BUSINESS 2.0:

$20 billion for a good night's rest

We're sleeping less each year - and that's creating a big opportunity to sell everything from naps to high-tech beds.

By Michael Myser, Business 2.0 Magazine

(Business 2.0 Magazine) -- Tucked in an alley off Manhattan's financial district is a darkened storefront dotted with eight futuristic-looking white pods. Reclining in the capsules are two Wall Streeters who've ducked in for a quick $14 noontime snooze at MetroNaps. The startup operates two New York locations and an outpost in Vancouver, British Columbia, and is expanding to Australia and the United Kingdom. It also leases sleep pods to companies offering nap rooms as the latest fringe benefit in a 24/7 world.

Some call it the sleep economy - a burgeoning $20 billion business of aromatherapy pillows, high-tech beds, face masks, biorhythmic alarm clocks, and, yes, naps. The market is growing because, frankly, we're exhausted and sleeping less each year.

The National Institutes of Health recommends seven to eight hours of sleep a night for adults. But we typically get just 6.1 hours of shut-eye. Why? Our always-on, BlackBerryed, bad-news-continuously-streamed-to-your-desktop world keeps us up at night. "It's hard to wind down and fall asleep," says Michael Breus, WebMD's resident sleep expert. "From terrorist threats to overwork, people are stressed out. When you're stressed out, you don't sleep."

MetroNaps is just one of hundreds of companies emerging to profit from sleeponomics. The ZZZ-deprived are a huge market: An estimated 40 million Americans suffer from some sort of sleep disorder.

Sleep is the new sex, it's said, with Ambien filling in for Viagra. (No surprise that drug companies raked in nearly $3 billion last year on 43 million prescriptions for sleeping pills.) The economic toll of all this tossing and turning is $50 billion in lost productivity and $16 billion in health-care costs, according to the National Institutes of Health.

It's an epidemic, and while beds and meds may drive the sleep train, there's plenty of room aboard for innovative players.

The idea for MetroNaps hit founder Arshad Chowdhury while he was working long hours at a New York investment bank. "I saw a lot of my colleagues falling asleep at their desks or sneaking off to the bathroom to sleep," he says. "My instinct was that people obviously weren't sleeping enough." By 2001 he'd escaped to Carnegie Mellon's MBA program, where he toiled for two years on a napping business plan. The first MetroNaps, a six-podder in the Empire State Building, opened in 2004.

Chowdhury's hunch was backed up by more than two decades of studies showing that napping can sharpen job performance. Still, Chowdhury says his most difficult obstacle is overcoming the stigma associated with napping, especially in hypermanic New York. "It's like opening a gym in the '70s or selling bottled water in the '80s," he says.

But that hasn't stopped wannabe Gordon Gekkos from forking over $65 for monthly memberships. "After lunch, I would fight the sleep for a few hours," says bank examiner Jose Stevenson, describing his pre-MetroNaps routine. Now he's a member and follows up a working lunch with a 20-minute snooze two or three times a week. "Once my body became accustomed to it, I got addicted," he says. "Now I feel awake and refreshed in the afternoon, like I do at 9 a.m."

New York MetroNaps franchisee Robert Carrillo insists he's hit on the perfect business opportunity - providing a safe haven to catch 40 winks, a break from workday stress. "We're going into a completely untapped market, and napping truly benefits people," he says. "It's just a matter of time before this really catches on."

It remains to be seen whether napping ends up being 2006's version of the oxygen bar. But Chowdhury has already opened a MetroNaps at Vancouver International Airport and taken orders for second-generation nap pods at $6,950 a pop from companies like Madison Avenue advertising firm StrawberryFrog. The Savannah College of Art and Design in Georgia even ordered four pods for napping students. MetroNaps also aims to attract franchisees, for a $25,000 fee, in other urban markets. Carrillo, meanwhile, says so many drowsy denizens of Wall Street are dropping in for impromptu catnaps that he might have to start offering pod time by appointment only.

High-end beds

The MetroNap model of affordable siestas is on the relatively low end of the sleep scale. Toward the high end, there's the Gravity Zero, a five-figure bed made by Israeli firm Hollandia International. The company hired Philadelphia consultant Kanter International this year to market the Honda Civic-priced beds in the United States. With fully adjustable positioning, a microprocessor, aloe vera fiber, body massage, and even stereo speakers, the beds retail for $10,000 to $20,000. Think Craftmatic for the nouveau riche.

After Kanter tried out the beds, tested the product with more than 100 consumers, and took a close look at the high-end market opportunities, it decided to run Hollandia's U.S. subsidiary. "Without exception, everyone who tried the bed said it transcended any sleep experience they've ever had," says Kanter president Mark Stuart.

Hollandia sold 30,000 beds worldwide last year. Stuart says luxury beds' U.S. retail market share quintupled between 2003 and 2005, to 2.5 percent, and could reach 10 percent or more in the next few years. Top-quality mattresses alone are a $1.4 billion wholesale market in the United States, according to the International Sleep Products Association.

Stuart expects that Gravity Zero beds will appeal to households with incomes of $125,000 and up. To reach those buyers, Hollandia U.S. opened its first store in August at Philadelphia's Marketplace Design Center, where decorators bring clients to choose furniture for their homes. The company sold its first bed on just its third day open and is in negotiations with luxury malls across the country for additional retail locations. Next up: a $50,000 "bed system" later this year.

Sleep centers

Napping and expensive beds, however, simply can't do the trick for more serious sleeping problems like insomnia, narcolepsy, and sleep apnea. That's where sleep centers come in. There are already more than 2,800 U.S. facilities that monitor patients and prescribe treatments. But most sleep centers just diagnose, handing treatment to outside providers.

Two former venture capitalists saw a gap in the market and last year launched REM Medical to provide one-stop shopping for sleep disorders, a sort of Betty Ford Clinic for the chronically tired. "We want to go beyond research and diagnosis, getting the patient on therapy and then managing that therapy," says REM CEO Russell Benaroya.

With a $225,000 initial investment from the founders and some angel investors, REM landed a respected sleep physician to lead clinical development and established two sleep centers outside Phoenix. They've seen more than 2,600 patients so far, with each typically spending about $4,000 for their first year's treatment. Market researcher Frost & Sullivan expects sleep center revenue to climb to $4.4 billion by 2011. REM hopes to open 20 other locations during the next five years.

REM prefers to enter a market by partnering with a large local cardiology lab or clinic, because that kind of office often sees patients with sleep-related disorders and can provide a steady stream of referrals.

When a patient enters a REM center, she's usually monitored overnight, then diagnosed by an attending physician who prescribes a treatment. Many treatments are sold directly by REM. By comprehensively managing the patient, Benaroya says, REM can count on repeat business.

Opportunities still abound for sleep entrepreneurs. Of the 40 million Americans who suffer from chronic sleep problems, as many as 95 percent go undiagnosed. "It's a wide-open market," says WebMD physician Breus, whose own sleep advice book, Good Night, was released in September. Assuming you don't fall asleep at the switch.

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.