Speaker 1: Welcome to tex Stuff, a production from I Heart Radio.
Speaker 1: Hey there, and welcome to tech Stuff. I'm your host,
Speaker 1: Jonathan Strickland. I'm an executive producer with iHeart Radio and
Speaker 1: how the tech are you? And just like that, Peloton
Speaker 1: has halted making treadmills and bikes, at least temporarily. I
Speaker 1: felt I needed to lead with that sort of phrasing
Speaker 1: before getting into the actual episode. I actually hope you
Speaker 1: don't get that reference, and don't worry, because one it's
Speaker 1: not important, and too, I will explain it before the
Speaker 1: end of the episode. It's nothing to get hung about.
Speaker 1: It's just me trying and failing to be cute and clever.
Speaker 1: But I did want to talk about Peloton, a company
Speaker 1: that was all the buzz just a couple of years ago,
Speaker 1: and now a decade after it launched, is currently in
Speaker 1: her moil. Big issues at Peloton right now. By the
Speaker 1: time you hear this episode, maybe that will have changed,
Speaker 1: because things are changing that quickly. I also thought it
Speaker 1: would be good to use Peloton to talk about a
Speaker 1: business model that tons of different tech companies have really
Speaker 1: been trying to leverage, uh namely that of finding the
Speaker 1: way to continuously generate revenue from your customers. Um. There
Speaker 1: are a lot of different ways of doing that, which
Speaker 1: I will touch on later in this episode. But that's
Speaker 1: what we're seeing throughout the text sphere, and it has
Speaker 1: been for some time now. It's not brand new. However,
Speaker 1: Let's first start with the history stuff of the company itself,
Speaker 1: and Peloton's history is actually pretty fascinating, particularly if you
Speaker 1: do a little digging. But the oversimplified version, the one
Speaker 1: that I actually saw in a lot of i'll be honest,
Speaker 1: not very well written articles, is that a guy named
Speaker 1: John Foley wanted to find a way to help people
Speaker 1: like himself and his wife Jill, pursue their passion for
Speaker 1: fitness and indoor cycling without having to go through all
Speaker 1: the hassle and expense of finding the right place that
Speaker 1: has the right classes and the right instructors. And that
Speaker 1: all this led to the idea of connected fitness devices
Speaker 1: in the home that could stream workouts and allow you
Speaker 1: the benefit of having that really great instructor without having
Speaker 1: to you know, seek them out, set your schedule to theirs,
Speaker 1: and pay on a prayer class basis. But that's just
Speaker 1: part of the overall story. See, there were five co
Speaker 1: founders of Peloton. John Foley was just one of them,
Speaker 1: although by all accounts I come across, Foley was the
Speaker 1: guy with the idea and the one who sort of
Speaker 1: brought everything together. So he is critical crucial to Peloton.
Speaker 1: But there are four others. We should talk about two,
Speaker 1: and Peloton's history is also one about networking, and I'm
Speaker 1: not talking about the Internet or WiFi or anything like that,
Speaker 1: rather the concept of knowing the right people at the
Speaker 1: right time to make stuff happen. So the five co
Speaker 1: founders of Peloton are John Foley and Tom Cortiz, Hassao Kushi,
Speaker 1: Graham Stanton, and Yonnie Thing. And this group has a
Speaker 1: lot of collective experience in different fields over the course
Speaker 1: of their respective careers, both in tech and in leadership.
Speaker 1: So let's do it quick and totally unfair glimpse at
Speaker 1: each of them. Keeping in mind this is sort of
Speaker 1: like the cliffs notes of cliffs Notes about each of
Speaker 1: the founders. So John Foley, according to what I've read,
Speaker 1: was a gifted student in school, one of those people
Speaker 1: who never really had to put forth a ton of
Speaker 1: effort in their school work. I was that way for
Speaker 1: a couple of subjects, but not all of them. He
Speaker 1: also became enthusiastic about fitness as a teenage or. He
Speaker 1: particularly got fond of cycling. He attended Georgia Tech, so
Speaker 1: just down the street from me, and he got a
Speaker 1: degree in industrial engineering and then later he earned an
Speaker 1: m b A at Harvard Business School. Among his various
Speaker 1: positions that he's held over his career, he served as
Speaker 1: a production shift manager for eminem and Mars Candy Uh.
Speaker 1: He served as president and CEO of Evite dot com,
Speaker 1: and later became founder and CEO of a company called
Speaker 1: Pronto dot com while also heading up Evite and Gifts
Speaker 1: dot com. And he would become the CEO of Peloton
Speaker 1: once we get to that point. Tom Cortiz went to
Speaker 1: George Washington University, where he earned a bachelor's degree in
Speaker 1: fine arts, which is not a credential you expect to
Speaker 1: find in a tech entrepreneurs resume. He worked for a
Speaker 1: company called a show Cub, which he describes on his
Speaker 1: LinkedIn page as a business that quote connects the most
Speaker 1: innovative social entrepreneurs around the world, offering critical access to funding,
Speaker 1: knowledge sharing, and a host of other value added services
Speaker 1: end quote, which kind of sounds like it's a networking company.
Speaker 1: Later he became the VP of Product Management at Toronto,
Speaker 1: which remember John Foley was head of and he you know,
Speaker 1: also he points out in his LinkedIn profile that Pronto
Speaker 1: is an I a C slash Interactive Core company. Uh. Now,
Speaker 1: quick aside here, Interactive Core c O r P is
Speaker 1: one of those companies that gobbles up other companies. Right,
Speaker 1: it's a conglomerate. And it all started off as a
Speaker 1: business that was actually dedicated to expanding the reach of
Speaker 1: the home shopping network of all things, and it went
Speaker 1: by a totally different name back then. Now I'm going
Speaker 1: to have to do a full episode about the history
Speaker 1: of I a C. Because it gets pretty complicated and
Speaker 1: bonkers a lot of companies that are related to media.
Speaker 1: But he's have truly you know, gargantine and confusing histories.
