Lockdown, Not Knockdown: #6 Digital Fitness
Digital Industries Booming in The Covid Era
If your 2019 jeans don't fit anymore, you're far from alone. According to a study quoted by Harvard Health Publishing surveying about 270 respondents, in the first months of the pandemic (February-June 2020), their average weight increased by 1.5 pounds (around 0.7 kg) per month. If this was a steady trend, the study further argues, between February 2020 and June 2021 the total weight gain per individual amounted to 25 pounds or around 11 kg.
So instead of Quarantine 15, as the pandemic weight gain in pounds is sometimes referred to, we should actually be talking about Quarantine 25. A little extra weight is not a problem if you feel comfortable in your skin; issues such as heart diseases and diabetes, on the contrary, are a concern. Let's be honest, we hibernated for almost two years. Countless lockdowns had us eat more than usual. Many of us lived on our sofas watching Netflix and swiping left and right to ease the solitude (see my previous article on dating apps). It is no wonder, then, that we emerged out of the pandemic with an extra few pounds or kilos.
To counter the quarantine blues, millions across the planet decided to stay fit, healthy, and connected amid the pandemic, frequently within their four walls. This article is about the industry that helped them achieve their goals. The market also experienced an unprecedented boom in the process. As gyms and health studios shut down in the first and second quarters of 2020, the downloads of fitness apps grew by 46% worldwide. As a consequence, the global fitness app market size in 2021 was estimated at US$ 3.9 billion and is expected to reach US$ 15.5 billion in 2028.
Fitness-tech apps are said to have raised a record of US$ 2 billion from investors in 2020, and for a good reason. For instance, Strava, a social networking and exercise-recording app reported an impressive 2 million new app users each month throughout 2020. Moreover, those already using the app increased their workouts by an average of 13%.
Most fitness apps saw such a surge. In continuation, I will take a look at activity tracking, home workouts, and fitness social networking apps, and elaborate on how Covid has affected their business.
Tracking Activity & Diet
I know it's hard to believe it, but fitness activity tracking has been around for almost six decades. It all started when a Japanese professor, Dr. Yoshiro Hatano, invented something called Manpo-kei, or the '10,000 steps meter', in 1965. Dr. Hatano held that 10,000 steps per day were required to keep a healthy body. Since the 60s, numerous hip- and wrist-based fitness trackers have become increasingly popular, measuring everything from heart rate, steps walked, steps climbed, to sleep quality. Companies such as Fitbit (founded in 2007 and sold to Google just this year) have made a fortune selling tracking devices; of course, I don't have to mention the likes of Apple, Samsung, or Xioami, whose smartwatches (and smartphones) carefully track all your fitness data.
MyFitnessPal is probably the most prominent among the smartphone tracking apps when it comes to diet and nutrition. It also tracks workouts. The app was launched in 2005 and after grossing a whopping US$ 6.7 million in revenue in June 2020, it was sold to a private equity firm later in the year.
When it comes to GPS tracking, running apps are a good example - Runkeeper, MapMyRun, Nike Run Club, and Adidas Runtastic. Most of these have a subscription business model. However, Nike and Adidas, two sportswear giants, are both offering their apps free of charge. The Nike Run Club is also ad-free. They both integrate with music apps such as Spotify, tracking your distance, pace, and calories. However, there are some differences. While the Nike Run Club includes coaching, Runtastic does not. Runtastic, on the other hand, provides activity reports and goal setting. Of course, both Nike and Adidas have integrated a built-in shopping prompt to boost the sales of their shoes and sportswear.
Home Workout Apps, In The Shadow of Peloton
When it comes to guided workouts, there are more options than time. For instance, Aaptiv features a large number of workouts and licensed music, but it comes at a significant cost. Some more affordable apps are Asana Rebel (primarily a yoga app), or Nike Training Club, which, like Nike Run Club, is completely free to use.
But one company has been the absolute winner in the home workout category throughout the pandemic: Peloton. Peloton is primarily an exercise equipment company. It delivers stationary bikes and treadmills to individual homes and sells subscription packages with different types of workouts to be done using Peloton equipment. Peloton's supply chain is quite sophisticated. The equipment is made overseas and sold online or in the Peloton stores. The classes offered on the Peloton platform are both recorded and live. Speaking on the How I Built This podcast, John Foley, the founder of Peloton, admitted that the company had faced an unprecedented surge in demand in March 2020.
Since 2019, Peloton has been a publicly traded company, and following the surge in revenue, its stock doubled from 2019 to 2020. Before the pandemic, the company had quite a seasonal business, as 60% of all demand would come between Thanksgiving and February. However, in 2020 things changed dramatically. The company recorded a revenue of US$ 1.83 billion. Today Peloton employs 5,000 personnel, has 5.4 million users globally and its market cap as of July 2021 amounts to an impressive US$ 36.25 billion.
Peloton has two important streams of income: it sells sports equipment (which accounts for almost 80% of its revenue!) and related accessories, and it also sells subscriptions. Since its founding in 2012, Peloton has acquired six manufacturing and media companies.
