Bloomberg technology reporter Mark Gurman said that the US interactive fitness platform Peloton should abandon the Apple model and abandon the hardware business.
There are two camps in the smartphone world: the Apple iOS camp and the Google Android camp. Apple’s model is to consolidate hardware, software and services, prohibiting other phone makers from using its operating system.
This model has helped it amass a massive user base of 1.8 billion, high user satisfaction and billions of dollars in quarterly profits. Google has adopted a different model: the Android operating system is open to all consumer electronics manufacturers for them to produce their own smartphones and tablets.
This strategy created an experience that was less integrated but pushed the number of Android devices to over 3 billion. Peloton has been following Apple’s model since its inception, designing its own exercise bikes and treadmills.
Then developing its own operating system (albeit based on Android) and offering its own subscription service for fitness content. It’s no wonder that some users call Peloton “the Apple of the fitness world” and even suggest that Apple acquire Peloton.
But that model also spells trouble for Peloton. The company was unable to manage its own supply chain at the beginning of the Covid-19 pandemic and in its later stages, going from a supply shortage at the beginning to a surplus later. Losses are mounting, growth is slowing, and the market value has plummeted by about $40 billion.
The situation at Peloton has intensified in recent weeks, causing management shock: Multiple executives have left, including co-founder and CEO John Foley and president William Lynch. Board of Directors. At the same time, the company also cut 2,800 jobs.
In addition, they slashed spending, such as canceling a long-advertised factory in Ohio. Investors are also urging the company to find buyers, with Amazon and Nike likely to take over.
But in fact, Peloton’s predicament is not unsolvable, even if there is no deep-pocketed gold owner to take over, it can get out of the predicament. The solution: Get out of the hardware business and focus on developing software and content.
Peloton has the number one treadmill and exercise bike software and content. Its applications for mobile phones, tablets and TV set-top boxes are also top-notch. The company should reinvent itself around these strengths.
They should work with device makers to turn Peloton’s software and content into “the Android of fitness.” There are already plenty of companies developing home fitness equipment, and Peloton doesn’t have to do it himself.
Partnering with companies such as Echelon, NordicTrack, Schwinn, and more, these exercise bikes and treadmills can be upgraded by integrating Peloton’s operating system and fitness content. I’m sure both treadmill and exercise bike makers will embrace the Peloton brand and content without hesitation — especially when they’re no longer in the hardware race.
Peloton can make money from operating system licensing fees and subscription fees — which bike and treadmill makers could potentially take a cut of. Peloton can also continue to make money from its roughly 900,000 digital-only subscribers. So-called digital-only subscribers are content users who do not use their bicycles or treadmills.
Forgoing hardware can drastically reduce costs. Look at a set of incredible data: Peloton’s hardware gross profit margin in the past quarter was 6.4%, while the subscription business profit margin was as high as 68%.
Ditching the hardware business can improve long-term sustainability. Not only that, if you want to sell externally, this model is also easier to attract buyers.
Apple slows down acquisitions in 2021. The company didn’t buy Peloton this past week, but it did acquire another company: AI Music, a London-based startup that helps customers create music by fusing royalty-free music with artificial intelligence.
More noteworthy is the frequency of Apple’s transactions. Tim Cook, the company’s chief executive, has said that they make an acquisition every few weeks. But that is no longer the case, and Apple made few acquisitions last year, including its acquisition of classic music service Primephonic in August.
According to recent regulatory filings, Apple’s acquisition spending in 2021 is only $33 million, compared with as much as $1.5 billion in 2020 and $624 million in 2019.