If you’ve got a good invention in the cycle trade, don’t be surprised to get a call from someone at SRAM to meet up one day. Whether it’s over lunch or dinner a takeover deal might be on the menu. That’s what’s happened to Quarq, SRAM have just announced a deal to buy the US power meter company. It’s the latest in a line of deals by SRAM, from Sachs to Zipp.
Debt and dealmaking
SRAM started with an innovation known as Gripshift, a new way to shift gears on a mountain bike that was very popular in the 1990s. Today it’s grown massively with revenues in excess of US$500 million. A lot of this growth has come thanks to debt and acquisition. The company has followed a pattern of borrowing money to buy up companies to build a corporate empire focussed on bike components. Along the way it’s snapped up the likes of Rock Shox, Truvativ, Avid and Zipp. All this on top of the key founding deal to buy Franco-German company Sachs, which itself owned Sedis and Huret.
Lehman Bros
The company has attracted a lot of financial interest and had 20 banks and private equity companies wanting to get involved before picking US bank Lehman Brothers and Lance Armstrong even invested at the same time. The bank famously collapsed and just as the deal was inked but this had nothing to do with SRAM nor the private equity arm and the investment still stands.
The bank that financed SRAM was spun out, it’s now known as Trilantic Capital Partners. Again this involvement has provided ready capital to fund new deals.
In a growing market dominated by Shimano and Campagnolo, both somewhat sleepy companies, there’s long been room for a third player to shake things up and the growing market for bike sales provides even more opportunities. We’re also seeing the likes of FSA expanding too, they are hoping to offer a full groupset soon.
This deal making turned a small start-up into an established manufacturer, able to supply a majority of parts, from cranks to brakes to wheels. And now power meters.
Quarq
Quarq itself is a classic start up tale. As summarised on their website, it was started by two people looking to fix a problem. Jim Meyer wanted a power meter but couldn’t afford it. An engineer he realises that the technology isn’t that complicated and starts working on some designs. Meanwhile wife Mieke finishes her MBA. The couple apply their skills and within no time they start manufacturing and selling sophisticated bicycle components. Today they’ve got 20 people and a factory dog called – what else? – Sir Isaac Newton Meter.
What next for SRAM?
Obviously we’ll soon see SRAM-branded power meters and I suspect a bike computer or display unit to match as well.
I’ve said before I think SRAM are making an electronic groupset, providing a few dots to join up. To counter the rumours, SRAM had tasked a marketing agency to promote mechanical shifting, using arguments like the following:
SRAM believes the bicycle is a pure, leg and lung-powered expression of utter simplicity and grace. And using a battery to power an essential part of the experience just isn’t right. Or necessary…
…Furthermore, electronic shifting is so specialized and boutique that if you break it, you can’t always get service or replacement…
…Instead of adding benefit, all it really adds is a layer between you and the bicycle. An insulated, muffling, experience-robbing layer of “Rolls-Royce automatic cushiness” – when the essence of cycling has always been about the “Culture of Mechanical” – AKA the raw, tactile connection of the human animal to a beautiful, efficient, analog machine
The same marketing brief also calls Shimano’s electronic shifting groupset Di2 “geeky”. Now I don’t know about you but a lot of the arguments above aren’t exactly supportive of sensitive strain guages on a bike and electronic displays flashing up wattages aren’t quite about the simple joys of cycling either. At the very least this means SRAM will have to refine the marketing message but it could also be another dot to join in the tale of electronic shifting. Remember this was a company that started thanks Gripshift, its DNA is all about innovative shifting.
Onwards and upwards
That’s speculation but the fact is that SRAM is growing from strength to strength. It already sponsors more top pro teams than Shimano and Campagnolo. It’s getting a big slice of the wider market, both on and off road. I wouldn’t be surprised to see more deals, there are even some suggestions for the next target. But it’s worth noting the company is increasingly driven by financial imperatives, it has debt to service and it’s getting more and more distant from the start-up it too once was. That’s normal but I just hope it’s not laden with too much debt as this can prove tricky if things don’t turn out right.
Power meter + electronic shifting + progamable software = automatic shifting (perhaps)
Every time the torque goes above or below a predetermined level, the gear changes automatically. Could happen. Not sure why you’d want it to, but saving the few calories that goes into shifting your hand on the bar to change gear could be handy. And save weight too — no weighty gear shifting mechanisms on the bars, just simple brake levers.
Interesting reading…nice work.
