Ted Audio Collective.
Hi, everyone. You're listening to After Hours.
I'm Young -ni and I'm here with Felix and me here.
Hey, guys! Hey, Young -ni, how are you feeling?
Hey, Felix. Hey, me here.
How was teaching today, me here?
It was good, you know, I was thinking a little bit about how it's, you know, it's just, It's kind of interesting, like as you get older – Wait, wait, wait.
You are getting older?
I have an older – You're right.
They're just getting younger.
You're right. Yes. But I was just thinking about how it's so much more enjoyable in a way.
As you get older, they cut you so much more slack.
It's like amazing. You mean they help you across the street after class?
You can forget where you are.
You don't have to remember what you're teaching.
You can just ramble on and on and they let you.
As you get more experienced, they become so forgiving.
It's crazy. Our students are so nice to us.
They are so nice. It's really astounding.
They're incredibly generous.
It is incredible how gracious they are.
And unlike me here, I did not think that was a function of age.
I just thought I'm getting nicer and nicer myself – more deserving in a way.
Okay, so you guys both brought in topics tonight, right?
We did. What did you bring in for here?
So I want to talk about Peloton.
We talked about Peloton very briefly and I think you both have drunk the Kool -Aid on this one.
So I want to see if I can drink a little or if I can reject it completely or what.
So let's talk a little bit about Peloton.
Chances are slim, frankly.
Okay, so and then Felix?
My topic is going to be political prejudice and in particular a story that appeared in the Atlantic that I think had just a fabulous way of presenting data about prejudice in the United States today.
Okay, political prejudice.
Okay. Okay, me here.
Why don't you get us going?
So I wanted to talk a little bit about Peloton, which is for those of you who have not drunk the Kool -Aid or have not even heard of it is a really interesting company that is getting ready potentially to go public.
They in some sense are just an exercise bike company, but of course they're ...
What do you mean, just an exercise company?
You see that bias creeps in from minute one, just an exercise company.
So they basically position themselves as a technology company.
So they're a bike company and you buy a bicycle for let's say, 2 ,500 maybe $3 ,000.
It's a very nice bicycle and then they slap an iPad on top of it and then they connect you to a bunch of online classes, and they get an $8 billion valuation out of it.
I'm being facetious.
It's kind of an amazing company in the sense that they've taken this product, which is a bicycle, and they've kind of transformed it into something that is challenging.
SoulCycle, Flywheel, and a lot of the other incumbents.
And the interesting piece of it is they seem to kind of have a combination of the social element because you're taking live online classes with lots of other people with very nice, high precision equipment where conceivably the margins are reasonably good, and they've kind of made themselves into a eight
to $10 billion valuation company.
And I can't decide if it's the real deal or if it's just the latest fitness fad.
So you guys are believers, and I'm not exactly a believer.
Is this a company that you think is going to really transform fitness, or is it a flash in the pan like the seven other flashes in the pan that we see in fitness kind of every couple of years?
My sense is they've gotten a few things right that really produce a better experience, not for the entire market, but I think for a subset of people who love exercise and who love exercise classes.
So full disclosure, I went to a cycling class this morning, and so much depends on who teaches.
You would think, you know, it's cycling.
So you're moving your body in a pretty predictable way.
But no, like the second class that I took this morning was all about unusual rhythms and how unusual rhythms change.
And you have to try to follow the rhythm while biking.
And then that's super, super different from what someone else might do, where it's all about the metrics and the watts and this and that and the other things.
So there's 50 flavors of cycling, and I think people really gravitate towards maybe a few instructors that they really love.
And the way we deliver this today is super inefficient in that you have to go to a particular studio, you have to figure out who you like and who you do not like.
And then when that person leaves, because you typically cannot easily leave with that person, the story begins anew.
And so the idea that a company would hire a few superstar instructors, I think part of what you're seeing is just like in other areas as a result of the Internet and technology.
We're going from a market with lots of really capable people to a market of superstars.
I think there will be, I don't know, maybe a dozen, maybe two dozen really famous instructors and they give classes in the Peloton studio in New York City and everybody else can participate in these classes.
And that I think is part of what's really promising and it's really fabulous here.
I mean, I think Felix is exactly right.
If you think about traditional exercise machines, they're dumb machines.
And by dumb machines, they're dumb machine in the way that a television is a dumb machine.
