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Subscription Bikes: Hazardous To Your Wealth

A little more than two weeks after New Year’s Day, many people are putting their resolutions about both fitness and money to the test. But those who are considering getting a Peloton may find those goals in direct conflict.

If you are not familiar with Peloton beyond the widely mocked holiday ad it unveiled a few months ago, the brand offers stationary bikes that include a touch screen display. Users can stream training courses and fitness classes, live and on demand. The company recently began to offer a treadmill, too, with similar features. Customers who purchase the bike (or the treadmill) must buy a Peloton membership, billed monthly, though they may cancel freely after the first year. The equipment is high-end and aimed at affluent users, or users who aspire to affluence, as reflected in the subscription’s price: $39 per month. (The digital subscription is available without the equipment for $12.99 per month, but the app does not offer the fully integrated experience that most Peloton equipment users are paying for, since it isn’t connected to your bike.) That price is on top of the bike itself, which costs $2,245 as of this writing.

Peloton’s offering is far from the first example of a company selling an object that requires an ongoing subscription to make it truly useful. Your smartphone can do a few things without a calling and data plan, but only a fraction of its full functionality. A router does you little good without an internet connection. No one would buy a Life Alert button if pressing it didn’t do anything in particular. In the past, most items that required a subscription in order to work have been means to an end. Even if you pay for the physical device, it is only because you want to use it to access the service in question.

Peloton has taken this idea one step further by applying the subscription model to a high-end item that has a traditional use. People have ridden bicycles since the 19th century, and stationary equipment that users pedal is arguably even older. But historically, stationary bike makers could only expect buyers to pay once. Peloton creates an ongoing revenue stream by offering a product that users can only fully enjoy if they keep paying, month in and month out. There are plenty of people willing to do just that, at least so far. The brand has serious fans. Peloton has been around in its current form since 2014, and as of December 2019, the company reported that it had sold more than 500,000 bikes and treadmills.

If you stop paying for your Peloton membership, the bike still functions, in that the pedals turn and you can adjust resistance – functions any exercise bike will offer. But the library of thousands of video classes is reduced to three 45-minute offerings. You also lose the ability to track your stats over time or access any information beyond your current ride. In other words, all the premium features that make a Peloton different from any other high-end bike go away the moment you stop paying the monthly subscription fee.

It is easy to see why sellers will love this model. But as a buyer, I have concerns. How many other formerly “dumb” appliances and devices will start to adopt this model as our world continues to become more connected? Smart fridges have gained a lot of fans (real and fictional), but will manufacturers eventually want you to subscribe for a proprietary app or service to use them? Will I one day have to shell out $19.99 per month to sit on my couch?

I may be exaggerating, but maybe not. At $2,245 for the bike and $39 per month for the membership, after five years you will pay $4,585 for your exercise bike. The total will be higher if you didn’t already own compatible shoes, or wanted to add extras like a mat to protect the floor under the bike. For comparison, plenty of well-reviewed stationary bikes sell for under $500, and even fancier models are less than half the price of a Peloton when you factor in several years of subscription costs. A model in which customers keep paying to use an item they already purchased is likely to get the attention of all sorts of businesses, not just fitness equipment makers. Peloton’s direct competitors, including Flywheel, Echelon and NordicTrack, have already jumped on the bike-bundled-with-subscription model.

My approach to financial planning, especially for my personal finances, has long been to reduce or eliminate every monthly payment I can. By design, monthly subscription prices are designed to make things seem affordable. Adding Disney Plus to your entertainment lineup seems like no big deal when you think of it as $6.99 – but when you work out the yearly cost of all your streaming services, you are likely paying hundreds of dollars per year for more entertainment than you can conceivably watch. This is why monthly subscriptions can be a major contributor to lifestyle creep. The same problems apply to music services, meal kits or anything else built on a subscription model. You may even risk forgetting you have a particular subscription while the fee continues on auto-debit. In that case, you’re effectively paying for nothing at all. All these subscriptions eat away at your ability to save and invest. If you incur credit card debt to keep up with them, the situation is even worse.

For physical possessions, the most prudent course is to buy them outright and use them until they fall apart. This principle applies to everything from cars to furniture to electronics. But Peloton’s success may be the first indication that consumers will need to stay alert to the financial dangers of “smart” appliances, furniture or other goods that you never really finish paying for. If you need to keep subscribing as long as you want your purchase to stay useful, its total cost may be much more than you realize. You also run the risk that the company will abandon the product at some future date, leaving you with a very expensive coat rack.

Peloton is a genius business idea, but one that is dangerous for the budgets of people in the company’s target audience. Most potential customers should approach with extreme caution.

Vice President Eric Meeermann, who is based in our Stamford, Connecticut office, is the author of several chapters in our firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 11, "Social Security And Medicare"; Chapter 18, "Philanthropy"; and Chapter 19, "A Second Act: Starting A New Venture." He was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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