terrymorse 

TL;DR -- Zwift is transitioning from a startup company with insanely high valuation, to a startup company that can't raise more capital. And oh yeah, Zwift Hub is going away.

From DC Rainmaker: Zwift Lays off 100+, co-CEO Resigns, Zwift Hub Series Discontinued

From Zwift:Translation: Our infinite source of money has dried up, because we didn't grow fast enough to satisfy investor greed.

base2 

How much does it cost to keep the current servers running? It seems to me as long as the data center cost is covered they can still break even.
2.5 million users x $16.50/mo is a lot of dollars cash flow. How do you go broke with $41 million dollars a month?

Is it that they are not profitable, or is it they are not profitable enough?

terrymorse 

Zwift is not profitable, and their subscription growth rate doesn't justify their 2020 valuation of $1 billion+.

The CEO stated that he wants to grow subscriptions to 10 million and go public. Not likely.

spelger

probably has more to do with results than greed regarding the drying up of VC money. and not every subscriber is a full time subscriber so 41mil/year is probably very generous.

what is the cost to run a server farm?

maybe salaries are too high for some?

jaxgtr

Could be part of the Wahoo lawsuit that went away, so they got out of the hardware business.

kcjc

That last round of funding was good for one year and covers at least those who were laid off. That's how the game is played. I'm surprised the VC let go of the man they brought in and kept the original founder. I guess they still see a return and postpone the immediate IPO route. Kurt must have pissed off the wrong people.

Shadco 

One oneders if they will continue to sponsor the TDF Femmes.

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Viich

2.5 million users means 2.5million created accounts, not paying subscribers. They have NEVER released numbers of paying accounts.

Jughed

As mentioned in the other thread on this.

The zwift hub deals have to be loss leaders, and maybe they are not paying out. At $600 per with free shipping, no doubt they lose money on each trainer - then 1 year free memberships. Lost money on the trainer and at least 12 months before they see any cash in return.

I was getting into a smart trainer this year no matter what. Was ready to purchase a trainer and a zwift membership, as was my FIL. Instead, we got the zwift hubs and free memberships, then we also got my son a hub. I know I will re up next year - but my FIL and 12 year old son??

texbiker

I think the way to get new subscribers is to add new worlds/routes. Improving the graphics would help too. Cutting staff seems to gut the ability to do either of those. AI might help with both of those. When I saw the discount "while they last" I thought the Zwift trainer was history.

mschwett 

that’s oversimplifying their business, a lot. things go wrong. platforms or protocols change around you. users demand things be compatible with their new gear. users get confused or break things and need support. competitors will pop up and new features need to be considered or developed. payments need to be processed / payment processors paid. taxes need to be paid and tax laws in dozens of countries change. web pages need to be updated and maintained. you need people to do all of the above, and those people need to be paid, have benefits, have a place to work, that place needs to be maintained and run and paid for, etc etc etc.

the typical SaaS business doesn’t spend more than 10% of their revenue on server hosting. maybe zwift is a little higher than usual for one reason or another, but it’s still not going to be a sizable percentage. although you could make it your goal to cut everything else but that, doing so would be a quick way to irrelevance and failure.

base2 

That makes perfect sense. It's been so long since the free trial, I have no idea what functionality a free account may/may not have. If it works acceptably well with out a need to pay, then that right there is something that needs to be addressed.

I'm well aware that back-o-the-napkin anything is nothing to put a lot of weight to. But, it offers a glimpse into a starting point. I don't know what their margin is. To be fair, I don't think anybody in this thread does. But tech companies and developed industries in general tend to retain the most profitable parts of the business in first world developed economies. The grunt work that requires a lot of capital expense with the least margin tends to go to wherever has the best currency conversion that still yields acceptable results given that areas worker skillset. Where is their product development happening? If it is not already India or someplace similar, then evidently a move there may already be over due.

If 10% is the cost of delivering the product,(server farm) then that leaves 90% left over to sustain and develop the business under whatever regulatory requirements apply.

What are they doing with that 90%? My guess is buckling under the pressure of initial VC contractual requirements to pay back "x" dollars by "x" timeframe. If that's the case, then the issue isn't so much as product viability, it's how hard VC wants to squeeze the golden goose. That issue can be negotiated.

mschwett 

i think if we’re going to oversimplify their business, the better way to state it than “10% is the cost of delivering the product” is that 10% of their costs is the equivalent of the raw ingredients at a restaurant. you still need the recipes, the chefs, the restaurant, and a hundred other things.

venture is profit motivated, of course, but it is also a highly competitive space with multiple sources of capital competing for the same founders. we’ll never know the exact terms of their deal but the idea that zwift could continue to deliver their product with 10% (or some other random <50% number) the cost if they didn’t have to pay back the people who paid to build their business does not compute.

