The lines between the cycling industry and the $100 billion dollar per year video gaming industry are about to converge in a way that would have been impossible to achieve just a few years ago.
Looking at the fast growing video gaming market, of all the different sector of that market, be it consoles like X-Box, console software, arcade games and so on, the fastest growing sector is online computer gaming software. This market alone is tipped by one industry expert to top 26 million Euros (Aus $36.6 billion) dollars per year by 2017.
So perhaps it should not be surprising that some heavyweight investors are teaming with IT experts with an eye on taking a slice of this market via the world of cycling. But their rate of financial investment is certainly impressive all the same, with a big payroll of programmers beavering away in major cities around the world before a single product has been sold.
Bicycling Trade was recently invited to attend the product launch for a new indoor training platform called Zwift.
The venue was the uber-trendy Rapha Cycle Club Sydney which was soon packed with a crowd of the ‘beautiful people’, media hacks and other hangers on.
There, while the free food and beer was flowing around us and riders were competing on a Zwift virtual course for $500 cash prizes, we conducted the following exclusive interview with Zwift’s CEO and co-founder, Eric Min.
Bicycling Trade: How did Zwift come into existence?
Eric Min: I’ve been a passionate cyclist since I was a kid, I raced a little bit and then I had a corporate career, but I’ve always been passionate about cycling. When I left New York to move to London, one of the things I missed was just riding with my buddies in Central Park where I did most of my riding because we lived in Manhattan.
Now I’m living in London… busy schedule, busy life, three kids, not particularly friendly roads for cycling so really for me it was either ride indoors or not ride at all.
I did a fair amount of riding indoors and I tried all the different products out there, but as I was exiting my last business I thought, ‘I just can’t believe no one has cracked this code!’, which is to make indoor cycling more interesting.
A lot has changed. I have been following virtual reality for cycling for the last 20 years and I felt there was an opportunity to make it entertaining. So I went around thinking about this idea of creating this ‘fitness entertainment concept’, where it’s a convergence of video game technology and what that industry has become over the last 10 years, which is a $100 billion business growing 10% a year. Then you’ve got social networks. You can point to companies like Strava who in the last five or six years now have nine million registered users. Five years ago people couldn’t even understand Strava. So that (social networks) is a known concept.
The third thing is the growth of cycling for enthusiasts. That’s been growing, particularly in the UK. The UK is one of the fastest growing markets.
The idea was, ‘What if we could bring those concepts together?’ That’s what Zwift represents.
It’s not only about indoor riding. It’s about riding, period. And connecting people. The idea that I can ride with someone that I know from different parts of the world, and also people that I don’t know.
We want to make information very accessible and make the platform very social.
What we have today is just the beginning of something that’s a never ending story.
Here’s what we thought… we figured that most cyclists are pretty addicted to the sport and if we could just feed that addiction by creating this virtual place for them, a virtual place where people can connect with one another, whether it’s about social riding or it’s about racing, or it’s about club riding or it’s about gran fondo events, all these things that we all enjoy doing outdoors which are not all that accessible to most of us.
Another example is the idea of riding with a pro. Where can you do that other than on Zwift? We have probably a professional from almost every World Tour team on Zwift.
Some of them we have formal arrangements with because they are ambassadors but many of them just find Zwift interesting because it’s a safe place. They have the same issues… they have to train, they have to ride indoors and so Zwift is a place they can do it in an entertaining way but what they can do is use it to engage with their fans. So in some ways it’s just another platform for them for engagement.
BT: You said you had just exited a previous business. What’s your business background?
EM: For the past 20 years I built financial training systems for banks, hedge funds and then ended with large energy producers.
My partner and I started to think about doing something different. That was our first start up together and for 15 years we ran it, but we were in the business together before that because we started with JP Morgan Bank.
My feeling was, ‘Are we really entrepreneurs?’ If it’s a one trick act perhaps we’re not and we just got lucky.
We have investors and it was a successful exit. Our view is that if we can do it again and do it in a space totally unrelated to what we were doing before, we can actually say that we’re entrepreneurs. So, I’m a cyclist and we decided to pick this concept and turn it into a business. It’s a real business it’s not just a hobby.
