Welcome back to Forests Over Trees, your weekly tech strategy newsletter. It’s time to zoom-out, connect dots, and (try to) predict the future.
Peloton Needs Moneyball
A few weeks ago, I saw the news that Peloton was losing three instructors – Kristin McGee, Kendall Toole, and Ross Rayburn.
And at first, I thought this was just another in a string of losses for the company (stock near $4, CEO ousted earlier this year, etc.).
But I think this actually might be a win, and a sign that Peloton is learning to play ”moneyball” with its creators – the instructors.
And, based on what I learned in my research, I couldn’t help but to launch into a passionate argument about what they should try next.
Let me explain.
The Challenge
When instructors first started at Peloton, things were simpler.
In their prior lives as a personal trainer or a SoulCycle instructor, they would have made ~75K.
But over time, most of the instructors have built up a following, and they’ve ratcheted up their compensation along the way.
Peloton doesn’t put out official numbers, but Bloomberg and others have reported average salaries of $500-600K...
Plus, the instructors aren’t dumb. They can feel how directly their engagement with the Peloton audience (6.6M members) drives Peloton revenue (~$2B).
That creates a two-part challenge for Peloton:
How do you keep instructor pay in check?
While also incentivizing your most valuable instructors?
Let’s start with an idea for tackling #1.
Play Moneyball.
Moneyball is basically about using data to make decisions, and in this case, I think there are three relevant factors to consider:
Position
This is about which types of classes they offer. Are they a cycling instructor playing trap rap, or a yoga teacher with soft electronic beats? Knowing the answers to these questions helps Peloton make sure they have good coverage/variety, and aren’t unnecessarily fielding multiple players in the same position. Having only pitchers on your team means you have a bad team.
Audience
This includes their metrics both on and off the Peloton platform. How many members loyally take their classes each week? Is that loyal base growing? How many Instagram followers do they have? Are those followers engaged and trending up? Social media can deepen member engagement with Peloton, and can build brand awareness for people that aren’t members yet. And smaller audiences growing quickly can signal potential.
Pay
Again, it’s best if this includes on and off-platform data. Apparently Peloton asks its athletes to run brand deals and other extracurriculars past a review board, so they should have a decent estimate of off platform. And on platform is easy – just check your payroll system!
With that data in hand, you can spend your money as wisely and efficiently as possible.
Take Kendall Toole for example – one of those who just left. She’s got over a million Instagram followers, so audience is not an issue! In her case, maybe her salary expectations were inflated, with other instructors in a similar position having a better cost-to-audience ratio, or an enticing growth rate.
Alright, you get it. What about tackling #2 – rewarding your best instructors?
Here’s where I think Peloton can do better.
Let Instructors Climb the Ladder.
Specifically, here I mean the creator monetization ladder….
Yes, the c-word!
These incredible creators are building audiences, putting out content, communicating/connecting with fans, etc.
But I’m not sure Peloton is placing the right value on that… or seeing the potential. This is a mistake.
Instead, they should help their creators climb the ladder (credit to Nathan Barry for the ladder metaphor…which I will now overuse).
Ze Ladder:
Rung #1: Trade Time for Money – Earn a salary. This is where all the instructors start.
Rung #2: Sign Partnerships – Be a brand ambassador for an energy bar or a sports drink. Some of the instructors make it here.
Rung #3: Launch Your Own Company – Rather than advertising other companies’ stuff, advertise your own. Launch an apparel line, or a meal kit service for athletes. While some instructors start at Peloton with an existing business, very few of the instructors make it here organically.
Making ze change:
Today, the instructors are asked to check with the boss before doing Rung #2, and otherwise Peloton is pretty hands-off – not helping negotiate and not participating in the upside.
And they likely push back on plans that stray too far into Rung #3 – they don’t want the instructors to be distracted from the thing that makes Peloton money!
So here’s how you fix that…
Help them, and take a cut. It’s a way better alignment of incentives.
If you were in on a partnership deal, don’t you think you’d be motivated to help your instructor get a better deal? Wouldn’t you help them suss out a new business idea? Wouldn’t you have funding and/or connections to help them find operators to run those new businesses?
If done thoughtfully, Peloton could be diversifying revenue and giving a release-valve to instructors feeling chafed by capped salaries.
Over time, they might even turn into a sort of fitness-influencer-driven VC firm, placing bets on promising new business ideas, and having the audiences of their athletes serve as early adopters who can help spread the word.
Pretty cool if you ask me.