Why Oura is running toward Washington oversight

Liz Hoffman:
Welcome to Compound Interest from Semafor Business. I’m Liz Hoffman, Semafor’s business and finance editor, joined as always by my colleague, Rohan Goswami. Rohan, what are we writing about? What are we thinking about this week?

Rohan Goswami:
Well, Liz, you and I, we can’t escape private credit. We can’t escape the war in Iran. It does feel like we’re at a very strange moment where a lot of things are about to come home to roost. Energy markets are crazy, stock markets are going wild, bonds are selling off. It’s been a crazy week for us here.

Liz Hoffman:
Yeah, bad chickens.

Rohan Goswami:
Very bad chickens. What does that mean?

Liz Hoffman:
They’re coming home to roost, the bad chickens.

Rohan Goswami:
Oh, bad chickens.

Liz Hoffman:
Yes.

Rohan Goswami:
Don’t you want them to come home to roost though? Am I being trapped by my own metaphor here?

Liz Hoffman:
I don’t know. Has this intro already gone off the rails?

Rohan Goswami:
No, no, we’re good.

Liz Hoffman:
I’m pulling it back. I’m pulling it back.

Rohan Goswami:
We can set the landing here. It’s fine. It’s all good.

Liz Hoffman:
We were going to do something a little lighter this week.

Rohan Goswami:
Oh, good.

Liz Hoffman:
Which is that our guest today is Tom Hale, who’s the CEO of Oura. This is the startup that makes the Oura Ring, which is part sleep tracker, morphing into a broader health wearable and a status symbol for a particular elite life-hack maxer.

Rohan Goswami:
The Silicon Valley bros who want to live forever.

Liz Hoffman:
Correct, correct. And I suspect that Tom actually wants this to be less of a status symbol for that particular group and more of a mass market wearable. But they’re right at the middle of a bunch of these fascinating dynamics in the business world right now. It’s a subscription business at a time when customers are getting tired of subscriptions, even if Wall Street is totally in love with them. It is a rare European unicorn that just moved to the US.

Rohan Goswami:
Where was it founded?

Liz Hoffman:
Finland.

Rohan Goswami:
Oh, interesting.

Liz Hoffman:
Tom is not finished, which will be pretty clear when we talk to him. But it’s a military contractor. It works at the Pentagon at a time when that is increasingly fraught, as we’ve seen over the last few weeks with OpenAI and Anthropic. Want to talk to Tom about his IPO plans and on what the future of wearables looks like. That is just a wide open space right now.

Rohan Goswami:
It’s almost like the next frontier of where the AI fight is going to be, the input device. We have these weird pins with these weird things. Apple’s getting into hand tracking. It does feel like everyone in this space has one eye on the agentic world, but in a much realer way than other industries do, in a much more imminent way.

Liz Hoffman:
Yeah. And I think for all the discussion right now around software, there is going to be a hardware device that wins this race. You look back now and it’s inevitable that it was the iPhone, but perhaps as a little bit of a trope on the show, I’m older than you. I remember PalmPilots and Treos.
And I think it is inevitable now we look back that the iPhone won, but it was not remotely inevitable then. And this one feels way more wide open to me. Yeah, I think Tom is right in the middle of all of these really interesting conversations. At the same time, trying to take a pretty valuable startup public in the not too distant future. So a lot to talk to him about.

Rohan Goswami:
What would you want as your AI interface, physical interface of choice? Glasses or brains?

Liz Hoffman:
Glasses feels right though. I don’t know if it was a chip in my brain, but just got me to stop looking down and look up in the world. That feels better to me. I don’t know.

Rohan Goswami:
Yeah. Well, look, neither you nor I are AI hardware experts, so why don’t we take a quick break and we’ll come back with Tom?

Liz Hoffman:
Tom, welcome to the show. Thanks for coming.

Tom Hale:
Thank you, Liz. It’s a pleasure to be here.

Liz Hoffman:
We’re hearing a lot about peak subscription. The consumers are getting weary of all of these recurring bills. Yours is a subscription business. These rings, they do look nice, but they don’t do a lot without the data. So how do you think about that and what’s your read on consumers’ desire to keep every month giving you money?

