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.
During the early months of 2021, Peloton Interactive Inc. was continuing to ride the
cra7.e it had unleashed for its internet-connected, exercise bikes and treadmills .supported by streamed instructor-led cla.s.se.s. rueled 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 Sept.ember 25, 2019. Eight years aft.er co-founding Peloton with
l327,000 raised from Kick.starter, CEO John Poley had joined the ranks of America’s
billionaires. (Exhibit 1 out.lines Foley’s pre-Peloton career.)
However, surging demand was imposing severe growing pains. ny 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 lo.s.sof customers to Peloton’.s many competitors. These competitors included
established providers of exercise equipment .such a.s Life ht.ne.s.s and Technogym,
1994:BSIndustrial Engineering. Georgia Tech.
2010-2012: Head of e-commerce, Barnes & Noble
1995-·1997: Industrial engineer, iVlars Inc.
2012: Establishes Pelton Interactive together with former
200·1:MB.A., Harvard Business School
colleagues from I.A.C
200·1-2010: Manager with IAC/Interactive Corporation,
running subsidiariesEvite.com, Gifts.com, and Pronto.com
‘This ca.se was prepared by Robert Yl. Grant. © 2021 Robert M. Grant.
338
CASES TO CON’J’F:MPOl{Alff STRAn GY ANALYSIS
suppliers of home fitness apps (including those from Apple, Google, and Nike), startup imitators such as Echelon Pit, and fitness studios, which were reopening their doors
as COvlD-19 restrictions were being loosened. In a post-COVID world, Pcloton’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 Poley outlined the origins of Peloton as follows:
1 founded Pelot.on in 2012 to solve a challenge in my own life. My wife, Jill, and 1
knew great fitness experiences made us feel like better versions of ourselves, but
there were countless barriers to working out regularly. Xie loved going to boutique
studio fitness classes like cycling, running, boot camp, and yoga. We were addicted to
the fast-paced energy, the motivational instructors, the thought.ti.II programming, and
the way exercising with a group pushed us harder. These classes left us feeling energized, refreshed, stronger, and ready to take on anything. However, with demanding
jobs and two small children at home, just getting to the gym became harder and
harder. Classes with our favorite instructors sold out quickly and were prohibitively
expensive. Xie also had to accommodate someone else’s schedule at someone else’s
location. And we were often left without time, without opt.ions, and without the
feeling of “being our better selves” that we sought..
1 figured that there must be a way to make these workouts more convenient, more
affordable, and more accessible. There had to be a way to bring fantastic, high-energy,
insm1ct.or-led group fitness into the home, to be experienced on my time, any time
1 wanted. And my hunch was that if 1 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.
‘lo create Pelot.on, we needed to build what we believed to be the best indoor bike on
the market recruit the best instrnctors in the world, and engineer a state-of-the-art software platform to tie it all together. Against prevailing conventional wisdom, and despite
countless investor conference rooms full of ve1y smart skeptics, we were determined
for Peloton to build a vertically-integrated platform to deliver a seamless end-to-end
experience as physically rewarding and addictive as attending a live, in-studio class.1
CASE: 1 l’b LOTON IN’l’b RACTIVE, INC.: CREATING N :w MAllKF:T SPACE INTH : HOlVIE HJ”N :ss s :CTOR 339
Peloton’s vertical integration would extend from the design of the hike 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 felt too far-fetched, that we were trying to be too much.
Ilowcvcr, my co-founders and I could sec what needed to be clone not only to fill
a gap in the marketplace, but also to create an entirely new category and so we
kept going.”1 In the absence of venture capital interest, Poley 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 subscription 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 lcaclcrhoarcl comparing the user’s performance to
that of other spinners either currently taking the class or having taken the class
previously. It also opened its first retail showroom in Short Hills shopping mall,
New Jersey.
Since then, Peloton has expanded its offerings and its geographical scope:
• 2015: Pcloton Digital offered as a standalone fitness app for $29.49 a month.
Live and recorded video and audio workouts expanded to include walking,
running, yoga, strength training, floor exercises, and meditation.
• 2016: Moves into new corporate headquarters in West 25th Street, NYC; holds
first “Ilomccoming”-membcrs converge on NYC to meet in-person with
instructors and one another.
