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How The Newest Fitness Unicorn Plans To Attack Its Biggest Rival
Zwift announced a $450M raise yesterday, officially attaining unicorn status, but what's next?
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Friends,
Zwift, an “app for riding, running, and training with your community”, officially announced a $450M Series C investment round yesterday.
The round was led by investment firm KKR, but included other participants like Amazon’s Alexa Fund and Specialized Bicycle’s VC Fund, Zone 5 Ventures.
For those that are unfamiliar with the concept - Zwift connects to a cyclist’s indoor turbo trainer via bluetooth, allowing them to sync their performance statistics to an online portal. Within the virtual environment, Zwift enables cyclists to ride with and compete against other riders. The platform runs on a subscription model, charging users $15 per month.
In simple terms, their goal is to make the typically mundane concept of indoor cycling more fun, competitive, and community based.
Let’s take a look at how Zwift went from non-existent in 2014 to a billion dollar valuation just 6 short years later, and how they plan to attack their biggest rival going forward.
A Billion Dollar Idea
The story goes like this - In 2013, Eric Min successfully exited a technology startup and found himself cycling more, typically indoors.
As he got more involved in the sport from an indoor perspective, it became obvious to him that there was massive potential in the ability to “make cycling social".
Enter Jon Mayfield, who Eric Min found online through an internet post describing a “3D trainer program” he was developing for cyclist. Min messaged Mayfield to learn more about his product, and within days, Min was on a flight from the United Kingdom to Los Angeles to form the business partnership.
How did Mayfield think of the concept (Source)?
“I spent five minutes on that thing trying to use Netflix — I just couldn’t do it,” recalls Mayfield, who quit his job only weeks after meeting Min. “I assumed there’d be some game I could play with a trainer, but I looked and there wasn’t anything good. So I started to program something for my own use.”
Zwift was officially incorporated as a company in 2013, and after a year of building the prototype, they launched a beta version of the product in September 2014.
How was the consumer response?
Amazing.
Zwift received 13,000 applicants for a beta launch that only contained 1,000 slots, which proved the popularity and consumer demand for the product to Min and Mayfield.
Since then, the company has exploded.
“We started to ask people to pay in November 2015,” notes Min. “And almost instantly people started giving us their credit card details.”
Similar to their cycling rival Peloton, Zwift has certainly benefited from consumers transitioning to at-home workouts during the pandemic.
Today, Zwift has over 2.5 million accounts registered across 190 countries.
So What’s Next?
Instead of ignoring the elephant in the room, Zwift is going right at them. Yes, i’m talking about the $25 billion indoor cycling giant Peloton.
Zwift plans to use a significant portion of the $450M in funding to accelerate their hardware development, potentially releasing an at-home bike within the next year.
When it comes to competition between Peloton & Zwift, I tend to think about it in two ways:
Is the market big enough?
What is their competitive advantage?
Market Size
When it comes to overall market size, there is plenty of room for both Peloton and Zwift.
The cycling market is massive and expected to continue to grow, potentially becoming a $75 billion or more global industry by 2025.
Since the pandemic started, bike manufacturers haven’t had the supply to keep up with the massive increase in consumer demand. On a year over year basis, bike sales are up over 85% - not to mention the premium category of bikes retailing at $1,000 or more, Peloton & Zwift’s target market, is leading the way.
Competitive Advantage
In January, or pre-pandemic, this was a headline in the news:
As Peloton struggles, next fitness unicorn ClassPass has arrived
Since then, this train of thought has been flipped on its head. ClassPass has laid off or furloughed over 50% of their workforce and Peloton has executed their growth strategy perfectly, exploding in popularity.
Here’s what I wrote last week describing Peloton’s recent growth:
On a per subscriber basis, the average Peloton user is working out almost 25x per month. That is a mind-blowing statistic, and on a year over year basis, it means users are doing 2x as many workouts per month on their Peloton device as they were last year.
What led such drastic growth?
The pandemic obviously assisted, but Peloton has also spent the last year adding additional features like strength workouts, boot camp, yoga, and more. Ultimately, these numbers show that Peloton has made the transition from a “2-3x a week” workout novelty item, to full-on cult status.
As people continue to talk about increased competition for Peloton, don’t forget, addictions are hard to break.
So with all that in mind, how does Zwift differentiate themselves as they move into a more similar offering of hardware products?
Honestly, they already have.
Zwift was built in reverse. They went after hardcore cyclists who are committed to the sport and let them help build the product - rather than the Peloton strategy of catering to a more elitist consumer who is more of a casual cyclist.
Neither is wrong, but when it comes to gaining market share and building a loyal following, Zwift’s strategy has certainly worked also.
For instance, Zwift had 117,000 riders participate in a virtual Tour de France this past July. That’s 60% more participants than the Hong Kong Marathon, the largest marathon in the world on a per participant basis.
Point being, Zwift has an extremely loyal and committed base that isn’t going anywhere.
Only time will tell how successful Zwift is at making the transition to hardware, but with a dedicated group of 2.5M cyclist that love the product behind them, I certainly wouldn’t be against them.
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Extra Credit
Interested in learning more about Zwift?
Check out this video below, it gives an excellent 2-minute breakdown of all that the fitness platform offers.
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