Strava - analyzing the growth playbook of the leading sports-focused social network
How to leverage inflection points to build a niche social network
Welcome to the second edition of the Techstadium. The Techstadium is a biweekly newsletter focused on the intersection of business strategy, sports, and technology written by me - Max Riegel. You can follow me here on Twitter. If you haven’t subscribed already to the Techstadium, you can sign up here. You can find my first article covering the rise of Zwift here.
In this week’s edition, we’ll analyze the rise of Strava, the leading sports-focused social network. Strava is a fascinating company because its founders had the initial idea for Strava in the 1990s. However, due to the immaturity of the required technology, they had to wait until the rise of mobile phones and GPS to bring their initial vision to life. These days, Strava’s value proposition is relatively straightforward. The company offers a freemium digital platform that allows casual and professional athletes to track, upload, share their activities. In essence, Strava serves as a software hub that imports the data from a wide range of players like Garmin, Fitbit, and Zwift to offer meaningful analysis and social feedback to its users.
Against the backdrop of Strava’s accelerated growth during the COVID-19 pandemic (a 35% increase of the total user base since February reaching over 68 million accounts) and a Bloomberg report, which indicates that Strava is now profitable for the first time and that it wants to raise up to $400 million to reach unicorn status, it is worthwhile to take an in-depth look at Strava. The next paragraphs aim to outline a previous entrepreneurial endeavor of Strava’s founders, its growth playbook, and an analysis of its monetization strategy.
Let’s jump right in.
Bringing the Harvard boathouse experience online
In the late 1980s, Michael Horvath, who went on to get a Ph.D. in economics, met Mark Gainey, an art history student, in the Harvard crew team. Horvath was the team captain and two years ahead of Gainey, but despite never riding in the same boat together, the two became good friends and enjoyed the crew team’s spirit. After graduating from Harvard, Gainey took an unusual step for an art history student and got a job at TA Associates, a venture capital firm, where he worked from 1991 to 1995. Based on his frequent interaction with entrepreneurs from several industries, Gainey’s inner entrepreneurial spirit grew. He frequently visited Horvath, an assistant professor at Harvard at that time, to explore the early web on the Mosaic browser.
Inspired by the success of first dot-com companies and the lasting impression of their time at the Harvard crew team, Gainey and Horvath created a business plan outlining plans to bring the Harvard boathouse experience online by creating a “virtual locker room”. In 1995, they incorporated their company, which was initially known as Kana Sports. However, the technology required to create a compelling product for athletes was not sufficiently mature as there was no widespread availability of GPS or mobile tracking devices. Hence, athletes needed to enter their performance data manually, which was an inefficient and time-consuming process. Besides, the internet was not particularly widespread at the time, which resulted in a low TAM for their idea in the 1990s. Moreover, the idea of social interaction based on sharing personal information on the web was not a common practice back then as the likes of Facebook or LinkedIn did not exist. Hence, the start-up struggled to gain a meaningful amount of traction.
Based on the founders’ interaction with several sports brands, which Gainey and Horvath contacted for potential sponsorship deals, they found a pain point at nearly all brands that they reached out to in the mid-1990s. The brands were overwhelmed with the increase in customer support requests compared to the pre-internet days. Gainey and Horvath pivoted their start-up, rebranding it to Kana Communications, and offered a customer-service mail solution, which they sold to corporations establishing an internet presence. The pair managed to fit product-market-fit with their new product, scaled the company fast, and IPOed the company reaching a valuation of over $10 billion.
After scaling the company from the ground up, both left before the dotcom bust. Gainey left Kana in 2000 to become a board member for several companies, while Horvath had already left Kana in 1998 to become an economics professor at Stanford and the Tuck School at Dartmouth, while also serving as the CFO of GlycoFi, a biotech company.
