The Strava Business Model – How Does Strava Make Money?

Executive Summary:

Strava is a social network application primarily aimed at cyclists and runners that tracks their performance using GPS data.

Strava makes money through subscription fees, sponsored events, as well as by selling anonymized data to municipalities and urban planners. It utilizes a freemium business model.

Founded in 2009, Strava has become one of the world’s leading sports communities. It has raised over $150 million in funding to date.

What Is Strava?

Strava, Swedish for “strive”, is a social network application primarily aimed at cyclists and runners that tracks their performance using GPS data.

Most of its users are into running or cycling. However, there is a slew of other activities being tracked, including walking, hiking, rock climbing, or even snowboarding.

The app, which is available on mobile devices (Android and iOS) as well as fitness devices like the Fitbit, tracks an athlete’s distances, pace, gained elevation, heartbeat as well as burned calories.

What sets Strava apart is the social component of its app. Users can share their performance with fellow athletes, receive feedback, and comment on each other’s activities.

Athletes can even compete against each other on popular tracks, which is exemplified through a dedicated leader board. Its Beacon feature, furthermore, enables users to share their location in real-time for added safety.

Strava works together with hundreds of clubs, such as the New Balance Run Club or the Rapha Cycle Club, to help organize specific events.

Strava Company History

Strava, which is headquartered in San Francisco, California, was founded in 2009 by Mark Gainey and Michael Horvath.

The two founders are both lifelong friends as well as business partners who have known each other since the mid-1980s.

Gainey began studying Fine Arts at Harvard University after receiving a scholarship to join its cross-country team.

Unfortunately, a severe injury cut his running ambitions short. But as fortune would have it, a spot in Harvard’s crew team had just opened up.

That’s where he ended up meeting Horvath who, at the time, was the team’s captain and two years ahead of Gainey.

The two immediately became friends and remained in close contact even after Horvath graduated in 1988 while Gainey finished university two years after.

Horvath ended up pursuing an Economics Ph.D. at Northwestern University and eventually became a professor of macroeconomics at Stanford. In the meantime, Gainey was also living in the Bay Area and working in private equity at TA Associates.

Around the mid-1990s, Gainey decided it was time to finally start a business of his own. The internet had led to a rapid increase in company formations, a trend he wanted to capitalize on.

He used to frequently hang out in Horvath’s office because Stanford, at the time, was one of the few places with a decent internet connection.

Eventually, in 1995, the two decided to launch a business together. That company became Kana Communications, a software company that allowed businesses to manage email and Web-based communications.

They were able to grow the business to about 1,200 employees and a market cap north of $10 billion on the NASDAQ stock exchange. Horvath departed from the business in 1998 to focus on his family while Gainey left in 2000 right after the burst of the dot-com bubble.

By 2008, after focusing on other endeavors, both were free agents again. And they circled back to an idea that had just before the launch of Kana Communications. Months prior, they had incorporated a company called Kana Sports, a virtual locker room for athletes.

Unfortunately, GPS data and mobile devices at the time were pretty much non-existent, which required athletes to manually enter their performance data, a process that was inefficient and time-consuming.

What they discovered through their interactions with multiple established sports brands was that many were overwhelmed with the increase in customer support requests. As a result, they eventually pivoted that business towards Kana Communication, offering customer service mailing solutions for established businesses that launched their internet presence.

In 2008, they decided it was time to give that idea yet another shot. Unfortunately, around the same time, the financial crisis was wreaking havoc across the venture world, which essentially forced them to bootstrap the business.

To test their idea, they purchased 300 Garmin cycling computers, which they got at a discounted rate from Costco, and sent them to a set of initial beta users from the East and West Coast. They then launched multiple competitions during the 2008 Tour de France, pitting cyclists from the east and west against each other.

That initial test led to overwhelmingly positive feedback and gave the founders all the confidence that they had themselves a winner. In late 2009, they officially unveiled Strava as a desktop-only analytics tool that visualized the performance data collected by hardware devices.

After more than two years of bootstrapping the business, they finally were able to raise a small seed round in October 2010, followed by a $3.5 million Series A round in January 2011. It used that money to add an array of social features that would allow users to communicate with and compete against each other.

The exponential growth that started to take place was rewarded with yet another funding round. This time, in July, the team was able to raise $12.6 million in Series B funding. It used that cash to finally launch a mobile version for Android and iOS devices (February 2012).

Unfortunately, they also had to use some of that money to defend legal cases. In June, the family of William Flint, who died two years prior, filed a lawsuit against Strava arguing that the company bears responsibility for his death.

The deceased Flint had tried to reclaim a record that he previously held but was unfortunately fatally hit by a car in pursuit of that record. At the time of his accident, Flint’s own GPS showed that he was traveling 10 mph over the posted speed limit. Luckily for Strava, a year later, San Francisco Superior Court judge Marla J. Miller granted a summary judgment in the company’s favor.

Weeks prior to the ruling, Strava had raised yet another round of funding, this time netting them $7.3 million in additional cash. The team continued to improve the product experience, for instance by becoming the first fitness app that took advantage of the M7 motion coprocessor found inside of the newly released iPhone 5S.

However, it also had to cope with changes in its leadership structure. In December, co-founder and CEO Michael Horvath stepped down from his position after his wife had been diagnosed with cancer for the third time. Gainey, who was Strava’s initial CEO from 2009 to 2010, reassumed the role.

Over the coming months, Strava was focused on increasing its reach vis-à-vis integrations with other devices such as Google’s Fitbit. It also raised yet another round of funding in October 2014, this time adding $18.5 million to its balance sheet.