It's just a machine, it's an empty vessel and then whether it's ABC or CBS, some kind of content gets streamed over that television.
Peloton is more akin to Netflix.
It produces content.
So if your tastes associated with cycling are somewhat niche, let's say you love country music or you want to cycle for 12 minutes instead of 45 minutes or you want a very particular kind of cycling experience on that particular day, they have it all.
In other words, they're able to deliver across all of these micro segments because their content library has grown to the point where there are tens of thousands of classes available.
And as a result, their model is much, much more value creating for their members and as a result, more sticky.
And this is the second piece that I like about them.
In the old exercise model, the key to making money is to build a bike for less and sell it for more.
So in other words, the value capture is at the point of acquisition.
I'm going to sell you an exercise bike and the money I make is going to come at that point of acquisition and the key to making money is to build it for less and sell it for more.
In Peloton's case, they want to build a bike for more.
So it lasts forever because the value capture happens in the retention stream.
And in many ways, you could argue that this is the weakness in the model because if people churn out, there's no value capture opportunity.
I love that because it aligns the incentives with the members and it means they are essentially banking their business on their ability to retain you as a customer.
And their retention numbers to date have been unbelievable.
That's true. And the churn is so low that two years after acquisition, they're still retaining something like 85 percent of people are still using this on a regular basis.
Those numbers are unbelievable.
But, young me, you're getting to something important.
Let's think about the economics a little bit more, which is they're charging something like 40 bucks a month, right, in addition to the $3 ,000 upfront cost.
How big a market is this?
This is not Netflix.
It's hard to get as excited about the market size.
And now they're going to treadmills, which is a really hard market to get into because it's a much larger market, which is great, but hard to make it exciting, right?
It's hard to make treadmills really exciting.
So I guess the question is, is this like a question of a bunch of elites in cities talking to each other and being like, this company is awesome, when actually the scope for this is more limited than we think?
But just imagine what their margins look like for a particular customer.
If you think about what are their variable costs, you know, not the instructors.
I mean, those things scale phenomenally.
The only thing that really comes to mind, quite honestly, is the music licensing.
And so, other than that, I would imagine the variable costs associated with the customer subscriptions to be kind of insane, if I had to guess.
So then the question you asked is how big.
One vertical is cycling, and then you start to think about, well, there's running, there's rowing.
But those are different, young me.
Isn't it different?
Like, can you do this on a treadmill?
Oh, yeah, absolutely.
Why do you think it's harder on a treadmill?
My instinct is that the way you generate, what an instructor does on a treadmill is very different, I would imagine.
By the way, I'm like not exactly an exercise guy.
We sort of noticed me here.
Exactly. I mean, there are classes in gyms where people run.
It's exactly like the cycling, same idea, that you have a bunch of treadmills and there's an instructor.
I mean, in addition to what we said so far, I think there's an interesting way to think about the price of the bike.
If you buy a regular bike or if you buy a regular treadmill, the likelihood that you'll still use it a year from now is super, super low.
So yes, $2 ,000 is very expensive.
But if you break it down and you say they've actually figured out what I think is like the biggest impediment to the exercise is that it's super, super hard to get commitment.
And the second element that I like about the bike is, say you make someone a Peloton superstar and this person teaches cycling classes in a completely novel way and becomes a celebrity, and then someone else offers the person a better contract and you lose her, you have that Peloton bike.
And so that I think creates an experience where you think, oh, well, you know, am I going to go out and get another $2 ,000?
And so that means the bike has an interesting way to manage, I think, the stickiness and the commitment to the users.
And the last thing I'll say is because it's now online for the very first time, this is now a global market.
So this does begin to feel it has some of the traditional elements, but I think it has some really interesting aspects that make it much more promising.
So the easiest way for them to grow faster would be for them to cut the price of that bike, but they don't.
They have exercised such discipline with respect to the price point of that bike.
I find that so remarkably impressive and more importantly reveals an insight that they are holding on to with respect to the importance of filtering retention and getting a kind of commitment that Felix referred to.
The one other thing I'll say is that when this comes to how easy would it be to replicate, this is a somewhat cap, not hugely, but somewhat capital intensive business.
And the operational infrastructure is hard to build.
I mean, they're essentially building a content factory and that's, you know, you don't just wake up one day and have a content factory.
I mean, it's the Netflix effect.