Tom Hale:
I think peak subscription refers to subscriptions that don’t deliver a lot of value because it’s so easy, I think, to sign up for an app or a service and then maybe even forget about it. And then six months later, you look at it and say, “I haven’t been using this or I haven’t been consuming it.” Mathematically, you might describe this as the V over P ratio, the value over price ratio.
If you’re getting two, two and a half, three, four times your price in terms of the value, you know what you don’t do? Churn. You don’t complain about it because you’re getting the value. And that’s really the key. And I think when people talk about subscription fatigue, what they really mean is there’s too many subscriptions that don’t provide enough value and they’re emptying your wallet without giving you anything in return. And I think that’s really not true of Oura.
The first way I think about that is the retention, because retention is really the measure of whether or not you’re getting enough V for your P. Our retention is famously off the charts. You think about consumer subscription services like Spotify and Netflix. We retain better at 12 and 24 months than those services by a country mile. The kinds of things that Oura delivers for you, I don’t know if you guys are Oura users, but for those who do, they probably understand-

Liz Hoffman:
I thought you were going to ask me, and I do have a stock answer, which is that I know that I sleep terribly and I don’t need to be reminded of it every morning.

Tom Hale:
Yeah. And it’s funny, that’s a stock answer. And in the sense that it’s an answer that you would pull out if you didn’t actually know what you were talking about. It’s the easy answer.

Rohan Goswami:
Ooh. Ooh.

Liz Hoffman:
Getting spicy already. I like it.

Rohan Goswami:
All right.

Tom Hale:
No shade. No shade, Liz. I’m just trying to tell you.

Liz Hoffman:
No, I love it.

Tom Hale:
Because what are the things that people value? If you think about that, you think about for someone who’s trying to get pregnant. So again, one of the classic use cases is what is your fertile window? It’s actually a Class 1 medical device that Oura provides. What most people know if they’ve ever tried to get pregnant or in a partnership trying to get pregnant, what they figure out is that taking a luteinizing hormone test tells you after you’ve ovulated, which means that your fertile window is about the two days after ovulation where your fertility is at its peak.
The thing that we do is we make a prediction about your fertile window, which is five days. And that means twice the opportunities to get pregnant. So when people stop me in the airport because I’m wearing an Oura T-shirt or an Oura sweatshirt and they say, “Hey, you work for Oura?” And I say, “Yeah, I work for Oura.” And they say, “Oh, wow, thank you so much. You helped us get pregnant.” Again, that’s a lot of V. And what was happening for me, just to put it in perspective, I was maybe just about to turn 54 and for the first time in my life, I had lost sleep.
I don’t know if you guys have ever lost sleep, maybe you’ve never had that happen. But for me, it was a combination of COVID, stress in my family. We had sold a company. It was in the process of being unsold and there was quite a lot of stress in my life. And so for the first time, I could not fall asleep and I could not stay asleep. What Oura maybe showed me was a little bit down the path of how to optimize for sleep. I should stop drinking coffee in the mornings. I should stop drinking wine at night. I should not look at my phone before I go to bed. I should sleep in a colder room. And by the way, in that moment when I changed my behaviors and regained sleep, it was transformative.
I actually realized I’ve been sleep-deprived most of my adult life. That’s a lot of value. And so I come back to, “What’s a subscription?” Well, a subscription is an exchange for value over time for money. I’m going to maybe objection, foundation on your question about subscription fatigue because what I’m really saying is that if you deliver value, I don’t think there is subscription fatigue. And if you don’t deliver value, there is subscription fatigue and you should throw your subscription out.

Liz Hoffman:
Yeah. We talked about this, you and I, maybe six or eight months ago, and you whipped out a data point that I’ll actually ask you to share with our listeners now. It had something to do with the discount for annual subscriptions versus monthlies and what it tells you about what the company is expecting.

Tom Hale:
Yeah, sure. One of the ways that you can decompose the monthly churn is you can look at the degree of discount between the annual subscription and the monthly subscription because if you are thinking about your subscription business as a way to get people to commit to your product for a longer term, you’ll price the annual subscription at a discount to 12 times the monthly subscription. “Hey, sign up for a year and what we’ll do is we’ll give you a discount and that’s the incentive for you to do it.”
And if you think about that ratio of $6 of Oura per month, multiply it by 12, that’s $72, we price at $70. So it’s a very, very slight discount. And what’s interesting is we get people signing up for the product and paying an annual subscription in ridiculous numbers, north of 50%. They’re not choosing it because of the price.
They’re not making some like, “Wow, I’m saving a whole $2.” But if you look at other subscriptions and you look at the ratio of monthly to annual, you’ll start to see the degree to which they discount the annual subscription from 12 times the monthly tells you how bad their retention is.

Rohan Goswami:
There’s been some reporting that you’re IPO-bound. And I think the multiple on a hardware versus a software company, those look very different. So I guess if you are making your case to the street right now, are you asking to be valued as a software company?

Tom Hale:
First of all, we’re not making any cases to anybody.

Rohan Goswami:
Okay.

Tom Hale:
Rumors are such a funny thing. People are so excited about stuff that they go off and they say things that...

Rohan Goswami:
So you guys aren’t prepping? I know the information and I think a couple other outlets said you were prepping for an IPO. That’s not in the cards?

