The rumored IPO plans of $4 billion spinning brand Peloton marks the rise of a wave of interactive fitness startups like Mirror, Tonal, Hydrow and At Home 360 that combine a monthly subscription to recorded and/or live video classes with workout hardware.
There’s opportunity beyond this initial “Peloton for X” model, however, when you look at where the gamification of at-home workout experiences can overlap with actual games. We’re in the midst of rapid growth in the gaming industry, the rise of esports and the mainstream-ing of socializing within games due to Fortnite.
The virtual cycling business Zwift is a five-year-old startup that has raised more than $170 million as a pioneer of fitness-gaming ― physical sport carried out in a virtual world. Athletes join together for group rides and races within a cycling game that hooks up to their own bike trainers at home in order to reflect their movements and physical exertion. Because users are represented as players within a social game, there is the benefit of network effects, opportunity for in-game commerce and an audience viewing the competition.
I recently sat with Eric Min, Zwift’s CEO and co-founder, at the company’s London office. We discussed why he founded Zwift and how the product has evolved, the potential revenue streams available to an interactive fitness brand and Zwift’s rise as an esport with ambitions to enter the Olympics. Here’s the transcript:
Eric Peckham (TechCrunch): Do you view Zwift as a fitness company or as a gaming company where the bike trainer is just a controller?
Eric Min (Zwift): We’re the fitness company born out of gaming. While we’re a fitness brand, we’re also a game and social network, two things that are converging rapidly right now. What we’re trying to do, though, is build this social network around real-time experiences, physical experiences, and I think that’s far more interesting. Crucial to that is being hardware-agnostic though. We work with a lot of equipment out there so our users can come to the game easily.
Eric P: You’ve raised over $170 million in the five years since you founded Zwift. What’s driving your business forward right now?
Eric M: For us growth is all about distribution, whether it’s esports or industry partners’ brands. There are many brands that want to activate on our platform, some that are related to cycling, like Specialized, and some less so. Lululemon is a good example of the latter that can activate through something like a virtual shop on our platform.
Think of Zwift as Second Life. The idea that you can have an existence in another world can be captivating. That’s what Zwift is in the context of fitness. There’s gear that you can earn, you can change the way you look and dress, express the brands you’re excited about, and so on. People care about what bike they’re going to ride, what jersey or sunglasses they’re going to wear, and it’s no different when you’re on Zwift.
Eric P: How exclusive is the Zwift vision to the sport of cycling?
Eric M: We will cross over to running. We’ll get into rowing. I think strength training is another opportunity. We can eventually launch Zwift studios. There are many opportunities in front of us.
As far as the kind of social network we are, I think there’s only room for one platform.
Eric P: And you see Zwift becoming the one fitness social network?
Eric M: I think for our kind of experience, which is 3D fitness games, there will only be one winner. It’s a race to become that.
Eric P: Talk to me about how you see Zwift’s placement in the competitive landscape here. Peloton is getting ready to IPO and they are expanding to new activities like running on a treadmill. Plus I see many of these similar startups focused on rowing or running or workouts in front of a mirror.
Eric M: We want to be the leader in gamified fitness, which is a new level of engagement for our mind and body. I think anyone who is focused on real videos…they can have that. But in terms of creating 3D worlds using a gaming environment to create unique social and competitive experiences, that’s something that we want to aspire to really own.
From energy trading to virtual cycling
Eric P: How did you end up founding this company in the first place? You were an amateur cyclist but then got into finance and built an energy trading platform before this.
Eric M: I wanted to do something fun for our next venture. I had a personal challenge which was I didn’t have time to ride outdoors. I used to live on the Upper West Side in NYC where I had easy access to Central Park. But here in London, it’s more challenging, so I was doing a lot of indoor riding, which use to be a mundane experience. It dawned on me that no one had invested properly in turning indoor cycling into a social experience and an interactive entertainment…creating content (much of it community generated) that makes indoor cycling fun and engaging.
Now you can just get on Zwift and explore. On just one of our maps, you can spend hours riding every inch of the course. It’s nearly 60 miles of roads.
Eric P: Did you already see this fitness gaming market developing at the time? Peloton started two years earlier in 2012.
Eric M: When we started, I knew about Peloton, but we were doing something completely different. We were focused on cyclists. They were focused on spinners. Perhaps our communities will converge one day.
Eric P: What did the first version of the product look like when you launched?
Eric M: Literally it was a simple 3-mile loop.
Eric P: So nothing that long.
