WHOOP RAISES USD 100 MILLION IN SERIES E FUNDING
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Whoop has won over investors and quickly became commonplace in pro sports, with early fans including LeBron James and Michael Phelps, and recently raising a USD 100 million Series E at a USD 1.2 billion valuation. Whoop is a monthly subscription for 24/7 health monitoring across sleep, recovery and strain, including free hardware (Whoop Strap 3.0) and a coaching platform designed to optimize behavior.
Whoop's popularity in pro sports was made very clear by the company's new funding. IVP led the round, with SoftBank and several VCs also taking part. But the company's investor list also included professional athletes such as Kevin Durant, Eli Manning and Rory McIlroy. For a company that promises to help customers improve the way their own body performs, the list of superstar athletes is the sort of endorsement money cannot buy. The support of pro athletes creates an authentic brand image around human performance.
Venture investment in the wearables industry has plateaued in recent years after a previous boom. Between 2012 and 2016, global VC deal value in wearables climbed from about USD 300 million to USD 2.5 billion. The biggest names in tech are certainly taking note. Apple announced the launch of its Fitness+ offering earlier this year, and Google is attempting to finalize a USD 2.1 billion acquisition of Fitbit.
Connecting devices are driving the ongoing movement towards a holistic and digitized health system. With that being said, hardware is difficult. For a hardware company to grow, it needs to ship more units or ship more expensive units every year. Early on, the challenge is operational, e.g. GoPro had to figure out how to assemble more cameras, and had to design better ones. But in the later stages of a hardware company’s growth cycle, it is hard to determine the total addressable market, as well as the upgrade cycle gets longer.
The addressable market question starts out easy. If a small group of fanatical users like the current iteration of the product, then a larger group of them will probably buy an improved version. But over time, it becomes a tougher. How many people will use fitness trackers, athletic cameras, and smart speakers? Every year, growing the market means changing the world and betting that millions of people will alter the way they live.
When the buyer population shifts from early adopters to average people, it necessarily shifts from people who will buy every brand-new update to the much larger cohort that is satisfied by default with the current options and does not feel the pressing need to upgrade. Even pathological early adopters slow down their upgrades over time, since older product categories cease to be something one could adopt early.
Compounding the problem is the fact that consumer hardware is a complement to software, and software companies tend to have stronger network effects, far more price discrimination ability, higher margins, more access to capital. One possibility is a hardware product bundled with a subscription, which is what Fitbit has done. The business model with device sales was very episodic before shifting to a model that engages with the user on a monthly or annually basis, rather than having a transactional relationship.
Apple is one of the most successful versions of this and currently has close to 600 million paid subscribers for its various services, allowing it to earn revenue over the usage cycle rather than from purchase to purchase. For Apple in particular, tight hardware and software integration makes the services business a growth engine. Apple can add in hardware features that it later monetizes through software products, which is a key part of its health strategy and ties into other subscription products, too.