23andMe's Fatal Flaw | Great Expectorations | 1

0:28September 2008. Sheesh, Harvey Weinstein. Places heaving with the great, the good, and the not-so-good. All dolled up in tuxedos and high-fashion evening gowns, and they're all spitting. Not in an old West Saloon way, but in a dribble-into-a-test-tube sort of way. And that's because 23andMe organized this party. 23andMe is a hip new startup. It sells DNA tests by mail. Its customers are people who are curious about their genetic makeup. Generally, these customers are rich. 23andMe's tests cost$999, or they did until tonight. Tonight's party is to celebrate 23andMe slashing its prices by$600. Now its DNA tests cost$399.

1:21That's still some way off from an impulse buy, but it's moving in the right direction. What do you get for your money? The chance to spit into a test tube and send your saliva sample into a lab so your DNA can be examined. No, it's not graceful, but 23andMe is leaning into it. Hence tonight's event, which it calls a spit party. 23andMe isn't the only company selling DNA tests, but it's got a flair for attracting attention. It hopes tonight's gathering of hawking celebrities will build hype for its price drop. Right now, a tuxedo-clad guest is trying to summon enough saliva for his test tube. You've got to produce a whole teaspoon of spittle.

2:04Might not sound like a lot, but it takes most folks 5 to 10 minutes, and that's when you're not wearing a cummerbund and surrounded by Hollywood high flyers. You can't eat or drink for some time before doing the test either. Food and drink can interfere with the sample. You don't want your results to come back 50 % moe and 50 % shandong. As the guest summons Spittle, the woman who invented the spit party is holding court. She's Ann Wuchitski, the CEO of 23andMe. Her vibe is eccentric genius. She always seems busy with new thoughts, new ideas, and she's passionate about genetics. DNA is our own personal footprint.

2:47It's found inside every cell in our bodies. It dictates your eye color, hair color, and tells you where you're from. People should know what their DNA says about them. It should be like reading a book. It's the future. She notices that her guest has nearly finished delivering his sample. Nice work there. Now have a can of pay. Is the future going to evolve this much saliva? Yeah, I know it's strange, but it's a one-off. Your genes don't change, so one good spit session is all we need, and you're set for life. Despite the strangeness of the spit party, there's a buzz in the room. 23andMe feels like the next Silicon Valley startup on the road to a multi-billion dollar IPO.

3:33But unknown to everyone here, including Wojcicki, 23andMe is already destined to fail. It's got a fatal flaw in its business plan, one that's as hardwired as the human genomes it tests. Question is, what is that fatal flaw?

4:18help you stand out and hire fast. With Sponsored Jobs, your post jumps to the top of the page for your relevant candidates so you can reach the people you want faster. And that makes a huge difference. According to Indeed data, Sponsored Jobs posted directly on Indeed have 45 % more applications than non-sponsored jobs. Plus, with Indeed Sponsored Jobs, there aren't any monthly subscriptions, no long-term contracts. you only pay for results. How fast is Indeed? Well, in the minute I've been talking with you, 23 hires were made on Indeed, according to Indeed data worldwide. Look, there's no need to wait any longer.

5:00You can speed up your hiring right now with Indeed. And listeners of Business Wars will get a$75 sponsored job credit to get your jobs more visibility. That's at Indeed.com slash BW. Just go to Indeed.com slash BW right now and support our show by saying you heard about Indeed right here on Business Wars. That's Indeed.com slash BW. Terms and conditions apply. Hiring? Indeed is all you need. This message is brought to you by Apple Card. So you left your wallet in the car. Or was it at home? No need to panic. With your iPhone, you can tap to pay using Apple Card with Apple Pay and earn unlimited daily cash back when you do.

5:48Apple Card is ready when you need it. Subject to credit approval, Apple Card issued by Goldman Sachs Bank USA, Salt Lake City Branch. Terms and more at AppleCard.com.

6:02From Wondery, I'm David Brown and this is Business Wars.

6:28In this season, we put 23andMe under the microscope. It built itself as the pioneer of a DNA testing revolution, winning billions in funding, only to end up broke with its promises unfulfilled. To understand the rise of 23andMe, we need to go back to the early 2000s. DNA was the science and tech buzz of the moment. It promised to unlock some of biology's greatest secrets, and fascination with it gripped the entire world. In 2003, the Human Genome Project completed its push to sequence more than 90 % of the human genome. It was a scientific landmark. The genome contains the genetic instructions for making a human being, and the job of mapping it had taken 13 years, around$3 billion, and teams of scientists based all over the world.

