sure, and the current stories revolve around growth driven by
replacing the gym with Peloton
“eSports” with Zwift
Putting on my dispassionate investor hat, the first story sounds more interesting. But maybe because I have an easier story to tell - ordinary people switching from monthly gym memberships to Peloton memberships. More below.
Bringing this back to the topic, a combined Garmin+Tacx can fast track the Neo Bike and treadmill, however as @Nate_Pearson points out the big missing piece of the puzzle is the software platform. And that is a pretty big platform to assemble.
To my eyes Peloton appears to be looking to disrupt the entire fitness industry and not just spin class. For a low monthly fee you have a nice set of recorded classes available:
My wife has spent 5 years faithfully going to group strength training, and is now going to one mid-week class at the gym and doing her own workout from home on Sunday (because she isn’t happy with weekend instructors). After seeing the Peloton booth at the mall a month ago, we were talking and she would seriously consider dropping the $70/month gym membership and putting Peloton classes on our large screen tv for $20/month. No more working around the gym schedule. Without the gym I’d have to find a rack and barbells, but could probably cobble something together from Craigslist with a 12-18 month payback based on saving $50/month.
So that’s a pretty simple story in my mind. Get a larger community to trial Peloton Digital membership for the workouts, only requires a small set of dumbbells and a mat. The value prop – don’t be a slave to the gym group class schedule and save money. Use that to fuel subscriber growth, and now Peloton can sell upgrades to spin bike or treadmill.
This was something that I thought was missing from Spin classes. You had to go to a gym/studio for a instructor led class. There was no “offline” workouts. Peloton seems to have addressed this.
Question is how would Zwift manage with their own platform when it is currently a BYOD. How would they incentivize users to get Zwift over Wahoo, TACX, etc and what of the existing base. Premium features only available on Zwift platforms?
yes and from my own experience the instructors I like are not always available on my schedule. Peloton solves that problem not only for spin, but for other workouts like Yoga and Strength and Bootcamp and Stretching. With all the bodyweight classes you could start Peloton digital trial with nothing but a way to cast the class from your mobile or tablet to the big screen TV that everyone seems to have. And that $20/month membership allows for streaming up to 3 devices per household.
Zwift already bought Milestone for running. And they got into some amount of $ invested in an indoor cycling company (can’t remember the name right now). So that horse already left the barn. It’s just a matter of time before they drop a bike with somebodies base.
Connect IQ…
Garmin own ANT & only their products have Connect IQ. Previously I doubt Tacx would have aligned themselves with just one type of headunit, but…
Tacx Neo 2 has detailed pedalling dynamics and there are the mystery things that the Neo 2 may have added as a firmware update & utilise its memory increase… my money is on a Tacx Connect IQ app showing these things.
Interesting, and apropos of nothing, is Garmin is incorporated in Neuhausen am Rheinfall, in the Swiss canton of Schaffhausen. The canton is not the cheapest in terms of taxes, Canton Zurich is cheaper and Zug is even cheaper. However, neither Zurich nor Zug has the Rheinfalls https://rheinfall.ch/en/. It’s also basically Germany-adjacent, and I’d bet some of their employees live across the border for the lower cost of living (and gain the benefit of Amazon dot de as there is no Amazon in Switzerland).
Three factoids for the Americans among us. If you’re a large enough company, you can negotiate your tax rate with the Gemeinde (town council) and Canton (state). And, if you’re an American citizen, it doesn’t matter how low the tax rate is as you’ll still pay the almost always higher US tax. The U.S. is one of only two countries in the world to tax its citizens no matter where they earn their income (Eritrea is the other). Consequently, American employees of Garmin in Switzerland pay the higher US tax rate, though they may deduct much of the Swiss tax from their US return. Thus, the HQ is not in the lower tax canton of Zug doesn’t matter to the US employees. Those of other citizenship – like UK but except Eritreans – might have a different view (and may or may not live in Schaffhausen as a result.
The third factoid is Switzerland is part of the Schengen Zone for European travel. This means that flying between the Netherlands and Switzerland, for example, no passport is needed. ID’s are often not even checked on the outbound from Switzerland, though sometimes a cursory check is made on the inbound to make sure you’re the right citizenship. In other words, fewer ID checks, and lower friction, flying between the Netherlands and Switzerland than between flying Nevada to California.
I’ll stick by my prediction that Garmin doesn’t view software as anything missing. It’s not in their DNA. It’s not what they are good at, nor have they provided any indication that it is an area that they have an interest. All GREAT companies understand deeply what their “distinctive competence” is . . . what it is that they are better than anyone else in the industry that customers value and will pay a premium price for.
Garmin is a world-class manufacturing company with great distribution channels.
Tacx represents another synergistic hardware platform that they can drive the cost out of and distribute in volume. There is nothing about software that lends itself to Garmin’s distinctive competences . . . we’ll see if time proves me wrong. I’d suggest that you read DC Rainmaker’s take on the acquisition and make your own assessment.
As for Peloton, despite designing, building and selling bikes and treadmills, that’s not their business model. They probably have little to no profit margin on them. What they are selling is a fantastic user experience. How many companies in the fitness software industry do you know that can extract $40/month ($480 per year) from users (subscription price) and now, $20/month for a standalone app? The company has a very broad and deep management team, and the funding ($500 Million) to invest in their plans. It is likely that they have crossed the 1M user mark and are growing incredibly fast. They are rapidly becoming the fitness software industry’s big gorilla.
this is probably why is been pushed back, the concept and IP of bringing out the bike is a massive marketing tool so by making that the icing on the cake means that they wont have to re-tool it and re-brand. these things dont happen over night.
remember with these bikes if you want something that fits you need to offer sizing and fitting, or you are going to need something more like RETUL fit bike with a neo attached to the back. this is not going to be cheap. the best option is for the forseeable future is going to be the Cheap turbo bike and a high end trainer.
and I used to think there were three… with North Korea as the third. Perhaps functionally they are. But yes, it’s Eritrea, which ranks lower than Ethiopia on the UN Human Development Index. In other words, no other industrialized, modern economy taxes its citizens based on citizenship without regard to residence location or where income is earned.
Italian Elite might be another option for Zwift but I think they would be much better off to get a license from hardware manufacturers for being “Zwift Racing Certified”. Pure margin without without hardware risk.
For Garmin my guess for the next move is Rouvy. Garmin is a me-too company. They want to establish Zwift No. 2. They will discard the Tacx software and try to get Rouvy on par with Zwift and then buy market share by lower monthly pricing. Garmin does not have a track record in successful business though - their DNA is hardware.
The esports angle is a popular one that people bring up, but it’s a false prophet for any game/product that doesn’t have a very large audience (top 5-10 game globally).
For example, League of Legends European league makes less revenue than the 26th best football/soccer team in Germany. LoL has been around for more than 10 years and has more than 100MM people playing globally, with a significant portion in Europe, and a large dedicated staff in Berlin. Obviously there are other benefits to esports for a large game, because there are retention and CAC benefits that aren’t easily directly quantified, but you have to have the audience first.
Agreed. However I believe software is being discussed at the highest levels of the company. They are unlikely to signal that interest for various reasons. Any M&A would need to learn from past software mistakes, or they will screw it up.
We are saying the same about Peloton, in different words. They are bringing the group class experience into the home, on your schedule, at a lower price. The instructors are top notch and motivational.