Tom Hale:
What they reported was we were talking to banks. The fact is we talk to banks all the time. It’s not that unusual. But the meta point, and I think you guys are on it, which is when you talk about a business and hardware and software, I don’t think this idea of valuing Oura as a software multiple and a hardware multiple is the right way to think about it. The way you think about it is what is the combination of software and hardware as a business in terms of delivering value for customers and what’s the TAM that you operate in?
Turns out our TAM is enormous. The TAM is everybody on the planet who goes to sleep at night. If you just look at the wearables market, the wearables market every year is somewhere between 200-or-so-million devices each year. And that includes all kinds of wearables, mostly smart watches, bands, a little bit of smart rings and stuff like that. And we are the undisputed champion and leader in the smart ring category, and we’re between 1 and 2% of that 200 million.
So for us, our TAM is just gaining share in the wearables marketplace, makes it very easy for us to imagine doubling, tripling, quadrupling our business simply because there’s plenty of headroom for us to take share from wearables. We don’t have to displace someone off the wrist. We just have to get them to add something on their finger. A wrist wearable tells you lots of stuff. It’s got a small screen, it’s battery-consumptive, all those things. And it’s super useful during the day, but a lot of people won’t sleep with one.
Why? Well, because it’s big and uncomfortable and it lights up in the middle of the night. And if you’re having trouble sleeping, that’s literally the last thing you want to see is something blinking at you saying, “It’s 3:19 AM, Rohan. Are you awake or asleep?” And you’re like, “I’m awake. And boy, am I unhappy about that.”

Liz Hoffman:
Is that finger versus wrist thing an elbow at WHOOP, which just raised a bunch of money a couple of days ago? Yeah, I think approaching you in valuation, if... I can’t remember. Where are you guys? You’re at...

Tom Hale:
Well, I think about a year ago, we were 11 billion. And since that, we probably doubled our revenue, so I don’t know, do your math.

Liz Hoffman:
So they just cracked 10, right? Okay. But you’ve had the ring space to yourself for a while now, though some competition coming in, Samsung, I think Reebok, and a lot of them actually have a no-subscription model, which I learned when I prepped for this interview. Googled Oura Ring and the auto complete was “no subscription.” And then I got a bunch of ads for Samsung and RingConn. And just one more before we move off it, are you worried about getting out-flanked by a no-sub model?

Tom Hale:
No. They’ve been going at it for a couple of years and they haven’t made a dent. And even though they might say, “Oh, it has a subscription business model,” they generally also say, “And it’s the best made and has the best functionality,” and all those things. And I think that’s important. I think it’s also important to recognize when you think about subscription as a business model is that it provides you margin in your business. Most hardware companies have gross margins in the 40s. Our margins look more like a software business because of the blending of the hardware and the software portions of our business.

Liz Hoffman:
What does that mean, 70s, 80s?

Tom Hale:
No, I think if you think about software, there’s SaaS margins, which are usually in the 80s. If you’re an app, you’re usually in the 60s. We’re more in that ballpark. And I think what’s interesting about that, and maybe the way that we think about it is that it provides the ability for us to invest in R&D and science in a way that if you’re a pure hardware model, it’s actually much harder to do because the way you work in a pure hardware model is you sell the widget and you make your margin.
And if you have to discount the widget, which by the way, our competition is routinely discounting their product in an attempt to undercut on price, it means that they can’t reinvest in R&D because they simply don’t have it. If they’re not able to monetize in the same way that maybe Oura is able to monetize because all they could do is sell you a piece of hardware and hope that they make a buck because they have no ongoing recurring revenue stream, then they can’t spend as much to make their product better.

Liz Hoffman:
There’s a big race to figure out wearables right now, particularly what the device that’s going to win in the AI world is. You obviously bet on rings, but you got glasses, earbuds, pendants, whatever Sam Altman and Jony Ive are cooking up at OpenAI.

Tom Hale:
Lamps.

Liz Hoffman:
Well, yeah, except lamps. Who knows? But what is the device? What is going to be to the AI era what the smartphone was to mobile?

Tom Hale:
Yeah, it’s interesting. I think it might actually end up being the smartphone.

Rohan Goswami:
Oh, gosh.

Liz Hoffman:
Oh, that’s depressing.