BT: When did you actually start Zwift?
EM: About a year ago.
BT: How long are you in Australia for?
EM: The last time I was in Australia was over 20 years ago. I was here for work and then my honeymoon. It’s been a long time. We arrived on Monday and I leave tomorrow; a very short trip! (five days) We spent a couple of days in Melbourne and did an event there at Bike Gallery two nights ago, which was pretty exciting. It is also a Rapha store as well. We had a pretty good turnout. It was a bit of a dry run and this is the big event. Tomorrow I’m on a plane back to London.
BT: How long have you been on the market?
EM: We launched six months ago. It was the end of September 2014 when we launched at Rapha in London, New York and San Francisco at the same time.
BT: What is the connection with Rapha?
EM: Rapha has beautiful retail space, but I think we’re chasing some of the same customers. They capture the enthusiast high end market. What we represent is a premium brand, but really it’s a big triangle and we’re really right now going after the tip, the competitive cyclists. But if you look at the middle sectors, the gran fondo market and then at the bottom of that triangle is the casual market. So we’re starting at the premium and working down, like most brands do.
BT: What is the announcement that you’re making today?
EM: Back on September 30th when we launched our Beta product it was an invitation only closed Beta. Today we are announcing open Beta. So starting today, anyone can go to our website and just download our software and create an account on the fly. Even if you don’t have the necessary equipment to actually ride, it will give you the ability to go into ‘fan view mode’, so you can see what other people are doing and hopefully that will spur you on to go out and buy what you need. You can actually go and see other people riding.
What’s interesting about Zwift is that you can take part and ride and you can also watch other people ride.
The gaming industry is the trend setter here. They have proved that watching other people playing video games is a form of entertainment. There’s a record, I think 13 million people tuned in to watch the best gamers play one another. Maybe one day, we can have some of the best cyclists riding on Zwift and people can tune in and watch them compete in our virtual space.
BT: So right now, you’re not actually selling the software yet?
EM: We’re in Beta and we will continue to be in Beta until we think the software is right. Our standards are pretty high. There’s no rush. We’re hoping at least another six months of Beta, but it’s really when it’s ready.
The community has actually told us that they’re willing to pay now, but we feel like we need to do a bit more before that.
BT: How many staff have you got working on this, programming away?
EM: We have about 30 on our team. We have a team in Los Angeles, San Francisco, New York, Rio de Janeiro, London and Tokyo. It’s not your typical start-up. We have investors and we’re moving rapidly.
BT: But you’re investing all that money just for the indoor cycling software market?
EM: We’re a software company and we just focus on cycling. But there’s no reason why we couldn’t go into the indoor cycling space, the spin market for example. We’re having some early conversations in that space. There’s no reason why we couldn’t entertain the idea of running or rowing or any of these other disciplines, but cycling is such a big market.
Cycling is different from the other markets because of the kit. We can bring all of the bicycle components and products into the game in a way that we can’t with running or with other sports.
Right now most people are focused on the consumer experience, that’s all they know. But behind the scenes we’re bringing on lots of different brands and we’ll be announcing that today. Brands like Specialized, Trek, Canyon and SRAM. They’re giving their virtual assets to us and we can render them in the game.
BT: They’ll be paying you for that?
EM: There are definitely opportunities like that, but right now it’s just an in-kind exchange. It’s a bit of an experiment for us, but certainly when we have a large community there’s value there for them. It’s just another marketing channel for them.
BT: What hardware do you require?
EM: The premium experience is to use what we call ‘smart trainers’. Smart trainers are trainers that we can control with our software. So as the terrain changes we can change the resistance and that gives you the best experience. They tend to be more expensive, but you can start with a more basic trainer. On Amazon you can buy a $100 trainer, so there are entry level trainers that you can use.
With a speed and cadence sensor, we can come up with virtual watts or speed to get you into the game. I think longer term, it could be as early as next year, we can let you in just based on heart rate. Heart rate and an iPad and you can get yourself into Zwift.