The company also found itself working together with more and more brands, such as New Balance, to launch sponsored events. By early 2016, most of its previous competitors had been acquired by larger apparel brands (for instance, Under Armour purchased MapMyFitness while Adidas snagged up Runtastic) who used those apps to promote their own products.

Strava also continued to face challenges from being an ever-growing social network that, just like Facebook or Twitter, did not bode well with content development. In April, Thorfinn Sassquatch, a professional cyclist who led various leader boards was caught blood doping, which prompted Strava’s users to issue a statement to take him off the platform.

Despite the public backlash, the company stood firm – and kept on growing its user base. By 2017, the team decided to double down on the social aspects of its platform. First, it added Kevin Weil, Instagram’s Head of Product, to its board.

Then, it added a variety of new features such as Club Events for runners and cyclists or Athlete Posts, a blogging platform within its existing app that lets select athletes (i.e., influencers) publish extensive stories and post photos.

Lastly, it hired James Quarles, who had spent more than five years combined at both Facebook and Instagram, to replace co-founder Mark Gainey as CEO. However, one of the features whose launch he oversaw would soon come back to haunt Strava.

In November 2017, Strava launched its Global Heatmap feature, an aggregate worldwide map of how its users interact with certain locations. Unfortunately, researchers soon discovered that the heatmap data could be used to reveal where U.S. troops were stationed in the Middle East, amongst many other sensitive data points.

The company responded swiftly by updating its ‘opt-out of tracking’ feature and making it more prominent. This would effectively stop users from being tracked for its heatmap. Over the coming months, Strava continued to focus on growth, for instance by adding new sports, such as snowboarding, to its list of trackable activities.

By July 2019, the platform was so popular that over 120 of the 176 riders in the Tour de France were uploading their data on Strava. Moreover, the platform had managed to attract over 42 million users all while adding one million more every month.

Despite the consistent growth, co-founders Horvath and Gainey eventually decided to reclaim their leadership positions in November, with the former becoming the firm’s CEO once again.

And just weeks after surpassing 50 million users in February 2020, the company would receive a major boost. The coronavirus pandemic, which led to a temporary closure of many gyms, prompted many people to download the app to track their outside activities that were still permitted (such as running).

As a result of the pandemic, the platform managed to grow from one million to two million additional users per month. In May alone, its app was downloaded close to four million times.

To capitalize on the growth, the company raised its biggest round of funding to that date. In November, TCV and Sequoia Capital led a $110 million Series F round in the company. The capital injection allowed it to boost its hiring practices and ramp up product development.

During the first half of 2021, the company released over 30 new features, such as group fitness challenges or a discovery section to visit new spots. In July, it was even able to open its fifth office in Dublin.

Today, more than 350 people are employed by Strava. Close to 100 million users are now registered on the platform.

How Does Strava Make Money?

Strava makes money through subscription fees, sponsored events, as well as by selling anonymized data to municipalities and urban planners.

Strava operates on a freemium business model. This means that a good portion of its platform is accessible without the need to pay.

If users seek to have a more elevated experience, they can do so by opting into its premium subscription plan, which unlocks dozens of additional features.

Let’s take a closer look at each of the firm’s revenue streams in the section below.

Subscription Fees

The vast majority of the revenue that Strava generates comes from the subscription fees that its users pay.

Strava charges $7.99 per month or $60 per year. In exchange for paying, users are granted access to a variety of premium features, including:

Cumulative stats: being able to view monthly stats for all sport types and compare them with previous periods
Access to exclusive deals from brands and retailers
Custom goals such as cycling power, personal times, or distances traveled
Access to group challenges

… and many more. Throughout the years, Strava has begun to move more and more features behind a paywall.

Users, as a result, have sometimes protested the company’s decision to do that. In October 2019, for instance, many left the platform after Strava gated access to its Bluetooth and ANT+ device pairing to premium subscribers.

Despite some of these minor setbacks, Strava has managed to become one of the only social networks that is able to monetize users via subscriptions (and not rely on ad revenue).

This has many reasons. For once, many of its premium features are extremely valuable and do help an athlete to improve his/her performance.

Second, its target user base, especially people who cycle, tends to be more affluent and are thus able to easily afford the subscription fee.

Lastly, because of the gamification of its platform, many of these athletes will want to do everything in their powers to climb Strava’s leader boards.

However, there are some risks to its approach. If Strava continues to limit access to even more premium features, it runs the risk of losing users. This, in turn, will diminish the social aspects of its platform due to the lower competition.

Selling Aggregated Data

In 2014, Strava launched its Metro product, which provides data from its platform to urban planners, municipalities, and other customers.

The company charges around $20,000 per year in order to provide access to that data. Customers can then use it to inform planning decisions such as where to build bike or running lanes.

It has to be noted that Strava does not sell your personal data to these customers. Instead, it distributes anonymized and aggregated data.

Furthermore, Strava is very selective when it comes to who gets to purchase that data. In the past, it has worked together with cities such as Portland and London who licensed and utilized the data for their planning activities.

Activity-focused apps such as Sweatcoin operate under a similar business model and work together with insurance providers and such.

Strava Funding, Revenue & Valuation

Strava, according to Crunchbase, has raised a total of $151.9 million across seven rounds of venture capital funding.

Noteworthy investors include Sequoia Capital, Jackson Square Ventures, Dragoneer Investment Group, Madrone Capital Partners, and many others.

Strava is currently valued at $1.5 billion after raising $110 million in Series F funding in November 2020.

Given that the company remains in private ownership, it is not obligated to disclose revenue figures to the public.