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- [00:11]
Narrator
December 2020 an apartment in New York City. A woman in her 30s types the password for her investment account. She taps her foot on the floor, trying to dissipate the nervous energy flowing through her. The woman takes a sip of her coffee as she waits for her account to load. Just before the site comes into focus, she closes her eyes. There hasn't been a lot to be excited about in the past nine months since COVID became widespread. The one exception has been her work. The woman works as a designer for Peloton, which makes a stationary bike and treadmill. The equipment connects to the Internet, allowing users to stream live fitness classes from home. And right now, Peloton is is riding high as gyms closed across the country after the government issued lockdowns. Peloton was uniquely positioned to take advantage of the pandemic. People were looking for ways they could work out in isolation, and Peloton gave them that, and its interactive virtual classes also provide community and online interaction. Ever since COVID hit, the company's growth has exploded, so it's become a ritual for the woman to check Peloton stock price and her brokerage account every morning. A brief moment of joy in dark times. The woman opens her eyes. She yells out to her husband, who's working from their bedroom. Honey. What?
- [01:43]
John Foley
Come in here. I need to show you something.
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Narrator
What is it? Look. She pivots the screen toward him and his eyes go wide. We have $5 million. Yes.
- [01:56]
John Foley
Peloton's trading at $167 a share.
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Narrator
The woman leaps from her chair and the two of them jump up and down, hugging each other.
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John Foley
We can buy a house with extra bedrooms. No more working from the kitchen table.
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Narrator
We'll have space for kids.
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John Foley
I'm going to go on Zillow right now.
- [02:15]
Narrator
She steps away from his embrace to check the real estate website. Her husband watches her, but his smile fades and his brow crinkles. I love this. I really do. But we're sure this isn't just a blip? I know it feels like this pandemic is going to last forever, but it will end. Gyms are going to reopen. This could all go away. The woman shakes her head.
- [02:39]
John Foley
Our CEO says that gyms are a thing of the past. People's habits have changed. He thinks this is just the beginning. He said Peloton is going to reach $1,000 a share.
- [02:50]
Narrator
$1,000?
- [02:52]
John Foley
Yeah, and he's making moves to make it happen. We just bought this company called Precor, so now they can make bikes in the US Instead of China. That's going to be huge. We'll be able to get bikes to consumers so much faster.
- [03:08]
Narrator
That's good. Yeah.
- [03:10]
John Foley
And I trust our CEO. This is going to last.
- [03:14]
Narrator
Well, all right then, lets buy a house. The man peers over his wife's shoulder as she starts entering a zip code into Zillow. When his wife started working for Peloton, he was skeptical that it would be the game changer that the CEO John Foley, promised it would be. He's happy to be proven wrong if it means getting out of this shoebox apartment. But what happens when all of those promises of endless growth go up in smoke? After telling hundreds of stories about business battles throughout history, I've learned one constant truth. Having the right support systems in place can make or break a new venture. Trust me, it was a battle even I faced on my business journey. That's why AT and T business makes so much sense for entrepreneurs today. When you're building something from scratch, or even just at the point where you're ready to grow, you need a provider that makes things easy. With AT and T business, you you can have reliable, protected Internet connection you can count on, so you do not miss a beat. Building your dream might take time and a lot of work, but that doesn't mean it can't be a little easier. Wake up to the power of AT and T business and turn your vision into reality. Business.att.com when planning for your future, you want someone with a history of keeping their word year after year. For nearly 160 years, Pacific Life has been a trusted name in the industry. But that isn't just a number. It's experience that matters. It's 160 years of promises held, helping generations retire with confidence, protect their loved ones, and plan for whatever comes next. Whether you're looking for life insurance, employee benefits, or retirement income solutions, when your future is on the line, you want history on your side. And believe me, Pacific Life has been there, always there, through changing times, always focused on your needs, ready to secure your tomorrow. Ask a financial professional how Pacific Life can help you feel prepared for what's next. Pacific Life Insurance Co. Omaha, Nebraska and in New York, Pacific Life and Annuity, Phoenix, Arizona. Because with Pacific Life, you're not just planning for the future, you're partnering with trusted experience. From Wondery I'm David Brown, and this is Business Awards When John Foley and four colleagues started Peloton in 2012, investors weren't sure