Member Brief: 2007 – 2019

As the direct-to-consumer industry evolves, so will the inferences and analyses that we can make. In Asymmetrical Warfare, I wrote: “As media buying becomes more difficult for challenger brands, more direct-to-consumer brands will shutter. And competition will become more symmetrical and predictable as the hundreds of new brands narrow down to the sturdier dozen.” In hindsight, this is only partially correct.

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No. 311: Whoop and The Flywheel

Image: courtesy of Gear Patrol

It was a saturday morning in Columbus and Central Ohio was on its last day of hosting the Arnold Classic. Arnold Schwarzenegger hosts an annual event for athletes across fitness, strength, and endurance in town and while we avoid most of it, there was one meeting that I had to take. Alexis (my oldest daughter) and I met for brunch with Iceland’s Katrin Davidsdottir, one of the most recognizable alternative athletes in the world, a two-time “Fittest on Earth”, and family friend. The two athletes discussed the typical sports topics: hard work, diligence, and resilience. Katrin is at the top of her craft and Alexis is an athlete in her own right. The conversation was between two top competitors who recognized each other’s talents, drive, and natural abilities. In this part of the conversation, I was just a bystander.

We quickly moved to more practical matters: the economics of commerce and product marketing. Davidsdottir is also the most marketable athlete in her field and one of her sponsorships is with Whoop. Whoop is a physical band that measures athletic analytics like: strain, depth of sleep, and heart rate variance (HRV). The band allows you to subscribe to an athletics analytics SaaS. In a recent podcast with Whoop, Davidsdottir discussed her journey from a small country to a lucrative, American lifestyle as a competitive athlete. She swears by it; so do I – but for different reasons.

When we recognized the distinct-looking bands wrapped around our respective wrists, we began talking about our affinity for the product. We viewed Whoop from two vantage points: she’s an elite athlete and I’m an entrepreneur – both career paths are stressful to the body, mind, and central nervous system. We went on and on about how often we see the in-app metrics and how it influences our daily decisions. I knew that Whoop would be a force, this conversation confirmed it.

Linear commerce is a core tenet of 2PM’s understanding of the commerce ecosystem. It’s the active prioritization of audience-growth. Product manufacturers typically seek to outsource demand generation. Brands, that are ahead of the curve, emphasize their audience’s growth as much as they address their physical product’s development. And vice versa, digital media companies that follow linear commerce prioritize organic and loyal growth over commodity clicks. By building a system that allows peers to privately compare their lives, Whoop has – perhaps mistakenly – developed its most effective flywheel.

A flywheel is a device that stores and distributes energy. Retail management will use  the term to describe the sociology of keeping customers engaged, allowing engaged customers to attract like-minded consumers.

Jonathan Poma is the Founder of Loop and the Chief Evangelist Officer at Brand Value Accelerator; he recently stepped down from the Chief Executive role to spend more quality time with his family. Part of this decision was stress-driven. He’s also an avid technologist. Poma was in the first 1,000 users of Slack, an early Uber user, and when he finally joined Whoop – I knew that it was only a matter of time before he began to maximize the platform’s functionality. In a recent conversation with him, we discussed the platform’s latest development for us non-athletes. A consumer will be hard pressed to find Whoop branding or messaging that represents consumers like us. When Poma made the request to Whoop for group reporting access, Whoop allowed him to use the “team” functionality for a test group of colleagues. After a few weeks of this using this group setting, Poma chimed in:

Whoop is 100x cooler than I even thought it was two weeks ago.

Prior to this in-app solution, we found that we’d screenshot our best fitness and recovery days and send them to one another via iMessage. Our Whoop group began to grow until we averaged 1-2 new buyers per week; we’d often pitch our friends on buying one so that we’d be able to compare our data. All high risk entrepreneurs, Whoop’s ability to track fitness, sleep, and strain on the central nervous system became a necessity for early-adopting entrepreneurs – a group that traveled often, slept sub-optimally, and works long hours. Our crude iMessage format evolved into an ability to check, compete, and support colleagues.

