Issue No. 97: What to make of Apple Fitness+

Last week, Apple announced its much-anticipated foray into fitness. So today, we turn attention to Fitness+.

The punchline: Far from a Peloton killer, Apple’s workout subscription isn’t the end game, it’s a warning shot. Armed with deep pockets and walled gardens, Big Tech wants a piece of the fitness pie. As the balance of power shifts, the battle for content, talent, distribution, and users has only just begun.

Fitness+ Explained

In short, Apple Fitness+ is a new subscription service for virtual fitness classes.

The service will cost $9.99/month or $79.99/year.
Fitness+ is integrated with Apple Watch and Apple Music.
Initially, it features 10 different workout formats that require little or no equipment.

Back in April, we made the case for an Apple fitness subscription.

From Issue No. 76: Apple makes the majority of its revenue by selling hardware… 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.

Like television, news, games, and music before it, fitness is yet another service. Whether it’s part of a standalone subscription or premium bundle, Fitness+ is part of Apple’s plan to: (1) Lock customers into the Apple hardware ecosystem, and (2) increase ARPU (average revenue per user) and LTV (lifetime value). Check and check.

Apple vs. Peloton

When Fitness+ was announced, Peloton’s shares sank (then recovered). In response, the connected fitness company acknowledged Apple’s entrance with a tweet. And Peloton CEO John Foley spun the news in his favor, saying:

“The biggest thing I will say is it’s quite a legitimization of fitness content, to the extent the biggest company in the world, a $2 trillion company, is coming in and saying fitness content matters. It’s meaningful enough for Apple.”

All of which is true. Foley then continued:
“They’re not coming into that [hardware] category,” Foley said about Apple. “They’re just going to be the content. And we think the special sauce, the magic, is our connected platforms and in order to work out at home you need a stationary bike if you’re going to be biking, you need a treadmill if you’re going to be running.”

Okay, a few things to note…

Technically, Fitness+ is part of a connected platform — the iPhone and Apple Watch being the hardware. But the point is well taken, Fitness+ is no Apple Bike. To Foley, that’s a good thing. But it might not be. Here’s why:

Peloton has planted its flag. Whether it’s a bike, treadmill, rower, or any other apparatus, their business revolves around a ~$2,000 to $4,000 piece of equipment. That, plus a monthly subscription. As it stands, no hardware, no business.

Foley acknowledged as much when discussing Peloton Digital: “It’s not really a business.” In reality, the company’s $12.99/month digital subscription is a funnel to its hardware. Or users churn out. Either way, it’s negligible.

For Peloton to sustain and surpass its $25B+ market cap, they’ll have to sell a whole lot more hardware. How much more, exactly? Foley sees a path to 100M connected fitness subscribers. So far, they’re 1M in.

On the other hand, with Fitness+, Apple’s approach is equipment agnostic.

According to Tim Cook, the Apple Watch, not a stationary bike, will be his company’s legacy. Besides, Apple isn’t focused on a piece of equipment that’s in use a few hours a week. With 1.5B active Apple devices carried, worn, or within reach 24 hours per day, why would they be?

Ultimately, Fitness+ doesn’t have to be the preeminent workout subscription. It just has to be good enough to convince a portion of Apple’s loyal customer base to pony up 10 bucks a month. Better yet, Fitness+ is the reason they opt into a pricier bundle.

So, to say that Fitness+ is the Peloton killer is a lazy take. As it stands, they’re not competing for the same consumer. But that doesn’t mean Peloton or the fitness industry can ignore a $2T company crossing over into its airspace.

Peloton (and COVID) put fitness on Big Tech’s radar, which could be problematic.

Stuck in the Middle

More and more, the at-home fitness craze is going the way of the streaming wars.

Like streaming video or music, fitness is fertile ground for tech companies like Apple, Amazon, Facebook, and Google.

Apple: Apple Watch, HealthKit, GymKit, Fitness+
Amazon: Halo, investments in Zwift, Tonal, Aaptiv
Facebook: Paid livestreams, Oculus’ built-in fitness tracker
Google: Fitbit acquisition, YouTube, Google Fit

To Foley’s earlier quote, their collective interest does legitimize the space. But it also changes the game. For the Pelotons of the world, fitness is the be-all, end-all. To the Apples out there, it’s a checkbox.

In that way, Peloton isn’t dissimilar from Netflix or Spotify. While these companies try to own exercise, video, and audio, their trillion-dollar competitors want to own attention, spending, and data across the board.

With respect to streaming video, Matthew Ball explains, the Netflixes of the world are caught in the crossfire of an ecosystem war where “the ‘war’ is mostly won through synergies and monetization elsewhere.”

Looking Ahead

For now, Fitness+ isn’t in direct competition with Peloton. But their paths will inevitably cross. Soon, Peloton, digital options, and the entire fitness industry could find themselves caught in tech’s ecosystem war. In the meantime, Amazon, Google, and Facebook will be keeping tabs on Fitness+, and tracking the space, to see where they fit in.