Leveraging inflection points
Despite their successful IPO with Kana Communications and the financial proceeds going along with it, Gainey and Horvath had not given up on the idea of recreating the Harvard boathouse experience digitally. Several years later, they reconsidered the idea as several technologies, such as GPS and mobile data availability, reached inflection points. The potential for a Cambrian explosion of new business models became apparent. After meeting Davis Kitchel, a developer who had been thinking about using GPS data to gain cycling training insights, the business partners decided to revise their idea of building an athlete-focused social experience on the web.
To validate the interest in a product that combines analytics and a social experience over a decade later, Gainey and Horvath decided to send ten Garmin head units to passionate cyclists at the West and East Coast and convinced them to be the first beta users of what would later become Strava. To encourage the beta users to give wide-ranging feedback and to increase overall usage, the founders pitted the East Coast users vs. the West Coast users in several competitions during the 2008 Tour de France. Based on the overwhelmingly positive reaction from the cyclists and early signs of product-market-fit, Gainey and Horvath decided to double down on the opportunity and hired their first developers, whom they knew from their time at Kana. Some developers were even part of the early beta users during the Tour de France, which increased their commitment to the project.
Creating a superb single-player mode
During the time of Strava’s inception, the financial crisis was looming large in the United States, which led Gainey and Horvath to initially bootstrap their company with the proceeds from the Kana exit. As the young start-up initially had limited resources, the co-founders applied the “come for the tool, stay for the network” framework - later popularized by Chris Dixon - in combination with a narrow focus on one vertical.
As Dixon wrote in his infamous blog post: “The idea is to initially attract users with a single-player tool and then, over time, get them to participate in a network. The tool helps get to initial critical mass. The network creates the long term value for users and defensibility for the company.”
In Strava’s case, the single-player mode that helped drive early adoption was based on a desktop-only analytics tool that visualized the performance data collected by hardware devices. Even though Gainey and Horvath always wanted to serve a broad community of athletes, they exclusively focused on the passionate cycling community in the beginning to iterate the product allowing them to enter adjacent verticals later. As Gainey told in several podcasts (like From the Top, The Billy Yang Podcast, or The Active Lifestyle Marketer), cyclists were a perfect fit to kickstart early adoption because:
Cyclists are inherently interested in tech and data analytics based on the possibility to measure speed, distance, and watts.
Cyclists have a high willingness to spend on expensive equipment (such as Garmin head units or power meters), which secures good data quality.
Cyclists were dramatically underserved, as the head units available on the market in the 2000s had no detailed analytics tools attached to them.
Cycling is an inherently social sport as cyclists spend a lot of their training time on group rides, which opened the door for early word-of-mouth adoption.
Building social features and pivoting to mobile-first
After bootstrapping the start-up until 2011, the founders raised $3.5 million in its first institutional round after attracting 20 thousand users. With the inflow of fresh capital and a passionate user base, the founders declared that they would now try to merge social interaction and performance analysis. In this context, Michael Horvath told VentureBeat at that time: “What we’re doing is trying to give an experience that’s social fitness that focuses on comparing and competing.”
As Strava initially focused on the most demanding athletes, the company developed several tools to improve the post-workout analysis for cyclists by offering ways to compare one’s performance on a specific climb by creating geo-tagged segments. On segments, riders could compare their efforts and get a feeling for a climb’s difficulty. Strava algorithmically attached the climbing difficulty classification from the Union Cycliste Internationale (UCI) to every segment. Segments, which were already helpful in a single-player experience, gained enormous popularity once segment leaderboards got increasingly filled by the efforts of other cyclists (professionals and amateurs alike), which rode the same stretch of a road. Therefore, segments became one of the critical pillars during Strava’s push into social fitness as users could not only compare their efforts against their personal best but also against their friends and professionals.
Besides segments, Strava’s social fitness strategy was based on creating a form of social currency, the kudo, which encourages positivity as users are incentivized to applaud their friends' efforts on the platform. The creation of the kudos functionality made Strava particularly more attractive to amateurs and semi-professionals. It allows users to find their tribe on the platform and show mutual appreciation.