Through the mobile and desktop applications, we have full visibility of one another’s holistic health. It drives conversations around work ethic, reduction of alcohol / sugar, and improving physical capacity. In this way, Whoop has successfully duplicated the value of the group fitness experience and replaced it with personal software. In essence, the grouped colleagues are always working towards health and training goals in concert.

Despite a selection of elite athletes as sponsors and a top podcast, Whoop is primed to jump the chasm by promoting this functionality for its civilian consumer. In this way, Whoop’s latest offering may become its greatest (and most timely) marketing asset. Why? Data suggests that consumers are evaluating their relationships with: health, community, and luxury – at scale.

2PM Data: On Telemedicine

In a recently published index, 2PM tracked 45+ of the top companies in telemedicine on the DTC Health Index, a list that comprises a list of companies that are privatizing the healthcare industry. Whoop, a company that’s raised $49.8 million, is part of a larger trend towards consumers owning more of their own health and wellness. It is showing, Whoop’s on-site traffic has doubled in the last six months. Of this traffic, only 6% of is by way of paid customer acquisition. The flywheel is spinning.

On desktop and mobile web in the last 6 months

Anticipated growth in digital health systems and analytics are driving a lot of this interest. For instance, Apple recently innovated around this effort to democratize consumer care with its ECG app. And Core is launching a meditation device that actively tracks its effects by tracking HRV. Whoop is one of a handful of platforms that tracks heart rate variance, a measure that allows consumers to quantitatively measure the strain on their central nervous system. Entrepreneurs and other high risk professionals have used this measure to discuss their levels of stress and depression for a time; however, HRV’s interest is growing quickly in non-athletic spaces.

What is HRV? It is the delta between successive heart beats. The heart’s irregular rhythm causes heart beat timing to change. It was initially used by emergency room healthcare professionals to predict patient mortality rates post medical emergency. The application of HRV is now being studied as a measure of physiological response to stress and exercise. The higher the number – on your 30-day baseline – the more recovered the body.

2014-2024: digital health market size ($ billions)

2015-2020: projected CAGR for the global digital health market

On Health and Modern Luxury

In a recent report by Business of Fashion: “The Future of Luxury is Freedom” , the magazine’s resident retail prophet discusses the changing definition of luxury. Doug Stephens writes:

Today, luxury is evolving once again and brands are wrestling with the fact that consumers are increasingly shifting spend from products and services to experiences. This is especially true among young consumers in the West. According to a 2018 Harris Poll study of US millennials, 78 percent say they’d rather spend money on a “desirable experience or event over buying something desirable.”

In No. 265, we discussed this in the context of Peloton, the in-home cycling and media phenomenon that shares a somewhat similar target consumer with Whoop.

It’s no longer sufficient to define luxury products by how difficult they are to attain. Time is the scarcest resource and the ultimate luxury. Being a modern luxury brand is about being self-aware. These brands sell time as a scarcity and then build products around it.

Health and wellness – a scarce resource measured by time and ability – is emerging as one of the most foremost American luxuries as traditional healthcare costs skyrocket. For direct to consumer (DTC) healthcare companies like Whoop, their platform has somewhat accidentally entered the conversation. While designed for athletes working to peak their physical performance, Whoop has found its software co-opted by normal consumers who use the software to measure the markers that influence the scarcity of a consumer’s time and ability.

Whoop is a company of about 100 workers who more than likely train, sleep, and work with the band that they’re helping to build, improve, and market. As the trends around healthcare, luxury, and self-quantification continue to converge in the company’s favor – consumers will will see more of HRV in the context of quantification.

In this way, Whoop and its community are contributing to more than its own marketing flywheel. The long-tail effect of the popularization of HRV means that we’re bound to see more products that address one of the top questions in Whoop’s community: “how do I improve my HRV?” This is the question that will launch its own consumer product sector.

Read the No. 311 curation here.

Report by Web Smith | About 2PM

No. 298: Retention is the new currency

Contributor. The much mused about sharing economy jump started by disruptors like AirBnB, Rent The Runway, Netflix and Uber is running past its adolescence. In 2019, both Uber and its rival Lyft expect to go public.

