📧 How Newsletters Make Money – The Best Facial Recognition Blockers – Interior Designs for $20k 🏡
One of the reasons I joined The Hustle was to learn more about the newsletter business — one of the fastest-growing (and these days, only growing) parts of the media industry.
This week, we lift the veil on how the business works, with exclusive insights from Sam (who created one of the country’s most successful daily emails) and a detailed analysis by Trung (who reads more newsletters than probably all of our team combined).
PS: The NPS for last week’s issue was 83. It’s the 12th time in the last 16 weeks that it’s been over 80. Please take 15 seconds and tell us what you think by hitting the Smileys at the bottom. We rely on your feedback to make Trends great.
Lemonade — the Softbank-backed insuretech firm — filed for its IPO 2 weeks ago (S1 here). Rather than look at the company as an investment (you can read smart takes here and here), we’re going to tease out some lessons on the company’s business strategy:
Entering a Huge Market? Find a Niche: Lemonade notes in its pre-IPO S1 document that insurance is a $5T industry. The company’s competitors include insurance giants like $31B All-State (ALL) and $29B Travelers (TRV). The most lucrative insurance verticals are auto, homeowners, life and commercial. Acquiring customers in these markets is extremely competitive, so to get a foothold, Lemonade primarily sells renters insurance. By establishing itself in a smaller niche, Lemonade is able to build its brand as well as improve its processes and technologies before moving up-market.
Creating New Customers: In an interesting stat, Lemonade notes that “90% of [its] customers said they were not switching from another carrier.” Effectively, Lemonade’s renters insurance product created a whole new class of customer, 70% of which were millennials. Creating new customers out of under-35s is very popular in the fintech space (think Robinhood for trading, WealthSimple for passive investing, Harness Wealth for financial advisory).
Great Example of How Tech Makes a Low-Margin Product Viable: To be sure, there’s a reason why renters insurance is niche and many young customers have never bought it: The product is not terribly profitable for insurers. Lemonade pulls in $183 in premium per customer; servicing this policy with an underwriting team leaves very little margin. This is where Lemonade touts its tech solution with “minimal human oversight.”
High CAC is OK if You Can Grow With Your Customer: An important part of Lemonade’s strategy is that insurance products increase steadily with rising income and age. Insurance is notorious for high customer acquisition costs (CAC) but due to the aforementioned dynamic, the lifetime value (LTV) of Lemonade’s customers justifies a healthy marketing spend. The company’s current payback period for a new customer: 2 years.
Practical tips for investing and growing your business
🇫🇮 Finnish company, Swappie, led a $40m Series B. Swappie sells repaired and refurbished iPhones across Europe, and saw demand quadruple in 2019, with $35m in net revenue.
🇩🇪 The stock price for German payment provider, Wirecard, fell 77% in 2 days after they delayed the release of their 2019 report for the 4th time. An ongoing audit has called $1.9B into question in recent months.
🇨🇦 Applications opened yesterday for Google’s Women Founders accelerator. The program accepts women-led startups from Canada & the US, and is Google’s first female-focused accelerator in North America.
Are you interested in more global business news? Hit the Smileys below and let us know what you think.
Trends Signals Quick snapshots from across the internet of potential trends before they happen.
The Growing Case for Invisibility Cloaks
Source: Pew Research (Published Sept, 2019)
The Signal: The facial recognition (FR) market is projected to surpass $12B by 2024, with companies like Amazon, Clearview AI, and Face++ continuing to sell facial recognition services to businesses and governments alike. Amid rising mistrust of FR’s shortcomings, there’s increasing demand for “invisibility cloaks” — products and services designed to protect users from unwanted FR tracking. D-ID, for example, has raised $23m for software that protects users’ photos from facial recognition online.
D-ID’s technology is just one example from a market that’s sure to grow in coming years: adversarial privacy products.
Adversarial designers develop products to fool computer vision applications like facial recognition. This shirt, for example, confuses some FR programs, and keeps them from “seeing” the person wearing it by exploiting weaknesses in the way computer vision works.
“You change a few [key] pixels in an image, and a neural network can’t recognize the object anymore,” Eva Bojorges Rodriguez, a machine learning engineer, told us. Often, this change is imperceptible to the human eye.
The Opportunity: According to a 2019 Pew Research report, 41% of US adults feel it’s unacceptable for employers to use FR to track employees on-site, while 54% are against advertisers using FR to see how people respond to ads in real time. All of this was before the added controversies over contact tracing, and widespread protests against law enforcement overreach.
As people become more aware of this technology, privacy will play an increasingly prominent role in the design of beauty and fashion trends. The adversarial styles below, for example, are all unrecognizable to certain facial recognition programs, and show how privacy concerns could influence style in years to come.
Credit: HyperFace rendering by Ece Tankal / hyphen-labs.com
The trick for entrepreneurs exploring this space will be keeping up with the technological improvements.
“Researchers are constantly working on neural networks that work against adversarial strategies,” Rodriguez told us. “And then people make adversarial neural networks better, too — to fool the algorithms again.”
The next generation of fast fashion could well be defined by this cat and mouse game between FR developers and those looking to subvert the technology.
Cardboard Sports Fans Might Be Here to Stay
Source: Google Trends (as at June 17, 2020)
The Signal: Professional sports leagues are planning to start back up in the coming months — but unless you’re living in New Zealand, don’t expect any fans in the audience.
In 2018, ticket sales made up $19.6B, or ~27%, of overall sports revenue. Sports teams have a problem: 27% is a massive proportion to handwave away. They’re eager for ways to fill some of that gap.
One solution is slowly winning out: cardboard cutouts. Fans submit photos of themselves from the torso up, then a company prints them on cardboard and installs them in a TV-viewable seat. The pitch: You get to see yourself at the game while supporting your team.
