Insider No. 76: Apple Takes Aim at Fitness

Hardware & Services

Before addressing Apple Fit specifically, it’s helpful to review some of the underlying mechanisms at play.

By the numbers

• There are 1.5B active Apple devices.
• Apple reported $91.8B in Q1 2020 revenue.
• Apple’s services business was up 17% YoY to $12.7B.

Apple makes the majority of its revenue by selling hardware. Beyond devices, Apple uses software, services, and content to differentiate its hardware. And most importantly, the company’s obsessive focus on perfecting the user experience earned it a loyal customer base at the high end of the market.

“In effect, Apple builds incredible user experiences, which gains them loyal customers who collectively have massive market power, which Apple can then effectively wield to get its way – a way that involves maximizing the user experience. It’s a virtuous circle.”  – Ben Thompson, Stratechery [1]

More and more, Apple is extending integrations to scale its services business. In some instances, these services simply differentiate its hardware. But increasingly, as evidenced by the introduction of Apple Music, Apple News+, and Apple Arcade, integration is a path to subscription revenue.

If Apple’s fitness content ends up being free, it will be a value-add for Apple customers. And it could also help sell more phones, Apple Watches, and AirPods. But, if Apple Fit is using the company’s existing integration playbook, this extension is in its early stages.

“… Apple often builds ‘Minimum Viable Products’ by releasing discrete components one by one, making sure that each works well on its own and has a sensible stand-alone use case, and ties them together into a larger whole later.”  – Benedict Evans, mobile and digital media analyst [2]

Leverage & Lock-ins

Take Apple Arcade, for instance. This premium gaming subscription lets users download and play more than 100 games for $4.99/month, with no ads or in-game upsells.

• As part of a $500M budget, Apple spent hundreds of millions of dollars on new games for Arcade.
• Analysts expect Apple Arcade revenues to outpace Apple News+ and Apple TV+.

Essentially, Apple decided to recruit the best developers to build the best games, then put them behind a paywall. And—because they control quality, distribution, and discovery—they can prioritize Arcade above standalone gaming apps in the App Store.

“[Apple] always tries to control all the parts of the experience that matter, and over time it tends to bring more and more in house.” – Benedict Evans [3]

Given that template, it’s not hard to imagine a world where Apple Fit partners with the best developers, brands, instructors, and celebrities—paying them upfront—to launch a paid fitness channel. Leveraging distribution and discovery, Apple then flips a switch to drive adoption. They’ll even sweeten the deal:

“Oh, by the way, we’ll throw in a free year of Apple Fit when you buy an Apple Watch.”

The Health & Fitness Bundle

Of course, Apple isn’t alone in it’s efforts. In fact, we’ve spoken to a few of the most innovative founders in connected health on the Fitt Insider podcast.

Rishi Mandal, CEO of Future, explained how his company connects users with expert-level fitness coaches. Mandal said Future plans to go beyond fitness to address nutrition, sleep, mental health, and more.

On Twitter, he addressed the Apple Fit rumors by pointing out Future’s upper hand: “No tech co wants to get in the mud to run a connected human-to-human service. No fitness co is capable of it.”

Then, on a call with Fitt Insider’s Joe Vennare, Mandal elaborated, characterizing Future as an “unbiased, infrastructure of accountability across health and fitness”. From a culture perspective, he believes Apple is aimed at the mass market while Future is built around one-to-one relationships.

Will Ahmed, CEO of WHOOP, talked about using data to unlock human potential. With a focus on sleep, recovery, and strain, WHOOP helps users understand their bodies and optimize performance.

And, although they’ve yet toappear on the podcast, we previously covered Cure.fit’s effort to bundle health and fitness. This India-based company has raised $400M to vertically integrate every aspect of preventative healthcare, from fitness to nutrition and mental health.

Escape The Competition

As PayPal and Palantir co-founder Peter Thiel has pointed out, the goal isn’t to beat the competition, it’s to escape them entirely. So, if Apple were to push full on into fitness, they’d do so with the intent of circumventing competitors entirely.

“When you shift the entire route to market of an industry into a new platform with new dynamics, you can cause a lot of pain to incumbents even without doing anything to take them on directly.” – Benedict Evans [4]

To that end, Apple Fit could become a fortress of content, personalization (enabled by Apple Watch and HealthKit), and even coaching (delivered via FaceTime, AirPods, and Apple TV) within its existing ecosystem — one that’s also making inroads into brick-and-mortar gyms and studios.

