Zwift Redundancies
I was surprised to find that Zwift only has revenues of $103m (2023) yet received a cash injection of $450 in early 2020 (and $620 in total). After such a large funding round that level of revenue is ‘a bit rubbish’ for the market leader. At the time, the funding implied an eye-wateringly high valuation of $1bn, but the reality is that it is not worth anything close to that as of February 2024.
I don’t place too much weight on the effects of the company’s, now-settled, legal spat with Wahoo on the company’s performance nor the impact from several smaller competitors in the market like My Whoosh and VirtuPro. Sure, other companies may have stolen a few customers here and there but I suspect that Zwift simply geared up its cost base too rapidly last year ($620m cash injection) as cyclists tightened their belts and kept their wallets closed. Simply put, the hoped-for subscribers didn’t materialise in sufficient numbers.
Where now? Zwift’s shareholders will certainly be looking for an exit at some point.
Would you spend $1bn on a loss-making company based on revenues of $100m? I wouldn’t. If you spend $1bn you hope to either sell the company for more in the future or get $10bn (ten) in cash out of it over the years. That is wishful thinking on either count. No one is buying Zwift for that price any time soon. I’m certain of that.
I can’t see any option other than an unprofitable Zwift dying a relatively long and painful corporate death as it limps from one funding round to the next with existing shareholders getting ever more diluted. Eventually, Zwift will run out of new financial backers and run out of cash as a result. That’s bankruptcy. At that point, someone like Garmin might buy the assets at a knockdown price as existing shareholders cut their losses and who knows what would happen after that.
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It’s the capitalistic system!!!! Very simple.
Expensive employees are replaced by third world boys. Maybe girls are just as good and cheaper…. Modern slavery.
How can they have that much costs? The service isn’t getting better in an impressing tempo…
Too much capital costs I guess. And too many managers, still?
i think the globalism element of capitalism has meant that capitalism escapes the legislative frameworks that, to some degree, previosuly kept it socially responsible.
it’s all a moot point as AI will soon be cycling for us, whilst monitoring us with AI, giving us AI feedback and AI customer service, as we sit back on the sofa and lap it all up (before dying an early and unpleasant death)
on that cheery note…
Zwift had been paying mostly Brazilian wages instead of Californian pretty much since the start.
But to build game worlds (this is what I think most of them are doing, because the core backend for hosting a few thousand concurrent riders on whatever cloud infrastructure they rent had already been there long before they hired hundreds), you don’t just need more busy bees willing to mouseclick ever so laboriously, you need people who find the right shortcuts to get the most out of their tools, changing and improving them if needed. I’m sure that people like that exist in Brazil just like everywhere else, but if you fail to find them (or fail to hire them if you do find) you’ll be stuck with not getting much for your money, no matter how cheap the individual heads are.
The failure of capitalism when it comes to Zwift is starry-eyed VC allowing themselves to get talked into throwing money at nonexisting growth opportunities. Perhaps with more modest funding ca 2018, just enough to bridge whatever gap they had to break-even and then organic growth, chances are Zwift would have almost the same number of subscribers today than it has with that “billion dollar valuation” that’s completely ridiculous relative to the business they actually have.
As an ex-Zwift employee I can tell you that it is the other way around: Zwift was the only company in Rio paying salary equivalent to American salaries. There is absolutely no other one that paid the same salaries. When you factor in the bonuses and the additional compulsory payments due to Brazilian laws, it was in fact paying even higher than the FAANGs/MAANGs! That’s because on paper the salary seems equivalent but US-based employees don’t have additional rights mandated by law, while Brazilian law is so pro-labor that they ended in fact paying the same annual salaries if not more! I left Zwift a year ago when I noticed that things were not going well months ago and went to a “FAANG” style company and I can tell you that the total salary is a little lower. I’m pretty sure that from now on Uber Brazil will be paying much less and it will still be considered a high salary in Brazil!
As for the finding the right people: almost all of the Brazilian employees are backend devs and devops. Backend include the “game server” part and the other features like campaigns, etc…. Game development is almost exclusively done in the US.
