L’Oréal’s acquisition of ModiFace has thrown the beauty industry for a loop.
The technology company has provided nearly every beauty company — inside and outside of L’Oréal — with its evolving artificial intelligence and augmented reality technologies since its founding in 2006.
ModiFace powers the augmented reality mirrors in MAC stores, for example, and built the virtual try-on services on the Bobbi Brown Cosmetics web site and mobile site. (MAC and Bobbi Brown are both owned by L’Oréal competitor the Estée Lauder Cos. Inc.) ModiFace has also powered programs for Laneige, Yves Rocher, Cyzone, Coty Inc.-owned Cover Girl and many other brands.
While L’Oréal and ModiFace said when the deal was revealed in March that they would remain committed to current ModiFace customers, insiders have said it’s unlikely outside beauty companies would be comfortable with L’Oréal owning any part of their data — even if it’s through a subsidiary — and unlikely L’Oréal would want a business it owns servicing competitors.
Even if it continues working with outside partners, the status quo doesn’t simplify matters — it complicates them.
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Buying ModiFace leapfrogs L’Oréal to the front of the digital-leadership pack, but presents competitors with a host of questions. The primary one is: to stay or to go?
Go, at some point, seems more likely than not, according to experts and beauty industry sources.
“Why would I, as a brand competitor, want L’Oréal to get my data on my users, so that they can perfect everything from marketing to product?” said Carolina Milanesi, an analyst at market research firm Creative Strategies.
ModiFace chief executive officer and founder Parham Aarabi said in an exclusive interview with WWD that ModiFace is “fulfilling all commitments.” Pre-acquisition, the company had a matrix to evaluate whether it would take on clients, Aarabi said, and it will continue to analyze future opportunities.
“The dimensions might be different for what the value might be for particular partnerships or engagement we might do, but still, on a case-by-case basis, we might evaluate it,” Aarabi said. “There is not a one-size-fits-all rule of yes, we will work with all of these, or no, we won’t work with any of them.”
A L’Oréal spokeswoman said, “regarding existing ModiFace customers, all commitments will be fulfilled. We have no more information to add.”
As companies sort out the implications of the acquisition, the answer on the other side is equally as vague.
Asked if Lauder would continue using ModiFace for its brands, for example, a spokeswoman said: “The company and its brands are continually on the hunt for the most cutting-edge technology partners, and we are excited by the current pace of innovation, particularly in the areas of augmented reality and artificial intelligence. ModiFace is one of many productive technology vendor relationships we have had in recent years and, as always, we evaluate those relationships on an ongoing basis. In light of the current news, we are assessing next steps and potential implications, and we are using other solutions similar to ModiFace from providers in the space.”
For L’Oréal, the ModiFace deal is a step toward creating the future of the beauty experience, L’Oréal chief digital officer Lubomira Rochet told WWD in March when the company made the acquisition. Now the business is part of L’Oréal’s Digital Services Factory, which helps develop digital services for the French group’s brands.
“L’Oréal saw [the beauty AR] trend and acquired a company that has mastered the technology,” said Amy Errett, venture partner at True Ventures and founder and ceo of Madison Reed. “It has many applicable uses for color cosmetics, hair and skin care, and given all of the various L’Oréal brands in those categories, the acquisition makes sense.”
The company “is jumping on the tech bandwagon,” said Kelly Alexandre, senior analyst at Kline, noting that while digital capabilities have been a big in-house initiative, the acquisition of ModiFace demonstrates L’Oréal’s willingness to take it to the next level.
It may also give L’Oréal access to Samsung’s massive user base.
ModiFace’s technology comes built into the electronics giant’s latest Galaxy S9 and S9+ smartphones. Integrated with the Android-maker’s Bixby Vision camera software, the AR features allow users to try on makeup digitally in real time.
The acquisition could be one of L’Oréal’s most successful shopping sprees of all time. With one deal, the world’s leading beauty company now owns technology baked into the flagship devices of the world’s top smartphone maker. The scale is enormous: This year, Samsung aims to ship 43 million units, topping S8 phone sales in 2017 by two million.
That the South Korean electronics group would be interested in beauty AR should be no surprise. Eastern markets have long had selfie filters that enlarge eyes, thin faces, airbrush wrinkles and even lighten skin tones.
Phone-makers such as Japan-based Sony, China’s Huawei, and South Korea’s LG and Samsung, among others, all feature beauty modes. Chinese tech purveyor Meitu makes selfie-oriented smartphones, as well as stand-alone beauty AR apps that let users try on virtual lipsticks and buy them across several brands — including Bobbi Brown, Lancôme, Clinique, YSL, Pixel Cosmetics, Glamglow, Stila, Clarins and others.
Now, thanks to ModiFace, Samsung’s smartphone camera also offers shopping powers, and the combination could give L’Oréal a big leg up with data.