• 2017: Introduces upgraded version of Pcloton Bike for commercial customers,
priced at $3()00; contracts with \.7estin Hotels to supply Pcloton hikes for use in
guest rooms.
• 2018: Launch of Pcloton Tread priced at $4295; expands into Canada and the
lJnitcd Kingdom.
• 2019: Expands into Germany; opens London fitness programming huh 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 Pcloton Bike reduced to $1895. Peloton Digital greatly expands content for floor-based exercises-including
classes in strength-building, yoga, and Pilatcs. Acquires Precor, a US-based
supplier of exercise equipment and services with the intention of making
Prccor responsible for developing Pcloton’s business with commercial customers including hotels, apartment buildings, colleges, and corporate gyms.
The acquisition includes Prccor’s two lJS plants with 625,000 square feet of
manufacturing space.
Tables 1 and 2 show Peloton’s financial and operational performance during
2018-2020.
340
CASES TO CON’J’F:MPOl{Al{Y STRAn GY ANALYSIS
Pcloton Interactive Inc., sclcctccl financial data
TABLE 1
12 months to June 30
6 months to
Dec. 31 2020
2020
2019
2018
Revenue
1823
1826
915
435
of which: Connected FitnessProducts
1472
1462
734
355
364
Grossprofit
351
754
837
181
384
80
190
ofwhich: Connected FitnessProducts
545
629
304
155
209
208
73
35
Operating profit
128
(81)
(202}
(48)
Net profit
133
(72)
(196}
(48)
Cash and cash equivalents
1248
1035
162
151
Accounts receivable net
54
35
19
9
137
$ millions
INCOME STATEMENT
Subscription
Subscription
BALANCE SHEET
ASSETS
Inventoriesnet
523
Total current assets
2860
245
2159
582
25
204
Property and equipment net
405
242
250
36
TotaI assets
3911
2982
865
271
Current liabilities
1384
772
291
170
of which: Accountspayable
721
Total liabilities
1982
362
1304
92
462
28
462
Shareholders’equity
1928
1678
865
(539}
Cash flows from operating activities
511
376
(109)
50
Cash flows from investing activities
(347)
(741)
(298)
(57)
LIABILITIES
CASH FLOWS
Peloton’s Business
In its firsL annual report as a public company, Peloton described its business as follows:
Pdolon is lhe largesl inLeraclive fllness plalrorm in the world with a loyal community or
over 3.1 million Members as or June 3( 2020.5 Ve pioneered connecled, technologyenabled fitness, and the slreaming or immersive, instruclor-led boulique classes lo our
Members anytime, anywhere. We make fllness enLertaining, approachable, effective,
and convenienL, while rostering social conneclions lhal encourage our Members lo be
the besl versions or lhemsdves.
CASE: 1 l’b LOTON IN’l’b RACTIVE, INC.: CREATING NEW 11,1,l{KF:T SPACE INTH : HOlVIE HJ”N :ss s :CTOR
TABLE 2
Pcloton Interactive Inc., operational and business metrics
12 months to June 30
3 months to
Dec.312020
2020
2019
2018
1,667,223
1,091,100
511,200
245,600
0.76%
0.62%
0.65%
0.64%
Total workouts(in millions}
98.1
164.5
52.2
17.9
Average monthly 1Norkouts per Connected
Fitnesssubscription
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 grossmargin
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)
Adjusted EBITDA (in $ millions)
116.9
117.7
(71.3)
(30.4)
Adjusted EBITDA margin
11.0’¼
6.4%
(7.8)%
(7.0)%
Ending Connected Fitnesssubscriptions
Average net monthly Connected
Fitnesschurn
We are an innovation company at the nexus of fitness, technology, and media. X1e have
disrupted the fitness industry by developing a first-of-its-kind subscriptjon platform
that seamlessly combines the best equipment, proprietary networked software, and
world-class streaming digital fitness and wellness content, creating a product. that our
.’Vlembers love.
Driven by our Members-first mindset, we built a verrjcally integrated. platform that.
ensures a best-in-class, end-to-end experience. We have a direct-to-consumer multichannel sales platform, including 95 showrooms as of.June 30, 2020, with knowledgeable salesspecialists, a high-touch delive1y service, and helpful Member support teams.