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The Facebook of Fitness
The companies I've mentioned so far have helped us stay fit in the pandemic, but most of them don't emphasize the connection between the athletes. Yet as Covid has taught us, two crucial pain points of any lockdown - isolation and loneliness - can be addressed by building virtual communities. Strava, a social networking fitness app, capitalizes on that. 'People keep people active', Michael Horvath and Mark Gainey, two founders of Strava, remarked on the How I Built This podcast.
Launched in 2009, Strava was initially a cyclist app, using GPS tracking and recording the relevant data. Later on, Strava has expanded to other fitness activities, incorporating social networking features. While Nike or Peloton also encourage building communities around exercise, no other company is recognizable by its 'social' label as much as Strava.
In 2021, Strava has 76 million very loyal users and while its 2020 revenue was the highest ever, US$ 72 million, the company is still not profitable. What makes Strava unique is that it is still privately held, and uninterested in being acquired. Strava, sometimes called the Facebook of fitness, is loved by its user base. It features routes, groups, 400 million users' photos, and is completely agnostic as to what physical activity you are committed to - what matters is that you track it and that you enjoy it. A bonus point is that Strava integrates with other devices, such as Apple Watch or Fitbit.
YouTube Is Free, And Real People Frequent The Gyms
As we have seen, all the above-mentioned companies have exploded over the previous year and a half. But on second thought, is the growth sustainable? I haven't so far mentioned a serious competitor for any fitness app: YouTube. Why would I pay for a yoga app, or a yoga class now that in-person classes are back - if I can simply pull out my yoga mat and tune in on one of the Yoga With Adriene sessions, or any other yoga-related YouTube channel, for zero dollars? Some will say: because of accountability. You are more accountable to yourself and others if you have paid for something. That's a fair argument, to which I will silently point to the graveyard of millions of expensive but unused gym memberships across the world.
Others will emphasize the sense of achievement and connection that YouTube can't give you. If I run 5K today and share the result with my three friends, I can challenge them to do the same, and we can celebrate each other, and do more and better tomorrow. That's all well and good, but some of us are more extroverted than others. Some people compete with themselves only, without the wild urge to share their most recent mountain bike expedition all over the Internet. I'm not saying that either one group is right - rather, one size does not fit all.
Moreover, let's not forget another important competitor: the good old gyms. And no, they don't have to be giant and monotonous fitness centers full of sweaty people doing jumping jacks. Gyms nowadays come in all shapes and sizes, the most important being boutique gyms. They are small, personalized, very expensive, and yet - very much in demand. According to a McKinsey insight article on the fitness industry, despite using the workout apps, 50% of fitness enthusiasts have reported missing the gym and their previous routines during the pandemic.
Making Money In The Hybrid World
So with that in mind, what's the business model of the fitness apps in the world where everything is going hybrid - from work to dating, to exercising? Peloton's John Foley calls his company 'the future of fitness globally'. Peloton's overhead is enormous, and some contend it is not a tech company since their main business is selling sports equipment. Is having your gear delivered and working out from home really the future of fitness?
In any business, you can only ever be competitive by lowering your costs vis-à-vis the rest, or providing better quality than them, or somehow managing to do both. Despite its high prices, Peloton is providing very good-quality workouts and has a solid following. On the other hand, Strava, which is purely a tech company, has a freemium business model (without ads). Most other competitors have either fully switched to subscriptions, or monetize through ads in case they are offered for free. Not Strava.
Strava's founders argue that the customer should like the app and recognize its value, and that should lead to them subscribing. (This reminds me of Duolingo, whose creator Luis von Ahn initially swore that the app would never feature ads because of his commitment to free and ad-free education. After continuously losing money, investors made it clear to the language app founder that the free version without ads was a no-go, and he eventually gave in). This gentle, humane approach is the reason why Strava has 14 times more users than Peloton. But again, Strava is yet to be profitable.
Nike Training Club and Nike Run Club, for their part, distinguish themselves from the rest because they are both free and excellent (shoutout to coach Bennett whose hundreds of guided runs have convinced me that running can be a pleasant activity). That being said, of course, Nike is not in the business of fitness apps. They are merely using the platform to promote their merchandise.
Does all this mean that in the digital fitness market, there is no room for companies who don't manufacture and ship their own gear (Peloton) or have so much money that they can offer apps for free and use them to promote their shoes and tank tops (Nike)? It doesn't, necessarily. In the coming months and years, it will be key for the digital apps to adapt to wherever the athletes are: lifting weights at home, building strength in the gym, running by the beach, or doing a spontaneous cross-fit session out in the open. The more versatile they are, the more successful they will be. Importantly, newcomers should not be scared of the competition, as the market potential is incontestably there and waiting to be explored.
Or, as Nike's coach Bennet would say in one of his motivational runs full of meaningful metaphors: 'Sometimes crossing the starting line is harder than crossing the finish line.'