what to make of was pitched as an equipment company making exercise bikes and a media company producing Livestream, virtual classes. Foley and his co founders were pushing a whole new type of at home exercise. A category they called connected fitness. Over the next eight years, Peloton grew a small but intensely devoted customer base, selling over a half a million bikes. But then the pandemic hit, forcing people to stay home. With gyms closed for months on end and with no vaccines in sight, Peloton's popularity exploded. The company couldn't get their equipment into consumers hands fast enough. There were wait lists for bikes and treadmills. Company leaders thought the fitness industry had changed in their favor forever. But Peloton's transition to a post Covid world will be as uphill as one of their rides. And whether they can survive as consumer preferences and fitness trends shift, that's an open question. Our new two part series will explore the rise and fall of Peloton and how it forever changed the business of home fitness. This is episode one. Welcome to the Ride. It's 2011 in Los Angeles, California. Nine years before anyone ever heard the words COVID 19. Lawyer Hiso Kushi sits in traffic on the 405 freeway. The display screen in his car lights up with an incoming call. It's his best friend, John Foley. Foley, what's up? John Foley and Cushy both met as executives at citysearch, a website where people could list and review local businesses. Similar to Yelp, Citysearch was acquired by media mogul Barry Diller's company, IAC in 1999. Cushy is still with IAC, working as in house counsel to its various tech companies. And now Foley runs E commerce for the bookstore chain Barnes and Noble. Even though Cushy lives in Los Angeles and Foley lives in New York, they've remained close. Cushy, listen, I want to run something by you. I have an idea for a new company and I would love it if you came on board. We're going to need a good lawyer, and there's no one I'd rather have by my side. Sweet. Hit me with it. All right. So you know how Jill and I are really into fitness? Yeah. I still remember you haranguing me into taking that indoor cycling class. And you liked it. Come on. I will neither confirm nor deny that. Okay, well, anyway, would you believe me when I said we haven't been to a class in almost six months? Jill hasn't made it to the yoga studio in even longer. Whoa. Yeah. With two kids, we just don't have time. Weekends we're taking them to gymnastics, the playground, birthday parties. Weekday mornings are just Getting them to school and us to work, there's just no time to make it to a class. Yeah, I get that. Kids keep you busy. And at home workouts, you know, I don't know, they're not the same. I miss the community and the competition of the class. All of us peddling away together. So Jill and I were talking, you know, about how we can combine the camaraderie of a cycling class with the convenience of an at home workout. And I think we came up with a pretty genius idea. Yeah, well, what if we made an exercise bike with a screen that could connect to the Internet and we could live stream fitness classes? You know, the instructor would be like in a remote studio, but through some kind of leaderboard, they could see the stats of everyone streaming their class. They could push them to pedal faster or compliment them on how they're doing, that sort of thing. Riders could interact with each other. It'd be a completely remote fitness class. Kushi doesn't say anything as he thinks about what Foley is proposing. He saw you there. Did I lose you? Yeah, I'm here. So what do you think? Genius, right? I mean, at the end of the day, you're still talking about riding a stationary bike, alone in your basement, staring at a screen. I can already do that, but I don't want to. No, no, no, no, no. This will really feel like you're in a class. Yeah, well, I'm sorry, man, I just don't see it. Plus, I gotta tell you, I don't know anything about making exercise equipment. I just don't think I'm your guy. Well, all right. I appreciate the honest feedback. Yeah. Come on. No hard feelings, right? Nah, of course not. We're friends first. Always. Kushi hangs up the phone and continues to inch forward in the bumper to bumper traffic. He's disappointed. He thinks Foley is a brilliant businessman, but he just doesn't understand this idea. But Cushy keeps thinking about Foley's pitch. And two days later, he has a realization. He'd been focusing on the wrong part of Foley's idea. What could set this company apart is not the bike itself, but the classes. That's what Foley needs to lead with. He's starting an interactive fitness media company. The bike that's just the delivery system. Hey, let's step back for just a minute because this brings up a classic lesson in business framing. So let's say you're a business owner. You're in the driver's seat. Ask yourself, is your company selling a product or is it building a platform see, Peloton's insight was that the bike wasn't the business. The business was was creating content and community. Look at Amazon. Amazon didn't win in e commerce by selling books. It won by creating the infrastructure for selling for selling everything. If you're pitching investors or customers the story you tell about what business you're in, it can be the difference between confusion and conviction. Back to Cushy he has no experience launching hardware, but