Speaker 1: Some of the businesses that I a C Has owned
Speaker 1: over the years include Ticketmaster, uh, the television assets of
Speaker 1: Universal Studios, Expedia, Lending Tree, asked Jeeves was an I
Speaker 1: a C company and anymore? And as we'll see, I
Speaker 1: a C is sort of a lynch pen for uh
Speaker 1: of the co founders. Okay, so that's fully and Cortiz.
Speaker 1: Next we have Hissao Kushi. He earned a degree in
Speaker 1: English at the University of Amherst. And you might wonder,
Speaker 1: what do you do with a b A in English?
Speaker 1: And if your princeton in the musical Avenue Q, you
Speaker 1: kind of wandered through life aimlessly. But Kushi didn't do that.
Speaker 1: He pursued a law degree at the Boston College Law School,
Speaker 1: and he became a lawyer and served as a lawyer
Speaker 1: for a couple of years in a law firm. And
Speaker 1: then and I love this part, he then turned his
Speaker 1: hand at being a screen right or for five years.
Speaker 1: I'm not sure if any of his work ever made
Speaker 1: it to an actual screen. I did a search on
Speaker 1: IMDb and came up blank. Doesn't mean this work didn't
Speaker 1: make It may mean that he's uncredited because of you know,
Speaker 1: rewrites and things like that. But anyway, he then went
Speaker 1: on to work for companies like Ticketmaster, and then I
Speaker 1: A C in general and Evite in particular, so there's
Speaker 1: another connection through I A C. Next, we have Graham Stanton.
Speaker 1: He earned degrees and applied mathematics and economics from Harvard University.
Speaker 1: He worked as a developer for a company called Zero Degrees,
Speaker 1: which is kind of a was a competitor to LinkedIn.
Speaker 1: Then he went on to work for drumroll Please Pronto,
Speaker 1: you know, one of those I A C companies, and
Speaker 1: then he held various roles within I A C before
Speaker 1: being named president of Gifts dot Com, also under I
Speaker 1: A C. And rounding out the co founders, we have
Speaker 1: Yoni Thing, who received an undergraduate degree in computer engineering
Speaker 1: and a master's degree in electrical and computer engineering from
Speaker 1: Georgia Tech, again just down the road. Much younger than
Speaker 1: John Foley. However, he worked for companies like Cisco and Skype,
Speaker 1: and then had just taken a job with ticket Fly
Speaker 1: before he would become a Peloton co founder. So he
Speaker 1: was the one co founder who did not work for
Speaker 1: I A C. At some point in his career. However,
Speaker 1: his former college roommate had worked for I A C.
Speaker 1: That's where the connection to the others came from, and
Speaker 1: it's how Thing was was kind of tapped to come
Speaker 1: on board with the other co founders. So out of
Speaker 1: the five co founders, four worked for various companies that
Speaker 1: were under the IO A C domain. H And also
Speaker 1: all but Feng had served as an executive at a company.
Speaker 1: Three of them had served as c suite executives, like
Speaker 1: chief executive officer or chief operating officer. So, in other words,
Speaker 1: by the time Foley was making his pitch, he was
Speaker 1: buddy buddy with several experienced and influential veterans in the
Speaker 1: business world. Now, that kind of situation does not, by
Speaker 1: any means guarantee that a venture is going to be
Speaker 1: a success. However, it does mean you've got a pretty
Speaker 1: good foundation to work from. You've got folks who have
Speaker 1: actual experience, particularly in leadership positions. However, and this is important,
Speaker 1: none of them in the fields that Peloton was really
Speaker 1: focusing on. So while they definitely had experience and knowledge,
Speaker 1: it wasn't necessarily in the specific industry that Peloton was
Speaker 1: getting into. But anyway, the story goes that fully came
Speaker 1: up with the idea for Peloton that indoor cycling, gems
Speaker 1: and studios those were not a new thing. The Soul
Speaker 1: Cycle brand had launched in two thousand six, and we
Speaker 1: wouldn't get the beginnings of Peloton until two thousand twelve.
Speaker 1: So uh, there's also a Flywheel Sports that had launched
Speaker 1: before Foley had ever pitched the idea of Peloton. Fly
Speaker 1: Will Sports had also pioneered gamifying indoor cycling workouts by
Speaker 1: incorporating scoreboards that would show a writer's performance compared to
Speaker 1: others within that same class, but these were all centralized models.
Speaker 1: They required customers to go to a physical location a
Speaker 1: gym or a studio, and obviously that limits the number
Speaker 1: of people who can actually participate at any given time,
Speaker 1: because rooms have a top capacity and classes can fill
Speaker 1: up quickly, specifically for popular instructors, so there was a
Speaker 1: limit to where that business model could go. You could
Speaker 1: open up more locations, but you couldn't magically make a
Speaker 1: room larger than what it was. Foley's idea was that
Speaker 1: you could have the exercise equipment, in this case a
Speaker 1: stationary bike, and you could incorporate a screen into the
Speaker 1: design of that bike itself, and the screen would be
Speaker 1: connected to a home network, and that would allow the
Speaker 1: user to stream classes, so that you know, the writer
Speaker 1: could get the same benefits as if they were attending
Speaker 1: a spinning class in person, without ever actually having to
Speaker 1: leave their own home. Classes would not be limited by
Speaker 1: the physical size of a studio. You probably would still
Speaker 1: limit the size of classes, but there could be hundreds
Speaker 1: of people as opposed to maybe a couple of dozen.
Speaker 1: And you could also record classes, which would give writers
Speaker 1: the chance to pararticipate in in a class that's led
Speaker 1: by their favorite instructor, even if the writer's personal schedule
Speaker 1: wasn't matching up with the instructors schedule, so you didn't
Speaker 1: have to, you know, reshape your life around the the
Speaker 1: schedule for workouts. Foley says that he first called up
Speaker 1: his zow Kushi, whom he referred to as his very
Speaker 1: close friend, and Kushi was living in Los Angeles at
Speaker 1: the time with his family, and initially, Kushi says he
Speaker 1: thought Foley's idea was ludicrous, that no one would want
Speaker 1: to take classes over a video screen in the basement
Speaker 1: of their house on a stationary bike all by themselves.