Tom Hale:
Yeah, I agree with you about the tyranny of the screen. I think of this as a partial attention device. Every time you look at it, you’re removing attention from the humans that you happen to be sitting in the room. And maybe from the perspective of Oura, we are very intentional about not having the screen. The device doesn’t have a display for a reason. Now, that being said, the question is, what’s going to be the main computing device that’s going to provide intelligence and intelligence agentic services?
Well, it’s going to probably be connected to the network. It’s probably going to have some kind of voice interface and a speaker to talk back to you. It might have some kind of screen or maybe not, although I think there’s a lot of value in screens. I like looking at pictures of my kids or my dogs or places that I visited and stuff like that. I also like taking pictures. I wonder if something’s really going to replace that. Or even if you have a set of smart glasses, if there has to be a device that is computing and storing battery that is like a puck that does the same thing.
It’s got a big battery because these AI applications are relatively power-hungry and you require a lot of GPU and CPU to make it work if you’re going to make it work on the edge. And you need a radio that’s constantly connected to the network. All those things take power. Maybe it’s going to be a different kind of phone, but it’s going to do the same things. I don’t know. You guys tell me, I’d be interested to hear your opinion. You guys think it’s going to be glasses? Do you think it’s going to be earpods? My personal view is it’s a cloud of devices based on the use case that you got.

Rohan Goswami:
Well, look, you laid out the three things that people use Oura for, and those are largely passive things, but you also just cut a deal for a gesture recognition company, which is a very awake thing. I’m not really pointing and gesticulating when I’m sleeping. Is that an area that you want to break into, I don’t know, the awake space?

Tom Hale:
We’re a 24/7 wearable. But maybe, to your point about gestures, gestures are pretty interesting. I would bet on voice as an interaction layer. It has the properties of being linear in terms of the way it consumes time. But of course, it’s also very easy as a user interface. Everybody already knows how to talk.

Liz Hoffman:
But is there a world where the Oura Ring is talking back to me?

Tom Hale:
I don’t know about that. I’ve seen actually some prototypes where people, they have the ring and they go, “I’m just talking very quietly to my ring and I’ll just say...” And it’s basically a not very visible vocal interface, which is interesting because I think one of the problems maybe with the glasses or one of the challenges that we need to overcome is this one, which is, if I’ve got something happening on the screen, what do I do?

Rohan Goswami:
Go cross-eyed, zone out, not paying attention.

Tom Hale:
I’ve broken a social contract with you because I’m looking away from you. And you want that to be actually in the background, not in the foreground. So how do you access that? I’m sure you saw the acquisition that Apple just made. It’s this ability to be able to talk to an AI without moving your lips. It’s just a really interesting way to communicate to an AI that isn’t visible to everybody else or audible to everybody else. Really interesting stuff. Pretty futuristic.
It’s not like it’s going to ship tomorrow, but pretty compelling. And you think about the ways people are going to be interacting with these devices, whether they’re glasses or your phone or some other wearable, some other thing controlling it. It’s nice to have your fingers because you know what your fingers are really good at is fine grain movements that allow you to control things in either virtual or actual or physical or reflective space. So gestures is pretty interesting.

Liz Hoffman:
I like the idea that this ends in the most analog way possible, which is that we all learn Morse code again and end up tapping it out on our-

Rohan Goswami:
Sure, a Morse counting system, but for fingers. Yeah.

Tom Hale:
I’m just going to go on the record here and say I don’t think Morse code is coming back.

Liz Hoffman:
Let’s shift topics a little bit. You’ve been... I’m going to put this in quotes, but Americanizing Oura a little bit which was founded in Finland, obviously. Moved your legal home to Delaware. I swear I’m not trying to trap you in another IPO question, but why did you do that?

Tom Hale:
Over the course of many years, Oura’s business, mostly in the US. Oura’s employees, we’re 50/50 Finland and the US. I’m the CEO. I’m based in San Francisco. The executive team that I’ve hired is mostly in the Bay Area. And our board, with the exception of one amazing and wonderful Finnish investor, is an American board. The legal construct of a Delaware corporation isn’t really about Americanizing the company as so much as it is actually making us really prepared to be a global company.
Now what’s interesting is there’s lots of other states that are also competing for that business. Texas is very famous for that. And obviously some of what you’re solving for is taxes or some kind of legal regime and stuff like that. But we chose Delaware because it’s very well-understood and it’s very much what you do if you’re a global corporation. So it’s less about being American than it is about being global.

Rohan Goswami:
How did that go down in Finland? There are not a ton of European unicorns or decacorns.

Tom Hale:
Yeah. I don’t think that we’re not a European decacorn anymore. I think we’re still a European decacorn. Let me ask you a question. If you think about Apple, is Apple an American company? Yeah, I’d say so.

Rohan Goswami:
That’s a great question, but I’d say it had 35 years where everything it made was made in the US before it shifted to China and Vietnam, whereas you guys are-

Tom Hale:
No. But yeah, you measure by where things come from and who’s employed by them and stuff like that. And I think this is in some sense, maybe just the nature of a business. The global companies are everywhere and nowhere at the same time.

