Note: I drafted most of this post a year ago. And it sat here as a draft all that time. I’ve made a few edits, but this is largely what I wrote then.
Despite have a massive cash hoarde and very competitive markets, Apple makes relatively few acquisitions. Most of those are small companies that have talent or technology that Apple wants to integrate into its existing and future products. Siri is a great example. The notable exception, of course, is Beats, which built a strong consumer brand and came with a hefty price. Still, you can make an argument that the Beats acquisition was as much about talent as anything, with Apple landing Jimmy Iovine, Dr. Dre, and a talented pool of entertainment executives.
I’m not one of those who thinks Apple should make acquisitions for the sake of making acquisitions. I’ve read many analysts who seem to think so. But I do think it makes sense to use some of the billions in cash they’ve amassed over the last several years to make acquisitions that make strategic sense. And I think Peloton is one of those. There are a few, key strategic reasons an Apple acquisition of Peloton makes sense to me. Here they are in no particular order.
- Peloton has, in just a few short years, built a passionate, growing base of customers in the United States who exhibit the same kind of fervor over Peloton that Apple’s customers have for new iPhones, iPads and Mac computers. They serve as product evangelists, helping to recruit other customers, and are highly likely to continue paying the $39/month fee and upgrade to new equipment when there is a big enough leap forward (though not as often as customers of Apple devices do today). They are largely an affluent bunch. Such a solid core can be an important to any company looking to build long-term sustainability that can withstand the natural cycles of the marketplace.
- The build quality and design of the Peloton equipment is excellent. They have prided themselves on creating an indoor bike trainer that is second-to-none it its fit and finish. Like Apple, they display a remarkable ability to combine aesthetic design with industrial design to create a highly functional product that is also beautiful to look at. Neither company looks to drive down price at the cost of product quality or the resulting customer experience.
- The Peloton model fits Apple’s new emphasis on services to a T. The bike is expensive — $2,000 — but it may be sold at break-even or possibly a loss. The key to Peloton’s model is the $39 monthly household subscription fee that customers pay to access live spin classes streamed from Peloton’s New York Studio, or recording of those classes and scenic rides on demand. The $39 scales brilliantly around the world. It’s the equivalent of Apple’s family subscription services, like Apple Music.
- Both companies are adept at pairing high quality hardware with solid digital content experiences. Peloton even created the equivalent of the popular “unboxing” drama of receiving a new Apple device, partnering with logistics companies to schedule delivery and having setup and testing handled before the delivery reps leave your house (though its not always perfect).
- Apple’s Watch has evolved to be more narrowly focused on notifications and fitness tracking. Apple has Health, its default health-data tracking app, and HealthKit, an SDK for developers of health apps. And it