It's hard to catch up to Netflix now because Netflix has this library.
And so I don't know that the barriers to entry are quite as low as they may look.
Are we convincing Yuma here at all?
Well, I'm drinking a Kool -Aid a little bit in the sense that I do think it's sticky.
I do think the product is amazing.
And I do think that there is something to this idea that relative to Netflix, actually content acquisition costs are not going to escalate in the same way that they do for Netflix.
I just, and it's not my world, but it's, this has the feel to me of a bunch of elite people in cities talking to each other, convincing themselves that this is a market and not understanding the economics.
So, I mean, they're talking about like an $8 billion market cap.
They've already raised a billion dollars.
You know, Planet Fitness is enormous and their market cap is like $6 billion.
But I'm, look, I took a couple of sips of the Kool -Aid.
I'm not buying it all together.
Good. Wow. We did so much better than I even expected.
Well, you can check it.
If in a year, if I've bought one and I'm becoming a total Callaton guru, you'll know.
Yeah. When is your birthday, Miheer?
Yeah. We need to think about giving Miheer one of these.
I'll give you the first month subscription.
How about that? Wow.
All right. Well, now you're talking.
Okay, Felix, you brought in a topic.
Yes. I wanted to talk to you about a story that appeared a little while ago in the Atlantic magazine.
It's about political prejudice in the United States.
And so what the Atlantic did was it wanted to document for the United States just how much political prejudice there is.
For instance, they would ask how would you react if a member of your immediate family married a Democrat, if you were Republican or a Republican, if you were a Democrat, how well does the term patriotic describe the members of a particular party?
How well does the term willing to compromise describe members of a particular party and so on and so on.
And then once they had these answers, they correlated them with personal attributes, age, level of education.
Do you live in a city?
Do you live in a more rural area?
And then they projected these correlations essentially on populations in counties.
And the resulting map is just when I first saw it, I was mesmerized.
So for instance, you see all of Florida, all of South Carolina, very, very high levels of prejudice.
And then other areas that I don't associate with being particularly open -minded, Kansas, for instance, there are much less prejudice than I had expected.
The Bitter Pill from our home, Boston, Cambridge, the most prejudiced county in the United States, just incredible levels of prejudice.
And in part, I think one of the big predictors is level of education, right?
The more highly educated people are, the more they live in urban areas, as opposed to in the countryside, the older they are, all of this predicts prejudice.
So I know that both of you have seen the map also, and I just wanted to know, what was your first reaction?
Well, so like you, I was surprised by some of these things, like the correlates with urban city stuff.
But I think the main thing I was taken by was the fact that for a lot of these demographic groups, highly educated, those who are politically engaged, the urban types, the older types.
In part, it's about, I think, politics has just become too important, and it kind of takes over your mind.
And my instinct is that for younger folks, for less educated folks, for rural folks, their lives are, in some sense, more complicated and complex, and they don't obsess about politics.
So to me, I guess part of the lesson was, maybe this is just a manifestation of the idea that politics, that's interesting, you know, is dominating people's minds.
And I even feel like this sometime, and it's not terribly healthy.
So I guess part of my instinct about this was just, we are all especially these elite groups in these areas spending way too much time thinking about this stuff.
I mean, one reason why this is so interesting is you would think, if the intensity of interest in politics is part of what's driving this, at least my sense is that the kind of bias that you would see in how we perceive others who have different opinions should be relatively small, right?
Because I'm spending a lot of time and paying close attention.
But that's not actually what this piece of research, and I think older political science research that finds that we have a completely exaggerated sense of, say, if you're a liberal person, you think conservatives are much more conservative than they actually are, and vice versa.
And what's washed away in the current political conversation is that, you know, probably on 60, 70, 80 percent of issues, we actually have broad agreement.
Yeah. The other thing that really struck me was the extent of which the homogeneity of our social circles contributes to this intolerance.
And so in the areas that exhibit a lot of political prejudice and a lot of intolerance, it's because we're surrounding ourselves with people who are exactly like us and who think like us.
And as a result, we don't have the social connective tissue across ideological boundaries the way that you might find in other communities.
You know, I have to confess that when I saw that article, it did lead to some reflection on my part.
And I began to think about how easy it is when people who are educated encounter disagreement, how easy it is to attribute that disagreement to a lack of understanding or knowledge or ignorance.