he worked at Barry Diller's iac. He knows how to build a media company. Cushy calls Foley back and says he's on board. Foley also recruits three other colleagues to form his new interactive fitness company. Two of them he knows from his time at iac and the other is a friend of a friend. In January 2012, the five of them officially found Peloton in New York City. The name is based on the term for the pack of riders who clump together to reduce drag in a road bicycle race. As CEO Foley hits the road to pitch the idea to investors, his goals are ambitious. He insists this is not the latest fitness trend. This will completely transform how people exercise. He compares his vision to what happened to the video game industry when Atari released its first home game console in 1975. People had to go to an arcade if they wanted to play a video game. Now, arcades are few and far between, and at home, consoles are the norm. In Foley's view, Peloton is the game console and gyms are the arcades. If people can get the same high intensity communal workout at home, why would they ever go to a gym? Despite Foley's lofty vision for the company, investors aren't sold. From their perspective, Foley is essentially trying to launch two companies at once. He's trying to start a hardware company that makes Internet connected bikes, and he's trying to start a media company that produces interactive fitness content. To start just one of those companies would be challenging enough. To launch both simultaneously seems borderline impossible. And what's more, no one knows what the market for connected fitness looks like. One by one, the major investors turn him down. But Foley refuses to give up. He keeps going, ultimately pitching over 400 investors. In the meantime, he pieces together enough small sums from angel investors to keep the company afloat. You know, getting turned down hundreds of times, that's not just a test of stamina. Think of it another way. Think of it as a filter. Every no sharpens the pitch and clarifies the vision. You remember our series on Starbucks back in the day, most investors rejected Starbucks too. Before it became a global caffeine empire. A lot of people who start a business have trouble taking no for an answer, though it's easy to take business rejection personally. Who wouldn't? But maybe you can draw some strength and resilience from this thought. Don't take no as a verdict, but as part of the process. In fact, if you're not being told no very often, could be you're not aiming high enough. While Foley's on the road, the rest of his team is in New York building the company. They work on creating a prototype bike. They want it to be the perfect bike, quiet and sleek with a high quality touchscreen. They start writing the software that will allow them to stream the classes. But they need instructors to lead their virtual classes, and they can't just be any instructors. They need stars. They need people who will shine through a screen and keep customers logging into classes. They start searching for potential instructors. An email comes through from a woman named Jen Sherman. She's 43 and from New Jersey. Four years ago, she took a spin class at a local studio and became obsessed. She got certified and has been teaching spin classes around New Jersey. Her classes routinely sell out, but she's ready for the next challenge. So when she finds an article about what Peloton is trying to accomplish, she's intrigued. This could be a way to reach even more people, and instructing virtually would certainly be a new adventure. Her email is bold, telling Peloton they need to hire her and brash. She references her booty and liberally drops curse words. But turns out that's a good thing. It shows she has personality and if that can shine through via email, and the founders think, it just might shine through on screen too. The founders bring Sherman in for an audition in spring 2013, telling her to prepare a mini class lasting about four to five songs. They lead her to a corner of the office that's been cordoned off with a black curtain. Behind it is an old rusty bike. They tell Sherman to lead her class from that bike and indicate to a camera lens poking through a hole that's been cut out of the curtain. She should talk into that camera. The founders will be on the other side of the curtain, following her class via TV screens. It's all so low rent. Sherman realizes just how much of a startup this company actually is, but she believes in their vision. So despite the rusty bike and the wires dangling from the ceiling, she gives it her all. And when her songs are over, she unclips from the bike and steps out from behind the curtain. The founders are grinning. They tell her she was amazing. She's hired, Peloton has its first instructor, and if this company performs as they think it will, they're going to make her famous. By mid 2013, they have their bike prototype, they have their first instructors, they but despite all of Foley's efforts raising money, they still don't have enough funds to manufacture the bikes. Foley and his co founders were rejected by all the major investment firms, so they decide to take their idea directly to the people.
- [18:27]
Jen Sherman
We love fitness, we love technology, and we think we're on the verge of something really big. But we're a startup and we want to make this dream a reality. We need the support of the Kickstarter community.
