to grow by 123%, the number of Connected Fitness subscriptions was
expected to reach 2.275 million, and EBITDA would reach $300 million (compared to
$128 million during the previous fiscal year).17
For investment analysts and other Peloton-watchers, the credibility of Peloton’s
growth projections depended critically on the extent to which Peloton’s remarkable
growth during 2020 and 2021 was the result of the COVID-19 pandemic, and what the
implications might be of a return to normality.
Peloton’s executive team had no such doubts. Peloton’s success derived from its
ability to:
. .. disrupt the fitness industry by developing a first-of-its-kind subscription platform
that seamlessly combines the best equipment, proprietary netwo rked software, and
world-class streaming digital fitness and wellness content, creating a product that our
Members love. 18
The effect of the pandemic had been to accelerate Peloton’s rate of market penetration rather than change its trajectory. Peloton’s unwavering commitment to its users’
experience, to improving its software and hardware technology, and to expanding
its range of offering would provide the basis for its continuing status as “the fastest
growing scale consumer technology company in the world .”19
1. Pe loton Inte ractive, Inc. Annual Report on Form 10-K
for fiscal year ended June 30, 2020, SEC, Septembe r
10, 2020: 5.
2. Pe loton Inte ractive, Inc. Form S-1 Registration Statement,
SEC, Septe mb er 24, 2019: 81.
3. Ibid.
4 . “Interview: John Foley, Peloton,” Fit Tech, Issue 1
(2020): 50.
5. 4.4 millio n as of Decembe r 31, 2020.
6. Pe loton Inte ractive, Inc. Annual Report on Form 10-K
for fiscal year ended June 30, 2020, SEC, Septembe r
10, 2020: 5.
7. Pe loton Interactive, Inc. Form S-1 Registration Statement,
SEC, Septe mber 24, 2019: 1.
8. Ibid: 103.
9. “Interview: John Foley, Peloton,” Fit Tech , Issue 1
(2020): 52.
10. Pe loton Inte ractive, Inc. Annual Rep o rt on Form 10-K
for fiscal year ended June 30, 2020, SEC, Septembe r
10, 2020: 43.
11. Peloton Inte ractive, Inc. Form S-1 Registration Stateme nt,
SEC, September 24, 2019: 3.
12. Ibid: 98.
13. https://www.fool.com/ investing/2020/ 06/ 14/is-pelotonbuilding-a-true-com p etitive-advantage .aspx, accessed
October 29, 2020.
14. Peloton Interactive, Inc. Form S-1 Registration Stateme nt,
SEC, Septembe r 24, 2019: 98.
15. Ibid: 110.
16. https://www.linkedin.com/ pulse/ o ne-believed-p elotonsceo-he-built-company-he res-how-john-daniel-roth/,
accessed October 26, 2020.
17. Peloton Inte ractive 2Q21 Earnings Call, Fe bruary 4, 2021.
18. Pe loton Inte ractive, Inc. Form S-1 Registration State me nt,
SEC, Septembe r 24, 2019: l.
19. Peloton Inte ractive 2Q21 Earnings Call, Fe bruary 4, 2021.
347
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