The Sleep Economy - How start-ups aim to tackle sleep deprivation
Smart mattresses, sleep masks, and wearables
Welcome to this week’s edition of the Techstadium, the newsletter focused on the intersection of business strategy, sports, and technology written by me - Max Riegel. You can follow me here on Twitter. Thanks to the 190 founders, operators, investors, students, and sports enthusiasts who have already subscribed to the Techstadium. I highly appreciate your support in spreading the word.
In this week’s edition, we’ll focus on start-ups that are trying to tackle sleep deprivation. But first, to understand the emergence of the so-called Sleep Economy, it is crucial to understand the effects that sleep deprivation can have on the human body.
Several landmark studies have shown that sleep deprivation is associated with higher mortality risk and productivity losses due to decreased concentration. A 2017 study from Hafner et al. shows that individuals who get fewer than six hours of sleep per night have, on average, a 13% higher mortality risk than people who sleep at least seven hours. Furthermore, a recent McKinsey report addressing sleep insufficiency suggests that a lack of sleep is associated with immediate health and performance problems, such as impaired cognitive performance, increased risk of chronic health effects, as well as lost focus at work.
On a societal level, Hafner et al.’s model suggests that small changes to a population's average sleep duration, defined as individuals that slept under six hours starting to sleep seven hours, could have enormous economic consequences. For example, the US could add $226.4 billion to its economy, Japan $75.7 billion, Germany $34.1 billion, the UK $29.9 billion, and Canada $12 billion. Overall, the authors conclude that up to 3% of annual global GDP is lost to lack of sleep, indicating that an increase in the amount and quality of sleep could be a wide-ranging stimulus to global industrial output.
The reasons behind societal-wide sleep deprivation are considered to be wide-ranging. Over the last century, changes to an average person’s lifestyle, like the increase in psychosocial stress, alcohol consumption, and the use of electronic devices combined with a lack of physical activity all contribute to the problem. Against this backdrop, however, health and sleep-related concerns are starting to gain traction in the public’s consciousness, for example, through Matthew Waker’s New York Times bestseller “Why We Sleep”, and it is hardly surprising that entrepreneurs, investors, and consumers are getting increasingly interested in sleep as the “the ultimate status symbol”. While a decade ago, sleep optimization was often associated with sleeping pills; now, several tech-enabled companies have started to build more holistic solutions to sleep deprivation in recent years. Hence, we’ll take a closer look at the relevant players in the emerging billion-dollar Sleep Economy and identify the potential breakout companies, which will dominate the SleepingEconomy in the 2020s.
Let’s jump right in.
Breaking down the Sleep Economy into four categories
The start-up and grown-ups featured in this article have been separated into four different categories
bedding,
gadgets and sensors,
wearables,
and sleep and wind-down apps.
Of course, some of the featured companies might overlap between several categories. In these cases, I’ve chosen the category that I consider to be the most suitable. Also, to keep the article relatively compact, the following industry map does not aim to be exhaustive but instead tries to display a relevant selection of the most promising players.
Bedding
The first thing that many people associate with the term Sleep Economy is the vast amount of (mostly VC-backed) D2C mattress companies that have come to fame in the 2010s. The most successful US-based players in this space include Casper, which explicitly referred to its TAM as being the Sleep Economy in its S-1 filing, and Purple, which was the first US-based mattress D2C mattress company to go public via a SPAC in 2017 before it was a common practice on Wall Street. Purple's initial performance in the public markets was somewhat unsatisfactory, but the stock has mainly been climbing ever since Casper’s IPO earlier this year.
A direct comparison of the Purple and Casper stock development since Casper’s IPO (Source: Yahoo Finance)
Furthermore, Tuft and Needle plays a role in the fight for market share in the United States and recently made headlines after merging with Serta Simmons Bedding. Besides, Helix and Leesa are honorable mentions in the US market.
In Germany, Emma is the most exciting competitor in the mattress space. The Frankfurt-based start-up bootstrapped for several years before selling a 50% to investment holding Haniel earlier this year and managed to expand into 22 different countries while aiming to hit €200 million in revenue this year. The company also managed to defend the German market after Casper’s market entry, who have already withdrawn themselves from Germany. Its closest competitor is bett1, which positions itself as the cartel killer and has been growing steadily through compelling TV and radio advertising. Another battleground for D2C mattress companies is India, where Flo Mattress, SleepyCat, Wakefit, and Sunday all battle for customers. Two other players that are worth following are Mexico-based Luuna and the French Tediber.