Health > Fitness

Perhaps the most interesting part about Apple Fit is that it’s not really about fitness, it’s about health.

According to Apple CEO Tim Cook, the company’s “greatest contribution to mankind” will be about health — about “democratizing” healthcare and empowering the “individual to manage their health”.

Seen through this broader lens, whether it’s Apple Fit, WHOOP, Future, or an unnamed challenger, the ultimate winners are disrupting fitness en route to transforming healthcare.

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⏱Wait and See

Despite inclusion in the federal government’s reopening plan, some notable fitness providers have elected to remain closed, which begs the question: should gyms reopen?

Equinox executive chairman Harvey Spevak said: the company is excited to reopen, but it’s taking a “wait and see approach” as they continue to evaluate the health crisis.

• Equinox formed a team of medical experts to make a city-by-city reopening plan.
• Upon re-opening, SoulCycle classes will be capped and visitors will have their temperature taken upon arrival.
• Equinox members may be asked to reserve gym time via an app to prevent overcrowding.

Honor Holdings CEO Jamie Weeks said: members and staff “are telling us they’re not ready [to reopen].” For context, Honor Holdings (HH) is the largest Orangetheory Fitness (OTF) franchisee.

• Weeks’ OTF locations closed on March 16.
• Initially, HH set a reopening date of May 18 but continues to monitor the situation.
• If the May date holds, they’ll have gone two months with no revenue from studios.

Meanwhile, in China: Increased concerns about resurgence of coronavirus forced gyms in Beijing to close again after initially reopening. In the first quarter alone, more than 200 fitness businesses shuttered in Beijing.

🚨 Copy Cup

Daily Harvest is on a mission to reinvent healthy eating one frozen meal or smoothie at a time. Increasingly, achieving that goal means fending off copycats — or copycups, in this case.

As we highlighted on Fitt Insider, Daily Harvest has a strong value proposition and meticulously crafted brand. That fact has earned them $43M in funding and revenues “exceeding $200M”. Now, it’s attracting a growing list of imitators who are following the company’s playbook a little too close for comfort.

• Daily Harvest is taking legal action against Revive Superfoods, a look-alike frozen food company.
• Blix Cups is following a familiar blueprint.
• Green Spoon, a frozen food company based in Japan, launched with a similar model.

Punchline: Imitation may be the sincerest form of flattery, but, at some point, flattery becomes copyright infringement. Where’s the line? In the case of the copycups, the Daily Harvest vs. Revive lawsuit might provide some clarity.

📰 News & Notes

• “Depression hates a moving target.”
• Allbirds debuts its first running shoe.
• Peloton had 23,000 people join a single live class.
• Scott Galloway: SoulCycle’s at-home bike is “dead on arrival.”
• If you can’t even rerack the dumbbells, how do you sanitize the place?
• Joe De Sena, CEO of Spartan Race and Tough Mudder, on weathering COVID-19.

💰 Money Moves

• TSG is acquiring TrueCoach — a digital personal training platform. Of note, TSG is a portfolio company of Advent International, a global private equity firm rolling up gym management companies, including Mariana Tek, zingfit, and Triib.
• UnitedHealth Group’s Optum is in talks to acquire remote mental health provider AbleTo for $470M. More from Fitt Insider: Tackling the Mental Health Crisis
• Glofox, a gym management software company, raised $10M in new funding.
• Relish, an app for building a more connected relationship with your partner, closed a $5M Series A round.
• Hammerhead, makers of “the world’s best cycling computer”, secured $4.5M from Lance Armstrong’s NEXT VENTŪRES, Primary Venture Partners, KB Partners, Courtside Ventures, and Maveron.
• Medici, a virtual healthcare company, completed a $24M Series B financing round.
• Jot, makers of “ultra coffee” concentrate, secured an investment from PowerPlant Ventures.  On the podcast: Dan Gluck, managing partner of PowerPlant Ventures.
• Laird Superfood, plant-based products from surf legend Laird Hamilton, secured $10M in funding from Danone Manifesto Ventures.
• Moshi, an audio sleep and mindfulness app for kids, closed a $12M Series B round. More from Fitt Insider: The Business of Mindfulness 
• Fat Snax raised $4.5M to expand its keto-friendly snack platform. More from Fitt Insider: The Keto Gold Rush
• Growthwell Group, a plant-based protein company based in Singapore, raised $8M in funding. More from Fitt Insider: The Future is Plant-based