According to Fortune, Uber alone could be valued at as much as $120 billion, higher than the valuations of Ford, General Motors and Fiat Chrysler combined.

It’s also close to double Uber’s valuation at a fundraising round two months ago and would be the biggest debut since Alibaba went public in 2014.

AirBnB, too, is expected to file as early as 2019, bringing some of the biggest disruptors of the last decade to Wall Street. But their impact has already been felt beyond their Silicon Valley offices.

The sharing economy has given rise to the subscription economy:

  • An economy preferred by investors for it’s stability.
  • An economy loved by consumers for its accessibility.
  • An economy coveted by entrepreneurs for it’s long-term customer relationships.
2PM, Inc. contributor: Tracey Wallace

The rise is thanks to the ubiquity of internet access and smartphones in the U.S. across nearly all segments. “Customers, the ultimate endpoint of any business, are today just as connected as the employees of any large enterprise,” writes Ben Thompson on The Stratchery.

This gives consumers and businesses alike endless access to on-going services that don’t function like gym-memberships of old. Instead, modern subscription models are gym-like in execution and participation.

  • They are based on service, not product: The product is the means not the ends.
  • They build convenient communities of like-minded individuals with end-goals in mind: Think Shopify users want to be seen as successful entrepreneurs. Spotify users want to be seen as having the best playlists and musical tastes.
  • They rinse and repeat the experience: The service begets the product, the product begets the goal, the goal begets the service.

Retention is the new currency

Costco – perhaps the longest standing subscription business around – has perfected the model. Amazon evolved it online with Amazon Prime. Giants like Apple and Google are touting their subscription services as differentiators for their products.

  • Google is offering six month free YouTube Premium subscription for all Google Home devices (and varying YouTube Premium subscription access for nearly all Google devices).
  • Apple is packaging their streaming music service and phone care services into single packages –– selling you a full suite of services that beget a product.

The success of the model is clear. You need only look at Dollar Shave Club on the consumer side to see the impact on the industry (or look at newer DNVBs like Quip following similar paths). Or, on the B2B side, look at the stock prices of Adobe (up 770% since 2012), Microsoft (up 320%) or Autodesk (up 360%), which have shifted to offer internet cloud-based software for a monthly or annual fee.

Indeed,  many DNVBs are putting their own spin on the subscription model business. In retail alone, there are more than 5,000 brands offering clothing, cosmetic or the like “subscription boxes” each month.

“It is totally faddish right now,” says Robbie Kellman Baxter, a consultant with Peninsula Strategies and author of The Membership Economy. “Most of them are going to fail. How many ties does dad need?”

But in technology, the rent-rather-than-own trend is holding stronger. In health care, too, it is growing in popularity with brands like SmileDirectClub and MDVIP, a direct primary care service, gaining more and more subscribers.

In media is where we will see the most pronounced shifts. After all, subscriptions are the easiest way around an unforgiving advertising world inhabited by Google and Facebook’s duopoly.

That duopoly began hitting media brands as early as 2015, when many considered the “gold standard” of online content to be free and commoditized. Many digital media brands have yet to recover from this mistake.

According to CNBC:

Vice Media has been the gold standard, earning a valuation of $5.7 billion in June 2017. Earlier this month, Disney wrote down some of its investment in Vice by 40 percent, suggesting a declining overall valuation.

Buzzfeed has built itself into a company that tops $1 billion in value. Still, Buzzfeed missed its 2017 revenue forecast by up to 20 percent, the Wall Street Journal reported last year, pushing back hopes of an initial public offering indefinitely. Vox Media, the owner of sites including SBNation, Eater and The Verge, also missed internal revenue forecasts and is not planning to go public any time soon, said people familiar with the matter, who asked not to be named because the company’s financials are private.

Separately, media companies including The New York Times, The Wall Street Journal, The Washington Post, New York Magazine, Quartz, Bloomberg, Business Insider, Vanity Fair and Wired have all returned back to media’s subscription business model roots by completely paywalling, introduced paywalls or hardening their paywalls beginning in 2018.