Liz Hoffman:
Yeah. There’s a lot of hand-wringing in Europe, I think right now about whether they can hold onto the tech... They’re actually pretty good at getting startups going. They lose the scale-ups.

Tom Hale:
Yeah, they can’t keep them.

Liz Hoffman:
And they can’t keep them when they get bigger. And I don’t know if that’s a capital markets thing.

Tom Hale:
I think it is capital markets at some level.

Liz Hoffman:
You think so?

Tom Hale:
I think so.

Liz Hoffman:
There’s just more money available here.

Tom Hale:
And you think about the AI companies and how much money they have to raise, they have to tap the world’s largest capital markets to do that, and those markets are in the US.

Liz Hoffman:
You also have a partnership with the US military. First was being more American, having more Americans on your border, your executive suite, was that a requirement of that deal in any way?

Tom Hale:
No, not at all. Not in the slightest. The US military, and actually all militaries around the world, they care quite a lot about human performance. And wearables as a tool for both, I don’t know, making sure that people are in the best possible condition that they can be for all the difficult things that they might have to do is something that the military thinks quite a lot about.
It turns out that if you’re in the heat of battle or you’re flying a plane, or if you’re on watch between 12:00 AM and 4:00 AM, managing that is actually pretty important to the effectiveness of what it is that you’re trying to accomplish, whatever kind of mission it is. Now, a lot of what we do is try and help actually not necessarily the people who are on the leading edge of the attack, but maybe people who support that because of those people, there’s more of them frankly than there are people who are maybe war fighters.
And so for example, the deal that was talked about quite a lot was a deal that we had with the Defense Health Agency. And that was really for the doctors and nurses who took care of the families of soldiers and sailors and whatnot. What they were trying to do was to solve the problem of clinician burnout. And clinician burnout is not something that’s unique to the Defense Health Agency, although it’s very pronounced there. And for those who don’t know, the Defense Health Agency is the hospital network that services servicemen and women.
Right now, one of the things that’s facing the healthcare industry at large is there’s a shortage of clinicians. There’s just not enough clinicians and they’re not making enough new ones to really solve the needs. Really, that was the basis of that big partnership. Now, that deal was something that we were quite proud of and talked quite a lot about, but that’s the biggest part of our partnership.
Now, are there other parts? Yeah, there absolutely are. And in many ways, they’re interesting ways that wearables can help people understand their fitness or their readiness or how well-slept they are, how mentally healthy they are. Are they ready to face whatever they have to face?

Liz Hoffman:
And that partnership wasn’t uncontroversial. There’s some influencers who didn’t like it. And so those are a few months ago, I think, and the calculus of working with the Pentagon has only gotten more complicated in the last couple of weeks we’ve seen obviously with Anthropic and OpenAI. How do you think about working with Pentagon? Why is it worth it?

Tom Hale:
Honestly, I think people who work at Oura, they come to work because they want to improve the health and wellness of the people that we serve. And in some sense, doing that I think is a noble cause no matter who it’s for. I don’t think we should think about that any other way. We think about how do we make an individual either healthier or feel better or better recovered. All those things are very positive. I don’t draw a distinction there. I think about the individual, and if that individual is helped by us, I think that’s a good thing.

Rohan Goswami:
We’re going to take a quick break and we’ll be right back with more from Tom. The largest pot of health money is obviously the insurers who are constantly hungry for data on the people they insure and their health and all their information. They seem like very logical partners, if not acquirers for your business. Do you have a working or data relationship with any of these guys?

Tom Hale:
The first thing actually is really to make the point that the privacy of your data is paramount to us. There’s no scenario where we sell or share your data without your direct consent and authorization. And in fact, there’s some kinds of data that we will never share. You can read our terms of service to understand that anything that could be used against you as a prosecution or for surveillance, we will never provide that even under duress.
So we take that very seriously. And actually, going back to the beginning of the podcast, you guys were talking about subscriptions. One of the benefits of subscriptions is it actually insulates us against an incentive to try and make money off of you. You know why? Because you’re paying us to take care of your health. We won’t sell your data because we don’t need to make money off our data. Going back to some of those hardware companies, some of which are based in other countries, I don’t know, what’s their incentive? Maybe they are. I don’t know.
I do think first of all, you have to start from the perspective of privacy is non-negotiable for us. Okay, so start there. Now, insurance companies, we actually, I think, are partnered with insurance companies who are also providers. So think of Essence. There’s one of our major partners. They are a Medicare Advantage provider, which means they service beneficiaries who are 65 and older. They are funded by the government, so they’re a private entity that provides medical services to individuals who are 65 and older, and they use the Oura Ring as a tool to better care for their beneficiaries.
And part of it is their belief that if you put a wearable on somebody, even at the ripe old age of 65, you can actually bend the curve of the cost of caring for them. They might move better, they might eat better, they might be more intentional, they might sleep better, all these things that are positive. You might even make an early diagnosis of some ailment that if you intervene, again, something like sleep apnea would be a perfect example. It’s massively underdiagnosed.
It’s the kind of thing that puts a tremendous strain on your heart. It’s comorbid with a number of things that afflict Americans in disproportionate numbers. And so if you can actually either detect that or change the course of that, the impact is very, very meaningful for the individual. That’s an example of how we think about working with insurance companies. In no scenario are we going to do something other than try and help you.

