I think it is an interesting concept. As to why people would buy this over getting a real bike, I think there are several reasons, some of which are:
Cost: If you want a good bike they can get to be somewhat costly and regular exercise bikes can be costly as well. Some people are trying to save money and while this game and peripheral are certainly not going to be cheap, it may be a much more cost affective alternative than a real bike. This is something the whole family can use whereas a family that has a husband, wife, teenage daughter, teenage son and younger son and daughter could require six different bikes depending on size and such. With a regular exercise bike people may find that it isn't as much fun, and the bikes that are like just the peripheral may be too boring for some people. You also have to consider the game will likely act as a fitness class and joining a gym or fitness class will certainly be more costly than the game and device.
Space: If you are living in a dorm room, small apartment, don't have a garage, etc. you may be very limited on space. You may not have the space to put it in a garage (or even the option) and it may not be safe to leave outside and a lot of people dont' like leaving their bikes in the house, for obvious reasons. This is something that can easily be stored in a closet and tucked away out of site.
Fun: The game itself should add a different element that can combine challenges, different surroundings and different workouts so that you are not constantly doing the same thing over and over. Generally most people stop exercising because they get bored or are no longer motivate and games can help to curb that in some situations.
Location: A lot of people don't live in areas where biking is a good idea. For example, if you live in a busy city you may not feel comfortable riding a bike a long the road and taking a big risk of getting in an accident. Not only do you take the chance of hitting something and falling of the bike into oncomming traffic, you risk not being seen or even someone just not being careful around you while driving and as a result getting hit. Also, a lot of people live in neighborhoods that are not necessarily safe, so riding a bike may not be a good option.
Time: For a lot of people everyday schedules get in the way of being able to do some of the things you want to do. If you work all day and take care of a family, you may only have the opportunity to go out and bike at night. For average riders this isn't always the best idea and it also isn't the safest idea in a lot of areas. For some people (i.e. single parents) even leaving at night may not be an option if you have kids and no one to watch them.
Seasons: The weather can be a huge impact on being able to ride. Rainy weather isn't the best conditions to ride in and when you just do it for fun, most people don't want to ride in the rain and obviously storms are a very bad idea. Rainy and/or cloudy conditions are also not very safe for people to ride in. Winter is an obvious problem for people that live in snowy areas. The snow makes riding a bike quite dangerous (especially on roads travelled by a lot of cars) and sometimes impossible. Summer can also pose its own complications. Here in Florida it can get really hot in the afternoon during the peaks times of summer and riding a bike outside would be very uncomfortable and dangerous if you don't know what you are doing.
Health: A lot of people are not physically able to ride a bike. Whether it is due to weight or some sort of mobility issue. This could allow people that can't use a regular bike to be able to get the exercise and benefits of a bike that they otherwise couldn't.
Obvioulsy, I think most people would rather get outside and ride a real bike, but there are a lot of situations where this just isn't possible and something like this would be a great idea. The Wii is known for having a lot of crazy accessories, but I do thinks that this one has some potential.
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