I left the company because I felt that they will focus much more on game development than data/backend/mobile/devpos, which I think was the right thing for them but not for me, so I left. So I think that this is what the change is about: focus on the game and get rid off everything else.
Thanks for the perspective, some surprises! It reads as if the Brazil thing wasn’t a ploy for cheaper man-hours, but a strategy to be able to select candidates without much competition. That sounds quite cool actually. I’d have expected the opposite: backend stuff in the US (and the team for game UI, and certainly the tiny sim algorithm Zwift can’t ever change without breaking all personal best comparability), but game world authoring offshored. And I still assume that this game world authoring is the big inefficiency of Zwift, compared to what proper game studios achieve per budget, no doubt thanks to game studio grade exploitative work conditions, and that this is the money black hole that needs to be plugged.
Subscriptions don’t scale with game world miles, actually I think that additional game worlds are more a liability for Zwift than an asset: when I see on Strava that a buddy did a watopia loop the same day I did there’s a tiny “connectedness” tingle that makes Zwift a better experience than a “virturide-X” would be, if that buddy did his loop not on “virturide-X” but on “virturide-Y”. But when that buddy did a zwift-japan loop and mine was zwift-scotland, that tingle is noticeably smaller. Adding new miles is certainly good for Zwift in how it keeps them in cycling news, but it comes at a cost. If they had an abundance of virtual islands like Netflix had shows back when they had almost everything ever filmed, it would be bad for them. And the users who’d prefer to ride a new virtual road each session are on a film-based platform like rouvy or kinomap anyways, it would be suicidal for Zwift to try out-author those. Perhaps that’s what Zwift tried in the Beidler era, and now they are trying to stop the content creation?
The problem with VC injections is that they are lured in with promises of *growth*, and that the investors expect the money to be spent on that, not used to prolong misery. Zwift has long reached a point in its market where there is not much growth potential left, but they never made it sufficiently close to break-even to not need yet another injection. To lure in another injection they need a “story”, a growth fantasy, and there isn’t much left they have not already told.
Running? There are a lot more runners than riders, so much growth! But that story has already been told, now Zwift has existed with running “officially launched” but without actually requiring payment for it for longer than Zwift has existed without running (yes, by Thursday it will be six years, more if you include beta)
Racing? A few years ago Zwift appeared quite committed to keeping races out of Zwift, certainly due to how little they would be able to do against cheating. Then eventually they did a compete U-turn on that attitude, no doubt as a “story” for would-be investors. A few years later I’d say that plan went through surprisingly well, as good as anyone could have dreamed, but all of that near-best-case turnout could ever come close to giving them subscription numbers able to pay a 500+ staff.
Hardware? We know how this went. But even if they had magically won that entire market, it would not have solved their cost/market size mismatch.
What I don’t understand is what Beidler had hoped to achieve, other than brutally right-sizing the company. Because a big layoff paired with CEO resignation (or “resignation”…) looks as if he had been trying to find ways of keeping headcount up, which seems almost absurd given the situation Zwift is in. (no, adding more virtual islands won’t magically increase subscriber count, everybody who is not on Zwift is not on Zwift for other reasons than “Watopia is too small” – some people do enjoy more roads, but those who think they abandon Zwift because they’ve ridden all the roads actually want something entirely different like Kinomaps, and no amount of making the Zwift road network larger could ever change that)
yeah I pretty much agree with all of that.
perhaps you’re being a bit hard on zip in that, if you look at Peak Zwift, then the company is probably trending upwards in terms of the essece of the userbase. (ignore covid). but they nees 10x the number of subscribers not 10% more.
I think there is a mistake in the 620 million figure. The article you are linking to is from February 2023 but it states very clearly that the last funding round was from 2020 (450 million USD if I remember correctly).
Anyhow the underlying analysis is the same. It seems Zwift burn rate is higher than what they can afford.
yes you’re right, i’ll make the change
it is $620 raised in total