Eric M: We created this map on an island in the South Pacific called Jarvis. Uninhabited and no roads. We created our own 3 miles of road on it with three types of finishes. One for “King of the Mountain,” one for the fastest sprinter and one for the person with the fastest lap, so there were three different jerseys on offer 24/7. That’s all it was for months. People would come in and try to take the jerseys off the person who currently had it. It was simple gamification, but it worked.
Eric P: How much traction did this get at launch?
Eric M: When we announced the closed beta, we had 13,000 people sign up in the first few days.
Eric P: How? What was the marketing or trigger behind that?
Eric M: We launched at Rapha [a cycling apparel brand] clubs in London, New York and San Francisco on the same day. I think we timed it well because the market was just hungry for a way to bring the community together even if it was virtual. If we had presented this concept even five years earlier, it would have been too early. I think we timed it perfectly.
Everyone had plugged in: everyone had all sorts of devices and Strava had popularized their cycling social network. Zwift is the obvious next thing, taking that social network and letting cyclists interact in real time. We timed it well and we made sure we had enough resources, capital and manpower to see it through. There were companies that had these concepts earlier, but either it was too early or they didn’t have the capital or the talent to execute. And none of them had a game that was engaging.
Zwift’s business model
Eric P: Was it free to use initially or did people have to subscribe upfront?
Eric M: Yes, it was free to use for a year. We were going to charge earlier but we decided wisely to first build up a community. If we look at the size of our market, there are about 40 million people who identify themselves as competitive and enthusiasts. We want to be part of the toolkit for any cyclists — competitive and enthusiasts. So if you’re on Strava, then we hope Zwift is just a natural extension. Zwift is where you can engage with thousands of cyclists around the globe 24/7. We want personal fitness to be affordable and accessible, but most of all, fun and convenient.
Eric P: So in addition to the $14.99 per month subscription, are these in-game products also revenue streams for you?
Eric M: Not yet, but I think we’ll eventually get there. Right now you still have to earn all your virtual goods. We have an in-game currency called Drops, which are experience points you earn by riding. You can purchase virtual goods with Drops. We have a whole catalog of virtual products to choose from.
Eric P: But you have to earn the points through cycling?
Eric M: You earn points by riding, but there’s nothing stopping us from having microtransactions in the game. Some people just want it now and they don’t have the patience to earn it. Purchasing skins is a common feature in many games.
Eric P: And when you partner with real brands for items in the game, do you have to pay them for that or they want to do it for promotional purposes? What’s the arrangement there?
Eric M: They do it for promotional purposes. In fact we have way more demand than we can manage. There’s a long line for these assets to get into the game. But we have all the major bike brands in the game and we’ve launched maybe four or five new products at the same time in the real world as in our game. At the moment, we just do co-marketing with partner brands.
Eric P: As in, say, Specialized launches a new bike in the real world and it shows up the same day as a new bike in the game?
Eric M: Yes. For example, we launched a new Cervelo, a $15,000 bike, exactly when it was launched in the real world. Going forward, there are opportunities to commercialize this.
Eric P: Speaking of bikes, you don’t sell your own bike like Peloton does. Your customers put their own bikes on trainers (that let them ride in-place) and connect that to Zwift.
Eric M: Correct; but you’re going to see a series of all-in-one smart bikes developed for Zwift. We’re extremely excited about this.
Eric P: And is the idea that those are lower cost for someone who’s not a real-life cyclist?
Eric M: Yes, absolutely, but our partners will build their hero products first. The initial smart bikes will be more expensive with all the bells and whistles with the more affordable models following soon afterwards.
Virtual racing in the real world
Eric P: What led to all the live in-person competitions you organize?
Eric M: The community was creating or organizing races themselves outside of the game. They had this simple calendaring tool that they used to organize all the races and group social rides. As usual, the community was one step ahead of us. They were informing us what they wanted and we were able to learn from their experiments, see what worked, then say, okay, we need to build that into the game now.
Eric P: Are they getting together and setting up their trainers and playing the game together, or will they often go cycling in the real world together?
Eric M: It’s both. Here’s a funny story. A couple of winters ago, a group of Canadians would ride on Zwift together, then get in their cars to meet for coffee because that’s what cyclists do — eat cake and coffee after their ride. This is the social experience they want. We can only solve half of it though.
But we’re not trying to replace an outdoor experience. We’re trying to integrate and augment that experience by making indoor training better and more crucial to performance and enjoyment outdoors. That connection between the virtual and the real world is really important.