Speaker 1: But then he says, he thought about the quality of
Speaker 1: the media and how that could define the quality of
Speaker 1: the experience. That if you were able to recruit, say,
Speaker 1: the most charismatic and effective instructors to serve on your team,
Speaker 1: well then the product sells itself because that's the thing
Speaker 1: that people are going to latch onto. So he saw
Speaker 1: Peloton not as an exercise company, but more like a
Speaker 1: media software company, and that made him more willing to
Speaker 1: come on board, though he would do so from the
Speaker 1: comforts of Los Angeles. He didn't move across the United
Speaker 1: States for this and worked almost as more of a
Speaker 1: consultant in the early days. Foley then pitched his idea
Speaker 1: to Tom Cortez, who was living in New York City.
Speaker 1: Cortez had also recently become a fitness enthusiast and was
Speaker 1: training for triathlons, among other things, and he came on
Speaker 1: board right away, although he was planning a trip with
Speaker 1: his his fiancee or maybe they had just gotten married. Anyway,
Speaker 1: he was playing a trip which put him on hold
Speaker 1: for a couple of weeks, and there was a very
Speaker 1: close call that Fully almost hired somebody else to take
Speaker 1: Cortiz's place, but that all got strained out once he
Speaker 1: came back. Soon the other co founders joined in, and
Speaker 1: Fully's main job would be to seek out investors in
Speaker 1: the company, and they got to work putting the pieces
Speaker 1: together to create the value proposition of Peloton. Now. Early on,
Speaker 1: Folly had thought about creating the service side and not
Speaker 1: getting so much into the hardware side at all, because
Speaker 1: hardware is hard. You have to you know, design it,
Speaker 1: you have to engineer it, you have to manufacture it
Speaker 1: and then ship it to customers. These are all huge expenses,
Speaker 1: not just in money, but in resources and and and
Speaker 1: you know time, and it takes a lot of time
Speaker 1: to go from creating a few bikes to scaling up
Speaker 1: to mass manufacturing. And that's when you hit the point
Speaker 1: where the cost of individual components starts to come down.
Speaker 1: Early on when you're manufacturing, if you're doing small batches,
Speaker 1: it's more expensive. It costs more per component than it
Speaker 1: will once you get to manufacturing at scale, when costs
Speaker 1: typically come down and you have a better profit margin
Speaker 1: on a per unit basis. So at first, Fully was
Speaker 1: actually considering finding a way to partner with existing hardware
Speaker 1: manufacturers and he would end up, you know, providing the
Speaker 1: virtual class side of Peloton's business model, and the other
Speaker 1: partners would supply the hardware. However, being a plucky young
Speaker 1: company with no name in the space meant Fully was
Speaker 1: hitting a lot of brick walls. Among the established companies
Speaker 1: out there, nothing was really fitting his vision. He also
Speaker 1: felt that the prevailing stationary bike designs in the industry
Speaker 1: didn't have the aesthetics they felt were needed to sell
Speaker 1: his Peloton idea. So the group decided that making a
Speaker 1: bike would be a necessary component to Peloton's approach. I'll
Speaker 1: talk more about the early days of Peloton in just
Speaker 1: a second, but first let's take a quick break. The
Speaker 1: decision to make their own bicycle, their own stationary bike,
Speaker 1: would make things a bazillion times harder in the short
Speaker 1: run for Peloton, largely because a lot of investors were
Speaker 1: not interested in backing an unproven company aiming at a
Speaker 1: yet non existent market, because no one had done this yet,
Speaker 1: so you couldn't prove that there was a market out
Speaker 1: there for it, and that this Furthermore, this company was
Speaker 1: going to be building its own equipment, which again had
Speaker 1: no proven success in the marketplace, that they had never
Speaker 1: made an exercise bike. Fully said that he had. He
Speaker 1: got a lot of nose in those days, but then
Speaker 1: he also got a lot of people saying, Hey, if
Speaker 1: this ever does become a thing, I want to buy one.
Speaker 1: I imagine that had to be a pretty frustrating experience
Speaker 1: to be told I'm not going to invest in your
Speaker 1: company idea, but when you finish making it, I want one.
Speaker 1: Fully was convinced that the bike itself wasn't really as
Speaker 1: important as the experience was, so he was drawing from
Speaker 1: his own history of attending spinning classes and gems. He
Speaker 1: said that people would talk about the playlist that was
Speaker 1: used during the workout, or the instructors approach and attitude,
Speaker 1: and how those things motivated the attendees while they were
Speaker 1: taking the class, and that was what fully saw as
Speaker 1: being the truly valuable component in what he wanted to
Speaker 1: bring to Peloton. That that meant that they would have
Speaker 1: to find trainers who would be a good fit for
Speaker 1: the service. Now, all of this was happening before they
Speaker 1: had their first actual prototype bike, and it sounds to
Speaker 1: me like they were really laying the track down as
Speaker 1: the train was rushing toward them. That really comes through
Speaker 1: if you read stories about the first auditions they held
Speaker 1: for trainers. They put out notices on platforms like Facebook
Speaker 1: to look for people who would be willing to be
Speaker 1: part of this great experiment. Apparently, they leased a small
Speaker 1: office space in New York City and they hung up
Speaker 1: a black curtain to section off part of the office space.
Speaker 1: The curtains purchased from Walmart. According to Foley and behind
Speaker 1: the curtain. You had the team, or at least part
Speaker 1: of the team, with cameras poking through the curtain to
Speaker 1: capture the audition of trainers who would actually kind of
Speaker 1: lead a few of the staff in a session. They
Speaker 1: did not have a working Peloton bike prototype at this point,
Speaker 1: and according to every account I've seen, the auditioning trainers
Speaker 1: had to use a broken stationary bike. They frequently called
Speaker 1: it broken or rusted or jan kie uh. The trainers
Speaker 1: were told that they had to put together a playlist
Speaker 1: of music and show off how they would conduct an
Speaker 1: online spinning class and work to the camera right to
Speaker 1: show that they could actually motivate people through a streaming
Speaker 1: video kind of feed. The first trainer that the company
Speaker 1: hired was Jen Sherman, who really became a celebrity in
Speaker 1: the Peloton group, and in an interview with Fortune magazine,
Speaker 1: Sherman said that they had this little tiny corner of
Speaker 1: the office that was sectioned off by black velvet curtains,
Speaker 1: so frigging shady. That's actually Sherman's quote. However, she soldiered on.
