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The Beauty Tech Boom

Augmented reality and artificial intelligence have revolutionized the beauty industry.

7 Minute Read

What you need to know:

Beauty YouTube hit 168 billion views in 2018—nearly double the previous year’s—and investors pumped $303m into beauty tech startups in early 2018. Now, brands are investing in tech that lowers the barrier to online skincare purchases.

How to capitalize:

There’s still no single platform that caters specifically to the skincare community. That leaves a huge opportunity to build a place for power users and influencers to share tutorials and regimens, or schedule recurring product orders.

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Over the last 5 years, the global cosmetics market has exploded. Sales of skincare, haircare, makeup products, and more have the industry poised to reach $863B in volume by 2023—with no signs of slowing.

If you’ve been on Instagram in the past year, this probably doesn’t surprise you: Beauty and makeup products are blowing up on social media. Instagram and YouTube influencers with massive followings are pushing products left and right, and even basic company-sponsored tutorials rack up millions of page views.

Just how big are beauty-related views? They more than quadrupled in a recent three-year span (it takes more than a couple tutorials to learn how to contour, okay?)

Annual beauty-related content views on YouTube (in billions)

(Via Statista)

Now, thanks largely to female founders, we now have a whole new category of makeup capitalizing on this rapt audience: “ultra personalization” taps into the power of artificial intelligence, augmented reality, and other technologies to deliver skincare products catered to your personal complexion aspirations.

Product customization used to be a pricey luxury. Now it’s a norm, driven in part by consumer demand:

  • 59% of customers say that the option of personalization influences their shopping choices, according to an Infosys report.
  • Forrester report confirmed that 77% of consumers have chosen, recommended, or paid more for a brand that provides the option to personalize.

Meanwhile, the last bastion of brick-and-mortar shopping—the makeup counter—is about to fall. AI and AR have drastically lowered the barrier to buying new products online: AI helps brands gather massive amounts of data for personalized formulations, while augmented reality apps allow customers to digitally preview products on their own faces without ever stepping foot inside a Sephora.

Personalized hair-care brand Function of Beauty lets you customize everything from the scent to the name on the bottle.

One of the most tantalizing things about the beauty market? A seemingly endless amount of niches in which to gain a foothold: from personalized fragrances to custom curl creams to the tech that helps deliver them to consumers. 

And here’s what really has investors blushing: there’s still no single platform that caters specifically to skincare advocates and influencers.

The Market

In 2017 alone, CB Insights reports that over 70 beauty tech startups popped up, netting more than $1.7B in sales. According to Tracxn’s June 2018 report on the beauty tech sector, investors pumped $303m into the industry through the first part of last year. Those dollars are comprised of four main categories:

  • Discovery and advice
  • Services
  • Innovative tech products
  • Virtual previews

In 2018, the US was by far the top investor in beauty tech at $1.9B, with Europe a distant second ($281m). This market alone has 2 unicorn brands, 7 ‘soonicorns’ and 13 ‘minicorns,’ including GlossierModiface Birchbox, and IT Cosmetics. In short, it’s massive.

Key Players

Procter & Gamble and L’Oréal are two of the largest corporate acquirers of beauty tech startups. They not only have their own incubators producing innovative products, but the companies seek out and partner with smaller brands. 

Since the early 2000s, P&G has found ways to use AI-based computer programs and data collection to provide customers with hyper-personalized skincare products and regimens. Its flagship skincare brand Olay comprises nearly 6% of the global market, and its highly-successful spinoff platform, Olay Labs, works to make skincare accessible through mobile phones. 

Olay’s Skin Advisor app has helped over 5 million women personalize their skincare routine just by taking a selfie. The app uses machine learning to produce a personalized skin report—resulting in either a confidence boost or, more often, a pricey online shopping spree.

When paired with your phone, Olay’s FaceNavi Smart Wand reacts differently to different areas of your face, using electromagnetic pulses to get more mileage out of your product (via Engadget).

Olay’s Future You simulation shows what your skin and face will look like in the future with various skin regimens (I’ve used this simulation and am here to tell you—SPF is more important than you think). 

And who could forget Olay’s FaceNavi Smart Wand, debuted at this year’s Consumer Electronics Show, which relies on a combination of AR and electromagnetic pulses to deliver product “more effectively” to your problem areas.

L’Oréal, which garnered around $30B in sales in 2018, is also jockeying to become the “Apple of skincare.” In 2017, its Beauty Tech Atelier secured a spot in French entrepreneur Xavier Niel’s Station F—a $285m tech accelerator housing over 1,000 companies.

The company has a free MakeupGenius app that lets you virtually try on makeup, along with My Skin Track UV, a product launched by L’Oreal’s brand La Roche-Posay, which tracks the user’s sun exposure levels and retails for $60 in the Apple Store.

Paris’ futurist Station F incubator, located in a former rail depot (via Station F).

Like P&G, L’Oréal’s been gobbling up smaller beauty companies that have unique and tech-based products, like ModiFace (acquired in March 2018). ModiFace is a Canadian tech company that specializes in virtual product testing and has worked with Sephora and Estée Lauder on their respective virtual makeup apps.

But what about some of the new cosmetic contenders?