Nearly all of the mentioned mattress companies are starting to venture into adjacent categories to cross-sell their existing customer base to improve the CAC/LTV ratio. As all D2C brands often follow a similar playbook, customer acquisition inherently becomes a rat race on social media, with Facebook and Google as the key beneficiaries. In an industry with few customer touchpoints and infrequent buying cycles like the mattress industry, turning a profit is not an easy task. Consolidation and differentiation can be expected going forward.
An adjacent but more tech-enabled category is the “smart mattress” space. With $70 million in funding, a high adoption among Silicon Valley employees, and an active Twitter presence, Eight Sleep has emerged as the most relevant player. EightSleep’s smart mattress, known as The Pod, features a dynamic cooling and heating system and offers its users a detailed sleep tracking function as well as advanced sleep coaching. Many enthusiastic early adopters are very vocal on Twitter about the product and regularly share their sleep improvements online.
However, quality has its price. The Pod is a reasonably expensive product (retailing at $2,595), supplemented by a $240/year digital subscription for in-depth analytics. Based on the business model’s similarity, it is no surprise that Eight Sleep gets regularly compared to Peloton. The great PR from CEO Matteo Franceschetti does its part, too. Franceschetti did a fantastic job at outlining the company’s mission on the Fitt Insider podcast and positions itself and the company as a domain expert by regularly offering content on sleep-related metrics and improvement techniques, such as the following Twitter thread.
One of its closest competitors is ChiliSleep with its ChiliPad Sleep System, which comprises a hydro-powered mattress pad and also allows its users to regulate the temperature. ChiliSleep recently launched its newest product, the Ooler, which incorporates sleep scheduling, smart alarm, and Bluetooth control. The third player worth mentioning in this space is Sleep Number and its 360 Smart Bed. The product costs roughly $4000, tracks a user's sleep quality, and tries to improve a user’s sleep with its SleepIQ® technology.
The final subcategory in the bedding space is bed accessories, ranging from fairly standard to quite exotic. Brooklinen, which closed a $50 million Series B last year, positioned itself as a modern D2C supplier of bed linens and loungewear. A close competitor, Parachute Home, also produces modern bedding essentials and raised a total of $45 million in growth capital. Boll & Branch tries to capture the growing demand for sustainably sourced products by offering luxury bed sheets and has raised $100 million for further expansion. Similarly, Bearaby also offers sustainably weighted blankets. New York-based Buffy tries to differentiate itself from other bed sheets and duvet providers by addressing sleeping temperature with its eucalyptus duvets, which allow heat to escape more easily from the body.
In more exotic terms, Gravity Blanket, an Israel-based start-up, offers a heavy-weighted blanket that is engineered to naturally reduce stress and increase relaxation, while MOONA from Paris retails a cooling Pillow Pad with an active thermo-regulation system. Finally, Ostrichpillow and Hoodie Pillow sell pillows that go over one’s entire head to block out external stimuli like light and sound, which might come back to fashion once business and leisure travel starts to pick up again.
Gadgets and sensors
Next up, let’s have a detailed look at the different kinds of sleep-focused gadgets and sensors brought and the start-ups behind them. First of all, several teams have been focused on developing solutions to adjust ambient lighting and noise exposure following several studies that have demonstrated the adverse effects that exposure to blue light and loud noises can have on sleep quality.
One of the start-ups in this space, Hatch Sleep, has worked on a device called the Sleep Pod, which combines sleep sounds, a bedside reading light, a customized wind-down option, and a sunrise alarm to help customers fall asleep and wake up smoother. Exclusively focused on wind-downs before falling asleep, Dodow developed a lamp that projects light onto a room’s ceiling. While lying in bed, a user can then adjust his/her breathing to the light’s rhythm, inhaling when the beam expands and exhaling when it retracts. The company states that its nearly 1 million users on average fall asleep 2.5 times faster than before, and the company brands itself as an alternative to sleeping pills.
