On profits and passion in the bike industry
Posted on 29. Jan, 2009 in Bike Racing, Bike industry
Anyone who works in the bike industry will tell you that it’s not exactly governed by calculated efficiency. That’s fine with some people. Others, including me at times, are driven crazy by how many decisions in the industry are based on individual preferences rather than on measurable returns. After a few recent conversations with people in the driven-crazy camp, I’ve been thinking more about that balance between the personal and the analytical.
Perhaps the most pervasive example of passion trumping efficiency in the bike business is the time and money spent on sponsoring professional racing – something close to my own heart. Although nothing puts bicycles on a platform like the Tour de France or the Olympics, the positioning of bike brands relative to each other within pro cycling is noticeable only to the hardcore enthusiast. That’s why high-end boutique brands like Cervelo and Colnago can compete at the Tour de France level when the average retail price at US bike shops was $450 in 2006 (see page 7).
The image that’s compelling to the everyday bicyclist is that of… the everyday bicyclist. Above a baseline of functionality, performance is not a major factor in the way that most people buy and use bicycles. Still, the industry’s spending on pro racing far exceeds what it spends on anything with direct relevance to the average consumer who walks into a bike shop. As far as I know, the 5-year, $10 million commitment of the SRAM Cycling Fund dwarfs any other in the bike industry that supports getting regular people onto regular bikes. But dropping $2 million per year to be one of 18 bike companies in the Tour is par for the course and there are plenty of wheel companies, component makers like SRAM, etc. that are spending similarly.
A note before I continue. I’m thinking in abstract terms and purposefully leaving out the environmental and health benefits of getting more people on bikes.
But, look at Microsoft. Despite their most analytical efforts and obligation to create value for shareholders, they recently released Songsmith, a product that nobody seems to want, and spent $300 million on that Bill Gates/Jerry Seinfeld ad campaign that went nowhere. Meanwhile, Microsoft’s drive for efficiency led them to cut 5,000 jobs last week after a Q4 in which they had over $4 billion in profits. I can’t see any bike company being that ruthless.
If the industry valued efficient spending above all else, I think we’d see less money going to pro racing and more along the lines of commercialized versions the SRAM Cycling Fund. Presumably, greater efficiency would lead to greater profitability. But, one way or another, pretty much everyone from your local shop owner to the president of Specialized got in the game for the love of the bike, not the profits. So why do the relatively relaxed business practices in the industry bother some of us so much?
It’s not about money. The desire to see a bigger, more efficient industry is born of the same passion that drives its inefficiencies: the belief in bikes and wanting to see more people on them.
photo by stocks photography
Don’t discount the value of pro athletes to the R&D efforts – that’s a huge reason why team sponsorship is worthwhile. And while you’re right that it doesn’t make much impact to most cyclists here in north america, you can watch bike racing on prime time TV about 250 days a year in Europe…cycling there is similar to what hockey might be here, and those sponsorships are valuable in EU markets.
Plus, it’s just cool!