Software Carries Hardware Margins
Aviron and the Xbox of connected fitness
The post COVID reset showed that connected fitness only works when the software is strong enough to carry weak hardware margins. Most companies were making only 20% to 30% gross margin on a roughly $2,000 machine, then paying rising Facebook and Google acquisition costs while counting on years of subscription revenue to bail them out. That math cracked when shipping costs jumped, gyms reopened, engagement fell, and investors stopped funding losses.
-
Peloton is the clearest example of the model breaking. In its fiscal 2022 annual report, average monthly workouts per connected fitness subscription fell to 16.4 from 22.0 in 2021, while churn rose to 0.96%. Lower usage matters because the whole model depends on people staying subscribed for years.
-
The fragile point was always the hardware sale. Aviron described the category as earning roughly $400 to $600 of contribution on a $2,000 machine, then seeing acquisition cost rise from about $600 to $1,000 or more as iOS privacy changes hurt ad targeting and post lockdown demand cooled.
-
That is why newer players shifted toward game based products. Aviron built around evergreen games, streaming integrations, leaderboards, and virtual goods, while keeping membership at $25 per month versus Peloton's $44 at the time. Games are built once and reused, unlike live classes that require instructors and music royalties on every month of revenue.
The next winners in connected fitness will look less like digital spin studios and more like software platforms attached to durable hardware. Companies that can turn one machine into a shared household device, keep content costs flat, and layer on social features, add ons, and interoperability will be the ones that restore healthy unit economics.