23andMe, once a pioneer in the DNA testing industry, is facing an uncertain future. Despite its early success in offering affordable and accessible genetic testing to consumers, there are several reasons why the company is destined for failure.
Privacy Concerns: One of the biggest issues surrounding 23andMe is the privacy of genetic data. Customers who use the service are required to provide their DNA samples, which contain highly sensitive and personal information. It is known that 23andMe sold customer data to the pharmaceutical company GlaxoSmithKline (GSK). Surprise? not really, 23andme never hid its intention to capitalize on customers’ data. These privacy concerns have eroded consumer trust, leading to a decline in customer demand and ultimately, business failure.
Regulatory Challenges: The regulatory landscape surrounding DNA testing is complex and constantly evolving. 23andMe has faced regulatory challenges from the U.S. Food and Drug Administration (FDA) in the past, including being ordered to stop marketing its health-related genetic tests without proper FDA approval. Compliance with changing regulations can be costly and time-consuming, and failure to do so could result in legal penalties and damage to the company’s reputation. 23andme has lost a major chunk of its workforce (e.g., 14% of the workers were laid off in 2020), they may struggle to invest in regulations.
Limited Market Reach: While 23andMe initially gained popularity for its direct-to-consumer DNA testing kits, the market for such services may be reaching saturation. The company’s core product, the genetic testing kit, has become commoditized, with numerous competitors offering similar services at lower prices. As a result, 23andMe’s market share is declining, making it difficult for the company to sustain its growth and profitability. 23andme already responded with a round of layoff in 2020 (14% of its workforce) and as of now employs 768 people.
Lack of Diversification: Another weakness of 23andMe is its lack of diversification. The company primarily relies on its genetic testing services for revenue generation, with limited offerings beyond DNA testing. This lack of diversification leaves the company vulnerable to changes in consumer preferences and market dynamics. As the demand for genetic testing wanes or shifts to other providers, 23andMe may struggle to adapt and diversify its revenue streams.
Competitive Landscape: The DNA testing industry has become increasingly competitive, with numerous players entering the market and offering similar services. This increased competition has led to price pressures, making it harder for 23andMe to maintain its profit margins. Additionally, larger companies with more resources and established brand names have entered the genetic testing space, posing a significant threat to 23andMe’s market share. The kit’s $100 price remained unchanged for years. After correcting for inflation, 23andme is actually making $70.
The lack of meaningful engagement and long-term retention of customers. While the initial novelty of receiving genetic testing results may attract customers, the company’s ability to retain customers and generate repeat business is limited. Unlike subscription-based models that provide ongoing services or products, 23andMe’s one-time genetic testing service may not lead to sustained customer engagement, reducing the company’s ability to generate recurring revenue. Today, 23andme has a subscription model, but it is geared toward diseases and has a relatively small number of subscribers.
Scientific Limitations: The list here, is a bit longer.
- While 23andMe’s test provides some valuable genetic information to consumers, it has many limitations in terms of the accuracy and comprehensiveness of its testing. The tests are limited to specific genetic markers and do not provide a comprehensive picture of an individual’s health risks or conditions. In other words, if you are worried about breast cancer, see a real doctor that will run a full test of all 1000 known mutations, don’t buy 23andme’s test that has only 3 mutations! As consumers become more knowledgeable about the limitations of genetic testing, they seek more robust and accurate options, leading to a decline in demand for 23andMe’s services.
- 23andMe’s reliance on self-reported data, on the one hand, and limited genetic markers, on the hand, other may raise concerns about the accuracy and comprehensiveness of its testing. The company’s genetic testing is primarily based on self-description, where customers provide information about their traits, health conditions, and other factors. However, self-reported data can be subjective and may not always be accurate. Additionally, 23andMe’s chips, which are used to analyze DNA, have changed over the years, resulting in different chip designs that may not capture the same information from patients. This inconsistency in data collection may impact the accuracy and reliability of the results provided by 23andMe, raising questions about the company’s testing methods. 23andme masks this information in their investor reports in two ways a) claiming that they have “genomes” (most of their data are a fraction of the genome), b) claiming that they can impute >35M SNPs (without reporting the accuracy).
- 23andMe’s use of tools like Principal Component Analysis (PCA) to control for population structure in its genetic testing may also be a cause for concern. PCA is not a reliable tool to correct for population structure, as I recently reported. Using it results in misleading or inaccurate results. This reliance on potentially flawed tools may impact the validity of 23andMe’s genetic testing and raise questions about the scientific rigor of its methods.
- 23andMe’s health focus made it neglect the ancestry aspect of its report, the feature which attracts most of its customers (at least those who don’t prefer 23andMe to a doctor visit). This is not surprising, the company DOES NOT make a lot of money on the ancestry report. It is only a teaser to sell the health report, which costs the company almost nothing to generate (as the customer has already purchased the kit). As a result, 23andme tests lack innovation and rely heavily on “influencers” to promote sales. Whoa re these people? That’s in the next paragraph.
Why no one else is talking about it? We live in a world where journalism is nearly dead. Trends are created and promoted by bloggers and other paid writers who act as affiliates of 23andme and alike companies. They get % of the sales they send to the company. They have no interest in criticizing it. They will happily criticize companies that do not pay them as it will give them another chance to promote their cash cows. Impressed by 23andme constantly ranked as the “best” genetic kit? Don’t be. You can also be #1, #2, or even #3, it all depends on your budget. Top10, for example, has a warning “The listings featured on this site are from companies from which this site receives compensation. This influences where, how and in what order such listings appear on this site.” Many sites won’t even report that. Influencers typically take 10% of the sale, which is about $10 in the case of 23andme, so those $70 net, are more like $60…
Why the company loses money? It costs the company $35-40 to run a test. If they make $60 on the ancestry kits, they have very narrow margins. In 2022 the company added (here and here) 1.2M users. Who are these users? We don’t know. Did they purchase the plain kit or the “health” kit? We don’t know either. Let’s assume that 80% of the users got the ancestry kit ($99), in which case the company made, $20*1200000*0.8=$19.2M, If 20% bought the “health” kit ($199), the company made, $120*1200000*0.2=$28.8M => let’s call it $50M, net profit. This is simply NOT enough to sustain a company of 1000 employees with an average salary of about $150K (it’s California).