Oh, you don't believe in free trade.
Oh, that's because you don't understand how free trade works.
Oh, you're in favor of socialism.
Oh, that's because you're not aware of the mixed and sometimes violent history that socialism has had across the world.
Oh, you're against immigration.
Let me respond with a whole set of statistics about how your fears are misguided.
The trouble, young me, with that line for me is I hear what you're saying.
But this is where kind of like the death of expertise stuff comes in, you know, where people are no longer willing to trust experts.
And the reality is, we do know some things, right, like climate change is a huge problem.
And we know that it kind of period end of sentence.
And so I hear why you want to be humble about it, but that kind of almost quickly can become this world of, well, they're alternative views and we need to respect alternative views.
I want to respect alternative views, but it's not universally true.
And on some of these issues, there's expertise.
I think a phrase that I always found very useful is when people talk about disagree without being disagreeable.
What is happening now is as a result of us being engaged in these back and forths about the right policy on climate change and so on and so on, we end up thinking less of the people who don't agree with us.
And I think that is somehow the crux of the issue when it spills over into how we feel about each other and how we feel about each other as people.
It's like, you know, when I mean, the three of us are great, are actually a great example.
We disagree on so many things and it has zero impact on how I think about the two of you.
I used to feel like that, but then after the Peloton piece.
After we made you exercise.
I'm not too sure anymore.
You should take that a little personal.
But I think, but Felix, I wonder if it's not even deeper than that.
I mean, I want to get back to what Mahir said about, you know, that expertise is under fire right now and that seems like going too far.
And what I'll say there is that we have a way of thinking about problems.
And in many cases, and I'll take the climate change thing as an example, when we think about solutions, our calculus is almost always at the aggregate level.
How do we get our country to a better place or the world to a better place with respect to climate change?
And so things like a carbon tax makes a lot of sense from the perspective of expertise.
It's a rational response to a real problem.
On the other hand, what we don't often concede is that moving to a carbon tax, there will be communities that really suffer and the poorest communities will suffer the worst.
Does it still make sense to move in that direction?
Maybe it does. But there's actually an argument to be made if you live in one of those communities that this is deeply unfair and that the trade offs are not worth it.
And we're not good enough at entertaining these counter arguments, I think.
But that's, I mean, to use the climate change example, you know, the line that seems to be popular now to say, oh, yeah, maybe there's climate change, but we just don't know whether it's the result of human activity.
That is not the kind of argument that says, oh, let's think about the distributional consequences of a carbon tax.
Exactly. That conversation, I think I'm more than happy to have the conversation.
Or vaccinations, is another example.
Yes, exactly. It's unambiguous.
I completely agree.
I mean, if I can ask you, how many friends, like not even close friends, but how many friends do you have who have radically different political views?
Yeah, I think we are a little bit benefit from the fact that we rub up against lots of people.
I don't know that that's the same thing as friends, though, that's what you're asking, right?
Actually, one of the interesting things to me about the article was about marriages and how what is increasingly happening is that people are marrying people with similar viewpoints.
And that's happened over the last 50 years.
And by the way, it's also a huge driver of income inequality, which is we just see a lot more what's called assertative mating, which is you're more likely to marry somebody who's more like you, like a high income, high educated person, for example, is more likely to marry another high income, high educated
person. And so there's an element to this, which is oddly, we want to have exposure to lots of views.
But there is this kind of natural homophily that we want to be with people who share things that are important to us.
And politics for some people is not just like another thing.
It's actually like core values.
And so they end up kind of gravitating to people who have similar views because it's not just, oh, how do you feel about some political issue?
But it's about like some deeper sense of who you are.
Speaking for myself, I think once you go ask close friends, I'd like to think I have a lot of people who I know who have different points of view.
Maybe not enough. I think that's really true.
The one reason why I asked about close friends is that the Atlantic sent a reporter to the county that is listed as most tolerant.
It's a county in New York State Watertown and the person who visited Watertown.
One of the things that they describe is how there's just lots of interaction between people who happen to have politically very different views.
But it's not the focal point.
It's not the only type of interaction.
Maybe you do business with one another or maybe your neighbors or maybe you're in the same club.
And then there is this tension around, oh my God.
And I have very different political views.
But that still means you're my neighbor or you're a club member just like I.