Speaker 1: She put together a routine and she led John Foley,
Speaker 1: Tom Cortiz and Yoni Fan through a workout, and according
Speaker 1: to Foley, Sherman was able to get through all the
Speaker 1: strange limitations of the setting and the audition and show
Speaker 1: that this idea was not just possible, that it could
Speaker 1: really take off, and that possibility was really the important
Speaker 1: component of Peloton's sales pitch to investors. A stationary bikes
Speaker 1: were by no means new. In fact, bikes that incorporated,
Speaker 1: you know, sensors weren't new. There were bikes on the
Speaker 1: market that had screens that could give writers feedback on
Speaker 1: stuff like their heart rate or the level of resistance
Speaker 1: they were currently using, or that could display images of
Speaker 1: landscapes that the writer was virtually moving through where the
Speaker 1: resistance of the bike could change as you encounter a
Speaker 1: virtual hill and that kind of thing. But creating an
Speaker 1: interactive media platform that was the new thing, and to
Speaker 1: sell that, the trainers were absolutely a pivotal component. And
Speaker 1: then you have the name of the company. The group
Speaker 1: chose or fully really chose Peloton because it is a
Speaker 1: French term meaning a group of cyclists in a race.
Speaker 1: This also reflected the company's gold to create a community
Speaker 1: of users who would become enthusiastic evangelists for the brand
Speaker 1: Fully recognize that spin classes work really well in part
Speaker 1: because you you can feed off the energy not just
Speaker 1: of the trainer, but your fellow cyclists who are in
Speaker 1: the class, and he wanted to make sure that the
Speaker 1: Peloton product would support community, knowing that if it did,
Speaker 1: users would do a whole lot of the marketing work
Speaker 1: for the company on their own. It would just be
Speaker 1: great word of mouth. The co founders started off with
Speaker 1: around four hundred thousand dollars of seed money. Fifty thousand
Speaker 1: of that was Fully's own cash, and that's when they
Speaker 1: first launched the company back in twelve. At the end
Speaker 1: of that first year, Fully and team had managed to
Speaker 1: raise three point five million dollars in Series A funding.
Speaker 1: Now that's a pretty nice chunk of change, but when
Speaker 1: you're talking about a company that's going to produce hardware
Speaker 1: and software and provide an ongoing stream of produced media content,
Speaker 1: it's not really that much money. The costs of developing
Speaker 1: the bike and then manufacturing the bike would be considerable.
Speaker 1: Early on, the co founders took their compensation in the
Speaker 1: form of equity in the company. They didn't draw a
Speaker 1: salary because they wanted to stretch that money as far
Speaker 1: as they possibly could. They tapped a designer named Eric
Speaker 1: Valency to come up with a three D model for
Speaker 1: their bike. Design Ynni Thing worked on creating a back
Speaker 1: end system for the bike that would do stuff like
Speaker 1: track metrics and also allow streaming media content to go
Speaker 1: to a touch screen display. So it had to do
Speaker 1: all this right. He had to make sure that he
Speaker 1: created got a you know, a processor that would be
Speaker 1: capable of handling these different tasks simultaneously without being overloaded.
Speaker 1: And then they worked towards building a bike for real
Speaker 1: zs In the team launched a Kickstarter campaign and this
Speaker 1: served many purposes. It was, of course a crowdfunded campaign,
Speaker 1: and it was partly there are just to raise more money,
Speaker 1: but it was also a means to advertise the concept
Speaker 1: of the Peloton bike to a wider audience and to
Speaker 1: get buy in from customers to create that core group
Speaker 1: of fans. And you've got to remember the word fan
Speaker 1: is a shortened word for fanatic, and a lot of
Speaker 1: writers will use words like fanatic or cult when they're
Speaker 1: describing the Peloton user base. Anyway, the video for the
Speaker 1: kick started campaign showed off the prototype version of the
Speaker 1: Peloton bike and It turns out that the actual prototype
Speaker 1: that was shown in the video had some pretty serious problems. Namely,
Speaker 1: it was unstable and wobbly, like really wobbly, So they
Speaker 1: made sure to avoid showing it wobble in the video.
Speaker 1: They showed it stationary, like truly stationary, no one using
Speaker 1: it or anything. Uh. And this was a marketing effort,
Speaker 1: right Like. They had to do that because if they
Speaker 1: showed it wobble then that would never work. Uh. They
Speaker 1: also were able to get their manufacturer to change their
Speaker 1: approach and reinforce the legs on the bike so that
Speaker 1: it would no longer wobble. And it was a pretty
Speaker 1: simple stationary bike design. It wasn't super you know, complicated.