Liz Hoffman:
I’m curious, you said there were rings. It’s a really nice piece of hardware that has some really good software attached to it. That was also true of Peloton, and now you can get a Peloton for free on Craigslist. So when you look back, any lessons that you drew from the Peloton of it all?

Tom Hale:
Peloton was pretty expensive. You had to get a very expensive and weighty device into someone’s house, and you had to acquire them as a customer. You had to own that Peloton and pay for it for quite some time before the company broke even. What’s different about Oura is that you buy one of these rings and on the first day, the company has made back the cost of manufacturing, the cost of customer acquisition, and that has a ticket to a subscription model.
And that subscription model is not making back the cost of customer acquisition. It’s already generating the funds that we use to invest in science and R&D and all the things. Now what’s maybe interesting and powerful about that is that that model turns out, it’s a derivative of the fact that the subscription cost is very low relative to the cost of the hardware.
The subscription cost is $6, the hardware is somewhere between 300 and $400. And so as a result, the incremental cost of the subscription is relatively low and you’ve already decided to invest in the hardware. And by the way, what you’re really buying is not a piece of hardware. And the same is true in the Peloton, is you’re buying the idea that you could be a lot healthier. One of the maybe fascinating things about Oura, do you know who our best retaining cohort or class of customers is? Well, first of all, it turns out it’s women versus men. Now, why is that?

Liz Hoffman:
No surprise there.

Tom Hale:
And partially it’s because your physiology as a woman is changing literally every day in a 30-day cycle, whereas for men, actually, your physiology is relatively linear until you have a heart attack, at which point your physiology changes dramatically.

Liz Hoffman:
I was just going to say we’re more self-aware and generally take better care of ourselves.

Tom Hale:
I think that’s probably true. You know who the best retaining cohort is? It’s people who tell us that they use Oura to manage their chronic illness. So roughly one in four of our customers have a chronic illness of some sort. And some of it’s the head-end chronic illnesses of heart disease or diabetes or something like that, but a good chunk of it, maybe disproportionately, of people with this long tail of chronic disease, these are the people who have lupus or long COVID or ME/CFS or POTS, which is postural orthopedic tachycardia, and they use Oura as a tool.
Maybe they’re immunocompromised and they want to know if they’re getting an infection because if they get an infection, it might be something that really puts them down for a month or maybe even kills them if they’re truly immunocompromised. So the value, again, going back to the value over price ratio, turns out if you’re chronically ill, that value is priceless. And so that’s a really interesting observation.
Because for me, when I learned this, and this was a couple years when we did this research, what I realized was that Oura was already in the healthcare business because customers, our Oura members, some portion of them had made a decision to incorporate Oura into the tools that they use to manage their health and not in a healthy, wealthy, “I’m getting on my Peloton and I hope my husband likes the way I look after I ride on the Peloton,” which is that famous commercial. I’m sure if you remember that was embarrassing for everyone.

Liz Hoffman:
Complete cringe. Yeah. No good.

Tom Hale:
It was so cringe. And yet here what we find is that people are using us as a tool to manage their health without a doctor saying, “You need to get one of these.”

Liz Hoffman:
Well, that was going to be my next question, which is how far can you go into that before... And I think there was something about the Apple Watch where it could detect something and Apple backed away from it because they said we actually don’t want that liability. Or how far do you get into that space before you actually end up with a HIPAA regulation?

Tom Hale:
The reality is that, like I said, I think we’re already in that space. And this is a larger trend in healthcare, which is that people are taking agency in their health journeys. They’re much more educated, they’re uploading their data to LLMs, they’re reading everything about what’s going on. And if you think about the power of AI and what it can do for healthcare, one of the inputs I think that’s going to be really powerful for AI is going to be wearable data, particularly accurate wearable data measured on a point on the body, measured overnight, measured continuously.
Because I think it’s going to be something that makes AI, whether it’s clinical or medical education or just general purpose, is going to make it much more useful and have greater context. I think it’s going to be a wearable. And if you think about, as I think you were taking us down the path of, “What are the constraints or restrictions or regulations around that?” And the FDA earlier this year came out quite clearly saying, “Look, here’s some guidelines for you. If you are on the wellness side of the wellness clinical divide, we are going to count on you guys to make sure that you make the best product possible, but we’re not going to regulate you.”
Now, if you cross over into the regulated world and you say things like, “Here’s your blood pressure and your values are 140 over 90,” that’s very different. We pursue both. We have FDA approval for fertile window, but we also have wellness features like Symptom Radar. And so I think the answer is since we’re already in that space, I think the trajectory is that wearables are going to head in that direction and increasingly we’ll be providing information that will be used in clinical settings. And in that case, they need to be regulated. They need to be safe and effective. We’re headed that way, and it’ll be a pretty interesting future when that comes to pass.

