By now, it is not news that 2020 turned the fitness industry “upside down” as a consequence of Covid 19. Among many other things, due to the lock down of gyms pretty much at a global level, users were forced to find other solutions to maintain their regular workout routines. This drove a massive acceleration and adoption of digital and/or virtual fitness services across all markets.
The rise of “At-Home Workout” space
As shown in this graph from eMarketer, the number of users that engage with a fitness app on their smartphone at least once a month has increased 27% in 2020.
And based on their projections, that figure is set to remain quite stable over the upcoming years.
This trend could also be easily visualized in the following Google Trends graph, which shows the evolution of “home workouts” as a search trend over the last 5 years.
Moreover, a couple of charts by McKinsey, from their consumer sentiment survey, seem to show that habits around working from home and using digital services are here to stay, at least, over the medium term.
One one hand, less than 20% of gym users in countries such as the United States, UK or France are reluctant to return to the gym once they can get back to normal activities. In fact, even in more “optimistic” countries such as China or Germany, the figure does not seem to go beyond 40%.
On the other hand, up to more than 30% of consumers across the same markets are projected to increase their fitness related purchases online in a post Covid 19 environment.
Similarly, 2020 has been the year of “Digital Connected” services with the likes of Peloton leading the way and companies like Apple launching Apple Fitness+ or Lululemon, through the purchase of Mirror, entering the space. While there are countless other initiatives, if we use Peloton´s figures that were reported on their investors call in September, we get a sense of the good health this segment of the industry is experiencing.
Following Peloton´s success ,brands such as Tonal, Zwift, which we analyze in detail below, or Climbr have been able to secure rounds of investment to explore further growth opportunities.
Now, despite the fact that, in the aftermath of the pandemic, almost 70% of people are more focused on taking care of their physical health according to PWC, the reality is that many still struggle to maintain motivation and engagement to a regular workout routine over the long term.
Those who are used to working out will surely find a solution that serves their needs without much problem. The challenge however is to engage those users that have not been able to adopt a regular workout routine yet, and this could be even harder if the vast number of “substitute activities” one can do such as Netflix, social media, reading, cooking or playing video games also increases. Essentially, anything that looks to take away “time” and “attention” from the user can be considered “competition.”
Precisely on this topic, we had the opportunity to attend a webinar in which Didac Lee, former member of the board at F.C. Barcelona, where he was responsible for Digital initiatives, was addressing the potential that fitness-related video games could have in the future.
Businesses from the fitness industry will need to find new avenues for growth and customer acquisition. Mr. Lee´s advice was to look for ways in which to acquire customers from that segment that has a harder time to find motivation to work out. His point of view is that in the future, the way to solve the issue of ensuring engagement towards health & fitness, given that “virtual” and “digital” fitness services are now within the “new normal,” is to develop immersive fitness experiences in which people can workout while being able to play a video game.
This is actually defined as Active Video Gaming (AVG) or “Exergaming” and we look to understand what it is and the potential market it could have in the future.
Active Video Gaming: Is this the future of fitness?
In case you had not heard the term before, Active Video Gaming, or AVG, is a form of video game in which you move your whole body in order to be able to play. And, according to this article from The Conversation, studies support the idea that they do help increase physical activity of those who play them.
In essence, and very broadly speaking, there are two major types of AVG at the moment. On one hand, there are those that imply role playing in order to play the game, so you would need to perform “fitness-related” movements in order to advance. On the other, there are digital apps that rely on gamification techniques to help users develop habits around the activity.
Even if the modality seems to be gaining momentum now, the truth is that it has been part of the industry since the 1980s, in which Bandai developed a mat with sensors for Nintendo. According to this New York Times article, the segment is currently just 1% of the video games market, but it was able to increase 2% in 2019 vs the previous year. While there is still no official data available on 2020 figures, it seems fair to think it was able to experience further growth in a year in which people have been limited to working out at home.
Nintendo & Zwift: Two winners of the active video game category
Nintendo is surely one of the most innovative and pioneer brands in the AVG space. In 2006 it revolutionized the video game industry with the launch of the Wii. In fact, as Mat Piscatella, from the NPD group, shared the following statistic regarding that launch in that same NY Times story:
“The Wii had the fastest adoption rate in the U.S. of any console in the first three years...”
He then goes to add, that since then:
“Consumer expectations have changed dramatically, people are no longer just playing on their TVs in their living room. They now want to be able to play games whenever and wherever.”