We’re living in an environment where Facebook, Google, and Amazon are sucking up so much of the advertising revenue,” says Sterling Auty, software analyst at J.P. Morgan. “Subscriptions and ecommerce are an antidote to that.”

These media companies are looking to lower their reliance on Facebook and Google algorithms and return to their service roots through subscription payments –– adding yet another monthly subscription to consumers’ bank accounts.

On paid subscription tolerance

According to eMarketer, 71% of U.S. consumers with internet access subscribe to at least one streaming video service. However, the number for all other verticals drop dramatically beyond video.

This leaves ample room for other verticals to grow their subscription services, especially as consumers become more accustomed to the model and testing out various offerings. Paid subscriptions through Apple’s App Store reached over 330 million last quarter. That’s up 50% year over year and includes both Apple and third-party services like Netflix.

Consumers are downloading. They are trying. They are testing. And there will be winners. Some analysts like Eddie Yoon, a consultant and author of the book Superconsumers, see the subscription economy as a 20-year trend –– just now beginning to hit its growth stage.

But there are caveats:

“All brands will try to offer subscriptions, but only a few will take,” he added. “Consumers will push back if they feel overwhelmed with subscription services,” Yoon says. “People won’t tolerate a world where everything is subscriptionized,” he said. “For the things that you really care about, you’ll definitely subscribe.”

The experience economy edges in

This is where the experience economy matters most. Subscription business models create desirable P&Ls, forecasting models and enable brands to act in the best interest of their most dedicated subscribers (rather than advertisers), but fail to provide the experience and you’ll lose your list and your recurring revenue.

Ben Thompson from The Stratechery pulled out this quote from Bill McDermott, the CEO of SAP, on this challenge on an investor call:

There are millions of complaints every day about disappointing customer experiences. This is called the experience gap. Businesses used to have time to sort this out, but in today’s unforgiving world, the damage is immediate, disruption is imminent. This has shifted the challenge from a running a business to guaranteeing great experiences for every single person.

It’s best here to remember that subscription and membership are separate things. Membership provides experience and community. Subscription just gets you access to something behind a gate.

Take a look at Peloton, for example. The company has long argued that it’s bike ($2,000) and subscription program ($39 monthly) are a bargain compared to regularly attended SoulCycle classes. And SoulCycle is hard to beat. Similar to fitness organizations like CrossFit, Inc., it has a hardened fanbase and community.

But where Peloton succeeds is its content –– the ability to stream classes on your bike, forgoing a trip to a physical class. All for substantially lower costs than regular in-person classes anyway. Peloton reports its churn at less than 1%.

You have to do delightful things and leave money on the table,” says Peloton CEO and co-founder John Foley.The monthly service is what you really buy. That was the flaw with the old models. It was just hardware.

Of course, not every company can be a Peloton. The subscription model itself does not lower the cost of doing business. It cannot, on its own, generate demand.

As subscriptions proliferate, investors need to dig deeper into the dynamics of their models,” says Aswath Damodaran, a finance professor and valuation specialist at New York University’s Stern School of Business.Many venture capitalists and public investors are pricing user-based companies on user count, with only a few seriously trying to distinguish between good, indifferent, and bad user-based models.

What’s next in the subscription era is a dwindling down to those brands, media packages, and services which can offer the experience worth paying for –– the service that begets the product, and the product that begets the consumer’s goal. A subscription model, alone, won’t be enough. Consumers will seek membership and the benefits that come with it: experience, community, and camaraderie. For the product companies, the software companies, and media companies that figure it out – the prize is recurring revenue and stability until the next preferred model comes along.  

Read the rest of your No. 298 curation here.

Additional reading. Member Brief: The Subscription Economy

By Tracey Wallace | Edited by Web Smith | About 2PM

Editor’s Note: Tracey serves as the Editor-in-Chief at BigCommerce and a public speaker. She is launching a DtC pillow brand, this spring. She is a paid contributor of 2PM, Inc.