Direct-To-Consumer Genetic Testing Is Dead On (Investor) Arrival

Contradictory results, deep discounting and overhyped values turned booming consumer DNA testing companies into a no-go for investors.

Sometimes simply throwing in the towel is the right investor story to tell. And for this holiday season, the singular wasted business opportunity has got to be direct-to-consumer, or DTC, genetic testing. That is, suddenly fabulously hip start-ups like Geno 2.0, MyHeritage.com, and 23andMe, to name just three of what must be several dozen services that all essentially sell the same story to consumers. For anywhere from $50 to $300, customers hand over a small genetic sample, that is then tested with some sort of variant of mitochondrial or X and Y chromosome analysis, to plot one’s genetic ancestry. And then, depending on the technology, they either map those results or attempt to connect one to one's long-lost relatives. Think a old-school genealogical survey, but done automatically, with one’s genes.

The market for said automated ancestry services is now a big retail business. The Center for Disease Control recently issued guidelines for healthcare providers for how manage the sudden growth of DNA testing services. Estimates say Genealogy has become the second most popular Web hobby in North America, behind adult entertainment. And this holiday shopping season saw a flood of Black Friday deals on DNA kits. And a wave DNA ratings and ranking journalism, a la what one would expect for buying a smart phone or flat-screen display. 

That would indicate to the savvy investor that the horse race is one for for DTC genetic test winners to bet on And losers to bet against. But we are here to formally tell you today: Don’t bother. 

DTC DNA testing is DOA on arrival. And the smart bet is step back, save your resources, and find another way to get paid. 

No Singularly True DNA

The challenge with handicapping competing DTC DNA testing services begins with the shockingly contradictory results from various kits, each which offers different features and data outputs. Reasonable analysis requires a deft touch for data analytics and sober understanding of the basics of genetics. 

Science journalist Tina Hesman Say did a rigorous, science-oriented comparison of several DTC DNA services for ScienceNews. And her 1,000 or so words and half-a-dozen screen shots show how nearly impossible it will be for these various tools to produce the kind of consistent, wide-ranging results that Internet scale marketing sectors demands. Results vary dramatically depending on which genetic feature is being mapped. See below how National Geographic’s Geno 2.0, which is focuses on the maternal DNA, leads to broad ranging results that have little practical value for finding one’s ancestors? Or how LivingDNA's results tended to offer narratives for those living in the United Kingdom. Or how FamilyTree DNA managed to tell a reasonable story but mostly for central Europe. But there was no way to accurately map one’s actual family tree.

There wont be a Google-scale genetic story to tell with DTC DNA products because there isn't just one: There are several.

No Single Genetic Story To Tell

Lack of a central genetic narrative means a positive experience for customers requires time-consuming human context and effort. That certainly is ideal for the passionate amateur or the dedicated professional who can take the time to make these results tell a real story. Earlier this year. California authorities found the Golden State Killer by carefully cross-referencing both commercial services and non-profit gene maps like GEDMatch, to fund a killer. 

But this kind of by-hand consumer is not an experience does not bode well for the large repeat audience that the Web requires. And the science behind the results these tests show is absolutely still evolving. A recent paper published at the Proceedings of the National Academy of Sciences found that not only mothers, but fathers, can pass along mitochondrial DNA to their children. Implying that much of the automated logic that low-cost DTC ancestry tools use will probably have to change. And those hard science issues do nothing to solve the usual-suspect privacy concerns and creep-factor that is now bedevil major Web operations like Facebook and Twitter. 

Ancestry at Too High a Cost.

But what truly cripples these commercial DNA ancestry tools as investment vehicles, is how insanely overvalued these dumb things already are. The private market valuations, that are floating around here are nuts. Earlier this year, reports pegged market leader 23andMe as being worth something crazy like $2.5 billion! 

But those values cannot last. Why? Remember those Black Friday deals we talked about just a few minutes ago? Those were all about discounting. And lost dollars in that pricing is a high number: 50 percent reductions in retail pricing seemed to be the median discount. By some measure, that drop in pricing is already eating into private market caps for these companies. We saw a figure that felt about right that dropped 23andme private market cap to now just $1.8 billion. That’s not the kind of holiday gift investors like to get.

But what really worries us about DTC testing is powerful genetic mapping enterprises that are firmly committed to high-quality automated ancestry tools that plan to never ever make a profit. To get a sense for that risk, we recommend taking a look at the RootsTech Conference in Salt Lake City coming in January 2019. This trade show appears to be one of the largest retail DNA ancestry business events on the planet. But it is sponsored by the absolutely nonprofit Church of the Latter Day Saints and its utterly-free DTC DNA tool called FamilySearch.org. The Mormons feel that genealogy is key to their religions. 

We have not problem with that. But competing with that is like trying to sell Bibles to synagogue or church members. The books you are trying to sell are already free. 

DTC DNA Testing is DOA

This is our holiday present to you all: Tinkering around looking to bet on commercial DNA ancestry tools in 2018 might be fun. But it is like betting on eReaders in 2008. It’s hip and disruptive and great conversation starters. That is, until the idiotic economics of Web consumerization and digitization turn yet another marvelous innovation into a commodity before anybody had time to make money. 

The only upside we see in DTC DNA testing is in writing, say, Season 6 of HBO’s hit tech spoof Silicon Valley, and imagining how those knucklehead tech entrepreneurs release a Pied Piper Genes test as pants one can wear that surreptitiously takes DNA samples. And offer results in one's pocket. That might be pretty darn hilarious. 

But betting on Direct-To-Consumer DNA testing won't be funny at all.