This has been accelerated by the rise of mobile gaming and the appearance of augmented reality games such as Pokemon Go. Recognizing those trends and the emergence of new competitors, Nintendo launched Ring Fit Adventure, which includes a unique controller, a flexible resistance hoop that when players squeeze it, pull it or hold it above their head, their movements are tracked in the game.
Just to give you a sense of its popularity during 2020, the game was the second most sold game in Japan, despite being launched more than a year ago. In fact, looking at the Google Trends graph, the popularity of the game worldwide has been significant, particularly during lock down phases such as April or early November.
Another clear example of an AVG that can be declared one of the winners of 2020 is Zwift, the platform that looks to combine virtual cycling or running with the fun that video games provide. The brand claims to have seen 2.5 million registered users since launching in 2015 and was able to secure a $450 million investment round back in September. It even organized the first virtual Tour de France in history, which is surely a landmark event in the world of sports, and it hopes to become an Olympic sport in the near future., as explained by their CEO in the Fitt Insider podcast.
As Stephen Shaney, Director at KKR, who led the investment round said:
“Zwift is the preeminent digital brand for the global cycling community with a best-in-class product that sits at the intersection of digital health, gaming and at-home fitness.”
Similarly, Eric Min, the brand´s CEO had this to say about the investment round:
"With this investment, Zwift is primed to operate in a broader fitness market and deliver on our ambition to provide gamified fitness through integrated software and hardware, to anyone who wants to have fun while getting fit at home."
The challenge for fitness gaming brands is engaging the user
Again, the challenge for AVGs is engaging and motivating the user with the game. In this sense, Quantic Foundry developed the following model, which serves as a nice framework to understand the elements that define gamer motivation.
In order for AVGs to succeed they will need to tap into one or several of these elements such as Achievement, Mastery or even Social, and combine it with the ability to meet the user's fitness objectives.
For example, who would not mind playing an immersive version of Assassin's Creed or Donkey Kong? Or better yet, a dual mode version of Super Mario in such a way that it helps two people workout through the video game and enables them to push each other to improve their shape? Freeletics seems to be taking a brilliant approach to this framework with the launch of Staedium, as shared by their CEO on this episode of Fitt Insider.
Another benefit of Active Video Games is the potential they have to build virtual communities around the game, which is precisely what Zwift has been able to accomplish. As Dirk Sorenson, from the NPD groups, shares in this article, doing this successfully is one of the pillars for maintaining the momentum of “Fitness at home” services:
Studio fitness and gyms provide opportunities for social interaction. The camaraderie in gyms, particularly in classes, is an enormous draw for gyms. Retailers and manufacturers have to address this and an obvious direction is using online platforms to connect customers. Online platforms like Peloton’s streaming classes or Zwift’s immersive multiplayer gaming environment for runners on treadmills and cyclists on indoor bikes should be emulated. Simple efforts like creating local “leaderboards'' that are curated by retailers can also go a long way.
Partnership ecosystems: The solution for non “pure-players” of the fitness industry
So, if you are a small fitness business owner or a large “traditional” fitness operator, what can you do against the competition from AVGs and other virtual fitness solutions? Is there a way to embrace the trend without having to pivot and invest in a totally new business model?
From our perspective, if this trend keeps on evolving favorably, it will lead to the development of an ecosystem built through brand partnerships with players of the fitness industry, game developers and the platforms in which these games are played. On the other “side,” there are probably many game developers with bright ideas and skills but lack the capacity to enter new channels and acquire users for their products.
Those who are able to establish strong partnership programs, focus on the user, and deliver a complete omnichannel experience will be the ones that end up “winning the category.”
A clear example of this is the recent agreement between Apple Fitness+ and Life Time Fitness. If Apple, one of the biggest businesses on the planet has opted for partnerships to enter a new market, what is stopping any fitness business from doing the same at a smaller level?
As Mr. Sorenson explained before, the underlying benefit of AVGs is the ability to create a community around a common objective and provide an engaging experience. While not everyone will have access to the best technology, we are sure we will see start ups and initiatives emerge looking to engage with the customers of a traditional gym.
If you want more insights into developing partnership ecosystems, in our newsletter we shared a fantastic McKinsey article on the matter to help you understand how to create these ecosystems and partnerships, so feel free to check it out!
Just like Mr. Lee, we also believe that Active Video Gaming is bound to become a relevant player within the fitness industry. As such, we hope to come back in the near future with updated facts and insights to help you understand its evolution, impact and how you can benefit from the opportunities that arise from it.
Meanwhile, keep safe.