RChung

Zwift is an interesting experiment in finding the least amount of visual and physics realism that you can have and still retain users. The climb portals and descending physics reveal that the floor is pretty low.

terrymorse 

Zwift has all but lost me as a customer. Maybe the gaming features and look appeal to folks who are accustomed to that stuff, but I really want a realistic experience. I have never played games on a computer, so that gaming stuff is mostly just annoying.

Since I recently subscribed to Rouvy, I haven't used Zwift once. Rouvy feels real. Experiencing an iconic route without leaving home is pretty darn great. I fake-climbed Mt. Lemmon yesterday. It was bleepin' long, and my butt is paying the price today, but the immersive scenery was pretty great. The downside of Rouvy is that now I want to travel everywhere to ride these roads. Or maybe that's an upside.

Viich

It doesn't really give you much except the ability to try it out - you can ride for 25km per month after the initial 2 week trial (I think - these deals are different per country and have changed over time)

tomato coupe

If that was their actual threshold for profitability, I'd be writing them a check for $$$$ today.

base2 

I agree. I mean if they somehow managed to set the cruise control and crawl over to the back seat for a nap or head to the mini-fridge in the back of the motorhome for a bloody-mary, slices of cheddar and triscuits or whatever, then yes, yes it would. But otherwise, obviously there are labor costs involved. What those are or the composition of their outflows are nobody knows. That's my point.

I'm not daft. Sustaining cruise control is good 'till it ain't. But if their floor of existence to simply deliver the service and nothing more is "x" What are they doing with the rest? Paying taxes and global accounting can't possibly suck up 100% or more of the 90% that remains. That doesn't compute either. We don't disagree. We are just coming at it from opposite ends.

To play off the restaurant analogy: After the initial startup cost & build out, even a Fro-yo place has 1 employee, the service is all automatic. There is a lot of margin there to be had somewhere. Even a vending machine works for a time between servicing.

Perhaps with all the hard work of world development and game mechanics accomplished they are simply "right sizing" their workforce to more of a "sustain" mode. There is a right size for everything. Forcing growth/expansion beyond market demand is a sure-fire way to implode. Radio Shack, Quiznos, come to mind. Making the hard decision to reassess and course correct is the mark of a smartly run organization.

spelger

where else can you do 50 mph hairpin turns?

spelger

i have not been a paying zwift custoemr for 2 years now. moved to rouvy and like it a lot. after 2 years of rouvy i am a bit disappointed thouhg, nothing new. new routes but nothing aside from that. the UI is even less desirable to me compared to the older version.

the number one reason why i liked zwift was that i could turn down that road, or this road...and it was always nice having some rabbit to chase, or some dog to run from. i only get a littel of that in Rouvy.

unterhausen

The Zwift hub experiment was nonsensical. I don't know if the free year really hurts them much, but it does seem that people that buy smart trainers often intend to subscribe to zwift.

rsbob 

Is the Hub One only designed to work with ZWIFT?

PeteHski

That’s a good question. I think the answer is probably no, but I think in the short term it effectively only works with Zwift because other apps don’t yet support the virtual gear shift. DC Rainmaker has a review explaining this, but I only skimmed it because I’m not in the market for a new trainer.

PeteHski

I was thinking along these lines too. Ultimately it’s a pretty niche market with limited growth potential. At this point, doesn’t nearly every cyclist who would be interested in a Smart Trainer already have one? At the same time, most of these indoor cyclists started out using Zwift and have now got a bit bored and started migrating to other cycling apps for variety. I just don’t see how Zwift can grow exponentially from here. It seems like the best they can hope to achieve is retaining their rather fickle existing customer base.

mstateglfr 

Pretty jaded way to look at things.

Maybe it's an interesting experiment in finding ways to turn a traditionally solo and closed off activity into a social and enjoyable activity.
Gamifying and socializing something that many have historically found to be boring or a chore is pretty cool for a lot of users.
But sure, someone could look at all of it with your perspective too.

Ends up that we all have different priorities when deciding what we value or use. Wild, right?