While these features would have found some adoption in a desktop-only world, the launch of Strava’s first iOS in 2011, which was initially “only” intended to lower the barriers of entry to the platform as the iPhone's geo-location technology could identify routes and accurately track climbs and sprints, massively increased user engagement. While Strava athletes previously needed a dedicated GPS device and a laptop to upload data, they could now quickly and seamlessly upload their data from their phone to their Strava account and engage in social interaction afterward.
Detailed analysis displayed in Strava’s first iOS app (Source: All Things Digital)
Entering new verticals and going global
Based on its mobile app's success, Strava could pull three separate growth levers to expand its user base. First of all, Strava was now able to enter new verticals. Despite some initial troubles to gain traction in adjacent verticals, the company ultimately succeeded in becoming a multi-sport brand by supplementing its feature set for different verticals, starting with running. During Strava’s push to capture runners, they developed a feature called “matched runs” empowering users to track their progress on a specific track. Moreover, Gainey acknowledged that a runner’s habits are considerably different compared to cyclists as runners tend to train more solo while also being more goal-focused. In this context, the kudos and comment function were of particular importance for user adoption as runners could quickly share their recent workout with friends, who would otherwise have been unable to acknowledge the efforts from their friends and acquaintances.
An impression of Strava’s initial social feed (Source: Immediate Media)
Today, running has become a core part of the Strava brand, as the company publicly claims to be the number one destination for runners and cyclists online. And even though Strava now offers support for several dozen different sports, Gainey confirmed to Fitt Insider that cycling and running are the company’s critical categories.
Besides vertical expansion, Strava continued to expand its TAM by addressing people with different motivations for doing sports. Gainey classifies their users as being either motivated by competition, self-improvement, or social interaction. As outlined before, Strava initially aimed to mainly attract competitively-focused athletics to the platform. However, as the service grew in popularity and ranked high in the app stores, Strava managed to attract broaden its focus to attract, in Gainey’s words, all “invested athletes ranging from gold medal winners to people running first 5 k”. This is illustrated by the fact that while, on the one hand, a majority of Tour de France riders share their rides on Strava, there is also a wide range of amateur cyclists that primarily focuses on social interaction on Strava.
Tadej Pogačar’s win at stage 15 of this year’s Tour de France in Strava (Source: Strava)
Some people are even going so far as to create “Strava art” based on their GPS information collected during the ride, as demonstrated below (I highly recommend checking out further attempts to create Strava art on Google).
A portrait of Santa Clause on Strava by a cyclist from Birmingham (Source: CTVNews)
The third growth lever for Strava in the 2010s was geographic expansion. As consumer software offerings, such as Strava, have inherently zero marginal costs of distribution, it is rarely sensible to only address a single domestic market as long as the expenses related to product localization are reasonable. In Strava’s case, their hybrid offering consisting of a fitness-focused social network paired with performance tracking tools can be classified as a global product, emphasizing the local experience. A user from San Francisco does typically not directly benefit from additional routes and segments in Berlin except when he is there on holiday and vice versa. However, the reasons for using Strava - social recognition, virtual competition, and performance tracking are generally the same worldwide. For example, people from Boston or Paris could simultaneously participate in one of Strava’s virtual competitions, which creates some global network effects as users could compare their efforts with their friends independent of their physical locations.
Examples of the first challenges available on Strava’s mobile app (Source: iClarified)
Hence, to succeed in their internationalization efforts, Strava’s main task was to translate their app into all major languages worldwide to deliver an excellent user experience independent of an athelte’s location. Besides, Strava needed to attract power users in all major cities, which would then create additional segments or clubs (similar to Facebook groups) in their local area, which, in turn, increased the interest and engagement of casual users.