Assuming an average salary of 150K/year for its 768 employees, the company already pays 115M in salaries alone! Add to that $35M in rent, equipment costs, and marketing and that’s how much money the company lost in 2022 ($151M). Of course, this is a VERY simplistic calculation, but it gives an idea of the costs, which are not shown in the spreadsheet available to investors.
Promises, promises, and more promises…. 23andme’s only hope is to stumble upon a promising marker that would result in a great drug. But don’t hold your breath for that. According to their last investor’s report, the company is not even close to finding the next drug:

Only one product(?) is about to come out of phase 1. 23andMe knows that most drugs fail the process (its own report says 90% failure rate). However, what they say is that stratification bias (which, as you may recall, is controlled using PCA) plays a major part in those failures. This is quite disappointing for a company that repeatedly promises to reduce the time it takes to develop new drugs from 7 years to… well the company started in 2015, so we are at 8 years and counting. With $400M in its registry and $150M in losses per year ($180M losses are projected for 2023), it’s hard to see how 23andMe survives to see any drug coming out of phases 3 & 4 before the company runs out of cash ($411M as of now).
In conclusion, while 23andMe initially gained attention and popularity as a pioneer in the direct-to-consumer DNA testing industry, there are many factors including privacy, regulatory challenges, reliance on inaccurate data and tools, limitations of its genetic testing methods, lack of diversification, increased competition, and more. Due to these obstacles, 23andMe struggles and may face major challenges in the long term. The company is not profitable and is pouring money.

As of now, the road ahead for 23andMe appears uncertain, and the company may face significant challenges in maintaining its dominance in the DNA testing market.
So what? Here is a question for the audience. What will happen to the amazing customer data (genotype and annotation) when 23andme would go bankrupt? I have no idea, but if you have your data with that company, you should have some idea.
Update 5/2023
As of now, 23andme’s stock is below $2 and its strategic partnership with GSK has ended. In other words, GSK decided NOT to invest any more money in 23andme. CEO Wojcicki is fishing for new pharma companies, those who will see something in 23andme that GSK no longer see.
A clarification. This is not a recommendation to buy or sell 23andme products or shares.