The Headspace Business Model – How Does Headspace Work & Make Money?

Executive Summary:

Headspace is a mobile application that provides meditative and mindfulness lessons to consumers around the world. The Headspace app is available both on iOS and Android devices respectively.

The business model of Headspace is based on three income pillars. A subscription fee that consumers pay to unlock the meditation content, B2B programs to teach mindfulness to employees, and Headspace Health, an FDA-approved wellness program.

Founded by a former Marketing director and a Buddhist monk, the model has proven to be a success. Headspace has raised close to 170 million in venture funding while the app has been downloaded 62 million times in 190 countries.

How Headspace Works

The Headspace app works fairly simple. After signing up with your account, the user can chose from a set of meditation lectures. These include topics such as stress and anxiety, personal growth, or better sleep. Let’s have Andy Puddicombe, one of Headspace’s co-founders, explain the app to you in his way too calming voice:

Users have the option to either go through a whole course or just a class, depending on the timeframe and personal goals.

Furthermore, Headspace also enables users to interact with each other through live group meditation.

A Quick History Of Headspace

Most of us probably heard the saying “teach what you preach”, right? With regards to Headspace, that could not be closer to the truth.

The company was founded in 2010 by Andy Puddicombe, who narrates most of the stories on the app, and Rich Pierson. As he laid out in the How I Built This podcast, the story started in the early 1980’s when Andy’s parents went through a divorce, which got the then youngster to pick up meditative exercises.

A couple of years later, at the age of 18, Andy went through another traumatic experience. He enjoyed a bunch of drinks with a group of friends on Christmas night when a drunk driver crashed into the group and killed two of his friends.

All of these experiences led Andy to drop out of college four years later. At age 22, he moved to Southeast Asia to become a Buddhist monk. As a funny side note, after not being able to go on a four-year retreat in Russia, Andy went back to the UK to study circus arts.

While in Moskau, he met a fellow circus artist who told him about the possibility to study the subject. Being deprived of both exercise and any belongings (monks commit to not owning any possessions), he found a loophole in the British system whereby the government covers both the study cost and living expenses.

This allowed Andy to not only get back to exercising (he was a passionate rugby player in his teenage years), but to furthermore teach his learnings from mindful meditation to a broader audience in Britain.  

In 2008, a young marketer named Richard Pierson, who due heavy workloads at advertising agency Bartle Bogle Hegarty and excessive drinking with colleagues, experienced heavy symptoms of anxiety and stress.

As he became extremely unhappy with his work and life, he quit his job to learn acupuncture. In order to fund his studies, he still took on freelance advertising projects. Through a mutual contact, he got in contact with Andy.

Their deal was that Andy would help him with his anxiety while Rich would support with advertising Andy’s meditation clinic. The two initially started with an event business where people would buy tickets to live meditation practices and alike.

In order to scale their events and courses while meeting high customer demands, the pair decided to record some of Andy’s lessons into a ten week course. After an initial cooperation with Virgin Atlantic (Headspace made their content available on their flights) and The Guardian (launching a comprehensive guide on mindful meditation), it was time for something bigger.

So in 2012, they launched the first version of what became the Headspace app. Ever since, the business has been growing steadily. Today, Headspace employs over 300 people in London, San Francisco and Los Angeles. Some of their famous advocates and customers include the likes of Lebron James and Ryan Reynolds.

Both Andy and Rich remain heavily involved in the company. While Rich is the acting CEO, Andy helps to produce new content and spread Headspace’s messages.

The Headspace Business Model

Headspace is divided into three distinct business fields: the consumer channel (through the app), B2B solutions (corporate wellness schemes), and healthcare (where it is currently awaiting the FDA process). 

Consumer App

The app and its B2C product is still Headspace’s most relevant source of income. The app is free to download and comes with a set of basic courses. If you want to go beyond that and explore all the content, it is required to pay a subscription fee. Here is how Headspace currently structures their offering:

Additionally, the user can partake in Headspace’s additional offerings such as live group meditations. The app is available in both Apple’s App and Google’s Play Store.

B2B Solutions

Headspace furthermore offers its app through its Business-To-Business program. Prices are not publicly disclosed and are most likely based on the size of the contract (i.e. potential number of employees using the service).

More specifically, Headspace separates its offering into Starter, Premium, and Enterprise. With Enterprise, the most advanced program, firms receive benefits such as:

  • A dedicated customer success manager
  • Custom virtual events
  • Impact assessment surveys
  • Educational employee webinars

Thereby, the app remains completely free of use for every subscribed employee. Some of its corporate partners include the likes of Adobe, AirBnB, and Spotify.

Headspace Health

The third and last revenue stream, Headspace Health, was just recently announced and still awaits FDA approval. The newly established company “plans to deliver the world’s first prescription meditation app in 2020 when it anticipates the introduction of the first product in its portfolio of newly developed, clinically-validated and FDA-cleared meditation programs specifically designed to treat a broad range of chronic diseases.

The planned launch date is terminated somewhere in 2020, depending on the speed of the approval process. Headspace is certainly not a novice in researching the benefits of meditation. Since 2015, the company has conducted over 65 research studies with partners such as the Harvard University and U.K.’s National Health Service (NHS) amongst others.

Headspace Valuation, Revenue And Users

According to Crunchbase, Headspace has raised close to $170 million in venture funding to date. The company raised $53 million in its last Series C funding round (along with $ 40 million in debt financing). Investors include Spectrum Equity, Advancit Capital, Breyer Capital, or Jeff Weiner amongst others.

The company chose to not disclose its latest valuation, but it was being valued at $320 million in its Series B round.

The company has amassed over 62 million downloads and counts 2 million paying customers in 190 countries.

Since Headspace is a private company, it is not obligated to disclose its financial performance metrics. Thus, revenue numbers can only be speculated upon. According to Sensortower estimates, Headspace is believed to rake in about $10 million per financial quarter. As of May 2019, the company is believed to have generated over $100 million in user spending.

Key Takeaways

  • Headspace was founded by Andy Puddicombe, a Buddhist monk, and Rich Pierson, a former Head of Business Development at a major marketing agency
  • Andy still narrates most of Headspace’s content, although the company began to cooperate with other influencers (e.g. Kyle Kuzma) on its content creation
  • Headspace began as an event-based service, but the founders quickly pivoted to a digital app to scale and spread the message
  • Most of the company’s revenue comes from its B2C subscription app, but it started to  branch out into other areas (namely B2B solutions and Headspace Health)
  • According to the founders, the company is highly profitable which is supported by the fact that its last round of funding is over two years ago