You have questions, we have answers. This month we spoke with Mike Rucker, the vice president of technology for Active Wellness, about club management software.
For those who don’t know, what is application programming interface (API)?
MR: When we (consumers) interact with our bank, search Google, or log into our favorite fitness application, we use a front-end “user” interface (UI) to access relevant information. An application programming interface (API) is pretty much the same thing, albeit for applications. It is the way applications interact with other applications, programmatically. The basics of the two (UIs and APIs) are the same. One is for helping humans get the information they need, the other is for helping other applications get the information they need.
Do you think it’s important for a gym’s club management software (CMS) to have an open API?
MR: It is only important for the CMS vendor that wishes to remain relevant. We have been living in an API economy for some time now. There are a handful of legitimate reasons why, as an industry, we have lagged behind. Now, we are starting to get there. The reason an organization should have unabated access to its own data should be fundamentally obvious. Information and data are the raw goods that make technology work and our businesses grow. When we are denied the ability to fully access our own data, it comes at the cost of limiting user experience and derogating operational efficiency.
What are other trends in CMS you’re seeing right now?
MR: An inconvenient truth for those that make any type of software catering to the health club market is that the total addressable market is fairly limited — relatively speaking. Let’s assume the total number of health clubs in the U.S. is 37,000 and a technology company is lucky enough to service every single club in the U.S. at a subscription price of $200 per month — this is an unrealistic scenario, but play along.
This results in a cumulative upside that is capped at less than $90 million dollars per year. If you look at the market valuations for some of the top CMS vendors, it is clear these are not based on baseline subscriptions alone. Instead, these valuations are based on unit economics, because CMS vendors with leverage are creating marketplaces where club operators can shop for third-party vendors to add functionality to their existing systems.
These third-party vendors, in turn, share a significant percentage of their revenue with the CMS vendor. These revenue sharing costs are the second largest expense for many third-party vendors, coming in just under payroll expenses. The upside for the industry is that these new CMS marketplaces are creating new opportunities for innovators, which has proven to be a catalyst for an abundance of new technology coming into our market.