7:20That breakthrough fired the public imagination. It promised a world of personalized medicine where drugs are tailored to each individual and people getting forewarning of diseases they might be predisposed to so they can take preventative measures. It also promises big money for the companies that make that world happen, which is where 23andMe comes in. It became one of the first to market one of the most familiar brands of the genetic revolution and feted by investors, only to plunge into Chapter 11 bankruptcy in early 2025. This is the story of how the most promising startup of the DNA revolution became a multi-billion dollar miss.

8:06This is Episode 1, Great Expectorations.

8:14Monterey, California, 2005, three years before the Spit Party. In an upscale restaurant, literary agent John Brockman is hosting his exclusive Billionaire's Dinner. It's an annual gathering of thinkers from scientists to captains of industry to discuss the big issues of the day. And this year, Ann Wuchitski's attending. She's a health industry analyst for a venture capital company, and she's trying to get the others at her table excited about urine. You know, this asparagus has me thinking. Can any of you smell the difference in your urine after eating it? The man sitting next to Wuchitski grimaces.

8:54He's Sergei Brin, the co-founder of Google and Wuchitski's boyfriend. He puts down his fork. And, trying to eat here. That smell difference? That's down to genetics. Some people notice it, some people don't. Just like some people are left-handed and some have freckles. It's all in the genes. Everything that makes us who we are as individuals is in there. It's just there, waiting for us to read it. Like the Human Genome Project? Yes, but for each of us. What if people could have a test that would allow them to understand their genome? We'd all know whether we can smell asparagus when we pee, hmm?

9:34And more. We'd better understand our ancestry. We'd know where our genes came from and how our ancestors traveled the world. And we'd know what might lurk in our future, too. What diseases we might be at risk of so we can take preventative action to avoid them. Wuchitski's been thinking about this for a while. The pharmaceutical industry is already tailoring drugs for specific genes. What if all the available genetic data about us was in a single source? What if by getting ourselves tested, we contribute to a bigger pool of data that researchers can use? It could improve our own and everyone else's health.

10:14One of the other guests responds, But there's still the cost of sequencing. It might be falling, but you're still looking at millions of dollars. But does it have to be sequencing? Sequencing maps every gene, all 20 ,000 of them. But there's another way, genotyping. You test for individual gene mutations. Well, that's more like checking specific page numbers in a book and reading a single paragraph on those pages. It's testing, not mapping. That way, you can offer customers targeted results at a fraction of the cost. Brynn nods, suddenly thoughtful. Cheaper and more targeted? As trade-offs go, that sounds like a win-win.

10:59I see what you're getting at. Kind of makes me think about my mom's Parkinson's. And, well, I guess I have to assume I'm genetically at risk myself. But I'd pay big money to know for sure. But what if you didn't have to pay big money?

11:18Wuchitski is sure that there's a business in this idea, but to do it, she's going to need help. Luckily for her, it's not just billionaires at this dinner. There's also a journalist who's writing a book about Google. In the book, he briefly mentions Wuchitski's DNA dinner chat. And that mention catches the attention of one reader, a biologist named Linda Avey. Inspired, she asks to meet Wuchitski. Avey is an executive at a company that makes tools for genetics research. She's also thinking about starting a consumer-facing DNA testing business. And she's been working on it with Paul Kusenza, a former colleague who lives on the East Coast.

12:03Avey and Wuchitski hit it off immediately. They and Kusenza agree to work together on a business that sells DNA tests to the public. It's a bold idea for 2005. Almost a pipe dream. Most DNA testing businesses cater to the research and healthcare markets. They sell to businesses, not to everyday people. And that's because of the costs involved. Fully mapping people's DNA like the Human Genome Project, that's a non-starter. But Wuchitsky's plan is to test, not to map DNA, to check just 90 of the 20 ,000 genes in our DNA. This is still very expensive. But the hope is the costs will tumble as technology improves, just like computers went from multi-million dollar business machines to cheap PCs.

12:51But if they're going to bring these expensive tests to Main Street, Wuchitsky and her co-founders will need serious funding. So, Wuchitsky sets up a meeting with her boyfriend Bryn and Google's other founder, Larry Page, to get some initial funding. Bryn is super keen on this idea, and he tells Wuchitski to move fast. Speed is king in Silicon Valley. The mindset is, get ahead of the curve. Grab all the market share you can, as fast as you can. Then, figure out how to make money out of that advantage. Genetics is all the rage. Someone's going to make a lucrative breakthrough sooner or later. Get in there quick, and it could be you.