For humans who regularly try to fall asleep in a noisy environment, SNOOZ developed a portable white noise machine controllable via a companion app that customized sounds to help customers wind-down. Both Kokoon and Amazfit have created different products with the intent of blocking out noise while falling asleep. Kokkon’s headphones and Amazfit’s ZenButs are smart noise-blocking devices that minimize disruptions between going to bed and getting back up.
Another trend in the sleep gadget space is the development of smart sleep masks that go beyond the standard piece of fabric, which one gets offered on long-haul flights. For example, Neuroon offers personalized embedded lightning through its mask based on sleep data to enhance sleep quality. Remee follows a slightly different approach by using its mask to display a series of light patterns during REM sleep cycles. Thereby the company aims to increase its customers’ abilities to recall their dreams, improve their dream vividness, and enter lucid dreaming.
Besides sleep masks, bed-based sleep monitoring devices are also increasingly subject to investor interest - even from Big Tech. The most famous start-up in this space, Finland-based Beddit, has been acquired by Apple for its sleep-monitoring device, which gets placed under one’s sheet and on top of the mattress.
In combination with a companion app, the sensor then begins to track a person as soon as it detects pressure on the mattress and collects data such as the amount of time someone spends in bed, heart rate, temperature, and snoring intensity. Another company with a similar offer is French-based Withings, which was previously owned by Nokia. Its product Withings Sleep offers sleep cycle analysis, snore detection, and heart rate measurement and is comparable to Beddit.
The final company that I want to highlight in the gadget space is Somnox: The Dutch company has developed a dream robot that provides its customers with a precise breathing simulation and is intended as a wind-device. By mirroring the robot’s breath after putting one’s hands on the Somnox Sleep Robot, users are supposed to breathe along with the falling and rising physical breathing pulse that the device transmits. The product successfully reduces stress anxiety among insomniacs and serves as a drug-free alternative to increase deep sleep.
Wearables
The next category, wearables, is receiving much attention from the media recently, in no small part due to the linkage between wearing electronic monitoring devices and detecting early symptoms of COVID-19 (here, here, and here).
Sleep-related wearables can generally be classified into multi-purpose and single-purpose sleep trackers. The multi-purpose category has received a significant boost since watchOS 7 added a native, but very rudimentary, sleep tracking feature to Apple Watches. The Fitbit Versa 2, which will soon become a more integrated part of the Android universe following Google’s acquisition of Fitbit, offers slightly more advanced integrated tracking features. The exciting players in this space, however, are the two upstarts Whoop and Oura.
WHOOP, which sells its wearable device combined with a monthly subscription, has become a VC-favorite and already accumulated over $200 million in funding at a $1.2 billion valuation. WHOOP’s technology has all the features of a dedicated sleep tracker (e.g., sleep stages, cycles, HRV, and respiratory state) while also serving as a general health monitoring device. Based on the famous calculated strain score based on the sleep quality and the workout intensity of the previous day, its algorithm offers an activity level recommendation for the upcoming day.
During the COVID-19 pandemic, WHOOP has partnered with professional baseball and golf players to offer personalized insights into their recovery and sleeping habits. Whoop closed deals to distribute its straps to every golfer on the PGA and LPGA Tours while also gaining high adoption rates among MLB, NHL, and NBA players. The whole COVID-19 and WHOOP angle is fascinating. I highly recommend the North Star podcast with Whoop’s founder Will Ahmed and the following study on the COVID-19 detection capabilities.
Similarly, the Oura Ring, which counts Prince Harry among its early fans, has built a sensor-packed ring that tracks heart rate, sleep stages, and body temperature. Oura’s app then uses the generated data to calculate a “readiness” score. Also, during the restart of the NBA, Oura partnered with the league to supply the players with Oura Rings so that they get a better feel for their physical conditions. Further partnerships include RedBull Racing and the UFC. In total, more than 2,000 professional athletes ordered rings from the company last year. Moreover, the company made headlines besides professional sports by being crowned as one of TIME’s 100 Best Inventions of 2020 and gained global awareness for their excellent ad campaign during the US election night.
Besides these multi-purpose devices, which have become an integral part of tech culture, there are several less fashionable single-purpose sleep tracking wearables. The sleep tracking rings from Ectosense and THIM and the DreamOn wristband aim at more niche use cases, like diagnosing sleep apnea, falling asleep faster, or increasing deep sleep percentage. However, all of them have not received a lot of consumer and media attention, in part due to their more medical focused approaches.
