Mirror, Mirror, on the wall, when will my waist be small?
Over the summer we saw a flurry of activity in the AI home fitness category.
In June, Lululemon bought Mirror for a cool half-a-billion bucks. A month later, Tempo raised a big $60M Series B. And this month, Tonal upped the ante with a “mine’s bigger” $110M Series D.
My D is much bigger than your B
— as heard recently on an exclusive VC happy hour Zoom meeting
With the latest round, Tonal has raised a total of $200M from venture capitalists, which is $46M more than Mirror and Temple raised combined. It’s an expensive race. In any case, the VCs have declared it with their Benjamins that a wall-mounted vertical form-factor AI fitness gadget is the future — it’s just a matter of which one.
Unfortunately for them, they’re all wrong.
Yes. All these VCs are wrong. And you don’t need a Stanford MBA to see it.
You just have to know fitness and appreciate how hard it is. It just so happens that’s smack in the middle of my wheelhouse.
I was an elite trainer. I helped many clients lose weight, gain muscle, and overcome illnesses & injury. I made a decent living as a single mom with 2 kids in the most expensive city in the country because of my expertise in fitness. I previously wrote extensively on why these gadgets don’t work, so I won’t rehash it here.
Instead, I’m going to pull back the covers on Tonal, just a bit, and show you just how rotten this egg is.
From a purely investment perspective, these massive bets on mirror-like AI fitness gadgets is nothing more than capital destruction.
The only quote you’ll find in the recent Tonal press release as reworded by TechCrunch is from Stephen Curry. Yep. That Stephen Curry. Three-time NBA champion, six-time NBA All Star, Stephen Curry of the Golden State Warriors. My favorite team!
I’ve had a Tonal for almost two years. While in quarantine during COVID, I have relied heavily on it to maintain my strength training and believe it is revolutionizing how people will work out now and in the future.
— Stephen Curry as quoted by TechCrunch
Wow! What a rousing endorsement. Just, so polished, like it went through 3 PR departments. He’s got COVID, revolution, the past, the present and the future all covered in 39 words. Only in 2020! By the way, do you have that on video? I want to see him actually say that.
The very same article also states that Stephen Curry is an investor in this round! He went in on a $110M Series D — at what valuation? Oh my, Steph, they got you! You know you’re the greater fool until Tonal find their own Lululemon, right? More on that later.
Let’s state the obvious for a moment. Stephen Curry is Stephen Curry because of his trainer, not a gadget. I’ll bet you $110M that he and his trainer made zero use of Tonal, COVID or not.
Tonal didn’t stop at Steph. Recently on LinkedIn I saw a post with Mike Tyson.
Mike is on a Tonal machine and a guy stands behind him slightly to the right. As Mike punches, the guy laughs hilariously, like he’s never seen anything so funny before. Yet we’re supposed to believe this is how Mike trains for his upcoming fight on Nov 28. By the way, this video is only on Tonal’s LinkedIn. I follow Mike on his instagram and he posts his training on his story frequently. I’ve never seen a Tonal. Not once.
It’s beyond obvious that pro athletes don’t use Tonal. What do you call spending money to buy endorsements that can only fool an idiot? Capital destruction.
A Tonal machine costs $2995. In fact, Tonal is the most expensive out of the three similar smart mirror-like devices, and the hardware costs twice as much as Lululemon’s Mirror.
It’s clear this gadget is not for the average joe. I’d say if your household income is not in the top 10%, you wouldn’t even consider it. This is not a $100 Fitbit. It’s not even a $1000 iPhone, which you use all day, every day. It’s a $3k home exercise equipment that you use at best a few hours a week. Which by the way, you can buy a $800 50-inch smart TV, stream pretty much the same workout content for free on YouTube and still use it to watch Netflix.
So out of the 12 million or so households in the US in the top 10% income bracket, how many will ever spend $3k on a Tonal? Isn’t this just like Bowflex, which costs about the same? (I’m not the only one to make this connection)
Remember Bowflex? Yeah, they’re still around. It’s now a part of Nautilus Inc, which is a publicly traded company, so information is more readily available. Since 1986, Bowflex has sold 2.5 million units total in a span of over 3 decades. Nautilus, which owns brands like Nautilus (treadmills & elliptical machines), Schwinn (bikes), and Octane Fitness (ellipticals machines) in addition to Bowflex has been losing money the past few years as their sales declined. Before the pandemic Nautilus’ total market cap is only around $200M.
What do you call a $200M investment in one company that makes one home exercise machine, when its closest analogue has proven to be a fading fad? Capital destruction.
That’s too cynical, you say, because Tonal charges $49 per month for content so they’re more of a subscription business like Netflix or 24 Hour Fitness. I’m so glad you brought that up.
First of all, Netflix costs $16 per month for the most expensive plan and 24 Hour Fitness costs around $30 per month. This means a Tonal subscription costs more than the these two combined. With Netflix, I can sit and watch for hours, if not days. With 24 Hour Fitness membership I can take a shower and meet people, even if I only go twice a month.
Worse than that, a Tonal subscription is totally useless if you don’t own a Tonal machine. Netflix doesn’t force you to buy a $3k Netflix TV and it would be absolutely insane for 24 Hour Fitness to charge a $3k activation fee. The number of subscribers is more or less upper-bounded by the number of devices they can sell.
Peloton has this exact same issue. Peloton only has about 1 million subscribers and they’ve been released since 2014. Netflix released their subscription service in 2007 and in the first year they already had 7.5 million subscribers (keep in mind this is before iPhones). They’re not even remotely comparable.
Valuing a home exercise equipment maker like a content subscription business, when the growth is really dependent on hardware sales is stupid. Peloton is already over valued. Valuing Tonal like Peloton when there are two other similar products competing for a much smaller niche is nothing but capital destruction.
Of course, VCs are not totally stupid. They’re just blinded by greed. It was never about if the mirror devices would work to help you lose weight (they don’t). It’s not even about if Tonal will become the next Peloton or if Peloton will be the next Netflix (they won’t).
It’s really about if they can find someone else to believe all these lies and invest at a higher valuation. And this is why I feel sorry for Stephen Curry. He got tricked to become an investor in Tonal and likely won’t ever see his money again.
What really ticks me off is that real money is spent to chase paper returns that can never be made real.
What’s interesting is that both Stephen Curry and Mike Tyson have trainers. Instead of investing $1M in a business that actually promotes fitness, helps trainers, and can grow without limits, VCs rather chose to destroy $200M in an elaborate Ponzi scheme. This makes me sad.
It should make you sad too.
The last sentence of that TechCrunch piece on Tonal gave me great pleasure and comfort.
[Tonal is] also working with a number of hotels/resorts, including Andaz Scottsdale Resort & Bungalows, the Waldorf Astoria Boca Raton Resort and Club and the JW Marriott Anaheim.
— Tonal press release via TechCrunch
If one of Tonal’s growth strategy is to go after luxury hotels during a year when the global hotel industry is decimated, then the endgame must be near.
An investment bubble is like a game of musical chairs. When the music stops, all the chair suddenly vanish into thin air. I hear the music and it’s slowing. I’m going to make a prediction right now.
Even if Tonal finds a greater fool, in less than 3 years, no one will talk about AI fitness mirrors except as case-studies of what not to do.
Nerissa Zhang is co-founder and CEO of The Bright App, a marketplace and management app for fitness enthusiasts to find and hire a top trainer or coach. She is an elite trainer, a USAW Certified Sports Performance Coach, and an owner of two private gyms in San Francisco. You can find out more at GetBright.app and find Nerissa on LinkedIn. VCs ready to support Nerissa can email her at ceo@getbright.app.