💵 Cashing In

By our count, digital fitness companies have raised about $1B in recent months. The bulk of that came in two tranches last week.

Zwift raised $450M led by KKR at a valuation north of $1B.
Tonal secured $110M, putting its valuation over $500M.

Ride on: As we previously detailed, Zwift was focused on developing virtual worlds for cycling and running. Unlike Peloton, members had to use their own equipment, connecting a road bike or treadmill to the Zwift’s platform. Now, the company plans to introduce its own indoor bike and other hardware.

Power up: Tonal, the connected strength training system, has been a hit with athletes. So much so that the company now has 20+ professional athletes, including Serena Williams and Stephen Curry, on its cap table. With sales up 12x over last year, the company is ramping up for a busy holiday season.

Listen in: Speaking of funding, audio-guided fitness app Aaptiv raised an undisclosed investment back in April. Now, Bloomberg is reporting that the company is exploring a sale.

Backed by Amazon Alexa Fund, Insight Partners, The Walt Disney Co., and Warner Music Group, among others, members have taken 35M classes on the platform. As the digital fitness space becomes more competitive, and Aaptiv continues to battle user churn, a strategic sale is a logical outcome.

🆘 Troubled Waters

As digital fitness companies cash in, brick-and-mortar gyms are going belly up.

Flywheel Sports is the latest addition to a growing list of gym bankruptcies. Except in this case, the boutique cycling studio chain isn’t restructuring its debt, it’s closing the doors for good.

It has been a rough road for Flywheel.

2018: Slowed growth led Flywheel to pursue a sale that failed to garner interest.
2019: Flywheel was taken over by lender Kennedy Lewis and began closing studios.
2020: Peloton sued Flywheel’s at-home business into oblivion.
COVID: Town Sports stepped in to buy the remaining studios, then the pandemic happened, forcing TS to bail and declare bankruptcy itself.

In related news: LA Fitness is exploring financing options to address $1.7B in debt. And Planet Fitness CEO Chris Rondeau sold $14.8M worth of shares in the company. Neither of which bode well for the gym space.

📰 News & Notes

Meet the Amazon Prime Bike.
Chunkie is a new “body confidence” health app.
Huel, the food replacement shake, now sells food.
On Running launched a recyclable shoe subscription.
The end of the yoga studio. [Reread: And Then What?]
Remote workers invade Tahoe. [Reread: Walden Pond 2.0]

💰 Money Moves

Virtual cycling platform Zwift raised $450M in a Series C round led by KKR, valuing the company north of $1B.
Tonal, makers of connected equipment for at-home strength training, secured $110M in new funding from Amazon Alexa Fund, NBA star Stephen Curry, and others. More from Fitt Insider: Tonal CEO Aly Orady on the Fitt Insider podcast.
Shares for COMPASS Pathways, a UK-based psychedelic wellness company, jumped 71% after IPOing last week. More from Fitt Insider: Psychedelic Wellness
Art of Sport, a men’s grooming and skincare brand co-founded by Kobe Bryant, added $6M in new funding from CircleUp Growth Partners, Lightspeed Venture Partners, and Mark Cuban.
Base, makers of an at-home test measuring sleep, stress, energy, and diet, received $1M in pre-seed funding.
Danish company True Gum secured €1 million ($1.2 million) to scale its plastic-free, plant-based chewing gum.
Papa, a company connecting older adults to companions and caregivers, closed an $18M Series B round led by Comcast Ventures.
Re:Nourish, a fresh, on-the-go soup brand, secured a seven-figure investment.
Willow, makers of a wearable breast pump, raised $55M in new funding. More from Fitt Insider: The Women’s Health Revolution
Canadian outdoors retailer Mountain Equipment Co-op (MEC) was acquired by US private equity firm Kingswood Capital Management for an undisclosed sum.
Biotech startup Brightseed, developers of an AI platform discovering previously unknown nutritional benefits of plant-based food, closed a $27M funding round.
Indian healthtech startup Dozee raised $1.7M in new funding to scale its devices capable of detecting patients’ vitals in real time.
Numinus Wellness, a Vancouver-based company developing psychedelic-assisted therapies, closed an oversubscribed $4.6M short-form prospectus offering.
Hong Kong-based Silentmode, creators of a high-tech mask for meditation and napping, raised $1M in seed funding.
Digital mental health platform LifeSpeak secured $42M in an institutional funding round. More from Fitt Insider: Confronting the Growing Mental Health Crisis
Swedish digital health startup Joint Academy raised a $23M Series B for its app connecting those with chronic joint pain to licensed therapists.
St. Louis-based healthcare startup TCare raised $3M for its predictive software identifying caregiver burnout. More from Fitt Insider: Caring for an Aging Nation