- [18:39]
Narrator
In June 2013, they launch a Kickstarter campaign to crowdsource the funds they need to start manufacturing their bikes. Under Kickstarter rules, they have a month to raise $250,000, which will allow them to build the minimum number of bikes their manufacturer requires. And if they fail to raise that much, they'll get none of the money. In 30 days, they'll find out if the storied investors of Silicon Valley are right that there isn't a market for connected Fitness. Or they'll find out if their idea has legs. Wheels When Netflix pivoted from DVDs to streaming, or when Amazon expanded beyond books, those transformations came from leaders who kept questioning their own strategies. Hey, have you met Claude? If you're looking to challenge your own thinking about a business problem or discover new ideas, Claude can be your go to AI thinking partner. Instead of delivering quick answers, Claude works through complex decisions with you. Take market expansion planning. Beyond identifying new territories, Claude helps teams explore things like regulatory landscapes and competitive dynamics. It's the kind of deep analysis that reveals additional opportunities. Claude researches across hundreds of sources in just minutes to deliver accurate, comprehensive analyses. For technical teams, Claude code automates complex coding work, and through the Claude API development, teams can integrate Claude's reasoning capabilities directly into their existing systems and workflows. The companies featured on Business wars succeeded through continuous strategic questioning. Not easy answers. Whether teams are analyzing supply chain vulnerabilities, exploring new business models, or debugging critical systems, Claude can become your AI collaborator in working through complexity until breakthrough insights emerge. Check out Claude for yourself for free at Claude AI BusinessWars and see why the world's best problem solvers choose Claude as their thinking partner. 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To get your jobs more visibility@indoubtedly.com BW just go to indeed.com BW right now and support our show by saying you heard about Indeed on this podcast. That's indeed.combw terms and conditions apply. Hiring Indeed is all you need. It's Black Friday 2013 in Short Hills, New Jersey. John Foley paces through a small retail space in a mall 45 minutes outside of New York City. All around him are stores for major brands. Apple, Lululemon, Tesla, and then there's Peloton with its small pop up store. It's sparsely decorated with some cheap furniture and six Peloton bikes, the only six Peloton bikes that currently exist. They're black with red trim and a large screen above the handlebars. Their Kickstarter campaign was successful. They were able to raise a little over $300,000, exceeding their $250,000 goal. But it's been over a year since they hit their Kickstarter goal and the excitement has faded. They were able to entice consumers to give money based on the idea of Peloton, but to make it as a company, they need to actually sell bikes at the price point they've left listed. And this pop up shop is their first venture into sales. If no one buys one, well then it was nothing more than a nice idea. Foley and his co founders stand around in the shop. They're nervous. They've given so much to this company and it's all come down to this. Foley realizes he needs to give some kind of inspirational speech to this. Hey everyone, listen up. I know today's a big day, but let's not put too much stock in it, all right? We're offering A premium product, Peloton is selling its bike for $2,245. That's slightly more than high end stationary bikes made by established companies like NordicTrack and Schwinn. It's a big purchase and we're an unknown brand. We can't expect people to drop that kind of money the first time they walk into our store. Our job today is to entice people, put the idea of connected fitness into their heads. One of Foley's co founders, Tom Cortese, jumps in. I mean, I'd like to sell one bike today. Me too, me too. I'm just saying that if we don't, it doesn't mean we failed. Cortese runs his hand over the bike. He was one of the leads in overseeing its design. Yeah, I know I'm biased, but I really think this is beautiful. I really hope people see what we're doing here. They will. I know it. Foley's watch beeps. Okay, mall doors have opened. The team watches as the first wave of customers streams past the store on their way to the more established brands to hunt down bargains. For the first time, Foley feels nervous. What if no one even comes into the store to look at their bikes, let alone buy one? Maybe he got this all wrong after all, and he's wasted the past two years of his life. But eventually, customers do come in, many of them. And Peloton sells four of their bikes. That night. They celebrate like they sold a million. Peloton officially has customers. The company is on its way. And from there, things start to move very quickly. The company sells close to 40,000 bikes in its first two years, but selling the physical bike is only half the battle. They also need to sell people on their subscription Service. Priced at $39 per month. Their digital services give users access to all of Peloton streaming content. This includes live classes where