Is Connected-Exercise Bike Maker Peloton A Tech Company?

It's got the intellectual property lawsuits and unprofitability that defined Uber, WeWork and Tesla. So, yeah, with all that implies... JL

John Stoll reports in the Wall Street Journal:

Peloton’s internet-driven exercise scheme underpins the company’s pitch: That it’s a tech company, not a get-fit program. It’s a premise that has powered others: Uber is a tech company, not a taxi company; WeWork’s a tech company, not a real-estate company; Tesla’s a tech company, not a car company. (And) as fitness companies battle over software, their patent disputes look more like the high-stakes fights that separate winners from losers in tech. (But) can it command a sky-high valuation even as it posted a loss of $50 million on $228 million in revenue in its first quarter as a public company?

You may not yet be familiar with the term “connected fitness,” but you’ve seen the TV commercials for the company behind it.

John Foley, founder of exercise-cycle maker Peloton Interactive Inc., PTON 2.82% takes credit for inventing a fitness craze that has achieved cult-like status and holiday-advertising ubiquity. The secret, he says, is a technology that lets thousands of members race against one another at all hours of the day. It happens in a virtual workout studio accessible on a tablet mounted near the handlebars of a stationary bike or in front of a treadmill.

Peloton’s internet-driven exercise scheme underpins the company’s fundamental pitch: That at its core, it’s a tech company, not just another get-fit program. It’s a premise that has powered many upstarts in recent years: Uber is a tech company, not a taxi company; WeWork’s a tech company, not a real-estate company; Tesla’s a tech company, not a car company.

Mr. Foley spent seven years looking for the money and talent to create a tech lead that competitors would struggle to overcome. He’s banking on that advantage to ensure that Peloton won’t go the way of Richard Simmons, the vibrating belt and thousands of other exercise fads.

Now, Peloton is going to court in an effort to protect that head start as challengers close in.

Intellectual-property disputes are tough to resolve in the fitness world, because most workout techniques are based on decades-old concepts that are hard to patent.

1. Leaderboard. This display (Peloton, top; Echelon, bottom) compares your performance with other riders in a class. You can live-stream classes or participate in one previously recorded. ‘Time-synchronized’ technology lets you see others’ stats as if you’re all participating in real time.

2. Metrics. Numbers at the bottom of the screen display resistance, output (how hard you’re working), and cadence (speed).

But as fitness companies start to battle over software rather than exercise techniques, their patent disputes look more like the high-stakes, existential fights that often separate winners from losers in tech. Think Microsoft vs. Netscape, or Mark Zuckerberg vs. the Winklevoss twins. Just last week, wireless-speaker maker Sonos Inc. said it was suing Alphabet Inc.’s Google for allegedly stealing technology and infringing on patents. Without its tech, Sonos is just another swanky box on the shelf.

My visit to the Consumer Electronics Show last week showed how Peloton is blending into this tech world. An army of companies offered the Peloton of this or the Peloton of that. Connected rowing machines, treadmills, mirrors and ellipticals were ubiquitous.

Peloton is poised to surpass $1 billion in revenue this year. Its trainers have achieved celebrity status and are followed with tribal devotion by members who shell out $39 a month for content subscriptions (as much as I pay for Spotify, Amazon Prime, Netflix, and Disney+ combined). Its $2,245 bikes attract the type of lust among exercise junkies that Porsches elicit among car nuts.

Peloton has become so notable that when it slips, people pay attention. When viewers criticized its holiday TV ad as sexist, for instance, Peloton’s shares fell 15% over three trading sessions, wiping out $1.6 billion in market value. The company is still worth $8.3 billion.

Good fortune invites bad company, and Peloton’s legal bills have ballooned as publishers sue it over music-copyright infringement, and Peloton sues back.

Peloton has been in a battle over the origin of its technology and whether it is the creator of important patents. It has filed a pair of lawsuits—one in 2018 against Flywheel Sports Inc. and one in October against Echelon Fitness LLC—that allege these companies stole a key feature for bikes they launched after Peloton’s creation: the leaderboard. This is how riders from all over the world compete or commiserate with one another from the comfort of their own home and the convenience of a touchscreen.

Intellectual property attorney William Stroever of Cole Shotz PC told me this month that these lawsuits are important tests to Peloton’s status as an emerging tech giant. “The question is how high of a wall has Peloton built, how secure is the moat.” he said. “If Peloton loses, then everyone else comes in.” Peloton is facing its own tech infringement lawsuit from a former contractor.

3. Logo. Peloton says that Echelon has a similar logo and similar name. Echelon denies any duplication.

4. Bike Design. On a Peloton bike, the wheel is in front; on an Echelon, it’s in the back.

Echelon and Flywheel deny wrongdoing. Over breakfast last week, Echelon CEO Lou Lentine said Peloton’s suit surprised him. He said he’s discussed various subjects with Peloton in the past, and Echelon licensed the technology in question from other companies.

“They want us to spend money on litigation fees instead of marketing,” Mr. Lentine said. Peloton is also suing Echelon for allegedly copying certain trademarks, such as its logo, and for false-advertising claims. Peloton says it welcomes competition—there’s a slick NordicTrack interactive bike that sells for $2,000—but insists Echelon and Flywheel have stepped over the line.

Mr. Lentine said Peloton is a strong brand with the potential to become a multimedia powerhouse, and is the gold standard in the fitness sector. Why should it worry about a smaller company from Chattanooga, Tenn.?

Because Peloton doesn’t want its tech-company claims dented by a cheaper alternative with many near-identical features. When filing its IPO paperwork last summer, the company said, “our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products, services and brand.”

Think about it: Can a run-of-the-mill fitness company charge an arm and a leg for a bike that doesn’t go anywhere? Can it command a sky-high valuation even as it posted a loss of $50 million on $228 million in revenue in its first quarter as a public company? The stories companies tell investors and competitors matter.

WeWork, the startup backed by Softbank and valued at $8 billion, was supposedly worth $47 billion until investors realized it was more of a landlord than a tech company.

For Peloton, the leaderboard technology it aims to protect is the secret sauce of connected fitness. As a user of Peloton bikes and treadmills, and several products that compete, I can attest that a leaderboard (along with charismatic instructors) makes riding a stationary bike or trotting on a conveyor belt far less boring and borderline addictive.

Peloton’s leaderboard works whether you’re logged into a live class, or replaying an archived one. Recently, for instance, I streamed a “Coldplay Ride” taught by Emma Lovewell two days after it happened. I was able to compete with thousands of people who had taken the class over the 54 hours since it was first recorded as if everyone were taking the class at the same time.

Peloton calls this a time-synchronized leaderboard. Echelon calls it decades-old technology that is similar to what television networks use while broadcasting certain individual sporting events, such as Olympic swimming.

I’ve spent time riding Echelon’s $1,600 alternative, and it’s a solid substitute. Its leaderboard is less populated because it has fewer members, and its streaming feed sometimes freezes during the workout. But If the purpose is to remain stimulated while sweating buckets, Echelon has cracked the code.

It’s worthwhile to remember that defending tech claims is a lot like being a Peloton cycling junkie. As soon as one challenge ends, the next one is staring you in the face.