Daybreak - Healthify is trading the local treadmill for a global marathon

Episode Date: July 24, 2024

Healthify saw immense success during the pandemic. Its revenues more than doubled in FY 2022. And it adds up when you think about it. With millions of people stuck at home and gyms shut, Healthify’s virtual fitness and nutrition plans were pretty ideal. But once gyms reopened, home workouts didn’t cut it anymore. And unfortunately, Healthify really bore the brunt of it. The following year, revenue growth slowed down considerably and losses began to soar. But the company's leadership seems undeterred. In fact they want to expand business to the United States, where it will be up against established healthtechs like Noom and MyFitnessPal.  The company seems to be pinning its hopes on the US market as somewhat of a hail Mary pass. 

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

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Bangal-based health and fitness company Healthify is currently in the process of doing what it does best. And what I mean by that is it's shedding some extra weight. Now, you're probably wondering, how does a company do that? Well, by laying off well over a hundred of its employees. These layoffs have been going on for quite a while now.

In fact, employees say there have been four rounds in the last 18 months alone. Most recently, in May, about 60% of its sales team and some senior executives were asked to leave. And with that, Healthify is now left with a pretty lean team of about 1,000 employees. The Ken actually spoke to Tushar Vashist,

the company's co-founder and CEO, and we asked him what prompted the recent layoffs. He said it was pretty routine. The company is constantly restructuring its team to streamline the business. And layoffs are an unfortunate but unavoidable byproduct when a company is striving for profitability. But when the Ken spoke to former Healthify executives and senior industry insiders, it became pretty apparent that the layoffs were not as routine or straightforward as the Shah had made them seem. You see, in reality, Healthify is struggling to grow its revenue and sustain its India operations.

It's also dealing with a significant funding crunch. This, despite Healthify's immense success during the pandemic, its revenues more than doubled in FY 2020. And it adds up when you think about it, because with millions of people stuck at home and with gyms shut, Healthify's virtual fitness and nutrition plans were pretty ideal. But once gyms reopened, home workouts just didn't cut it anymore. And unfortunately, Healthify really bore the brunt of it.

The following year, revenue growth slowed down considerably and losses began to soar. But Washist still seems pretty optimistic. In fact, he has some pretty huge plans for Healthify. He wants to expand his business to the United States, where it will be up against established health techs like Noom and My Fitness Pal. The company seems to be pinning its hopes on the U.S. market as somewhat of a Hail Mary pass. To be fair, expanding to the U.S. has always been on the cards.

The company was just waiting for the right time. But given that it's running out of luck in the Indian market, moving to the US is quickly becoming more of a necessity than a choice. Welcome to Daybreak, a business podcast from the Ken. I'm your host Rahal Philippos, and I'll be joining Snigda Sharma every week to bring you one business story that is worth understanding and worth your time. Today is Wednesday, the 24th of July.

Back in 2012, Healthify started as a calorie tracking app. Apart from calorie tracking, it eventually started offering other fitness-related services like custom coaching and workout videos. As of 2024, it has evolved into an AI-driven

health and fitness platform. In fact, the company positions itself as the world's largest AI health and fitness company. But along the way, it has run into some pretty big problems, most of which can be traced back to flaws in its initial strategy. Let me explain.

The company's initial strategy was to get people hooked on the free calorie tracking feature and then figure out how to make money off a large number of users. But that eventually proved to be one of the company's biggest challenges. A former executive said the company was far more focused on scaling growth and revenue than monetizing its vast user base. Another unfortunate byproduct of that strategy was an over-reliance on performance marketing. This is a form of advertising, businesses pay based on the performance of their campaigns. This is typically measured based on

actions like clicks, leads or sales generated. And eventually, about 60 to 70% of Healthify's total business started relying on this kind of marketing, performance marketing. A former executive broke down what that meant for the company. So for every plan, say worth 100 rupees that Healthify sells, it spends $120 to make it, market it and pay salaries and rent. The company wanted to eventually reduce these costs over time, but unfortunately ended up becoming very reliant on aggressive marketing to attract new users. Now, unfortunately, when a company relies too heavily on performance marketing, only a fraction of the users that it ends up attracting actually stick around.

