The Digital Dance Music Stops - The story of Peloton

Peloton is an excellent example of an organization that was recognized as a digital darling.  Founded in 2012 it was conceived as a connected-sports and fitness equipment and services company.  Connecting health and fitness devices to each other and live trainers seemed like the perfect disruptive model.  The established market was analog or physical.  We all had to go to our local fitness center and sweat in a semi-public environment.  Or we could buy a device ourselves and hire a personal trainer. Peloton: Defining the Future Headline: June 2019: Connected bike maker and investor darling Peloton files for IPO All went swimmingly and COVId-19 added the perfect fillip to Peloton’s market.  Physical health locations were forced to shut and demand for Peloton ballooned.  Digital was the place to be.  Peloton saw subscriptions soar and its expensive devices shifted out the door.  Equipment backlogs were extended.  The future looked impressively Peloton.  It announced a new factory to help alleviate, in time, expected equipment demand.  Spending increased to buy - define - the future. Headlines: July 2021: Peloton: Cycling into the Future May 2021: Peloton to Build First U.S. Factory But quickly competitors started to line up with alternatives.  Initially it looked OK as COVID restrictions kept the clients rolling in.  But then it all changed.  COVID restrictions melted away and so too did forecasted clients of Peloton.  Equipment sales melted away even before the new factory could be built.  Subscriptions (a sure sign of the digital model) peaked and even started to fall.  Time seemed to have run out all too quickly,  In just 6 months the world changed. The Music Stopped.  Abruptly. Headline: November 2021: Peloton's Biggest Problem Isn't the Return to Normal Before too long the Digital strategy was exposed to cold hard facts of economics.  Spending got ahead of reliable forecasted demand.  COVID-era customer behavior was not going to be all or nothing.  The idea of building its own factory didn't look so good.  It all went wrong. Headlines: February 2022: Peloton is scrapping plans to build its own factory April 2022: Peloton Stock Halted, Tumbles After Surprise U.S. Membership Price Hike But is this really a failure of a digital?  Perhaps it was more a failure of business strategy. It's arguable.  What we can be sure of is that the strategy got ahead of itself.  Expectations of market demand were not reliable.  As much as COVID created great opportunity, it was just as effective at removing them. What Really Happened? Peloton looks to have misjudged demand, and over committed supply and spending.  So they were fighting a two-front war at the same time.  That looks less like a failure of digital business, and more a failure of business strategy. Perhaps we could say that a perfect plan was undermined by a lack of flexibility.  Perhaps the firm sought a long-term plan when it should have aimed for a shorter-term agility capability. There still is a sizable, subscription-centered prospect base in the market.  Peloton equipment remains expensive, but the quality seems popular. So the digital transformation envisioned by Peloton still seems real.  And as a very happy customer of Peloton, I hope it goes on for a long time to come. Pelotons story is far from over.  On February 2nd, 2023, the WSJ reported a recovery in its stock as its financials are showing signs of improvement. See Peloton Result Cheer Investors Despite Losses. It may yet complete its rightsizing efforts.  It is making efforts to become a lean, digital business.  To do so, it has to align its supply with real market demand.  Once it gets there, who knows where it will go? -