Our world-class instructors teach classes across a variety of fitness and wellness disciplines, including indoor cycling, indoor/out.door running, and walking, bootcamp,
yoga, strength training, stretching, and meditation. We produce hundreds of original
programs per month and maintain a vast and constantly updated library of thousands
of original fitness and wellness programs. We make it easy for 1vlembers to find a class
that fits their interests based on class type, instructor, music genre, length, available
equipment, area of physical focus, and level of difficulty.”
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, Pcloton acknowledged that:
We are also:
• a media company that creates engaging-to-the-point-of-addictive original
progranuning with the best instructors in the world.
341
342 CASES TO CON’J’F:MPOl{Al{Y STRAn GY ANALYSIS
• an interactive software company that motivates our .’Vlembers to achieve
their goals.
• a product design company that develops beautiful and intuitive equipment that
anticipates the needs of our Members.
• a social connection company that enables our community to support
one another.
• a direct-to-consumer, multi-channel retail company that facilitates a seamless customer journey.
• an apparel company that allows Members to display their passion for l’eloton.
• a logistics company that provides high-touch delivery, set up, and se1vice for
our Members.’
However, the key to creating Pcloton’s overall user experience was the integration of
these individual activities. At the heart of this integration was Pcloton’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 w-hich arc
unusual among high-end exercise bikes. However, it is its interactive connectivity that most distinguishes it from competitors-including its patented leaderboard allowing comparison and competition with other users. Like the bike, the
Pcloton treadmill emphasizes ergonomics and compactness, but its audiovisual
streaming performance is the key differentiator.
• Content. Pcloton uses its members’ data to understand their workout habits and
optimize classes in terms of type, length, music, and instructor characteristics.
X!ith over 40 instructors at the beginning of 2021, Pcloton offers live classes
from its three production studios in New York City and one in London. The
instructors play a critical role, they arc ”… not only authorities in their respective areas of fitness, but also rclatablc, magnetic personalities who inspire passionate followings. Ve offer a diverse cast of instructors that allows us to appeal
to a broad audience of Mcmbcrs.”8 Pcloton’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 arc hosted and
streamed by third-party cloud providers.
In providing this integrated, technology-based, interactive experience, John Foley
argues that Pcloton has created a new market:
No one is doing what we’re doing, any,vhere in the world – combining the best software, hardware, content, and experience in one place. Ve created the category and
we’re confident about the quality and uniqueness of the l’eloton experience, so we
spend a lot more time thinking about how we can continue to innovate and deliver
the best possible experience to our members globally than focusing on competition.9
Evidence of the distinctiveness of Pcloton’s positioning is provided by the fact that
the great majority of Pcloton users had not previously owned a home exercise machine
and that they remain very loyal to Pcloton. In the final qua1tcr of 2020, its average
churn rate (subscription cancellations, net of reactivations, as a percentage of total
subscriptions) was 0.76c.¼>-about one-third of the average for gym subscriptions.w
CASE: 1
l’b LOTON IN’n RACTIV :. INC.: CR :ATING N :w 11,1,l{KF:T SPAO: INTH : HOlVIE HrN :ss s :CTOR
Customer loyalty is also indicated by Peloton’s Net Promoter Score-a measure of customer’s likelihood of recommending a brand to others. Pcloton’s is one of the highest
recorded for a consumer brand, exceeding that of both Apple and Netllix.
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, Pcloton faces three main groups of competitor: fitness dubs, 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 dubs 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 IIour fitness, and Planet Fitness. IIowever, Peloton considers
its closest competitors to he the boutique fitness studios, especially those offering
spinning classes such as SoulCyde (owned by the Equinox Group) and flywheel.
Indeed, it was these premium-priced, immersive, instructor-led, boutique spinning
classes that provided the model for Pcloton’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 dubs, hotels, and in-company
employee gym._)_ Historically, the commercial market comprised about 60%> of the
FIGURE 1
Peloton lnteracLive: Global markeL potential, September 2019
Peloton
Demographic:
Peloton Total Available
Note:The firsr number shO’-!•/S thenumber of householdsin Peleton’s current markets(US, Canada. UK, and
Germany); the number in parenthesessho11,1s UShouseholdsonly.
Source:,ll(Japted from Pcloton Interactive. Inc.Form S-1Regimation Statement, SEC, September 24. 2019:4.