Cardboard fans at Colchester United match in the UK. Screenshot via ESPN+.
Cardboard cutouts are popping up in South Korea, Taiwan, Australia, the UK, and Sweden. Some are seeing a deluge of customers: In Germany, the soccer club Borussia Mönchengladbach has sold over 21k+ cardboard cutouts since April, according to the fan club FMPG that is organizing the initiative.
Cardboard fans have even gone stateside. The first team in the US to test out cardboard fans — the Oakland Roots — is an independent soccer club launched in 2018.
In the major sports leagues, cardboard cutouts probably won’t stick around once the pandemic ends. When your average seat price costs in the hundreds of dollars, selling a cardboard cutout for $20 to $45 will hardly make a dent in profits.
But there’s a real opportunity with smaller teams — teams that don’t sell out their tickets even in normal times. Lara Smedley, a veteran sports event organizer who recently launched My Fan Seats, told Trends that some small-time college teams she’s reached out to are talking about keeping cardboard fans around for the long haul.
Their idea: What if friends or family members of players who live far away could buy cardboard versions of themselves and place them in the stands? For players, “maybe their families are there in cardboard form, and they’re surprised by seeing their mom or dad’s face,” Smedley says. For small teams, it’s a quirky way to earn extra money and fill their excess seats.
As an industry, cardboard fans barely existed pre-pandemic — but here is a snapshot of the current players:
Face Fan, the spinoff of a license plate and traffic signs maker called Tennants UK.
Fans at The Game, an outgrowth of the sports advertising firm The Football Company.
Be At The Game, a startup co-founded by Tom Hickson, president of the World Dodgeball Association.
My Fan Seats, a US-based company spun out of the sports-focused Smedley Events.
The list prices of cardboard cutouts vary wildly, but all are in the range of $20 to $45 (e.g., Beşiktaş: ~$19; Brighton: ~$25; and Oakland Roots: $35-$45). For reference: In Germany, production cost is 10 euro ($11.24).
According to Hickson of Be At The Game, the real opportunity is with smaller independent and college teams. Groups like the American Basketball Association, the American Association of Independent Professional Baseball, and the National Independent Soccer Association are most likely to go all in on cardboard cutouts. Sports leagues with total revenues of less than $75m could be good places to target:
A related opportunity:
Crowd noise. Web apps like HearMeCheer have landed partnerships with networks like ESPN for inventing a way to bring at-home audience reactions onto TV. HearMeCheer, for instance, asks people to record their reactions live while they watch the TV — then relays their cheers or their boos back to the broadcast in real-time.
Interior Design Services Are Surging Online: New Opportunities in a Traditionally Face-to-Face Industry
Source: Google Trends (as at June 16, 2020)
The Signal: Three weeks ago, Sam asked community members to predict the biggest trends in a post-COVID world. One theme that we heard a lot about: New developments in interior design and home decor.
“The WFH movement has been huge, which has led to a massive demand for our online interior design service,” Jacky Chou told the group. His business isn’t the only one that’s growing. Search interest in “online interior design” surged when the pandemic hit, and has maintained traction.
We spoke to Chou, who bought an expired domain (Laurel & Wolf) in March and relaunched an online interior design brand around it. In March, consumers’ budgets for design and furniture were around $1-$2k/room. Now, people are spending as much as $20k/room on design, decor and furniture, Chou told us.
Laurel & Wolf’s business model is similar to that of competitors such as Havenly (~260k site visits/month), in that it has tiered interior design packages ranging from $75 to $450. Insiders we spoke to disclosed that Havenly’s revenue has increased by as much as 2-3x since the pandemic.
Laurel & Wolf design service packages
Laurel & Wolf also offer access to trade partner discounts with furniture stores (e.g., Williams Sonoma) and their own decor ecommerce businesses (e.g., Far & Away, more on that below). They outsource the design work to Pratt- and Parsons-educated freelance designers they met through LinkedIn connections who earn 50% of the consulting fee plus commission on furniture and decor sales.
Online interior design: Monthly search interest for interior design services and ideas indicates that there are opportunities to meet demand:
“Interior design ideas”: 49.5k
“Interior design for small house”: 14.8k
“Online interior design course”: 14.8k
“Online interior design”: 12.1k
“Interior design app”: 4k
Entrepreneurs could provide: design templates; agency/matchmaking services (think “Airbnb of interior design”); end-to-end “design in a box” services (like this South African company); interior design apps; or interior design courses and resources.
Demand for design services go beyond the physical world: In this Signal we wrote about people paying interior designers ~$50/hour to help them revamp their virtual Animal Crossing homes.
Higher budgets for furniture and decor means that people will be looking to spend on unique statement pieces. Jacky Chou told us that sales of his artisanal modern dinnerware sets at Far & Away have increased significantly since March, and luxury scented candle sales have also surged.
This, combined with the trend towards localism, creates a unique opportunity to source and sell locally produced decor items (e.g., rugs, kitchenware, wall decor, lighting, vases, bedding, baskets, etc.) at a premium, too.
Join Daniel Doyon and Tristan Homsi, co-founders of Readwise, for our latest Trends lecture, “Bootstrapping a SaaS Product to Thousands of Users,” this Thursday (June 25) at 3pm ET. We will discuss how they took the simple idea of easily syncing Kindle highlights and scaled it to a fully grown product that now services thousands of subscribers. Register here.
This week’s Trends send was brought to you by Sam Parr, Julia Janks, Ethan Brooks, Trung T. Phan, and Brad Wolverton. 😉 Got 15 seconds? Please share your feedback by hitting the Smileys below. Tell us what you liked and how we can make Trends better.