Strava is living up to its claim of creating a global community (Source: Strava)
It’s fair to say that Strava has been successful with its global expansion strategy, as it now boasts a user-generated inventory of over 19 million segments in 195 countries. The company has 68 million users worldwide, out of which 78% do not live in the United States. Moreover, the COVID-19 pandemic served as a further impetus for Strava’s growth and the company now adds over 2 million additional users every month. Strava’s users share roughly 20 million activities per week (approximately one upload per four users per week). Since the company’s foundation over a decade ago, more than four billion activities have been shared on Strava. These metrics have resulted in the ability to continuously raise money from venture capitalists in a total of six funding rounds, with the latest money coming in 2017 at a $365 million valuation. Existing investors include Sequoia Capital, Go4it Capital, Sigma Partners, Jackson Square Ventures, and Madrone Capital Partners, a family office tied to the Walton family.
Struggling to find a monetization model
Since its inception, Strava pursued a freemium monetization model as the founders were convinced that a passionate user base would be willing to pay for a superior product. Initially, when Strava was a web-based product, rides could upload five riders per month for free and would then be asked to pay for the ability to upload further efforts. This strategy was moderately successful when users manually connected a Garmin head unit to a laptop via a USB cable. However, the model's viability diminished once Strava launched its mobile app as users were hitting the barrier of five rides very fast due to increased engagement. However, as the founders acknowledged that a high user base was essential to Strava’s success as it improved the experience for the paid users (for example, through increased participation in the segment leaderboards), Strava shifted to a modular subscription service called Strava Summit.
Strava Summit was based on three pillars of premium features - namely Training, Safety, and Analysis. While the Training module offered users the possibility to set custom goals, schedule training plans, and offered race analysis, the Safety features were primarily related to sharing one’s location with friends or family during a workout. Finally, the Analysis package offered several performance-related scores, such as a relative effort based on power analysis, while also allowing users to track their progress on segments in real-time.
However, as only a small segment of users paid for the Summit service (reports claim that it was roughly 1%), Strava tried to supplement their revenue with different experimental offers. Initially, Strava pushed into e-commerce by offering unique shirts for purchase after users completed a pre-specified effort on the platform. Additionally, it experimented with native brand advertisements, for the likes of Zwift, by directly linking back to the company on a user’s post if a workout was uploaded from Zwift.
Native advertising in Strava from Zwift in 2018 (Source: HBS)
Moreover, Strava partnered with brands such as Lululemon and New York Road Runners, offering them the chance to sponsor challenges like the Lululemon Ghost Race or the Virtual NYC Marathon. Like the non-branded challenges from Strava, users could compete from anywhere in the world by uploading their data to Strava and winning prizes made available by the sponsors.
Example of the sponsored challenges on Strava (Source: HBS)
Also, the company launched Strava Metro in 2014 as an aggregator platform of member-logged data, which highlights route usage and helps to improve the efficiency of infrastructure investments. Strava licensed this data to over 300 city planning departments worldwide until it announced that Strava Metro is now free and available to cities everywhere in the summer of 2020. Making Metro available free of charge during the COVID-19 pandemic is a great PR move but also negligible in terms of revenue as Metro was just a small revenue source for Strava.
Demonstration of the Strava Metro user interface (Source: Strava)
Most monetization efforts were intensified between 2017-2019 during James Quarles’s time as Strava’s CEO. But many users felt a sense of frustration with the development of Strava during that time as no apparent progress in terms of in-app functionality was evident. Users complained that Strava’s management seemed to primarily focus on finding new monetization streams. However, as running a social network is viable if users are (predominantly) happy with their experience on the platform, such attempts could have backfired if user churn rose substantially. Hence, it came only to little surprise that Horvath and Gainey, who had taken a more strategic role during that time, acknowledged that the company had lost its athlete-first mindset and announced their return to the company full time. Horvath replaced Quarles as CEO and Gainey took the position of executive chairman.
After their return, Horvath and Gainey took a public gamble by declaring that Strava would from now on again have an athlete-first mindset and would, therefore, start to solely focus on developing features for its user base. This would go along with a deprioritization of all revenue streams except user subscription revenue. The founders maintained that direct monetization would be the only way to run a profitable business while also aligning interests between its users and the company.