the instructor will see the user's stats like speed resistance and calories burned. And also what they call on demand classes, recordings the user can follow along with at any time, albeit without any interaction from the instructor. These classes are what differentiates Peloton from all the other stationary bikes out there. And it's through its subscription service that Peloton is intends to actually turn a profit. They're selling the bikes at cost so they can make money off their media. To keep users subscribing, Peloton put significant resources into making its live streamed rides as engaging as possible. Beyond looking for the most charismatic instructors, people like Jen Sherman, who ooze personality, they hire producers to tape classes with multiple camera angles. They also license a million popular songs for their instructors to use. The result is a library of all their classes so users can choose by instructor duration of the workout or genre of Music played. In 2014, Peloton sets up a studio in New York where a small number of writers are able to take classes in person. The real life attendees help create the feeling of being in a class for the writers participating from home Peloton executives encourage their instructors to let their personalities shine through. They don't script their classes and give them a lot of leeway to say what they want during their classes. Some instructors are sassy, others focus on motivation, others are gruffer. As time passes, users grow devoted to their instructors. And just like social media apps, Peloton keeps data on which instructors and which types of classes are most popular so they can offer more of what users are responding to. Peloton's investment in content pays off over its first two years, the company steadily grows. By 2016, it has 35,000 paying subscribers. By 2017, that number has tripled to almost 110,000. And those subscribers are loyal. Peloton's monthly churn rate is under 1%. That means peloton is keeping a much higher percentage of its customers than the major streaming companies like Netflix do. That low churn number that's jaw dropping. In subscription businesses, keeping customers is often more valuable than gaining them. The takeaway when you design for habit and identity, when the customer feels like your product is part of who they are, you don't just win subscribers, you win loyalty and loyalty. Well, loyalty is the closest thing to compound interest in business. In 2018, encouraged by its early success, Peloton decides it's time to take on another staple of the home fitness market.
- [29:32]
John Foley
This is the tech brand that fully revolutionized the indoor cycling space.
- [29:35]
Narrator
And now they're breaking into the run.
- [29:37]
John Foley
Market with the Tread.
- [29:38]
Jen Sherman
So if you think about the Peloton bike allows you to take high energy instructor led group cycling classes from home. The Peloton Tread allows you to take high energy instructor led, call it boot camp circuit training workouts from home.
- [29:51]
Narrator
The Tread isn't just for running. The classes also lead users through weightlifting and resistance band routines that users complete off the treadmill. The Tread retails at over $4,000 and takes up as much floor space as a twin bed, so it's aimed at a high income earner with plenty of room at home. Even CEO John Foley admits he doesn't have space for it in his Manhattan home. But just like the bike. The point is to sell Peloton's subscription plan. The tread is designed as much to consume content as to provide a place to run. It features a 32 inch screen and a high quality sound bar. The company has 7,000 classes available on demand at the time of launch. And with its two products, Peloton continues to grow. By 2018, it has nearly 250,000 subscribers. But the company's facing increased competition. Since launching in 2014, it's enjoyed the advantage of being the first to market in the category of connected fitness. But now other companies are moving in. There are startups including Echelon Fitness and Mix Fitness, which reviewers describe as less expensive Peloton clones. And they have bikes on the market for up to $1,000 cheaper than Peloton's model. It's not just startups entering the connected fitness space either. Established home fitness companies like Bowflex and NordicTrack released their own connected bikes and treadmills in 2019. If Peloton is going to maintain its edge, it needs to figure out how to bring in new customers. That could be by creating new products, or it could be by designing cheaper versions of its bike and treadmill. But either approach requires cash on hand. So to raise that cash, Peloton decides it's time to go public. Peloton has reason to be optimistic. It has rapid growth and high customer satisfaction scores. Plus its equipment is only available in three countries, the U.S. canada, and the UK. There are many global markets they have yet to move into, so there's a lot of growth potential. But in spring 2019, as they're preparing to go public, Peloton is hit with a lawsuit accusing the company of using over 2,400 songs without proper licensing. The plaintiffs are asking for $300 million in damages. The lawsuit brings attention to Peloton's cash flow. Users love it.
- [32:32]
Jen Sherman
The product.