One explanation that SRAM could offer for the apparent incongruity between their “pure” ethos and the use of power meters is that while power meters are optional, gears, for all intents and purposes, are not. That is, a power meter gives you information but if it fails you can keep on riding. Gears, on the other hand, are necessary for a bicycle to function properly. By adding a “layer” you are adding one more thing that could potentially end your ride.
That said, you’re probably right that SRAM will introduce an electronic group. That seems to be the way things are going. I think as the technology becomes increasingly reliable the advantages, especially not having to adjust your gears, will outweigh any niggles regarding potential failure or the “Culture of Mechanical”.
As an aside, a benefit I can see with electronic shifting that hasn’t really been taken advantage of yet, is offering multiple places on the handlebar to shift; namely, have a second set of buttons on the top of the bars so that you can shift while climbing seated without having to reach across to the hoods. Admittedly, not a huge advantage.
Laurence wrote: “Gears, on the other hand, are necessary for a bicycle to function properly”
– wait til the fixed gear riders get wind of your comments – all hell is going to break loose!
Andy Waterman: that’s ideal for a city bike. The tech exists already for automotive use but it’s not in place that much as apparently consumer tests say drivers prefer the feel of different gears rather than a continuously smooth torque curve.
Lawrence Guttman: we’ll see. I wanted the piece to be mainly about SRAM and how it has grown and grown but realised the new deal does contrast with the “keep it simple” mantra. And yes, multiple shifting is good and we’re seeing pros and amateurs adding “sprint” shifting buttons to Di2.
jkeltgv: all debate is good but I reckon even the most ardent fixed gear rider would want some form of shifting for the upcoming Giro.
I wish SRAM would take the high road and NOT phase out the Quarq retrofit on other Cranks, be it FSA, Campagnolo, or whomever. It is one of it’s selling points. To not do so gives even more potential advantage to the upcoming pedal-based systems from Polar/Look and Garmin/Metrigear.
I’m a fan of SRAM stuff, I think they’ve done a really good job in the “most bang for you buck” arena, and I think Quarq fits that description as well. In my own “best bang for my buck” power meter solution, I went with the iBike, and some of there products can also work with the direct force power meters, including the Quarq.
SRAM has shown that it can acquire a small innovator company without destroying that company’s ability to innovate, plus leaving its culture intact. Look at Zipp: Sure, SRAM cash financed their new Service Course facility but if you talk to the people there it’s the same faces, peforming the same work, innovating just like they were 10 years ago. Walk through the shop floor and you’ll meet the same engineers and wheel builders who were there in the 90s. The acquisition was a win for Zipp as it allowed them greater leverage in getting their components spec’d on bikes, they use SRAM’s existing business infrastructure and logistics mechanisms, and have access to working capital they didn’t have previously. It has also allowed much greater career growth for the younger Zipp employees as many are now moving up through the organization into SRAM corporate positions.
Follow this model with Quarq and I see nothing but win/win for everyone.
Yet another cracking article. I love the depth of detail you go into with the background you dig up on these stories. Top work, keep it up 🙂
nb – Garmin also got in on the powermeter market awhile back with the purchase of Metrigear. Altho’ a bit more in the dev shed, i could imagine sram’ers wanting to miss out.
hoping all of this deflates the insane pricing. Or take it to the next level: quarq on zipp cranks
Sorry, but while we support World Bicycle Relief, which is associated with SRAM, it’s hard to get excited about another company making fat profits from producing their stuff in low-wage countries. If the prices truly reflected this instead of providing higher margin for the makers, things might be different. SRAM’s top-line “Red” groupset sells for just a couple hundred bucks less than Campagnolo Record and almost the same as Shimano’s Dura-Ace so I don’t see more “bang for the buck” anywhere except in profits for SRAM due to low-cost labor. No surprise that Wall Street likes that!
Disclaimer: Campagnolo is an official supplier to CycleItalia
Clearly the ability to offer a gruppo with powermeter and (eventually) a computer would help differentiate SRAM from competitors. I wonder how far they will take this and whether they may be aiming to copy what Apple has done with personal computing to provide an unparalleled level of integration on the bike. Standards like ANT+ allow us to mix and match computers and sensors, but if SRAM offers all the necessary components (as apple does with it’s “ecosystem”), they could include added benefits we haven’t even thought of yet.