Startups that Shine

With their pastel color schemes and naturally made up soft-smiling models, new-age beauty companies like GlossierProven, and Function of Beauty push a message of self-love—with a few slight tweaks. And it’s working.

Here are a handful of young companies that have made a dent in the business:

Function of Beauty. Launched in 2014, this brand allows users to pinpoint what they want to improve about their hair, then design their own shampoo and conditioner formulas, right down to the color, fragrance, and their name on the bottle. They’ve received over $12.2m in funding and will reach an estimate of $2m in revenue this year. 

Proven skincare. Founded in 2016, this personalized skincare startup is still in the seed investment stage, but has garnered a lot of media attention thanks to its AI-based system curates an ultra-personalized skincare routine via an in-depth customer survey of their skin type, skin goals, and “problem areas.”

Launched from co-founder Amy Yuan’s “Skin Genome Project” (winner of MIT’s Artificial Intelligence Award in 2018), Proven uses computational science to analyze over 20,238 skincare ingredients, 100,000 products, 8 million testimonials and 4,000 scientific journal articles to find the perfect combination for customers.

Glossier. Founded by then-20-something entrepreneur Emily Weiss in 2010 as the beauty blog Into the Gloss, Weiss amassed millions of readers before deciding to sell her own products in 2014. 

Glossier founder Emily Weiss (via Into the Gloss)

The company’s main mission was to rail against prevailing makeup trends (which at the time were heavy eye makeup and unnatural contouring) and make women feel good about their natural features. It’s now valued at $1.2B  (with $186m in funding) and has launched dozens of product lines, plus a spin-off brand, Glossier Play.

Glossier is a leader in the “dewy skin” look, which started in South Korea, and is becoming more popular in western countries. The dewy look could lead to higher demand for foundations, lip glosses, moisturizers and creams that have glowing and highlighting capabilities. 

Industry Gaps & Opportunities

While it may seem like there isn’t much room to compete against both the big and smaller companies, Robin Raskin, the founder of Living in Digital Times and partner of the Consumer Electronics Show, says there are many industry gaps that still need to be filled.

1) The re-order reminder 

For religious makeup-wearers, running out of foundation/mascara/bronzer is a personal emergency. Creating a service (or partnering with a brand) to keep track of all product orders, calculate the average amount of time it takes for a customer to finish a product or when it is set to expire, and then scheduling a recurring order would help push products and keep brands in touch with their customer base.

“Everyone’s got beauty products in their drawers; now there’s the whole re-order phenomenon: ‘send me a text message when I need to refill my skin cream.’ There’s so much room for products that alert the user when they’re running out,” says Raskin. “I never know how old my makeup drawer is, some of my products are maybe 20-years-old.”

2) Accessible personalized perfumes  

People have been able to personalize their perfume for years, but it’s not nearly as saturated as the customized makeup, skin and hair care vertical—and there aren’t as many new players. Raskin said there’s a lot of opportunity to grow in that sector and join the current big names in that space, like PHLURWaft Fragrance, and UNIQUE Fragrance, which currently has $500,000 in seed funding.

A personalized, three-fragrance tester pack from Phlur.

“[With] perfumes, you’ll soon be able to totally customize a scent for a person through a personality quiz, or create aroma therapies that will respond to your EEGs (a test that measures your brain activity),” says Raskin. “We’ve just touched the surface.”

3) Tips and Tricks

There are literally millions of makeup and beauty lovers posting tutorials and their personal advice online daily, and even more viewers actively tuning in. Because of this rise in beauty influencers and personalities, there’s increased demand for new products solely for the purpose of creating and sharing digital content.

The ‘discovery and advice’ subsection of the beauty tech market has received over $245m in funding in 2018, making it the second-most funded space right after e-commerce. There’s a lot of opportunity for new players to get involved with their own apps, digital programs, or physical products that improve the quality of self-produced beauty videos (e.g. the “selfie ring light kit” that’s now a staple in any self-respecting beauty influencer’s at-home production studio)

Fotodiox Selfie Vlog Pro Ring Light retails for $100 on Urban Outfitters.

4) Build a platform, not a single product 

Develop a reliable brand and platform with avid followers that you can then turn into customers, a la Glossier. Or, create a platform specific to beauty community power users that lets fans ask beauty influencers questions, track their routines, or systematically test products.

Future of Beauty Tech

When it comes to predicting which direction this industry’s heading, analysts are quick to say one word: health. With the big brands focusing so much funding and expertise on skin analysis products, the lines between wellness and beauty have become more and more blurred.

For example, L’Oréal recently partnered with the microbial genetics organization uBiome which analyzes a user’s skin health at a microorganism level in order to figure out any causes for their existing skin issues. This partnership is meant to provide new research and insight for the uBiome global community while also helping L’Oréal with future product development. 

This not only helps the company personalize its beauty skincare choices to target specific skin issues, but it’s also a preemptive dermatological check-up with actual researchers. 

P&G and L’Oréal have even created sunscreen and hydration trackers that are as small as a Band-aid, which keep track of whether you’ve had enough water or too much sun exposure through a connected app. But as Raskin says, there’s still a lot of potential in the beauty health space. 

“Your skin’s a good reflection of your overall health. These are not health products yet, but they’re getting there,” she says. “They’re moving that dial closer from beauty to health.”

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