- [32:33]
Narrator
Here's the problem. $300 million lawsuit around music rights. How does Peloton figure that out while at the same time trying to figure.
- [32:42]
Jen Sherman
Out how to make a profit on a service that people like?
- [32:46]
Narrator
For all of Peloton's success, it has yet to turn a profit. The company is selling its equipment at cost with the idea that it'll make money from the subscription service. But Peloton's also spending a significant amount of money producing high end content. And the market is starting to turn against tech companies that don't have a clear path to profitability. 2019 has already featured disappointing IPOs for Lyft, Uber, and Smile, DirectClub all three are tech companies that were posting losses at the time of their debut, but hadn't laid out a way that they would eventually make money. So as the date of peloton, the founders are on edge. Will it raise the money they hope it will? Or will they come up short and remain vulnerable to competitors? Ready or Not. Yep, the holidays are coming and I'll be honest, I love having friends and family over. 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Apple Card is issued by Goldman Sachs Bank USA Salt Lake City Branch terms and more@applecard.com it's midday on September 26, 2019, in New York City. Peloton CEO John Foley sits in his office at the company's headquarters. He and one of his longtime employees, investors, are watching CNBC's coverage of their IPO. The company's stock started trading when the market opened, and now that a few hours have passed, it's clear this hasn't been the triumphant debut they were hoping for. I think it's still too high. I mean, the problem here is I just don't think it can scale up enough to justify the market cap. And one thing I want to add. Foley and the investors sit stone faced. As a professor from Egypt, NYU's Stern School of Business confidently asserts that Peloton was valued way too high. In the right hand corner of the screen, a graphic shows the price of Peloton stock steadily ticking down, second by second. $26.63. 2661. 2660. The investor slumps in his chair. This is not good. Foley tries to keep his face neutral. Well, it's not great, but it's not terrible either. I just did a little Google and we're on track to have the second worst IPO of unicorn companies. Those are privately held companies worth a billion dollars or more. I don't know. This feels pretty terrible to me, okay? But at least we had an IPO. WeWork can't say the same thing. The co working office space company WeWork WeWork had been slated to have an IPO in 2019. But after it released its regulatory paperwork required to go public, analysts realized that WeWork's business model was highly flawed. Two days ago, its founder and CEO stepped down and the IPO got delayed. But the investor isn't in the mood for schadenfreude. He gestures toward the CNBC stream. This guy is right. We priced the shares too high. What were we thinking, valuing the company at $8 billion? Or maybe we did nothing wrong or were just caught up in a trend. I was just joking about WeWork. But a lot of highly valued tech companies are struggling with their IPOs. And then we should have waited. You know why we didn't? We needed an infusion of cash. Now. In any case, it's too late to delay our ipo. We've debuted. Yeah, I know. Look, we needed cash and we got cash. Maybe we won't get as much as we wanted, but we're on pace to raise $1.2 billion. Come on, that's nothing to sneeze at. Yeah, I guess. Foley shakes his Head getting a little frustrated with his investors. Doom and gloom. Seriously. I understand being a little disappointed, but let's not lose the plot. This is our debut. It's not our finale. We take this money we just raised and we invest it back into our company. The stock price will follow. Yeah, okay, I guess you're right. All we can do is push forward anyway. Exactly. If anyone knows the power of pedaling through the uphill, it's us. Come on. We'll prove the doubters wrong. We'll get this share price up to where we want it to be. The investor nods, and Foley's satisfied. He's bucked him up. Now he just needs to listen to himself and not feel discouraged. Peloton's IPO highlights a classic startup. Go public early to raise cash. Even if you haven't proven profitability, it's a bit like hosting an open house. Before you finish building the kitchen, investors can see the potential, but also the missing tiles. Sometimes you just need that influx of cash to keep the lights on. But once you're public, there's your problem. Every stumble is broadcast in real time. The question you gotta think about is, are we ready for the spotlight yet, or should we keep on building behind the scenes? In this case, Peloton chose the former. And so the show must go on, warts and all. Not long after the disappointing ipo, Peloton has another round of bad publicity. Near the end of 2019, Peloton releases a holiday ad that doesn't go over quite as the company intended. Okay, you ready?
- [40:28]
John Foley
Yes. Now, a Peloton.
