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Not everything has to be a subscription company.
Peloton, once a star of the stay-at-home economy, became the prototype for the coronavirus backlash and still hasn't been able to recover. In a sweaty sense of déjà vu, the maker of connected exercise equipment is cutting jobs and bidding farewell to its CEO.
Two years ago, Peloton did the same thing and ended up in the same spot. I think this is the same thing as an exercise bike. To cut costs, the company will lay off about 400 people and continue eliminating physical showrooms. But Wall Street didn't appreciate Peloton's recent carnage. Shares fell more than 12% on Thursday, taking the stock below $3. Next to razors, boxes of wine, and streaming services, subscription fatigue is here to stay. But Peloton's problem isn't its digital products.
“The subscription economy is not going anywhere,” says Adam Levinter, CEO and founder of consultancy Scriverbase and author of “The Subscription Boom.” “The question is: what is changing and what areas are being squeezed?”
Peloton is a consumer product and is very expensive to experience. The company's $1,500 bike may have been considered an investment in the consumer, a lock-in to ensure months and years of recurring revenue, but it also served as a barrier to premium pricing, cutting down on the customer pool. The idea of limiting and retrofitting equipment-free apps.
(To emphasize the cost limitations, Levinter notes that while Netflix (NFLX) charges a free monthly fee to use its library, it can only be accessed through a $1,500 Netflix-branded TV. )
Parts of the subscription economy, which UBS projects to reach $1.5 trillion by 2025, are thriving. Music services, educational content, software, cloud providers, and paid loyalty programs like Amazon Prime and Walmart+ are thriving. But Peloton's revenue has stagnated. Restructuring and turnaround Even before the CEO's departure, investors were fleeing. The stock has lost about half its value this year.
But Peloton's customers remain loyal.
For many subscription-based companies, having to manufacture and deliver physical products can be a burden. Although Peloton offers a hybrid model, the company is still primarily machine-centric, said Amy Connally, senior vice president and founder of Zuora's Subscribed Institute, a think tank for recurring revenue businesses. he said. Instead, Connally said the company will move closer to other subscription winners by separating digital services from physical products and focusing more on apps that don't require equipment.
Considering Peloton as a media company, she offered a unique comparison to Netflix and other streaming services from a flattering perspective.
Peloton reliably churns out new, high-quality workout videos that can be easily filtered according to your desired criteria (rather than floating around in a sea of content). Peloton's subcommunities also serve as another form of curation, directing users to recommendations and higher engagement, she said.
The spirit of camaraderie and self-improvement on the platform is also a powerful intangible that is difficult for other companies to replicate. The service also claims to have the lowest churn rate in the industry with fewer nagging notifications that other apps rely on. Of course, this is all backed by his $1,500 anchor that runs proprietary software.
Anyone who has looked at their credit card statement recently tends to agree that there are too many subscription companies. Automakers are considering the idea of charging car owners a fee to heat their seats as part of a subscription plan, foreshadowing a cruel future of repeatable add-ons. Peloton is not a great subscription company in a financial sense. But that's actually not a bad thing.
Hamza Shaban is a reporter for Yahoo Finance, covering markets and economics. Follow Hamza on Twitter @hshaban.