In this context, the company took the radical decision to move some of the most popular features in its free version, such as leaderboards, behind the paywall. This has resulted in a significantly reduced free offering, which incentivizes users to pay for the premium version, which also got simplified into a single subscription instead of the modular Summit approach. The move received a mixed reaction from the athletic community. Some people feel that the changes reduced Strava’s core appeal and that it is a wrong move to use a stick rather than a carrot to boost subscriptions. Others argue that the subscription price of roughly $5 a month is reasonable for a product that offers an excellent user experience.
From my perspective, the user reaction is understandable, but it is an overall firm business decision. Strava is finally fully committed to a different approach than other social networks by doubling-down on monetizing power users through subscriptions instead of monetizing through advertisements. Still, the decision bears the risks that the non-paying athletes decide to leave the platform, which would impact the paying athletes and may cause them to churn as many of the positive network effects they pay for result from the community of athletes they compete with on Strava.
However, users are only likely to churn if they find attractive offerings from Strava’s competitors, which can generally be classified as either hardware-centric (Apple, Fitbit, Garmin) or brand-centric (Adidas Runtastic, Asics Runkeeper, Nike Run Club). Objectively speaking, all of these offerings are inferior to Strava’s free offering. For the hardware-centric competitors, the software is tied to a specific device, and, hence, device sales inherently limit network growth. The brand-centric players were previously mostly stand-alone companies but were acquired by footwear/apparel brands. The brands hoped that acquiring a popular app would allow them to build a community around their brand. However, this is also an inherently limited approach for network building as athlete communities transcend individual brands. Moreover, the software quality offered by these players is below the benchmark set by Strava.
Even though some users might ultimately churn from Strava due to the push to increase subscription revenue, business-wise, the decision has already resulted in Strava reaching break-even for the first time in its history, according to Bloomberg. While the network could still deteriorate in the coming years, the company shows no signs of slowing down and, as shown above, even accelerated its user acquisition to two million sign-ups per month.
Overall, my positive outlook on Strava is based on the three following pillars:
Ubiquity: Strava’s success is primarily based on its over 200 partnerships with the major device manufacturers (like Garmin, Fitbit, and Apple). Moreover, Strava has encouraged broad usage of its API resulting in over 30,000 API partners. By taking the approach of a device-agnostic player with broad API access (Gainey recently described Strava as the “Switzerland” of the fitness space), Strava is positioned to benefit from the overall rising importance of fitness and the quantified-self movement.
Athlete-first mindset: In contrast to its direct competitors, Strava is neither tied to a piece of hardware nor to a specific brand, which allows the company to have a vastly superior user experience as it is solely focused on the athletes' needs. Moreover, the move to double down on monetizing nearly exclusively through subscriptions has already resulted in a handful of new features and a sharpened focus at the company.
Meaningful data: Based on the over four billion activities that have been recorded on Strava to this day, the company has developed broad capabilities to highlight significant events in an athlete’s recordings, which results in increased motivation and engagement. Strava’s data analysis already offers suggestions on optimal training load and training routes while also showing segment records or progress in social challenges. Given its need to convince its power users to pay for the product, Strava is encouraged to develop further other offerings, which will result in a completely personalized workout experience for all athletes.
As long as Strava manages to stick to these pillars, it will overcome any hurdles in its way from now on. Following the two co-founders' return to the company, Strava has started to ship regular feature updates to the product again - including a customized mobile route builder, tracking “Local Legends” on segments, and a new goal-setting interface. These are clear signs of a return to the athlete-first mindset and I’m curious to see whether Strava will ultimately become the first user-funded social network with a global footprint.
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Thank you for the great article and case study <3
Interesting reading, thanks! When describing the compertiotion - should you mention endomondo that decided to commit suicide and left the whole field to strawa?