Another industry insider came up with a pretty apt analogy. They said it was sort of like pouring water into a leaky bucket. Basically, Healthify was dealing with a. a chicken and egg problem. Without scaling marketing, it cannot keep scaling its revenue, especially now that there is a funding crunch. Unfortunately, Healthify has had no choice but to reduce its marketing spend. Significantly, I mean by as much as 90% as of 2024. No marketing means the company is going to struggle to get new users. But Vashishishen insists that the company is earning revenue sustainably in India.

He says that the company has shifted its focus from performance-based customer acquisition to existing users. And now, he says the company is seeing record renewals and reactivations. For this, he largely credits RIA 2.0, Healthify's in-house AI-driven virtual nutritionist. To stand out and expand globally, Healthify has been investing big time in January.

But does it really give the company the edge it needs? More on that in the next segment. Hi there, I'm Snigda, and I'm just here to express my gratitude to you for listening to us and for supporting us. I have some great news. Daybreak is going to hit 1 million downloads this week. It's crazy. And obviously, it wouldn't have been possible without you making it a part of your day every single day. Rahel and I would love to know more about how Daybreak is a part of your daily routine.

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Vasch told the Ken that the Healthify app is a lot like a great bicycle. The kind that you use occasionally when the mood strikes or you park it for a while and don't touch it. To make sure its customers keep coming back for more, Vashish said the company is constantly

upgrading this particular bicycle to make it better, stronger and faster. So it launched features like RIA or Healthify Snap, which allows you to share a photo of your meal and it counts calories for you. But former executives and industry insiders say that that's just not enough. There's been a shift in market sentiment ever since people started returning to gyms.

And that trend is reflected in Healthify's download numbers post-COVID. It saw a 50% drop in downloads last year. The platform also saw a 15% year-over-year decline in monthly active users. To get a sense of what's going on, the Kent spoke to Kartik Reddy. co-founder and managing partner of Bloom Ventures, an early stage venture fund and Healthify investor since 2016. He said Healthify's users behave in a pretty interesting way. They either experiment with the app's features without committing to a premium plan

or opt for shorter-term subscriptions lasting a quarter or less. Even on the Gen. AI front, Healthify is likely to run into some problems. Critics argue that AI-based fitness plans often struggle to gain action in India. Simply because people who are serious about fitness prefer real people coaching them. Basically, unlike in the US, India isn't very DIY when it comes to fitness. But Vashish defended Healthify's AI plans. He claimed they constitute nearly half of its paid user base. Also in India, online only offerings are influenced majorly by the public's purchasing power. It's tougher to get Indian users both to spend more and

to do more. In that sense, the US is much further along, because people are more familiar with products like these. So, then, do Healthify's US plans add up? Well, stay tuned to find out. At some point, Healthify had a grand idea. It wanted to expand India into a major market, aiming for a hundred million dollars in revenue. But like Ready from Blue Ventures pointed out, it wasn't growing profitably. Uncertain about funding for its India only. strategy, the company shifted focus to profitability and the biggest single market, the United States. Reddy says investors largely agree that this is the right step for the company to take. This is mainly because the US has a booming digital health market. The US digital health market is

valued at $94 billion in 2024 and has projected to nearly triple to $300 billion by 233. Existing players like My Fitness Pal and Noom rake in hundreds of millions in revenue every single year. Vashish-Peliefi believes Healthify can offer superior tools and coaching designs for nutrition and weight management, blending AI and human coaching. He says competitors' tech is primitive, lacking vision-based tracking and AI coaching.

But here's the thing. The flip side of that argument is that there's a lot more competition in the US. Many companies are trying to do the exact same thing and some of them are perhaps more mature than Healthify. So Healthify could end up facing some serious challenges acquiring users in an already crowded market. It will once again have to spend big bucks on marketing to be able to do that. And with that, it's likely to once again have a chicken and egg problem on its hands.

So one thing is clear. Healthify's growth sprint may be concluding here in India, But by moving abroad, it is trading the local treadmill for a global marathon. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. Today's episode was hosted by Rahil Filippos, produced by me Snigda Sharma and edited by Rajiv Sien.