There are currently over 200 Facebook groups dedicated to Zwift. Many are small clubs but the largest has over 50,000 members. Some of these Zwifters come together in the real world. We’ve had at least two marriages. There is no denying it, virtual communities are as real as ever.
An esport with Olympic ambitions
Eric P: So talk to me about the esports element of this, which I think is fascinating. You’ve not only built virtual cycling leagues but you’re building an audience of fans who watch those teams race.
Eric M: Many Zwift cyclists live-stream their rides, workouts and races. We don’t have built-in tools for streaming but plenty of people have figured it out and there’s an enormous amount of streaming taking place. We also stream our in-person, real-world events too.
Again, the community started this before us. They started racing and organizing themselves. It escalated… some of the organizers even offered prize money — $100,000. Last year we made a conscious decision to enter esports. We needed to bring some of the features into the core product.
Part of the Series B fundraising round is to support esports. We’ve hired Craig Edmondson, a veteran from the English Premier League, to run esports for us and we’re in the process of securing all the key stakeholders within cycling with the vision of getting this discipline into the Olympics.
Getting into the Olympics will be massive for Zwift and we want to be the first to show how sports and gaming can converge to create an authentic athletic esports. On a sporting level, this is pure innovation and a game changer. We want Zwift to be the most affordable and accessible sporting platform, which can be used to inspire the rest of us to integrate fitness into our daily lives in a convenient and highly engaging way.
Eric P: So you’re actually creating this as an alternative to traditional cycling with its own leagues then.
Eric M: Yes. If I think about kids these days, they don’t play like we used to. They don’t go outside, they don’t ride bikes anymore. They’re playing Fortnite, they’re playing video games at home. This is the reality and it’s changed so quickly. So I think having activities in a digital environment where it’s safe, it’s convenient — you can do it from home, you can do it in schools — I think it opens it up to more people.
Think what Zwift could do to help promote sports and physical activity for these younger kids. We give away Zwift to kids for free. No subscription fee. We can support collegiate programs and youth clubs. More broadly, we want to invest in the grassroots of our sport and we need to work with state, national and international programs to develop that credibility.
The way to do that is to get into the Olympics. Once in the Olympics and it will filter down, then there’s funding to support this sport all the way down to high schools. Parents will invest in our esports. Our 10-year vision is to get into the 2028 Olympics, but we’re also targeting the 2024 Olympics in Paris. Shorter term, we’re working towards the world championships this year in Yorkshire, U.K.
Eric P: That’s going in reverse compared to most sports and other esports. You usually have to show that it’s become a big enough sport for the Olympics to accept it.
Eric M: But the way we’re going about it is different. We’re bringing the top cyclists in the world to the virtual event.
Eric P: You mean literally the same cyclists who are on the pro tour teams and race for their countries in the Olympics?
Eric M: Yes. So we’ll start there and we’ll work backwards. These top pros are already using Zwift to train, recon real-world courses and recover from injuries. We just finished our first esports series, the KISS Super League, with 16 teams in the men’s league. Fourteen of them were pro teams. We also had a women’s league which featured 9 teams. Again, 7 of these were pro teams.
Eric P: And are there financial incentives to get these teams?
Eric M: We offered teams start money and offered modest prizes. It wasn’t about the money, but we respect the fact that they are professionals. Financial incentives didn’t really motivated them. They wanted to compete and try something new. The teams were just as curious as us. With cycling, especially with top athletes, you put on a race, athletes show up and they want to compete.
And in order to win these Zwift races, you have to train and you have to be competitive. It’s amazing how fit some people are, including amateurs.
Zwift’s athletes
Eric P: What are the demographics of Zwift subscribers? Do they skew younger than normal cyclists on average?
Eric M: It’s pretty consistent with outdoor cycling. We probably skew strongly towards middle-aged people with families up into their fifties. It’s that dedicated cycling crowd, right? So this is one reason we’re investing in the grassroots, to grow that segment and expand Zwift’s benefits to a broader audience.
Between men and women, it’s probably 80/20, but I think there’s a huge opportunity for us to grow more among women.
In terms of geography, North America is about 40 percent. Europe is another 40 percent and then the rest of the world covers the remaining 20 percent.
Eric P: Can you say roughly how many subscribers you have?
Eric M: We’ve had over a million accounts created and we have hundreds of thousands of active subscribers.
Given that we only do business in English and we have customers in over 150 different countries, there’s a lot more we can do in key markets such as Germany. We’re still early in our journey.
Comment