The Brilliant Business Model of Peloton

The word ‘peloton’ in bicycle racing refers to the front of the pack. Today, Ignitia takes a closer look at what has allowed New York City-based Peloton to so quickly rise to the front of the professional fitness pack.

Getting Started

Pelton is one of the great success stories of Silicon Alley. Started in 2012 by co-founders John Foley, Tom Cortese, Yony Feng, Graham Stanton, and Hisao Kushi, the concept arose from the desire to find an at-home cycling program that would combine both flexible schedules and a world-class fitness regimen. Citing the fact that at-home workout programs had not kept pace with the evolution of in-studio fitness programs, the team came up with the idea to bring the ‘benefits and energy’ of those studio programs directly into the home. By designing a stationary bike with an internet connected screen that streams live cycling classes conducted from their Chelsea studio, Peloton has revolutionized cycling fitness, and essentially multiplied their revenue stream by a factor of five.

A Brilliant Business Model

Had the company simply been another boutique fitness studio program the business upside would have stopped at the door. However, Peloton had a much wider vision. By converting their studio into something more resemblant of a television studio, the company expanded its potential customer base to anyone with the right equipment. And that equipment is Peloton’s specially designed bike. This stationary bike comes equipped with a 19-inch internet-connected screen that allows riders to live-stream into classes conducted by top-rate instructors in their studio. This unique feature allows riders to participate in gamified classes where they can chart their progress on the class leader board, and even at times be called out by the in-studio instructors live on air.

Along with individual classes, Peloton also offers a host of recorded classes available to members as well. This allows the company to plant its flag in the content market online. And as if owning proprietary hardware, software, and content, as well as earning revenues from membership fees and in-studio sessions wasn’t enough, Peloton also rounds out its business model by wisely offering fitness apparel and gear as well. And though according to CEO John Foley, the $2,000 price tag for the bike may seem like a lot, members soon realize that the bike pays for itself in the long run.

The Rewards of a Good Idea

The idea, and near-limitless scalability of it, have already begun to pay off. Although Peloton did not release public financials for 2015 or 2016, it did state that it expected to raise $150 million in revenue for 2016; which would triple revenues from the previous year. Also in December of 2015, less than 3 years after the company’s founding, Peloton reportedly became profitable.

Today, the company has closed seven rounds of funding totaling more than $444 million. The latest Series E round, led by Wellington Management, True Ventures, Kleiner Perkins Caufield & Byers, and Fidelity Investments and worth a reported $325 million, valued the company at an estimated $1.25 billion and cemented its standing as a true unicorn.

By executing well on a multi-tiered revenue stream model, and providing excellent quality to its customers, Peloton has been able to expand its business in a way most companies only dream of. With that in mind, it’s easy to see how quickly Peloton raced to the front of the pack in order to claim its place among the true unicorns of Silicon Alley.