13:34And let's be honest. It's not just a great idea that's swinging this. Connections make a big difference in business. And if your network includes two Google co-founders, you're probably going to get funding. Even if your startup idea is, let's sell spit kits like their iPhones. And that's exactly what happens here. Bren throws in$2.6 million of his own money. Google adds another$3.9 million to the total. Armed with millions in funding and an office in Mountain View, California, Wuchitsky and her co-founders form 23andMe. The name comes from the number of chromosome pairs in human cells. Chromosomes are the thread-like structures that contain our DNA.

14:2223andMe spends months in stealth mode, laying the groundwork for their business from Mountain View. By late 2007, the company is ready to break cover and start selling its genetic tests to the public through its website. As the countdown to launch day approaches, Wuchitsky and Avey meet with 23andMe's board of scientific advisors to review its website before it goes live. Wuchitsky's in an upbeat mood, having just got back from her honeymoon with Brynn. She lays out her plan to make genetics understandable to all. She reasons there's no point giving customers a scientific printout of their results and expecting them to understand what all those graphs, numbers, statistics, and letters mean.

15:05Instead, 23andMe wants to offer a service that's friendly and fun to interact with. So, the company's created animated FAQs to explain the basics of genetics. 23andMe's also decided it needs to avoid entangling customers in complicated scientific concepts like linkage disequilibrium. Nope, I'm not sure what that means either. The meeting gets into a discussion about what genes 23andMe will test for and the limitations of its tests. They all agree that the results shouldn't be marketed as medical tests. That could get them into trouble with health care regulators. Instead, 23andMe will promote its tests as being for nothing more than personal information.

15:49The excitement in the room is palpable. 23andMe is no longer a pipe dream. The team's at that special moment in a business's life where the future is wide open, where the frontier stretches away in every direction. And every day, the promise of affordable genetic tests edges nearer. By June 2007, the price of mapping an entire genome had fallen to around a million dollars and dropping fast. That's great news for 23andMe. It might be focusing on DNA tests for now, but it's also got one eye on a future where anyone could have their entire genome mapped for the cost of an evening out. Now, looking back with 2020 hindsight, this wasn't so much a business plan as it was a bedtime story for venture capitalists.

16:43And you know, like most fairy tales, everything was bliss until the dragon showed up asking about unit economics. But that's all in the future. For now, the pre-launch meeting ends with excitement, expectation, and the board members racing around the office on segues. Of course it does, right? Didn't I mention this was 2007?

17:09In November 2007, 23andMe launches its mail-order personal genome service. The price? A cool$999. $99 and still far from an impulse buy for most people out there. There's clearly a sweet spot for this kind of product and this isn't going to be it. It's a luxury product for sure but with the price of testing falling fast, backing from Google and the buzz about genetics rising, well, few doubt that 23andMe will succeed. It's even tapping into the new excitement around social media platforms like MySpace and Facebook. The company's website also encourages people to share their results and compare them with the results of other customers.

17:54Wuchitski's also openly discussing the results of her own DNA tests, like how she quit alcohol after learning she was at a higher risk of breast cancer. 23andMe promises it takes data security seriously, but Wuchitski hopes that people will share their results so that the whole world will come to understand its own genetics. But to make that happen, 23andMe must first convince enough early adopters to pay top dollar for its tests. And with that thousand dollar price tag, that won't be easy.

18:34Ready or not? Yep, the holidays are coming and I'll be honest, I love having friends and family over. But I don't love realizing at the last minute that my serving pieces look like they've been through one too many dinner parties, or that the guest room is more college dorm chic than holiday cozy. Know what I mean? Well, that's where Wayfair comes in. We just ordered some new serving plates, a new wreath for the door, a set of crisp new sheets, and suddenly the house feels just about guest ready. Even better, it didn't feel like a chore. It felt fun. But I've been here before, I'll be honest. My secret?

19:08The Wayfair app. What I love most is how Wayfair has literally everything you need. That's no exaggeration. I was surprised to find high quality cookware that's perfect for hosting those big family dinners. And let me tell you something, delivery was a breeze, free and fast, even for the larger items. Whether you're looking to spruce up your kids' rooms with festive touches or need new bedding for the guest room, Wayfair's got you covered. From Christmas trees and wreaths to inflatables for the yard, they're truly a one-stop shop for holiday prep. And the best part? There's something for every style and every budget.

19:44I can't wait to tackle more of my holiday home goals with Wayfair. It just makes getting ready for the season so much easier. Leaving more time to enjoy with the family, that's what it's all about. Get organized, refreshed, and ready for the holidays for way less. Head to Wayfair.com right now to shop all things home. That's W-A-Y-F-A-I-R dot com. Wayfair. Every style. Every home. When planning for your future, you want someone with a history of keeping their word year after year. For nearly 160 years, Pacific Life has been a trusted name in the industry. But that isn't just a number. It's experience that matters.