And I mean, the conversations are difficult to have, but also the conversations just don't take place.
So one of the things that we have found is a way to begin to overcome polarization.
Well, there are two things.
One is either a common enemy or a second is having a common purpose, a common goal, something.
And this is to hear your earlier point about, you know, when you are always obsessing about the discussion of politics, then that becomes the only thing and there's no room to find common ground.
But if parallel to that, there are other things that you're trying to achieve together, then there's an opportunity to begin to knit some social bonds that supersede or at least run parallel to these other differences.
Yeah. And I think right now I feel like we're lacking those other opportunities to bond with each other in parallel fashion.
I don't know. So are things hopeless?
Oh my God, the silence.
I think, you know, one of the things I was thinking about after I had read it is a part is, of course, making personal choices that would bring you into interactions with people who have different political views.
And I think this starts with, you know, think about where you might go on vacation.
Think about which kind of clubs you want to be a member of.
Think about which kinds of political discussions you want to follow.
And so maybe even at the individual level, for each of us, there's many decisions that we can make that would increase the frequency with which we hear others, we see others, we get to know people who have very different views.
Definitely a lot of food for thought.
Okay, guys, I have a really good recommendation for you.
This comes courtesy of Yuma here.
So you recently sent me a link to this thing on Netflix called Losers.
Do you remember that?
I love Losers. So Losers is this documentary series that in each episode, which is about 30 minutes long, focuses on some obscure person who is obscure by virtue of the fact that they failed miserably at something.
I mean, there's no other way to put it.
The particular episode that I would call your attention to is an episode called Ally.
And it's about this woman named Ally Zerkle who is a sled dog musher.
Yeah. And she has raced in the Iditarod.
She's done this many, many years, has come in second many times.
She's never won. It's in 30 minutes, just a remarkable story of resilience, grace under pressure.
She almost died in one of the races.
The relationship she has with her dogs is really so moving.
You watch it and you get a real sense of the irony of the title Losers because these people are not.
So that's my recommendation.
The amazing thing about it, Yang Mi is, well, I love the Syria Bonnelley episode as well as the Blackjack Ryan on basketball.
It's kind of interesting, right?
Because we talk about failure being an important way to learn, and yet we never really look into failure like seriously.
And this documentary seriously actually looks into failure.
Yeah. And it draws these incredible lessons.
I think it's fantastic.
I totally second that.
Yeah. I actually have a recommendation that builds on this almost seamlessly.
I didn't even expect this when I taught in Shanghai last.
I had some time one evening and I went to see an exhibition that started in Stockholm and it's called the Museum of Failure.
Oh my God. It's a Swedish psychologist and he's put together 100 instances of failed products that companies came up with.
So there are interesting things like say a laundry detergent with an accelerator that where the detergent is so powerful that it literally dissolves your clothing.
It both makes you think about sort of the reasons why things don't take off and just how varied those are from an idea that you cannot even imagine why anyone ever thought that this would be a great product to really subtle issues around the introduction of new services and new products.
So it's called the Museum of Failure.
Felix, it's like we planned it.
I know. It's great.
When you said failure.
Oh yeah, I have something to say about failure.
Do you have a major fail to add?
Yeah, no. There's a lot of pressure.
Add to something. Yeah.
My only my only failure thing to add is my failure to come up with a failure -related suggestion.
I'm sorry. I can't do it on the fly.
So my recommendation is I just recently rediscovered a magazine I grew up with called Games Magazine.
And it is fantastic.
It's got all these puzzles in it and I know this is super goofy.
But if you find yourself playing games virtually and you want to get away from it, Games Magazine has the smartest, most thoughtful games.
They've been around for like 50 years.
They still have a paper copy.
And I just introduced it to my girls and we just started doing it together and it's fantastic.
So it's like Sudoku and those kinds of things or?
But it's like 50 different manifestations of all kinds of games, word games and number games and puzzles and logic.
It's a whole kind of cornucopia of stuff.
And it's on paper. When I was a kid, I loved that stuff so much.
I did. It's so much fun.
I would sit in the backseat and I would just I would get one of those magazines.
And doing it on paper is so great as opposed to like on an iPad.
As I mentioned, I'm just I'm trying to get out of the virtual world.
And so Games Magazine is my pick for that.
OK, all right. So we have three good picks.
Thanks, everyone, for listening.
This is After Hours.