What kind of benefits? Perhaps integrating cyclo-computer controls into the shift hoods. Shimano flight deck attempted this with limited success. Such integration would also allow the computer to display and record gearing data. Would the ability to analyze gearing data be useful to coaches in post workout analysis? In addition, the computer could be integrated with an electronic shifter, perhaps to allow for on the fly shifting adjustment. We have all seen mechanics hanging out of support vehicles adjusting derailleurs (maybe not so much anymore – but in any case) what if the computer head unit allowed the rider to tweak the shifting while riding?
I don’t know that any of this will come to pass or that we even would want to buy such “features” but it strikes me that owning these various parts of the bike will open the door for new forms of integration.
I can’t wait.
Patrick
P.S. Awesome blog.
A nice read, I like the way you explain some of the business side.
From the customer standpoint I think Quarq’s suffered because of the lack of support, especially for consumers outside the US (I live Singapore right now). This could take things up a level and help the company grow with SRAM support.
Any ad campaign touting a “Culture of the Mechanical” is inherently weak and defensive; I would also expect an electronic group at some point. It’s not surprising that SRAM found themselves a way in to the powermeter market, and given their previous collaboration with Quarq, the acquisition makes sense.
There are a couple of reasons aside from the simple defensiveness (and inherent contradiction) of an ad from a component manufacturer that tries to make a cultural-over-technical argument for why you should stick with their products.
First, electronic shift systems are no less mechanical than the cable-operated systems that we’re referring to as “mechanical.” The control system is simply different, and not only that, the control system is different in ways that allow for advances in precision, reliability and ease-of-use that we can’t even dream about with cables (the linked write-up on possible advantages of hydraulics for shifting is very interesting, by the way). I think that the romance of the cable will disappear in much the same way that the romance of friction discs did when SIS broke out in the mid 1980s when people realize “Hey, this is easier! And works better!” And it will.
Second, I think that this idea that the essence of the bicycle is pulling cables, in some purity of human-delivered effort, is going to ring a bit hollow for a consumer market driven by excitement about technology. I don’t think too many people are going to see pressing a button that sends an electric signal to a solenoid instead of operating a lever that pulls a cable to send a signal to another lever as a dilution of the human-powered essence of the bicycle. It’s just too silly – it’s just too much of a stretch. A bicycle is a bicycle because it is leg-powered. Putting a solenoid motor on the derailleur isn’t like putting a motor on your rear wheel, and no one will see it that way; if shifting by pressing a button dilutes the mechanical essence of a bicycle, than we lost that battle 20 years ago. Everyone is shifting by pressing buttons already. This doesn’t change anything.
Forgot to add: SRAM is smart enough to realize the inherent weakness of a cultural argument coming from a company whose brand is all about the latest-and-greatest, cutting-edge technical gee-whizzery. SRAM’s reputation as a company is one based in innovation and technical prowess. It might not be this year, it might not be next year, but they’ve got something in the pipeline, because it’s clear which way the wind is blowing.
“It’s just too silly – it’s just too much of a stretch” At the risk of being called silly, Grolby, I’ll take the stretch (or actually have already taken it) with the essay posted here
http://bikeraceinfo.com/news-and-opinion/September-09-news.html
You’ll need to scroll down near the bottom of the page. I feel that ANY battery powered motor replacing even the slightest bit of physical effort by the rider is against the very principle of cycling. Cable operated systems require the rider, through his/her own effort, to physically move the chain from one sprocket to another, just as the bicycle requires pedaling (except when gravity and momentun are in play) to move forward. A hydraulic system without servo-motors would be fine with me, though it’s tough at present to see how one could be more reliable and less complicated than cable-operated shifting and braking.
Larry T. You still have to press the buttons on di2, it doesn’t shift for you. Have you tried it? My commuting bike has D/A 7800 STI with gore shift cables and my “race” bike has di2. Arguably both fairly premium shifting set ups. I can not wait until ultegra di2 is out b/c I will commute on it year round. Unless you have ridden di2 for any period of time it is hard to comment on. In most ways I feel even more connected with di2 as to what is happening on my bike than with mechanical. Also, I love the “zirp” sound the front derailleur makes shifting from ring to ring, faultlessly, every time. Arguments aside, if electronic shifting gets people excited about riding bikes where is the downside? Cheers.
I have no idea about the finances of Shimano and Campagnolo. BUT acquisitions based on debt and sponsoring big time … was there a 2008 before 2011???
Larry T…who else in the bike industry manufactures products in “low wage” countries? All of them. If you want to step completely off of your elitist high horse, you might have to get off your bike as well.