Rohan Goswami:
Do you see a world where you might want to introduce an Oura SE, a cheaper feature light model that still drives its subscription revenue, but has a lower upfront cost?

Tom Hale:
Recently, this is December, so it’s pretty recent. We did some research to understand who was purchasing Oura Rings. And I think many people have a perception that Oura Rings are for the super wealthy wearables or for the healthy, wealthy or the chronically well, as they say. And I think there’s probably some truth to that. But the surprise for me was it turned out that about 11% of our customers came from households that made less than $50,000 a year.

Rohan Goswami:
Wow.

Tom Hale:
And I was blown away. And actually it was stimulating, I’d say, the story behind it, this is fascinating. I went to my bakery and there was a 23-year-old or a 24-year-old girl behind the cashier at the bakery and she was wearing an Oura Ring. And I was like, “Hey, you’re wearing an Oura Ring?” And she said, “Oh, yeah, I love it.” I said, “Oh, my God. Why are you wearing this?”
She said, “Well, because my health is really important to me, and this is a tool I use to manage my health.” I was thinking, “Oh, my God, you probably make $25,000 a year and here you have this thing.” And what occurred to me again is your health is priceless. If you don’t have health and you’re trying to either regain it or you’re trying to manage or maintain it, the value of that is very high.
It turns out that the demand is actually for more rings that do more things, not more rings that do less things. And I think that’s a little bit how people think about devices is why people spend between 500 and $1,000 on their smartphones and they pay it all day long.

Liz Hoffman:
Yeah, sometimes I wish it did fewer, right? I find myself occasionally nostalgic for the brick phone.

Tom Hale:
I shared your nostalgia. And I think, again, I definitely have the mind that less is more. And in some sense, that’s actually woven into the fabric of Oura’s philosophy. But at the same time, things that don’t do enough, you don’t stick with them.

Liz Hoffman:
Yeah. Well, Tom, this was a lot of fun. Thank you for coming.

Rohan Goswami:
Thanks, Tom.

Liz Hoffman:
Honestly, this was a super interesting conversation. Well, we’ll have you back after you have rung the bell, whenever that is, and we’ll talk about the journey that got you there. But this was really fun, really interesting conversation. We appreciate it.

Tom Hale:
Great.

Rohan Goswami:
So Liz, obviously our colleague, Andrew Edgecliffe-Johnson, is a devoted Oura Ring user. Are you going to pick one up on your way home tonight?

Liz Hoffman:
I don’t think that Tom changed my mind. I do mean what I said about I know that I sleep terribly and I don’t need to be reminded of it every morning. Also, and this may have come through in the pod, I’m a little wary of maxing my life in lots of different ways. There’s parts of technology that I’ve just gotten increasingly uncomfortable with.
I don’t really feel the need to be plugged in all the time, but actually I believe that he is right that I would probably work out more and probably eat a little better and sleep a little more if I had one. There is a little bit of a nanny effect that I thought was pretty interesting. I don’t know. What about you? Do you want a panopticon on your finger?

Rohan Goswami:
I don’t know if I want that right now. I feel like once I’m a little bit older and I actually need to stop coasting off of just metabolism and sheer willpower, I probably will. From a business perspective though, I remember when you first told me this was shortly after you came back from Davos about his allegory about-

Liz Hoffman:
Just outing me right there, brutal.

Rohan Goswami:
I’m sorry. You’ve called me a coastal elite. I think it’s great for our audience to know that you too have your coastal elite affectations.

Liz Hoffman:
I’m an Alpine elite.

Rohan Goswami:
You are an Alpine elite, yes.

Liz Hoffman:
Yeah.

Rohan Goswami:
But I think it’s interesting that as much as he wanted to dance around the IPO question, they’re headed for an IPO, and structurally they seem very well-setup, unlike some of these SaaS businesses to weather a consumer downturn. The stats he was rattling off are really impressive, honestly, about how sticky the business is.

Liz Hoffman:
Yeah. I think the question that they’re going to get on the roadshow is what is the moat? There’s a bunch of these out there.