- [40:33]
Narrator
The ad portrays a man surprising his wife with a Peloton for Christmas, and then tracks her usage of the bike over the course of the year. It shows her nervous before her first ride, excited that she's used it several days in a row, dragging herself out of bed for an early morning workout, and so on. It ends a year later, on the next Christmas, where the woman is now showing her husband a video she made about her fitness journey with a bike a year ago.
- [40:59]
John Foley
I didn't realize how much this would change me.
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Narrator
Thank you. The ad goes viral, and not for the reasons that Peloton hoped. It becomes a lightning rod. People call it sexist, misogynistic, fat phobic, and classist. Social media users compare the ad to the dystopian TV show Black Mirror, claiming that the wife looks like she's being held hostage by the exercise bike in her living room. A freeze frame of the actress's face, where she looks particularly terrified, becomes a meme USA Today runs a piece with a headline Someone Please help the woman from Peloton's Awful New Assignment. The Washington Post, Vice and Vox all publish pieces in a similar vein. Comedian Eva Victor makes a parody of the commercial that racks up over 3 million views in less than four days. As the commercial is roasted both online and in the legacy media, Peloton stock falls 9% the Peloton wife ad is a textbook example of what happens when brand storytelling collides with cultural blind spots. You know, ads don't live in a vacuum. They're filtered through whatever the public is primed to see. One person's heartfelt gift is another person's viral hostage meme. The lesson here? Test your messaging across diverse audiences before you bet the brand on it. Because once social media gets a hold of a misstep, you can't control the spend class. Peloton sticks by the commercial. It issues a statement saying that the ad was intended to celebrate its user's health and fitness journey. The company assures shareholders that it doesn't believe the uproar over the commercial will affect holiday sales. And the saying there's no such thing as bad publicity is a chestnut for a reason. In December 2019, search queries for Peloton increased by 152% from the previous year, suggesting that all the backlash led to more people learning about peloton. But as 2020 begins, there are signs that Peloton is starting to wobble. In their Earnings call on February 6, 2020, the company reports more net losses than the previous year, rising to $55.4 million. And while revenue did increase, it did so at a slower rate than predicted. But more worryingly, the subscriber churn rate, while still very low overall, has crept up. And an analytics provider shows that the percentage of users who opened their Peloton app after downloading it had steadily declined over the course of 2019. The changes are small, but it's enough to indicate that Peloton might be going the way of Taebo or the ThighMaster exercise fads that exploded onto the scene, only to fade away within a few years. As 2020 begins, Peloton executives are debating what's the best way to reach new customers continue to grow and invest the money they earn through their ipo. They're considering whether to develop a rowing machine or an elliptical, or whether to develop cheaper versions of their bike and treadmill, or whether they should focus more on their content and software. But an unprecedented world event changes all of Peloton's calculations as pandemic lockdowns spread across the country in March 2020, closing schools, offices and gyms. The revolution that Foley predicted, where gyms are a thing of the past and everyone exercises from home, abruptly comes true. Suddenly, Peloton is one of the hottest items in town. Subscriber numbers double by the end of March. The problem Foley and other Peloton executives face is no longer how to convince more people to buy pelotons it's how they can get their equipment into the hands of all the customers who want one. This is Peloton's moment to transition from a beloved niche product into a category upending game changer. But Foley is soon going to find out that capital capitalizing on success is an even steeper uphill climb than rising to the top in the first place. From Wondering this is Episode one of the Rise and Fall of Peloton for Business Wars. A quick note about recreations you've been hearing in most cases, we can't know exactly what was said. Those scenes are dramatizations, but they're based on historical research. If you'd like to read more, we recommend an oral history by Robert Hackett published in Fortune. I'm your host, David Brown. Austin Rachlis wrote this story. Sound designed by Kyle Randall. Voice acting by Chloe Elmore. Fact checking by Will Taplin. Our producer is Tristan Donovan of Yellow End. Our managing producer is Desi Blaylock. Our senior producer is Emily Frost. Karen Lowe is our producer emeritus. Our executive producers are Jenny Lauer Beckman and Marshall Louie. For Wondering earn up to 200,000 bonus points with the IHD One Rewards Premier Business Card limited time offer ends 1022. Visit ihg.com businesscard cards issued by JPMorgan Chase Bank NA member FDIC offer subject to change Terms apply.