Also, if you’re to say that EVERYTHING manufactured by Campagnolo is made in Vincenza, you are wholly incorrect.
Nice debate and some variety of opinions… keep it friendly guys!
it is an interesting combination if you can take power data, cadence, speeed/time and program an electric shifting system for high and low tolerances.
kind of like an automatic transmission in a car.
cadence is always important, i always liken it to snowmobile clutches and rollers.
Sorry Fred, though I take criticism more seriously when it’s from someone who uses their real name, here goes –did I claim everything sold by Campagnolo was made in Italy? Excuse me if this was implied as I know better. Eastern Europe assembles a lot of stuff for them. But people in the marketplace vote with their wallet — we paid for plenty of Campagnolo stuff long before they ever gave us anything, while trying to avoid most of the bike stuff produced in low-wage countries in Asia, even if it was offered to us at no charge. I think we do “put our money where our mouth is” in this regard so I can dismiss your “elitist high horse” charges with no guilt. Every one of my personal bikes has been made in Italy (most often by a man I know personally) and is equipped with Campagnolo components. The only exceptions are Wheelsmith spokes and Shimano’s road-SPD pedals…so I can enjoy riding them with no guilt as well.
If you have no problem with goods produced by cheap labor, even though the savings don’t seem to be shared with you, by all means buy whatever you like, it doesn’t bother me. But don’t expect me to cheer for those folks making big profits while exploiting the poor economic situation of others. We’re an Italian bike tour company and as such, try to use Italian products as much as possible, even when they cost more than those made in low-wage countries. I thought it only fair to disclose our relationship with Campagnolo while commenting on products by their competitors. Perhaps I should have stayed out of the conversation for this reason?
As to JVD’s electronic shifting comments, I care not a whit whether it works well or not, the idea of energy stored in a battery being used to replace physical efforts of the rider, no matter how small, fundamentally alters the sport of bike racing and opens the door to abuse. I wrote this essay long before I knew of the seattube electric motors Davide Cassani claimed on Italian TV had been used in pro races. I think neither Shimano’s or Campagnolo’s electric shifting systems should be allowed…and same for SRAM’s, should they create one. The electric gizmo Mavic offered used no servo-motors, the electronics simply delivered the riders intention, the movement of the jockey wheels via the chain supplied the energy to change gears, thus none of the rider’s energy was saved — perfectly OK with me, though I find the idea needlessly complex.
Larry T. I didn’t mean to sound harsh, or offensive, just calling out some implications that I noticed in your comments. I can’t use my real name here, because I happen to work in this industry that we all love. I sell parts from SRAM and Shimano and Campy and not at the dealer level, so I know where it is coming from on a day-to-day basis. Hell, I love Campy. I get along great with Campy NA and hope to purchase a group soon since I have been riding SRAM for the past four years and would like a refreshment in my shifting and braking choice. Anywho…I get defensive when people on forums or blog comment sections when they wildly accuse one manufacturer’s superiority over anothers based on where said manufacturer SAYS their parts are manufactured. You in no way implied Campy was god, but it is a knee-jerk reaction for me when people even come close.
I, like you, was kind of turned off by electronic shifting. Until…until, I used Di2. I was blown away. Not to say I would buy SRAM’s electric outfit, if…or shall I say when it is released, but it still is exciting. No matter what side of the fence you sit on, electric shifting is a big part the progression of our sport. Progression, in my mind, is never a bad thing. I welcome it. And, one of my employees is supposed to be checking out the new Campy electronic sometime very, very soon. Stoked to hear about it.
I wholly appreciate your full disclosure about your relationship with Campy, I think it’s great. It’s a great concept, a great service and I love what you’re doing. Heck, if I had the money I would love to join you on one of your tours. But alas, I work in the bicycle industry, so I don’t have the money.
Cheers, Larry T. and INRNG readers!
I think we all need to keep the “profit” in proper perspective.
These are businesses. Corporations are legal entities. The only charter/obligations corporations have is to do their best to produce a profit/return on investment for their shareholders. Therefore it is entirely reasonable for them to explore and utilize lower cost labor to produce goods, if they believe that this helps them in their goal. And if quality of the product is not adversely affected, and they can meet their other goals, why shouldn’t they? While some companies are more “social” than others, there is no obligation for others to follow suit.