20:25It's 160 years of promises held, helping generations retire with confidence, protect their loved ones, and plan for whatever comes next. Whether you're looking for life insurance, employee benefits, or retirement income solutions, when your future's on the line, you want history on your side. And believe me, Pacific Life has been there, always there through changing times, always focused on your needs. Ready to secure your tomorrow? Ask a financial professional how Pacific Life can help you feel prepared for what's next. Pacific Life Insurance Company, Omaha, Nebraska, and in New York Pacific Life and Annuity, Phoenix, Arizona.

21:02Because with Pacific Life, you're not just planning for the future, you're partnering with trusted experience.

21:21Where do we come from? Who is our wider family? Everyone seems to want to know the answers to these questions, including Jimmy Buffett, the tropical rock superstar known for hits like Margaritaville. And that's why in 2007, he's hanging out with Ann Wuchitski at 23andMe's head office in Mountain View, California. Buffett's already spat into a test tube and had his DNA tested. He wants to know if he's related to the billionaire investor Warren Buffett. On her computer, Wuchitski walks him through the results. Bad news, Jimmy. It's not a match. But now the tropical rocker's curious about the rest of his DNA.

22:01He watches Wuchitski click through the findings to bring up a colorful pie chart summarizing his ancestral genome. Turns out that Buffett's got a strong connection to the British Isles through his mother. So, the women came over from the Saxon invasion. Pretty cool. There's also a strong connection to the Basque region of Spain. No wonder I like Basque food so much. Mystery solved. For the next few minutes, the two of them look through Jimmy's health data. Eventually, the singer leans back in his chair, mind blown. Wuchitski can tell he's impressed. And remember, this field is moving so quickly.

22:40We're built to react to that. Every time new research comes out, you'll be able to log on and see how it affects our understanding of your genes. I get it. You guys are mad scientists. Feels like there might be a song in this DNA stuff. Dang shame the words are all so long. Anyway, I imagine people are banging down your door to get these tests, huh? Wuchitski smiles confidently. Business is trickling in for 23andMe, but it's still very much a novelty for the well-off. Yeah, our customers are learning all sorts of things about themselves. Hey, would you like to know what type of earwax you've got?

23:20Wait a minute, we don't all have the same earwax? Identifying people's earwax group may be quirky, but it feeds customers curiosity and drives interest. 23andMe sees value in this sort of novelty, brings a dash of social media appeal to its service and sets it apart. 23andMe rivals like Decode and Navigenics emerged from the genetic research industry. They're more haughty and medical in their outlook. 23andMe's corporate culture and brand image is pure Silicon Valley, the dash of showbiz glamour. Wachitski wears Lululemon to work. They hold spit parties and ride segues around the office. The 23andMe website is full of cute visual touches and bold colors.

24:05No wonder Jimmy Buffett's so at home here. But curiosity is a shaky foundation for customer retention. I mean, if your business relies on party tricks, you risk running out of buyers faster than you can say spit kit. Novelty might recruit a customer, but the real question is, what keeps them coming back?

24:31While 23andMe wants to make DNA tests fun, it's still checking for genes linked to specific diseases. And that's caught the attention of healthcare regulators. In June 2008, California and New York's public health departments intervene in the emerging DNA testing industry. They hit 23andMe and its rivals with cease and desist letters demanding they stop recruiting new customers until they comply with existing regulations. The regulators say the DNA testing companies are offering medical tests without a license and with no doctor involved. 23andMe responds by pushing back. It refuses to stop selling tests.

25:13It counters that it doesn't conduct DNA tests itself. Instead, it outsources the tests to clinical laboratories that have the appropriate licenses. Therefore, 23andMe doesn't need a license. It also doubles down on its marketing message that its tests aren't medical but informational. 23andMe simply tells customers the risk of them developing a disease, not whether they have the disease. It's a standoff. In California, 23andMe reaches a deal and gets licensed, but New York proves less amenable. Its laws prohibit unlicensed labs from accepting samples from New York State. The result is a mess. 23andMe can sell and ship its kits to New York State residents, but to get their spit tested, 23andMe customers can't provide or ship their spit inside the state.

26:08So now, 23andMe has to ignore any samples sent from a package postmarked New York. But for those who can get their results, the health insights are a big deal. Including for Wuchitsky and her husband, Sergey Brin, the co-founder of Google. In September 2008, Brin gets 23andMe to test his DNA. He's long worried that, like his mom, he might develop Parkinson's disease. The results confirm his fears. He tests positive for a mutation in a gene called LURK2. That mutation is associated with increased risk of Parkinson's. Uchitsky sees this as a positive development, proof of how 23andMe can help its customers.