I’ve been following this company Eight Sleep for some time. I’m a user of the Chili Pad (more later), but Eight Sleep is definitely the Ferrari of the market. I’m personally interested in improving my sleep. The other reason: the mattress market is a dumpster fire, yet some very smart investors are backing Eight Sleep. I wanted to understand why smart money would enter the category.
Background
I’ve had intermittent sleep issues from college life, 4am wake up calls in finance, and incorrect room temperature. During the night, I throw off heat like the radioactive remains of Chernobyl. San Francisco apartments lack air conditioning, so my apartment was a standing 75+ outside of the winter. The Chili Pad was making the rounds in podcast ads, claiming to cool you during the night and enable better sleep. I gave it a try and swear by it. I have cleaned up my lifestyle a ton, but I feel younger than I did years prior and attribute much of that to sleep. The other reason I got the Chili Pad: with discount, the unit cost ~$400 to cool my side of the bed. Eight Sleep runs over $2000 for the mattress and unit, and around $1700 for a unit that works with your existing mattress.
The market for mattress is a bit bloated to say the least. In 2019, there were at least 175 mattress companies operating. In the presence of a cheaper alternative like Chili and a glut of one-year, risk-free mattress trials, Eight Sleep has somehow built quite the cult following and attracted serious investors Founders Fund and Khosla.
Current situation
The core product is a mattress with split temperature controls for each side, many sensors to track heart activity and respiration, smart temperature regulation, and an app to control it. The app has a daily health check-in (more below). By all accounts, it is a phenomenal product. In many respects, the company has a Peloton vibe to it. The focus on physical benefit, the advertising, the price point, and the market targeted share many similarities. They also seem to have a COVID supply crunch, a first-class problem. When you are a Series C company being compared to a $45 billion public company, you aren’t doing too bad.
When I was considering Chili, they had yet to expand to work with your existing mattress. Beyond that, there are several big ways to keep growing this business.
Better device – Some of my thoughts I’ll cover below. One factor alluded to on the Pomp Podcast – controlling more factors like noise, perhaps in a different form factor.
Hotel deals – Perhaps business travelers would prioritize the W to sleep on Eight Sleep.
Travel device – I can’t quite imagine what this would look like, but I would love to have a portable Chili/Eight Sleep.
There is a fair rebuttal here that Peloton’s stock is a bit euphoric, and the boutique mattress market may be smaller or face more brutal competition. The other risk I see for them is how differentiated can this current iteration remain. By all accounts, the Eight Sleep functions better than Chili. How much better is the SmartTemp AI? Is the data moat here significant or will it plateau? Perhaps a simple algorithm like “cool me early in the night, stay flat later during REM” gets most of the benefit. I already sleep rather well from my Chili after all.
Future visions of sleep
The bull case above could arguably justify the investment from Founders Fund and Khosla. From what I know of them, I suspect one of two future visions is driving the interest. Something more futuristic.
The first vision, also mentioned in the Pomp Podcast, is to “Compress Sleep”. During sleep, we fluctuate between light sleep, deep sleep and REM. Deep sleep gets a lot of focus for physical recovery, and REM has many links to learning and emotional processing. If 4 hours of the night is in light sleep, could we shave off 2 hours and feel as good on 6 hours and others feel on 8?
I’m inherently skeptical of this as anything more than an aspirational vision and rallying cry (would love to be proven wrong). I will concede that controlling for noise probably shaves a few additional wake ups from the night.
Let’s step out of tech and into an evolutionary lens for a moment. Sleep is an incredibly vulnerable state. The only reason to be asleep is for the tremendous benefits it brings. The ancestral environment included nocturnal, carnivorous cats and other bad beasts. Even a human rival with a big rock and a desire for your animal pelts is a risk when you are unconscious. To suggest there are 2 wasted hours a night seems to suggest that evolution left us needlessly vulnerable for an additional 2 hours a night. There are certainly genetic light sleepers. If that came with no consequence, I would assume it would have become a strongly dominant trait.
Unsure how much of this is bold vision and rallying cry, but I don’t place a ton of weight on this coming in the next 5 years. I’m no hater, I hope it’s possible. If achieved, the value of this company would certainly be enormous.
Future visions of healthcare
Perhaps there is both a bold vision beyond the current Pod product and one that seems more immediately achievable. The other vision laid out on the Pomp Podcast was to “Save your Life” - (between the vision soundbites, their advertising, and their cult Twitter following, I have to give them some serious marketing props). The Eight Sleep Pod has already added sensors to detect your temperature, heart rate, heart rate variability, and respiratory rate. Why not add more sensors and search for more issues?
Some obvious, sleep-related issues that could be detected
Sleep Apnea – Estimated 22 million Americans
Restless Leg – 7-10% of the US population
Rem Sleep Behavior Disorder – up to 1% of the population
And sorry to be morbid but SIDS
Just those issues would expand the market to tens of millions more beds to sell. Getting into healthcare could add a SaaS component as well. I thought they used to charge a monthly subscription for 8+, but it appears there is no additional monthly fee for the Pod. We can take it much further though. If we are going to go full sci-fi
Whoop and Oura Ring have demonstrated some early predictive power of COVID cases. Get treatment early and stay alive. Be alerted to stay home when you are on the verge of the flu. End COVID and Influenza for good.
Documenting nighttime disturbances related to anxiety/depression/panic – Many millions of Americans
Could you monitor someone’s blood pressure overnight? What could we learn about blood sugar? Cholesterol? Cancer? All sorts of potential data gets sweat out or exhaled overnight.
Sleep on Eight Sleep. Have an unparalleled health data set. Wake up to a daily health check. Communicate to a doctor when needed. I could see investors getting out of bed for that type of market.
Competition
If this vision seems both enormous and seemingly more achievable, it also flies into a more competitive landscape. Beating up on 175 mattress companies is one thing. Healthcare’s giant addressable market means it is one of the few areas that can drive growth for even the biggest of tech giants.
A couple of other internet cult favorites play in this realm too. Whoop and Oura ring are both doing 24-hour monitoring of heart and respiration (Oura adds temperature). One risk is generating enough differentiation to exceed what is capable with a wearable. I tend to believe physics will allow more and more varied sensors in a bed than a wrist strap. No guarantee a bed can collect more/better data in a non-invasive way.
There is one major tech company in particular that has a pseudo-24-hour wearable, a penchant for design, upscale clientele, a growing interest in health, a market-cap big enough to leave few growth markets, a desire for service revenue, and manufacturing prowess. While all of the major tech companies have interest in healthcare, Apple seems uniquely positioned to execute. The Apple Watch may run into the laws of physics, and some of the current health add-ons haven’t impressed. They certainly seem to me like the most likely to bump into Eight Sleep (if this is the direction the Pod is going).
What might be interesting is to combine the all-day data from your watch with overnight monitoring via Eight Sleep. Is my heart rate elevated from a marathon or impending illness? That question seems easier to solve with both data sets. Perhaps a partnership – though I am skeptical either would share data. Perhaps acquisition – Apple does sit on a ton of cash.
Either way: this is a potentially wild bet and no sure thing, but I see a much larger outcome possible than the mattress company #1 of 176.