Speaker 1: It had a very large touch screen display mounted in
Speaker 1: front of the handlebars. That screen, according to the campaign,
Speaker 1: was a twenty one and a half inch ten a
Speaker 1: DP resolution LED display. The display connected to a circuit
Speaker 1: board that had a one and a half giga Hurts
Speaker 1: dual core processor from Texas Instruments inside it. It also
Speaker 1: incorporated a forward facing camera and a microphone, so not
Speaker 1: only could you watch a class streaming to you, the
Speaker 1: class could see and watch you. This is the part
Speaker 1: I like to call the nightmare of Peloton, or at
Speaker 1: least Jonathan's personal nightmare, as I am certain that I
Speaker 1: do not want anyone looking at me when I work out,
Speaker 1: But then I'll be honest. That's been kind of a
Speaker 1: moot point for two years and going now because I
Speaker 1: haven't worked out in two years, so I guess I
Speaker 1: don't need to worry about it. Users would be able
Speaker 1: to connect the bike to a WiFi network. Obviously you
Speaker 1: would need to in order to be able to receive
Speaker 1: streaming content. UH. The bike also supported Bluetooth tech, so
Speaker 1: you could connect your own wireless headphones or speakers to
Speaker 1: at the bike. It also had the ability to connect
Speaker 1: wireless heart rate monitors to the bike so that you
Speaker 1: can trace that metric for the bike itself. The pedals
Speaker 1: connected to the resistance wheel via a belt rather than
Speaker 1: a chain. This helped make it UH operate much more
Speaker 1: quietly than a chain based stationary bike, and instead of
Speaker 1: using brakes to create resistance, the Kickstarter campaign explained that
Speaker 1: Peloton would use magnetic resistance, so magnets position near the
Speaker 1: flywheel the wheel that turns through the belt connect to
Speaker 1: connection to the pedals. UH. Magnets would end up creating resistance. Right,
Speaker 1: you have a magnetic force where the magnets are technically
Speaker 1: pulling on the flywheel, and that requires the user to
Speaker 1: overcome that force in order to make the wheel turn,
Speaker 1: and a resistance knob gave the rider control of how
Speaker 1: close or far away the magnets would be from the flywheel,
Speaker 1: So the closer the magnets were to the flywheel, the
Speaker 1: stronger the magnetic poll would be and the harder it
Speaker 1: would be to pedal the bicycle. A later upgraded version
Speaker 1: of the Peloton bike, the Bike Plus, would include digital
Speaker 1: controls for the magnetic resistance, and in fact, users could
Speaker 1: set their bikes to mimic the resistance used by the instructor,
Speaker 1: so that as the instructor were at was, you know,
Speaker 1: adjusting the resistance of their own bicycle, then the users
Speaker 1: bike would follow suit. And that way the user would
Speaker 1: never have to be conscious of this or make the
Speaker 1: changes themselves. Their bike would just do it automatically and
Speaker 1: they could focus rather not dying while they keep up
Speaker 1: with a professional instructor. The video showed off that the
Speaker 1: bike would allow users to take online classes and they
Speaker 1: could find, you know, trainers that they really connected with
Speaker 1: and they could take live classes along with hundreds of
Speaker 1: other people at the same time, or they could scan
Speaker 1: through recorded workouts from past sessions and take those instead,
Speaker 1: and the workouts would include music and motivation from the trainers,
Speaker 1: who are kind of positioned almost like celebrities. In fact,
Speaker 1: many of them would essentially attain celebrity status, at least
Speaker 1: within the Peloton community. Uh some of some of them
Speaker 1: would actually be celebrities in their own right, like professional
Speaker 1: cyclists who had participated in like Tour de France, for example.
Speaker 1: The display would show users stats about their workouts, including
Speaker 1: information about specific sessions and accumulative data that would gather
Speaker 1: throughout multiple sessions, and users could earn achievements by attending
Speaker 1: classes and performing well. This would mimic a pretty successful
Speaker 1: strategy we've seen in the video game industry. Achievements really
Speaker 1: drive engagement there. That was the same reason Peloton used
Speaker 1: them in their model. The kick started campaign had a
Speaker 1: goal of two dollars, and it actually raised more than
Speaker 1: three hundred thousand dollars. Now, that is less than the
Speaker 1: seed money that the group had used to launch the
Speaker 1: company in the first place back in but it was
Speaker 1: also enough support to show investors that there was a
Speaker 1: demand for this product. UH that I think might be
Speaker 1: the real purpose of this kick started campaign. The campaign
Speaker 1: said the money was actually going to be used to
Speaker 1: officially start peloton production, like this was the the cash
Speaker 1: needed to get that ball rolling, to get the tools
Speaker 1: designed to produce the bikes, and to get the production
Speaker 1: UH system in place and all that, Like this was
Speaker 1: the actual money to start that. They were up front
Speaker 1: that they had already raised investments to fund a studio
Speaker 1: in New York where trainers could lead classes, and they
Speaker 1: had already actually developed all the hardware and software, and
Speaker 1: that you know, the initial investment money covered all that. Again,
Speaker 1: I suspect the campaign's real purpose was to test the
Speaker 1: idea among the public and get some grassroots enthusiasm for it,
Speaker 1: so that folks with deeper pockets, meaning investors, would see
Speaker 1: this kind of enthusiasm and say, yes, I will invest
Speaker 1: in this because I see that there is a demand
Speaker 1: for the product. Now that three hundred thousand dollars, or
Speaker 1: to be more specific, that three hundred seven thousand, three
Speaker 1: hundred thirty two dollars came from just two hundred ninety
Speaker 1: seven backers. That would mean that the average amount of
Speaker 1: money that backers spent on that campaign was an excess
Speaker 1: of one thousand dollars each. And that makes sense when
Speaker 1: you look at the rewards, because you would see that
Speaker 1: to qualify for the early Bird Special of our seeving
Speaker 1: a Peloton bike, you would need to plug down fifteen
Speaker 1: hundred dollars cash. The early Bird Special was limited to
Speaker 1: just two hundred fifty backers, and it did. It didn't
Speaker 1: sell out though at least five folks backed at the
Speaker 1: next level up anyway, that was at seventeen hundred dollars
Speaker 1: for the Peloton bike. Maybe it maxed out initially and
Speaker 1: then people backed out of it before the campaign ended.
Speaker 1: That's possible, where they got two fifty people to sign up,
Speaker 1: and then before the campaign ended, some of those two
Speaker 1: people said you know what, uh, never mind and backed out.
Speaker 1: That's possible, uh, And then a few people backed at
Speaker 1: slightly higher levels. And these were all like the seventeen
Speaker 1: hundred dollar levels. Those were just for if you were
Speaker 1: in the United States. Folks overseas would actually have to
Speaker 1: back at a higher level because the bike would have
Speaker 1: to be quote equipped for Canadian, European or Asian product standards.
