Peloton quietly drops unlimited free app membership because it failed to bring in paid subscribers
- Peloton has quietly removed the unlimited free-membership tier for its app less than a year after it debuted.
- The fitness company, known for its Bike and Tread, offered the free-membership tier to bring in new customers but too few of them were converting into paid users.
- "That free tier was cannibalizing our funnel and conversion to free trial and then to pay," finance chief Liz Coddington said at a Morgan Stanley conference in March.
Peloton has quietly removed its unlimited free-membership tier on its fitness app less than a year after it debuted because the initiative was failing to convert users into paid subscribers, the company said.
Peloton dropped the free option for new users, once a key part of the business's growth strategy, within the past few weeks. People who signed up for the company's unlimited free membership before it was removed will continue to have access to it, Peloton said.
New users who are looking to work out with the company's app now only have access to two tiers that cost $12.99 a month or $24 a month, with the option of a seven-day free trial.
Last May, Peloton debuted a splashy rebrand that billed the business as a fitness company for all, and put its digital app at the center of its marketing campaign. The rebrand brought a new, tiered app strategy that included the unlimited free-membership option and two other paid levels that all had varying levels of content.
The rebrand came as CEO Barry McCarthy looked to transform Peloton from one focused on its hardware to a business that was equally as invested in its app. As sales steadily declined at the company, he was working to capture new customers who may have been intrigued by the brand but weren't willing to shell out thousands for its equipment.
McCarthy, a former Netflix and Spotify executive, had long wanted a free tier on the company's app. He had bet that free users would fall in love with Peloton's content and then spring for a paid membership, which comes with a far wider variety of classes, after they tried the app and decided they wanted more.
The bet appears to have been a bust.
McCarthy told investors in November that the relaunch had been "less successful at engaging and retaining free users and converting them to paying memberships" than the company had expected.
Soon after, the unlimited free tier was no longer available.
During a Morgan Stanley conference in March, finance chief Liz Coddington said the company "quickly" learned that the free tier was "cannibalizing" efforts to convert free-trial members to paid subscribers, which led the company to shift to a free-trial model.
"It's important to know that our app is still a work in progress. We still have a lot of opportunities to improve it," said Coddington. "What we found is that we need to figure out ways to better engage them during the trial period, that they convert to paid and then also keep them engaged over time, so that they will retain at a higher rate. … When we do that, we believe that our marketing efficiency will improve, both because we'll have better retention and better conversion rates."
While app subscribers declined during Peloton's fiscal second quarter ended Dec. 31, Coddington said the company still "believe[s]" in its app strategy and it remains "an important part of the business."
Shares of Peloton fell more than 6% Monday and were down more than 45% this year, as of Friday's close. The company's market cap has shrunk to about $1.2 billion, a fraction of the $47 billion it was worth at the height of Peloton's success during the Covid-19 pandemic.