It is very dangerous to throw around terms like “big/unfair profits” and “exploiting” around. These are subjective personal perspectives. While wages in certain countries are lower as compared to others, so too are the standards of living, and the wage requirements to live a particular lifestyle. While you may feel someone is exploited earning 1/20th of the wage you would expect to be paid, the person with that job may be quite happy to receive that pay, and might very well be supporting their family on it. While the wages may be low by western standards, the working conditions might also be clean and safe, and the workers treated well/fairly.
The companies take the risk to research, develop, and produce goods/services. Consumers either buy the goods/services or they don’t. Markets typically set pricing, and profits are based upon gross margins, total sales volume, quality of service, and efficiencies in bringing products to market. A profit is the reward for a job very well done, and maximizing profits is the charter for most corporations. People don’t typically invest in or form companies with the goal breaking even, and companies cannot invest in new opportunities, nor can they employ people if they are not producing profits.
Very well put T-R. Not to mention, the Asian marketplace has companies dedicated to this industry. Nowhere else in the world do you see that. In some regards, they are the best at what they do. Not to take anything away from the bespoke craftsmen/women our there …it’s just a different game.
I have to disagree, Larry T. Is using electrics to shift sending watts that aren’t the rider’s to the rear wheel? That’s the key issue. As I said, shifting is already a matter of pushing buttons. It is made deliberately to be as easy and effort-free as possible. The only use of resistance in the system is providing feedback to the rider, something that can be done with buttons in an electronic system if they are well-designed. Or to think of it another way: the cables and shifters on a bike are not intended for the transmission of physical effort, they are intended for the transmission of information to the derailleurs: “move here.” This is done at present with a mechanical linkage in most systems, but can be done with wires and electronic signals as well. That’s why I think the “culture of the mechanical” argument falls flat: shifting systems are mechanically operated because that was for a very long time the best way to do it. Indexed shifting was already a digital system. Going electronic just changes how things are hooked up.
Fred—you wrote “Not to mention, the Asian marketplace has companies dedicated to this industry. Nowhere else in the world do you see that.” That is quite a claim…can you explain how you come to this conclusion? As to our tours, we offer a special bike industry discount because we know most of us are in this business because of passion for cycling, rather than profits.
Grolby– did you read the essay? I have no problem with a battery powering a gizmo that provides INFORMATION (SRM, GPS, etc.) to the rider, even if that gives him some advantage over his rivals, but ANY energy source, other than the riders own efforts, that powers ANY type of motor replacing effort traditionally done by the the rider, no matter how small, should not be allowed. As I wrote earlier, a hydraulic system or an electronic one like Mavic’s ill-fated ZAP would be fine by me as long as the battery power simply tells the system WHAT to do rather than actually DOING it, replacing the effort of pulling or pushing the chain to another sprocket or chainwheel. Obviously the rules makers (so far) don’t see it this way, but I fear battery-powered servo-motor shifting systems create a precedent that’s not good for the sport. We’ve already seen the seat tube motor and while nobody can prove a certain Swiss fellow did or didn’t use one to win a race last year, reports are that it HAS been used in high level events in the past.
I really don’t have any problem with SRAM (or Shimano) as they both make fine stuff and I work on all of it when needed…I just thought it worth pointing out that despite the low-wage country savings, SRAM’s top group sells for almost as much as stuff made by their competitors in higher-wage countries (Japan, Italy, etc.) especially when someone mentioned “bang for buck” or value for money, but then again, I AM one of those people who thinks it’s obscene that US CEO’s now make 300 times more than the average worker vs 80 times not too long ago.
Touriste — you wrote, “The only charter/obligations corporations have is to do their best to produce a profit/return on investment for their shareholders.” I disagree. Corporations are made up of human beings. I believe those human beings have a moral obligation to behave in an ethical manner even when it might affect the corporation’s bottom line. Too often we hear “it’s only business” from someone from Wall Street who’s just been caught screwing over their customers, employees or colleagues. To me that is unacceptable.
But enough of this….it’s time for the Giro!
Larry T. _ I reluctantly admit that I have worked for one of the United States’ big three and now work for a large distributor of pats and accessories. We used to import a “made in Germany” brand. I make that claim because I see on see daily basis where our products are being received from. Sure, some high end product is still made in-house for some brandsand arrive from their homeland but percentages are in the Asian favor.
I’ll take a look at the site again. I would love to do a tour abroad. When time and money permits…fingers crossed. I may have a honeymoon on the horizon. Fingers crossed for that as well. 🙂
On a side note, was looking at Chorus 11s very favorably this afternoon. Maybe next year I’ll “make the leap” back to Campy? But my Red had held up very well the past three seasons.