Speaker 1: End quote. We don't believe in their standards here in
Speaker 1: the US of A. Well, the campaign made clear that
Speaker 1: the manufacturing of the bikes would happen overseas, and that
Speaker 1: Peloton had partnered with a company that had a history
Speaker 1: of making indoor cycles and a second company that creates
Speaker 1: O d M tablet hardware. O d M stands for
Speaker 1: original Design manufacturer. Essentially, this is a company that produces
Speaker 1: the stuff that another company designs. So if you ran
Speaker 1: a design company you would come up with a design
Speaker 1: for a tablet, you would partner with an o d
Speaker 1: M and they would actually produce the hardware. This works
Speaker 1: great for companies that don't have fabrication facilities of their own. Now,
Speaker 1: the results of the campaign weren't exactly a windfall for Peloton,
Speaker 1: like they hit their goal, but it wasn't a runaway
Speaker 1: success like some other viral campaigns we've seen on Kickstarter.
Speaker 1: In fact, in all people had ordered a bike, so
Speaker 1: it wasn't It wasn't the runaway success they were hoping for,
Speaker 1: and they realized that they were going to have to
Speaker 1: start getting these bikes in front of people in order
Speaker 1: to sell more of them, to get people to see
Speaker 1: what the promise and premise of the bike were all about.
Speaker 1: So then the company secured a pop up store location
Speaker 1: in a mall in New Jersey and things would really
Speaker 1: get moving for the stationary bike company. I'll explain more
Speaker 1: after we come back from this break. Okay, So Peloton
Speaker 1: has had its Kickstarter campaign, which was a modest success.
Speaker 1: I mean it's successfully funded, but it wasn't, you know,
Speaker 1: a Grand Slam home run. And then they look for
Speaker 1: a physical space where they can show off the bikes
Speaker 1: and perhaps get a little more traction, which, again, using
Speaker 1: these metaphors for a company that was making station stationary
Speaker 1: bikes is an irony that is not lost upon me.
Speaker 1: So they went to this luxury mall in New Jersey. Uh,
Speaker 1: it's exactly the kind of mall that I really hate
Speaker 1: going to. We have something similar here in Atlanta, and
Speaker 1: it's pretty much the opposite of the kind of place
Speaker 1: I want to spend time in. But it is the
Speaker 1: kind of place that you would want to be at
Speaker 1: if you're trying to sell a high end piece of
Speaker 1: exercise equipment too well off suburban nights who may not
Speaker 1: have access to gym locations in their area because they
Speaker 1: live in a suburb. By late the team was demonstrating
Speaker 1: the bike and selling orders for around five bikes a day,
Speaker 1: and they had considered it they could get one order
Speaker 1: a day that would be success, so they were actually
Speaker 1: exceeding what they were hoping for. However, they could not
Speaker 1: produce five bikes a day. Their manufacturer in Taiwan had
Speaker 1: a turnaround time that was between three to four months. Now.
Speaker 1: Early on, they promised customers that they would deliver the
Speaker 1: bikes within thirty days and then, you know, I kind
Speaker 1: of hope that the customers wouldn't get too cheese off
Speaker 1: when inevitably there would be delays, and they knew there
Speaker 1: would be delays from the start. They actually said later
Speaker 1: on that they realized that if they had just told
Speaker 1: people up front it will be nine twenty days before
Speaker 1: this can be delivered, there would have been a lot
Speaker 1: less you know, friction. Meanwhile, Fing was in charge of
Speaker 1: building out a production studio in New York where the
Speaker 1: classes were going to take place, but no one on
Speaker 1: the team had any experience creating a production studio, so
Speaker 1: it was kind of a trial by fire, as was
Speaker 1: everything else it seems with Peloton. The first bikes were
Speaker 1: finally reaching customers by January. At that time, the New
Speaker 1: York studio had not yet been finished, so the initial
Speaker 1: classes for those first customers were conducted in that little
Speaker 1: curtained off section of office space in the studio. The
Speaker 1: actual UH, the full production studio wouldn't open in Chelse
Speaker 1: in New York until May. The company also had to
Speaker 1: create their own logistics department to handle things like delivery
Speaker 1: of the product because they found that they had been
Speaker 1: dependent on third parties and those third parties were UH.
Speaker 1: Let's say that those third parties were not living up
Speaker 1: to the standards of your average Peloton customer. It's a
Speaker 1: kind way of putting it. And this is where we
Speaker 1: should remember that a Peloton bike is really freaking expensive.
Speaker 1: In a Peloton bike would set you back one thousand dollars.
Speaker 1: This was the original basic Peloton bike, and that's for
Speaker 1: the hardware. You have to remember that the real selling
Speaker 1: point of the Peloton where those streaming classes, and that
Speaker 1: service would cost you thirty nine dollars a month, So
Speaker 1: you'll be spending nearly two grand on the bike, and
Speaker 1: then forty bucks a month to continue getting useful content
Speaker 1: while you're using that bike and that's the business model
Speaker 1: that are really we wanted to touch on this ongoing
Speaker 1: subscription fee, and we've seen this model become incredibly popular
Speaker 1: among tech companies, and really what it really boils down to,
Speaker 1: it's all about getting the customer into an ecosystem and
Speaker 1: then capitalizing on that. And you see this everywhere. Printers
Speaker 1: do it more often than not. If you buy a printer,
Speaker 1: you are required to purchase toner cartridges from the same
Speaker 1: manufacturing company that made the printer. You are discouraged or
Speaker 1: sometimes outright prevented from using third party toner cartridges. We
Speaker 1: see it in coffee makers. Curig famously tried to block
Speaker 1: customers so that they would only be able to use
Speaker 1: Curig produced coffee pods with their Curig coffee makers. We've
Speaker 1: seen it in game companies like Microsoft Gaming, which has
Speaker 1: its Xbox Game Pass service. This is a service that
Speaker 1: people will pay a monthly subscription to and in return,
Speaker 1: they get access to the game's currently supported by the service,
Speaker 1: and games come on and leave the service over time.
Speaker 1: We see it in companies that push back against the
Speaker 1: right to repair. These are companies that want to lock
Speaker 1: customers into a system where they have to go to
Speaker 1: a company approved and licensed vendor for maintenance and repair.