Rohan Goswami:
Of course.

Liz Hoffman:
And Apple, despite the fact that the watch has never really become a category-defining product, it’s a fine business for Apple, but it is not what the iPhone or even what AirPods have been for them. And I think this is just as wide open a business space as I can really remember.
I do not have a clear sense of who is going to be the winner here, nor what the thing that they’re going to make is going to look like. And actually, as a consumer, it’s like, “Impress me, pitch me over the next couple years and we’ll see what works and doesn’t feel too intrusive.” I do think you asked the right question. We didn’t really get into his background, but Tom is a software guy. He came from Adobe and SurveyMonkey.

Rohan Goswami:
Huge software guy. Yeah.

Liz Hoffman:
And got to Oura and pivoted into software right before that became a little bit of a dirty word. And you could see a world... What he was saying was, “Well, there’s hardware makers who just want to license our data crunching capabilities, but that is a lower margin business so they don’t have the profits to plow back into the product,” which makes sense to me.
And then you could say, well, then maybe they shouldn’t be making the ring at all. Maybe they should be the data provider for a whole bunch of wearables. They obviously think they have more of an Apple walled garden, hardware mixed with software, does not play nicely with anything else model that Wall Street will have to figure out what to do. And by the way, the way you will know what Wall Street thinks they are is which equity analysts, the investment bankers ultimately bring with them to those meetings.

Rohan Goswami:
And I was struck by one thing he said around the stickiness that Oura has with women, which is that conceivably a young woman could pick up her first Oura Ring at 13 and have it through 65, 70. And it’s almost as though they’re harnessing the end user’s own life cycle to create that stickiness and meeting them at every point the way that Apple does. Wherever you turn, there’s an Apple product for that.
Well, it sounded like what he was saying is that there’s an Oura product software for any of those points. And I wonder if that will work over the long run or if, to your point, they’ll get outspent by Samsung or Apple or someone who’s got billions of dollars to just not worry about the economics on the front end.

Liz Hoffman:
Yeah. Look, you see these niche tech products. GoPro was one for a while and everyone’s like, “Well, that’s just going to get replaced by the iPhone.”

Rohan Goswami:
Sonos.

Liz Hoffman:
Sonos is another good one that with enough care and attention to detail, it can work. But the reason Sonos ultimately worked is that it opened up its architecture and now it plugs in... I’ve got an Alexa that Sonos that...

Rohan Goswami:
And why it failed is the software, that’s worth noting.

Liz Hoffman:
Right. And so I think you can be a walled garden if you are... Apple is really the only one. And by the way, they’ve spent a lot of time in federal court trying to argue that they’re not a monopoly.

Rohan Goswami:
That they’re not, in fact, a monopoly, that their walled garden is open.

Liz Hoffman:
Yeah, there’s some doors in and out. And by the way, maybe that’s a problem Tom would love to have to be so dominant.

Rohan Goswami:
Sure. But he does think TAM is the whole entire world, which, okay-

Liz Hoffman:
By the way though, that’s also what mattress companies have thought, “Our TAM is everyone who sleeps. It’s eight billion people.” That does not mean you’re going to capture it.

Rohan Goswami:
No, it’s not going to be, as many private equity firms have learned.

Liz Hoffman:
The thing I thought was most interesting really was we got to it at the end where he notes that the FDA has drawn a line and said, “Well, on one side of this is wellness products and the other side is medical devices.” And I thought he was going to say, “And we want to stay firmly on the wellness side of that.” And he didn’t.

Rohan Goswami:
That was very interesting.

Liz Hoffman:
And the question is, if you’re going to be in a heavily regulated space, once you put a toe over that line, you might as well be in it because healthcare is 20% of the economy. Why not tell you what your blood pressure is if the FDA is going to be looking over your shoulder anyway? So I think if you get doctors prescribing Oura Rings, that’s a totally different world than the one he’s living in now.

Rohan Goswami:
Absolutely. Well, look, I think that’s it for us this week. Thanks for listening to Compound Interest from Semafor Business. Our show is produced by the wonderful Josh Billinson.

Liz Hoffman:
With special thanks to Anna Pizzino, Claire Einstein, Katherine Bilgore, Rachel Oppenheim, Tori Kuhr, Vilanna Wang, Garett Wiley, Stephanie Chang, Andrew Edgecliffe-Johnson’s Oura Ring, and Daniel Hoeft.

Rohan Goswami:
Our engineer is Bob Mallory. Our theme music is by Steve Bone. If you like Compound Interest, please follow us wherever you get podcasts and don’t forget to review us.

Liz Hoffman:
And if you want more from Semafor Business, you can sign up for our email newsletters at semafor.com.