343
344
CASES TO CON’J’F:MPOl{Al{Y STRAn GY 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:
Xialmart.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 COvlD-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 (US)
Cybex, Life Fitness, Life Cycle, Indoor
Cycling, ICG, Hammer Strength,
Sciflt
Life Cycle bikes S1399-$6199 include HD console
offering a range of connected apps including
streamed Life Fitness On Demand instructorled classes
Cybex bikes S28S0-$6008 feature optional HD
touchscreen and interactive servicesthrough
Halo FitnessCloud
Technogym SpA (Italy)
Technogym
World leader in exercise equipment for gyms and
studios. Group Cycle Connect offers·totally
immersive riding experience”with”cutting-edge
connectivity”from $2S90
Icon Fitness(US)
Nordic Track, Proforma, Freemotion,
iFit
Nordic Track bikes $799-$2999 feature1.-vith 10”
monitor of 20″ touchscreen with iFit Coach that
offersclock health and fitnesscoaching, spin
classes, and instructor-led outdoor rides in
different locations throughout the world
NautilusInc.(US)
Nautilus, Bowflex, Universal,
Schvvinn Fitness
Nautilusbikes $1199-$1499. Schwinn exercise
bikes $400-S1000 include LCD display screen
Anta Sports(China)/Amer
Sports (Finland)
Precor,”Spinner, Stages (other
brands include Salomon, Atomic,
1/Vilson, Sports Tracker)
Precor P30 (with LEDdisplay) $2744, P62 (with
IO” touchscreen) $4S95, PSS(with 15″
touchscreen) $5595
True Fitness (US)
True
With standard console: $2399-$3640 (9″ or 16″
touchscreen console extra)
Johnson HealthTech Co.
Ltd.(Taiwan)
Vision,Matrix, Horizon
Matrix bikes(with interactive console): $2399$3299; Horizon bikes$699-$1999:Vision 60 bike
(with display screen) $2499
Peloton Interactive Inc.
Peloton
Peloton Bike (with 22″ HD touchscreen and
stereo sound system) $1895; Bike+ (with 24″
rotating HD touchscreen and 4-speaker sound
system) $2495
Note:
‘Precor was acquired by Peloton in March 2021.
CASE: 1
l’b LOTON IN’n RACTIV :, INC.: CR :ATING N :w 11,1,l{KF:T SPAO: INTH : HOlVIE HrN :ss s :CTOR
the home market. This required them to increase their retail presence both onlinc and
through third-party retailers of exercise equipment and sporting goods. Ilowcvcr, one
of the challenges faced by the premium-priced hardware suppliers was in providing
users with the software needed to complement their exercise machines. W1lilc most
premium-priced machines featured sensors and scrccm that monitored user bodily
functions, most had relied on connectivity to third-pa1ty 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. Tcchnogym’s Tcchnogym Live platform launched in 2019 allowed users to stream
training sessions from boutique studios such as Rumble in :’cw York and iRcbcl in
London. In July 2020, Tcchnogym added livcstrcaming and on-demand classes to its
Mywellncss app.
Increasing investment requirements for R&D, global marketing, customer support,
and software development have driven industry consolidation. Johnson Ilcalth Tech.
Co. of Taiwan acquired a string of 1JS, Japanese, and Chinese equipment manufacturers during 2015-2018. finland-bascd, Amer Sports, was acquired by the Chinese
sports equipment company, Anta Sports Products in 2018. In 2019, KPS Capital Pa1tncrs
acquired Life fitness and several other exercise equipment brands form Brunswick
Corporation.
Pcloton’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 “Pcloton-cxpcricncc” with other types
of exercise equipment. These included j1irror with its connected full-length mirror for
yoga and Pilatcs classes, Ilydrow with its connected rowing machine, and Tonal ”the
Pcloton of weight training.”
Suppliers of fitness applications. There arc 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. Ilowcver, 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 X!atch.
Apple Fitness+ and Fitbit Coach have the advantage of linking to extended biometric
data supporting more extensive wellness programs; however, they cannot offer the
immcrsivc experience that is provided by hardware-software integration in relation to
a specific activity such as stationary cycling or running on a treadmill.
In addition to fitness apps launched by many software start-ups, some of the most
popular arc those offered by leading sports apparel and healthcare companies. These
include Johnson & Johnson 7 Minute \.’7nrkout, Adidas Training, ifap My fitness by
Under Armour, and Nike Training Club.
