Meditation Is A Billion Dollar Business
For today’s blog, let’s try something different. Instead of writing about a topic I already know about, I’m going to explore the wild world of Meditation Apps. Nearly a quarter of a billion dollars has been invested into this digital health market. And like Aladdin, let me take you on this magic carpet ride figuring out how and why.
To be clear, I have no direct working experience or ties with the space. I also have never led a social media or consumer product company, so I’m not the expert on direct product marketing (e.g., customer acquisition cost and viral coefficients). And lastly, I have tried the free versions of Calm, Headspace, and InsightTimer. I don’t pay for or regularly use any of them. Now let’s get into it.
Description of the Product / Market
If I type “meditation” into CrunchBase, I see 303 companies listed. According to a Financial Times article, there are over 1,300 mindfulness apps. All of this is not by accident. The thought of having re-occurring subscription revenue for pre-recorded material, for infinity is quite appealing. You can remove the high upfront cost barrier of Peloton and pay substantially lower licensing fees than Spotify.
Investors obviously believe in the opportunity, having poured $209 million into the two most marketed and publicized startups in the space, Calm and Headspace. For those interested, here’s a list of some meditation apps that have raised VC funding:
- Calm – Raised $116 million
- Headspace – Raised $93 million
- Grokker – $23 million
- Simple Habit – $13 million
- 10% Happier – $5 million
- Meditopia – $3 million
Total Addressable Market
If you run a digital health startup, total addressable market or “TAM” becomes more philosophy than science. We’ve all heard the story about McKinsey’s original cell phone market sizing prediction to AT&T back in 1980. At the time, McKinsey predicted the total market of cell phones would be limited to 900,000 phones by year 2000. This was off by about 108 million.
Digital health is still in its nascent years, so any historical data points need to be massaged. According to one report, the U.S. meditation industry is worth $1.2 billion and growing 11.4% annually. However, we now live in a world where mindfulness and mental health treatment have become less taboo (for good reason). And remember, stress is a global issue where the top meditation lessons can be translated into key languages to expand the opportunity.
There are an estimated 2,450 meditation studios or centers in the country, primarily non-profit organizations that generated $659 million in revenue. I’m not sure how many of these brick-and-mortar will continue to exist, but that seems like revenue ripe for disruption.
Solving A Problem
Americans are anxious. We are especially stressed about these five aspects of daily life: health, safety, finances, politics, and relationships. I think it’s safe to assume these five have been negatively impacted by COVID-19. The Anxiety and Depression Association of America (ADAA) estimates that 40 million in the U.S. (18%) experience anxiety each year, while only one-third of persons receive treatment. And although we’re talking about the U.S. market today, 1 in 13 humans globally suffer from anxiety according to the World Health Organization (WHO).
Now I’m not going to dig into the clinical effectiveness or any randomized control trials of a meditation app versus the control group. However, if a 10-minute meditation per day helps you feel calmer, I’m all for it.
How Do You Make $
From my very brief review, meditation apps can primarily make money from four income streams.
- Monthly or Annual Subscription: $10-15 per month or $50-100 per year
- Built-in Purchases: Special set of meditations, sound effects, animations, etc.
- Ads: Promoting other wellness brands or products
- Sell Data: I’m sure someone would buy data on stress levels and meditation practices
According to Sensor Tower’s data, the top 10 highest-grossing meditation apps combined for $195 million in 2019 revenue. This revenue number is up 52% from the previous year and might even be underestimated. CNBC reported that Calm had $150 million of annual run rate revenue with over 40 million downloads and over 1 million paying subscribers in 2018. All to say, any top meditation app should be bringing in 7-9 figure revenue totals at a very high gross margin.
A business can make money via three routes: 1) Increase prices; 2) Increase volume; 3) Sell more products. I could argue that if done right, a proper meditation startup could achieve all three.
I haven’t seen a rigorous price sensitivity study on meditation app services, but I’d imagine those paying out-of-pocket for monthly subscriptions are relatively insensitive if they develop an emotional connection to the brand, voices, and instructors. Is an extra dollar or two per month a big deal if you believe meditation is helping you manage stress? That’s cheaper than one Bell’s Oberon draft beer at the bar.
As U.S. organizations begin to take mental health benefits more seriously, I’d imagine a big opportunity for meditation apps is to partner with organizations with people experiencing loneliness and/or stress (think of nursing homes!). This presents huge opportunity to insulate the consumer from cost and allow a large employer to “look cool” by providing a “free” meditation service.
More products could be all other areas of wellness. Need tai chi or breathing exercises? What about yoga routines? There’s a whole world of feeling yourself exercises that could be added onto the platform.
Concerns About Meditation Apps
Now that I’ve sold you on why you should invest in the next meditation app, here’s a few things I’m concerned about:
- I hate when any meditation startup mentions they are going after the, “$4 trillion health and wellness industry” as the market opportunity. That’s just blasphemy.
- Technology can be distracting. We’ve seen the many reports on the downsides of smartphone usage on mental health. Seems odd that these meditation apps defy this logic.
- There are a ton of free options. I don’t know how many people will actually pay for this long-term, particularly once they develop the muscle memory to center their mind without technological assistance.
- Say what you wish, true product differentiation is a tough pill to swallow. We haven’t yet entered the world of personalized, virtual reality meditation (if that’s even a thing).
- Imagine if Apple or Spotify released their versions of meditation. Like podcasts, they either can be a future acquirer or a direct competitor with a larger pre-existing user base.
- Does the science work? I think it depends person-to-person. But I don’t think it’s a panacea for all things related to stress, anxiety, and mental wellness.