Speaker 1: We've seen it in the form of planned obsolescence, in
Speaker 1: which a company's product is designed to only last a
Speaker 1: certain amount of time before the customer has to go
Speaker 1: out and buy a replacement. These are all aspects of
Speaker 1: the same basic business philosophy, which is to find a
Speaker 1: way to keep your customers giving you their money, rather
Speaker 1: than having a one and done approach where someone comes up,
Speaker 1: they buy your product, the transactions over and that's it,
Speaker 1: and the only way you make more money is to
Speaker 1: sell more products to more customers. This is a way
Speaker 1: to keep a customer as a recurring customer. Well, all
Speaker 1: of that is pretty much a steep asking price, right
Speaker 1: to grand plus forty bucks of for perpetually. This meant
Speaker 1: that Peloton's clientele typically were among the more affluent people
Speaker 1: in society, and some of the Peloton's equipment would cost
Speaker 1: even more. Like there were the Peloton Bike Plus, which
Speaker 1: was marketed for two thousand, four nine dollars, as was
Speaker 1: the Peloton tread treadmill. I think the tread Plus was
Speaker 1: topping out at just under five thousand dollars, so very
Speaker 1: expensive pieces of equipment anyway, Peloton, unlike its bikes, which
Speaker 1: are stationary, was moving forward. In fourteen, the company raised
Speaker 1: another ten point five million dollars in funding. The following year,
Speaker 1: the company raised another thirty million dollars at least early
Speaker 1: in the year, and then, uh, you know, on the
Speaker 1: back end of the year they earned another seventy five
Speaker 1: million dollars. And Peloton was using this money to build
Speaker 1: out more brick and mortar locations to show off the bikes,
Speaker 1: and also to build out that legit sticks department I
Speaker 1: talked about, and to grow the software engineering team as well.
Speaker 1: And that wasn't the end of the investments. Peloton got
Speaker 1: another three five million dollars in The company established its
Speaker 1: products as being trendy, if somewhat restricted to a wealthy
Speaker 1: subset of the population, and in twenty nineteen, the company
Speaker 1: held its initial public offering that's when a private company
Speaker 1: transitions into a publicly traded company. The first day did
Speaker 1: not go particularly smoothly. The I p O pricing was
Speaker 1: set at twenty nine dollars per share, meaning that Peloton
Speaker 1: expected that shares of the company would trade at twenty
Speaker 1: nine dollars a piece once the market opened. However, when
Speaker 1: trading began, it was actually dropped down to twenty seven dollars. Still,
Speaker 1: it would mean that the company would establish a seven
Speaker 1: point to billion dollar market valuation. Essentially, the valuation is
Speaker 1: the number of shares of the company issues multiplied by
Speaker 1: the price per share. The little slip from twenty nine
Speaker 1: dollars to twenty seven dollars meant that Peloton got the
Speaker 1: dubious distinction of having the quote second worst debut of
Speaker 1: a unicorn end quote up to that point in two
Speaker 1: thousand nineteen. That's according to c NBC, a unicorn is
Speaker 1: a startup business that has a valuation of a billion
Speaker 1: dollars or more. Now, all that being said, I think
Speaker 1: a lot of folks in the tech space we're actually
Speaker 1: at the time far more focused on the spiraling WE Company,
Speaker 1: the company behind we Work that was supposed to go
Speaker 1: public the week before Peloton, but ended up scrapping those
Speaker 1: plans because of lots of valid and crazy reasons. But
Speaker 1: that's another story. Now, it's possible Peloton would have been
Speaker 1: on a steady but slow trajectory, except then we get
Speaker 1: to the pandemic. In early with the threat of coronavirus
Speaker 1: out there, a lot of people were lamenting the fact
Speaker 1: that they did not feel safe going to the gym,
Speaker 1: and heck, a lot of places Gems were closed, right,
Speaker 1: so you couldn't go even if you wanted to. And
Speaker 1: that showed off the real benefit of Peloton, right, like,
Speaker 1: you don't have to go to the gym, you get
Speaker 1: one of those expensive Peloton machines, whether it's a bike
Speaker 1: or it's a treadmill, and you take classes at home
Speaker 1: that you still get the benefit of a professional trainer
Speaker 1: pushing you to your limit, but you don't have to
Speaker 1: leave the house. And Peloton sales took off, as did
Speaker 1: the company's stock price. There were some pretty big setbacks too, though.
Speaker 1: For one, in May one, the company issued a recall
Speaker 1: for the most recent tread and tread Plus treadmill models
Speaker 1: due to reports of users getting injured on the devices,
Speaker 1: as well as a truly tragic report that a child
Speaker 1: had died in an accident involving one of the treadmills,
Speaker 1: and that obviously was a huge issue for the company.
Speaker 1: They had to react quickly to it, and that's why
Speaker 1: they recalled those those products. When HBO launched its follow
Speaker 1: up series two, Sex in the City called and just
Speaker 1: like that. The show began with the character of Mr
Speaker 1: Big dying of a heart attack after having worked out
Speaker 1: on his Peloton bike. Now, that's not the kind of
Speaker 1: product placement you typically want when you're promoting your business.
Speaker 1: And to make matters worse, Peloton commissioned and ad featuring
Speaker 1: Chris Noth, the actor who plays or played Mr Big,
Speaker 1: to kind of play off the fact that the show
Speaker 1: had killed off his character and implied that Peloton was responsible.
Speaker 1: And the reason I say to make matters worse is
Speaker 1: because shortly after that ad started to air, the world
Speaker 1: heard allegations that Chris Noth had a history of sexual
Speaker 1: harassment and sexual assault. Uh. And obviously it would be
Speaker 1: a terrible idea to continue to run an ad fee
Speaker 1: uring Nath in it in the wake of those allegations.
Speaker 1: So the company pulled the commercial And I told you
Speaker 1: I would explain the end just like that thing at
Speaker 1: the beginning of this episode, And there it is. Was
Speaker 1: it worth the wait? It was not. Mr Big was
Speaker 1: not the only fictional character to have a fictional heart
Speaker 1: attack after working out on a Peloton bike. The Showtime
Speaker 1: series Billions featured a scene in which a character named
Speaker 1: Wags has a heart attack after following a similar workout
Speaker 1: on a Peloton. Wags, however, does not die from the
Speaker 1: heart attack. He even references the scene from and just
Speaker 1: like that, he references Mr Big. I'm sensing a meme here. Now.