BT: You’re not going into the hardware market?
EM: Absolutely not. There are plenty of partners that we can work with on the hardware side that’s not our area of expertise. Our focus is purely on the software side.
We’re partnering with all the bicycle manufacturers, the trainer manufacturers, online ecommerce. We’re working with companies like Wiggle and Back Country and Competitive Cyclist in the US. So they’re going to help us get products out there delivered. They specialise in that area of delivering products.
BT: I can sense bicycle dealers reading this article right now wondering, is there any place in your world for the local bicycle shop?
EM: Absolutely. The local bike shop is where you can actually go and experience Zwift for the first time. I think if you do that, you are more than likely to buy it from the shop.
BT: What is the incentive for the local bike shop? How do they monetise it?
EM: Some of the local bike shops are selling a lot of trainers because of Zwift. There’s a few select shops that are showcasing Zwift. They’re showcasing the premium experience and they’re selling lots of trainers as a result. We’ve already demonstrated that that works. Working with our partners, whether it’s Wahoo or Cycleops they’re the ones who are working with the retailers to create the retail experience. It’s not us directly.
BT: What is your installed base of users so far?
EM: I can tell you that about 55,000 people have requested Beta so far.
BT: Did they all get it?
EM: No not everyone. We’ve only ‘on-boarded’ about half of those, partly because they don’t have the right equipment. But now they can actually download the software and hopefully that will spur them on to get what they need. Whether it’s an Ant+ dongle or the right trainer or a power meter, they have so many different choices.
BT: When you do finally finish your Beta development phase, what will be your pricing?
EM: We don’t have the foreign prices but we’re still sticking to roughly US$10 a month, subscription based. There are other modules that we think we can layer on top of that, whether it’s racing, coaching, gran fondo events and some of these are branded events so we’re linking up with real promoters to hold these virtual events.
I think whatever pricing we finally set, it’s meant to be accessible by the masses. We’re not in the business of charging excessive amounts for 45 minute spin session. In New York it would cost you $35 for a 45 minute spin session and that’s not mass market for us.
BT: You mentioned Strava earlier. How much of your business model is all about building, in their case that nine million person user network? Just like Facebook or whoever builds a big community and that gets their companies valued in the billions, just because they have access to that community?
EM: I think more than 75% of our community are Strava users and I think more than half of them are premium users. So it gives you an idea of what the community demographics are. About half of our users are MAC users.
Strava’s really interesting because they’re certainly focusing on the same market as we are, but there are some people who are new to Strava and they come to our site, they’ll try Zwift and we’ll encourage them to sign up with Strava, because a lot of the social activity after the ride happens either on Facebook, Twitter, Instagram or Strava.
What we offer that I think is unique is real time interaction during the actual participation because we have real time chat.
I can log in right now to Zwift and give someone a real time ‘Ride On’ which is equivalent to Kudos.
(Demonstrating with his smart phone) I can see this person here has done 43 kilometres, I can go into him I can get a little profile on him… he’s male, 53 years old and on level 7 with a picture of him, how fast he’s going and I hit the ‘ride on’ so on his game he’ll see that Eric Min has just given him a ‘ride on’.
It’s just incredible. This is the beginning of the social interaction that one can have with people who are in the game, even when you’re not in the game yourself.
BT: Do you think that you would actually help grow cycling through your product?
EM: I believe so and I think our partners believe so. Our partners and Zwift believe that if you have more people riding, indoors or outdoors, it’s good for business. There are plenty of people like myself who are hungry to do more riding. Whether it’s work schedule, weather or just lack of time, time crunch professionals, we’re giving them the ability to ride any time, 24/7 and do it in a fun, social way.
BT: It’s interesting how you’ve said three or four times how you’re pitching to the high end of the market and you’re going for the peak and yet you’ve got a product that’s only $10 a month?
EM: Some people have said to us we’re not charging enough. But at the same time for us it’s all about community and while we all want to show you the premium experience, our goal is to go after a much broader market and I think there are other ways we can monetise the premium users while keeping it very accessible to the masses.