Dreem 2 takes a slightly different approach to the devices mentioned above. The company’s key product is a headband for sleep tracking with a more dedicated focus on medical use cases linked to sleep clinics. However, the company combines its headband with a very user-friendly mobile interface and thereby follows a similar playbook as Whoop, Oura, and EightSleep. Finally, Beddr, which calls itself the first digital sleep clinic, also developed an unconventional wearable in the form of a stamp-size sensor called the Sleep Tuner. It is placed on a person’s forehead and tracks several metrics like heart rate and oxygen saturation levels for medical purposes.
Finally, there are two start-ups worth mentioning that track sleep-related data entirely differently. One of them is LYS, which developed a small light-tracking wearable attached to a user’s clothes. The device then continuously monitors and assesses a user’s daily light intake and offers insights into energy levels and peak productive hours, which plays a vital role in sleep cycle planning. The other one is Acurable with its AcuPebble sensor that records internal body sounds in a non-invasive way and transfers the data to its companion app. Acurable’s signal processing algorithms then analyze the gathered data to diagnose sleep apnea, epilepsy, and asthma.
Sleep and wind-down apps
Sleep and wind-down apps are probably the most tangible category to most end consumers as phone and smartwatches-assisted sleep tracking becomes widespread.
The likes of SleepAsAndroid and SleepScore have built dedicated apps that use the smartphone microphone and speaker to track breathing rates and movements during the night. The data quality of this technique is, however, quite questionable. More advanced apps, like the Apple Watch-based competitors AutoSleep, Pillow, Sleep Cycle, and Sleep++, use biometric data from smartwatches to map sleep duration and efficiency. Based on this data, the apps’ algorithms then offer insights and advice on sleeping habits.
In the adjacent market of wind-down apps, the two mainstream mediation apps Calm, which recently raised new funds at a 2 billion dollar valuation, and Headspace, which latest funding round was its $93 million Series C, have started to roll out sleep stories and ambient noise options. A more narrowly focused player is Sleepiest, which offers its users stories, sounds & meditations solely aimed at helping one fall asleep faster. Similarly, Resilio offers sleep focused breathing meditation and uses the smartphone camera to measure a user’s heart rate. Pzizz goes a lever deeper by utilizing psychoacoustic principles to create individualized music to help its users fall asleep faster. emile takes a different approach to wind-downs by offering a chatbot, allowing users to build bedtime habits through regular interaction. Finally, Learning To Sleep, a Swedish start-up, provides a clinically verified sleep improvement program for people with a sleeping disorder through its mobile and web apps.
The last category of sleep-related apps falls in the category of jet lag management. Both Timeshifter and Uplift have developed apps that allow travelers to schedule their traveling and sleeping times by taking a user’s circadian rhythm into account. Hence, the apps can help travelers adjust to new time zones and thereby minimize jet lag. Both are poised to benefit from the potential rebound in travel that we could see this summer.
Vertical integration and customer touchpoints as the critical determinants of future success
As consumers get increasingly concerned with optimizing their sleep and enhancing their energy levels, it is not surprising to see that several start-ups are creating new products to meet that need. Furthermore, the subtle shift away from hustle culture and the risk of burn-out toward more widespread adoption of work-life balance principles provides a further tailwind to the sector.
What strikes me as particularly interesting is that the most exciting companies in the billion-dollar Sleep Economy are the ones that are trying to go all the way of integrating hardware and software to go beyond superficial analytics-based and unclear data quality. The likes of Whoop, EightSleep, and Oura have all followed the path of vertical integration to ensure data quality and consistency, which allows them to offer tailored and actionable insights to their customers.
As displayed above, there are plenty of solutions out there in the market, but what truly differentiates the winners from the rest is how seriously they take data gathering and analytics based on scientific models. Meeting these criteria is crucial as data credibility and insight quality will, in the end, determine who will be able to cross the chasm from Silicon Valley niche adaptation to global popularity. The mainstream adoption of sleep tracking devices is inevitable, and I am curious to see which players will ultimately be the winners at the end of the decade.
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Brilliant article, but I think you are missing workplace sleep solutions such as nap pods, which will also become increasingly important for offices, airports, etc. fx. https://metronaps.com/