Speaker 1: Before the pandemic, Peloton's stock price was in the twenty
Speaker 1: two to thirty five dollar arrange, so, you know, leaning
Speaker 1: into that's kind of where the stock price was hovering.
Speaker 1: It was not too far off from the targeted I
Speaker 1: p O price of twenty nine dollars way back when
Speaker 1: the company first public, but the pandemic would change things significantly.
Speaker 1: In early March of twenty the price had actually fallen
Speaker 1: to below twenty dollars per share, but by October of
Speaker 1: twenty twenty, after several months of the pandemic, the stock
Speaker 1: price had skyrocketed up to a hundred thirty one dollars
Speaker 1: per share. Now that's not its peak. The peak of
Speaker 1: Peloton stock price went to more than a hundred sixty
Speaker 1: dollars per share, a huge jump. Peloton's pandemic trend of
Speaker 1: selling more equipment, however, was not sustainable, and the stock
Speaker 1: price would ultimately reflect that. For example, in November twenty
Speaker 1: twenty as the world was anticipating the production of a
Speaker 1: viable COVID nineteen vaccine, Like we had just heard the
Speaker 1: announcement that yes, they were going to be produced and
Speaker 1: we would get access to them early on in Peloton
Speaker 1: stock then took a dive. It felt sent because investors
Speaker 1: were worried that people would, you know, stop buying Peloton
Speaker 1: bikes and treadmills and just head back to the gym.
Speaker 1: So it's weird to think that a a solution or
Speaker 1: a a way to combat the spread of coronavirus would
Speaker 1: have a harmful effect on the company, But there you go. Now,
Speaker 1: Peloton stock price did have a brief recovery, but it
Speaker 1: wouldn't stay north of a hundred dollars per share for
Speaker 1: very long. The recalls in twenty one came to time
Speaker 1: when the stock was in a slide, and it would
Speaker 1: slide seventy in value. According to Slate as I actually
Speaker 1: record this episode, the company's current stock price is around
Speaker 1: twenty nine dollars per share, right back to that target
Speaker 1: I p O price and well below that height of
Speaker 1: a hundred sixty two dollars per share. That's what it
Speaker 1: was at in December of twenty twenty, Peloton reportedly overestimated
Speaker 1: demand for the bikes and treadmills, largely but cause of
Speaker 1: that huge boom early on in the pandemic, and now
Speaker 1: apparently the company has warehouses filled with equipment that has
Speaker 1: so far gone unsold. As such, someone within Peloton not
Speaker 1: too long ago leaked out information that the company was halting,
Speaker 1: at least temporarily, the production of its various machines. Some
Speaker 1: like the Basic Peloton Bike are on hold from February
Speaker 1: through March, while the Bike Plus will be on hold
Speaker 1: through June, and the tread Plus treadmill is not going
Speaker 1: back into production for the rest of fiscal year twenty
Speaker 1: twenty two. The company's stock price took another huge tumble
Speaker 1: in the wake of that news nearly twenty but John
Speaker 1: Foley then said that the company was making moves to
Speaker 1: right itself, which saw the stock price rebound a little bit,
Speaker 1: and that process of making things right may actually include
Speaker 1: layoffs in addition to changes in production. Also, the company
Speaker 1: said that it had identified who had leaked the information
Speaker 1: to the media in the first place and was now
Speaker 1: pursuing legal action, which is big old yikes. Meanwhile, the
Speaker 1: black Wells Capital lll C company that's an activist investor group,
Speaker 1: has published an open letter urging Peloton to fire John Foley,
Speaker 1: s CEO and to seek out a buyer for the company,
Speaker 1: which is a big old oof right there. Um and
Speaker 1: black Wells owns about five percent of Peloton stock, so
Speaker 1: it's influential, but obviously doesn't have like controlling interest of
Speaker 1: the company by any stretch of the imagination. But it
Speaker 1: does sound like they are pushing other shareholders to pressure
Speaker 1: the company into into firing John Foley and and looking
Speaker 1: to get bought out. Um. Again, it's an interesting story
Speaker 1: with Peloton, and obviously the story is not over. Like
Speaker 1: we could see things dramatically turn around for the company
Speaker 1: and see that this was just a dark period in
Speaker 1: the company's history and then it returns to a pretty
Speaker 1: prominent place in the tech space. It's interesting to me
Speaker 1: because obviously the real value in Peloton wasn't so much
Speaker 1: in the technology. As I said, all the technology Peloton
Speaker 1: was using existed in some form or another, just had
Speaker 1: not yet converged into a product like what Peloton offered.
Speaker 1: But but they did it really well. I mean, apart
Speaker 1: from the fact that it's prohibitively expensive for a large
Speaker 1: portion of the population. Obviously, that ends up limiting your
Speaker 1: potential customer base all on its own, right, you only
Speaker 1: have so many people who can afford to buy products
Speaker 1: that are that expensive. But yeah, it'll be interesting to
Speaker 1: see if the company is going to be able to
Speaker 1: weather this current storm and turn things around. I wanted
Speaker 1: to cover it because it has been in the news
Speaker 1: and I thought it was interesting that the company had
Speaker 1: announced or didn't announce, but had to address the fact
Speaker 1: that it was halting production on several of it's all
Speaker 1: of its products really, at least in for temporary basis. Anyway,
Speaker 1: that is the Peloton story so far, and like I said,
Speaker 1: unless unless something really major happens, I expect that story
Speaker 1: will continue. If it doesn't, I'll be sure to touch
Speaker 1: on that at the end of this year when I'm
Speaker 1: covering the big stories of twent two. In the meantime,
Speaker 1: if you have suggestions for topics I should cover in
Speaker 1: future episodes of tech Stuff, please reach out to me.
Speaker 1: The best way to do that is on Twitter. The
Speaker 1: handle for the show is text Stuff H s W
Speaker 1: and I'll talk to you again really soon. Text Stuff
Speaker 1: is an I Heart Radio production. For more podcasts from
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Speaker 1: or wherever you listen to your favorite shows. Eight