Peloton Evolves, Picks Playbook from Apple

To win in markets, you need to have a great product-market fit. It is a spot where the frictions in markets and the “forces” (the products and services) you are creating to overcome them attain equilibrium.

So, when Peloton, an experience-exercise company, which helped people do exercise at home, was raking it at the peak of the pandemic, I wrote: “before you invest, think beyond Covid-fit to market-fit”. In other words, that product must not just do well during Covid pandemic, but also when normalcy returns.

Normalcy returned and Peloton stock crashed before something amazing began to happen: Peloton went to the strategy lab and invented a new business model – and with that model, there seems to be a ray of hope: “but the fitness company’s stock rose nearly 20% Wednesday as revenue exceeded projections and subscriptions outpaced hardware sales. Sales for Peloton’s connected equipment fell drastically (52% year over year), yet revenue for subscriptions rose markedly (22%)”.

There is power in the subscription business model: investors love it. If Peloton moves into that playbook, even a revenue fall on hardware will not affect its mission. Of course, when the sale of the iPhone was not moving in the way Apple wanted, the company stopped reporting iPhone numbers. Simply, Apple emerged from a “hardware” company to a service company with App Store, subscription, etc powering that future. Markets have rewarded Apple for that. Peloton has a date with alpha if it executes well.

Peloton may have reported a loss for the eighth consecutive quarter, but the fitness company’s stock rose nearly 20% Wednesday as revenue exceeded projections and subscriptions outpaced hardware sales. Sales for Peloton’s connected equipment fell drastically (52% year over year), yet revenue for subscriptions rose markedly (22%), prompting CEO Barry McCarthy to suggest that it might be a “turning point.” Peloton boomed at the start of the pandemic, but took a substantial hit as the world opened back up, with the home gym equipment maker conducting its fourth round of layoffs this past fall.

Good People, the most important thing in business is the business model. Most times, markets are not the problem. The challenge is coming up with the right business model to unlock the latent opportunities. Companies pay CEOs to come up with the right business model.

It is a hopeless journey to think selling exercise equipment will make you rich in the age of China (anyone can clone and order a similar equipment). But delivering exercise-anchored lessons on proprietary hardware has a chance. Yes, nothing says it cannot open its platform for others to create services in the ecosystem.

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