Peloton’s Competitive Advantage
Pcloton’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 witl1 other Pcloton users, the
345
346
CASES TO CON’J’F:MPOl{Al{Y STRAn GY ANALYSIS
company considers itself ;’the pioneer of connected, technology-enabled fitness”-this
generated continuing network benefits:
… lOJur rapidly growing and scaled Member base is a highly strategic asset. With our
first mover advantage, we have achieved critical mass, which improves our platform
and 1vlember experience. As of June 30, 2019, on average, nearly 6400 Members participated in each cycling class, across live and on-demand. As our community of
.’Vlembers comjnues to grow, the Pelot.on fitness experience becomes more inspiring,
more competitive, more inunersive, and more connected. Over time, Members are
embedded in the Peloton community and we become a pa1t of their lives, increasing
the oppo1tunity cost of Members leaving or potential Members not joining our
platform.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 exclusive
deals by paying them much more than competitors. As these sought-after instructors
join Peloton’s platform, it attracts more subscribers. Consequently, as more subscribers
join and begin taking classes, top fitness instructors gravitate toward Peloton. As the
network grows, it becomes more valuable to all participants.’·1
Although established competitors and newcomers sought to imitate Peloton’s immersive, interactive exercise experience, Pcloton viewed its vertically integrated platform
as difficult to replicate:
‘lo create the best platform, we designed our own products, developed our own
interactive software, and created our own high production value fitness and wellness progranuning. For ti.Ill end-to-end Member suppo1t, we were also compelled to
develop our own customer education, purchase and delivery, and services platform.
We sell our Connected Fitness Products exclusively through our knowledgeable
inside sales and showroom associates as well as our e-conunerce site. Our high-touch
delivery teams ensure that new Members are immediately set up and ready to work
out on their new Uike or Tread.,.;
A more direct barrier to imitation was Peloton’s intellectual property. In October
2020, Pcloton had eight issued patents and 32 pending applications, the most important of which related to Pcloton’s time-synchronized leaderboard which allows users
to compete against other Pcloton 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.”i; Sustaining that culture would be a major challenge for Foley:
… lSJome of the great companies that you and l smdy are no longer that, and have
gotten too big … some cultures just don’t have that hunger and that dynamism, and
that familial feel and the stuff that makes Pelot.on great today. I’m nervous that we’re
going to lose it in three or four years, especially if we transition into the public market.
So, it is one of the biggest things that I’m focused on right now.i;;
CASE: 1
l’b LOTON IN’n RACTIV :, INC.: CR :ATING NEW 11,1,l{KF:T SPAO: INTH : HOlVIE HJ”N :ss s :CTOR
The Future of Peloton
for its 2021 fiscal year, Pcloton projected continuing strong growth: revenues were
expected to grow by 123’¾,, 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 Pcloton-watchers, the credibility of Pcloton’s
growth projections depended critically on the extent to which Pcloton’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.
Pcloton’s executive team had no such doubt . Pcloton’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 networked software, and
world-class streaming digital fitness and wellness content, creating a product that our
.’Vlembers love.,s
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 con”umer technology company in the world.”19
Notes
1. Pelot.on Interactive, Inc. Annual Report on Form ‘l0-K
ror fi. cal year ended June 30, 2020, SF.C, September
10, 2020: 5.
2. Pelot.on Interactive, Inc. Form S-‘l Registration Statement,
SF.C, September 2if, 2(/’I9: 8’l.
3. Ibid.
–1. “Interview: John Foley, Peloton,” Pil Tech, Issue
(2020): 50
5. –1.–1 million as or December 31, 2020.
6. Pelot.on Interactive, Inc. Annual Report on Form ‘l0-K
ror fi. cal year ended June 30, 2020, SF.C, September
10, 2020: 5.
., Pelot.on Interactive, Inc. Form S-‘l Registration Statement,
SF.C, September 2if, 2(/’I9: ‘l.
8. Ibid: ·103.
9. “Interview: John Foley, Peloton,” Pil Tech, Issue
(2020): 52
10. Pelot.on Interactive, Inc. Annual Report on Form ‘l0-K
ror fi. cal year ended June 30, 2020, SF.C, September
10, 2020: –13.
11. Pelot.on Interactive, Inc. Form S-‘l Registration Statement,
SF.C, September 2if, 2(/’I9: 3.
12. Ibid: 98.
13. hll.ps:/ /www.rool.c