“You can see what they experimented with, what they put in their shopping baskets, as well as what they didn’t choose, and that’s often as valuable as selling your offerings,” said Jon Goldman, lead investor at venture capital firm Greycroft. “It could have all sorts of consequences.” But those consequences vary, depending on whether ModiFace goes all in with its new parent company and its portfolio of beauty brands.
L’Oréal’s plan to incorporate ModiFace into its Digital Services Factory is in line with what other beauty companies have done to up their in-house digital offerings.
Shiseido’s Giaran acquisition, for example, brought in in-house AI technology. Giaran uses AI technology including computer vision, big data and augmented reality to create deep learning, data mining and predictive modeling algorithms. It can provide virtual makeup try-on, tutorials, color-matching, personalized recommendations, virtual makeup removal, face-tracking and skin-tone detection across mobile, tablets, desktops and mirrors. Giaran sits with Shiseido’s Makeup Center of Excellence and works with other segments, including R&D and the Global Digital Center for Excellence.
Coty is taking a multipronged approach under chief digital and media officer Jason Forbes, who joined the company when it acquired his digital agency Beamly. Coty has created a Digital Accelerator and as part of that initiative, has solicited AI pitches for its brands. Coty has worked with a variety of AI and AR providers, and has publicly said it plans to strategically foster those relationships — including the ones from its AI Digital Accelerator program.
While the L’Oréal-ModiFace deal may leave beauty companies waffling technology-wise for a few months, for ModiFace competitors — other AI and AR companies — it creates an opportunity to swoop in and acquire new customers. It could also lead to more beauty tech M&A, sources said.
“This is an opportunity for other companies that do the same thing…[to] take some of their clients,” Alexandre said. “Sephora and MAC are big competitors of L’Oréal, so in my opinion, I don’t foresee their partnership [with ModiFace] continuing.”
A spokeswoman for Sephora said that at this time, the company is continuing to use ModiFace’s technology for its Sephora Virtual Artist program in the Sephora app.
“We’ve actually already seen more pickup as a result [of the ModiFace acquisition],” said Cara Harbor, director of marketing at Perfect 365, which develops AR and AI offerings for the beauty world.
Part of the interest is coming specifically because of the ModiFace acquisition, Harbor said, and part of it is a general increased awareness of AR and AI technologies. ModiFace’s purchase serves as a “proof point,” Harbor said, and is causing brands to say “this is something we need to do [because] we’re seeing our competitors do it.”
Reactive M&A — other beauty companies buying similar technologies after watching L’Oréal do it — depends on consumer adoption, according to Lisa Wu, partner at Norwest Venture Partners. “It’s difficult to change consumer behavior, but if you’re finding that consumers are finding value…then you’ll see an acquisition spree,” she said. “It’s very difficult to create [that technology] in-house.”
Broadly, AI and AR technologies have become more sophisticated over the past few years, picking up things like skin texture, lighting and hair strands. ModiFace established itself as a leader in the category, but companies like Perfect 365, YouCam and Holition also provide AI and AR technology to beauty brands.
Those companies continue to develop their tech offerings — as will ModiFace, Aarabi said immediately following the L’Oréal deal, without providing specifics.
Perfect 365, which has done projects for brands including Hot Tools and has more than 100 million worldwide users, is working on creating technology that helps to create a “seamless omnichannel experience,” according to Harbor. The idea is that a beauty consultant in a store could create a virtual look for a client, send them a photo of themselves wearing the beauty look before coming into the store to buy or buying online. The business also recently developed a pro tool specifically for makeup artists to be able to send looks to clients, or to be discovered for looks they’ve created in the Perfect 365 app.
Perfect Corp.’s YouCam is making several technology pushes in the second half of the year, according to founder and ceo Alice Chang. The business, which has developed programs for L’Oréal-owned Lancôme and digital mirrors for Macy’s, is expanding its AR capabilities from mobile to desktop with the aim of bringing a more integrated web experience that includes real-time facial tracking and product try-ons from a computer. The business is developing a personalization tool called YouCam Beauty Advisor 1-on-1 that provides users with beauty consultations via live, mobile video chat.
YouCam is also developing a blend of AR and AI that would allow users to snap a photo of a real-life beauty look and then try it on themselves. The company is anticipating increased demand as consumers become comfortable with AR shopping experiences, according to Chang, and working to ramp up training services for brand partners. The business raised $25 million in venture funding in 2017.
There’s also Holition Augmented Retail, which developed Cover Girl’s web try-on experience, as well as Charlotte Tilbury’s Magic Mirrors. The company, which says it has seen an uptick in customers “queuing up to speak to us more immediately” since the ModiFace deal, takes a research-develop-educate approach to its projects, said Karinna Nobbs, chief futurist. The business builds all of its own technologies — other companies often buy certain capabilities, like face tracking — which can be used across multiple platforms.
“The integration of AR with other technologies is next,” Nobbs said. The idea is that integrated into a chatbot, for example, the technology could lead a shopper through a digital product try-on, purchase and tutorial process, she said. Integration of augmented reality into other platforms — like video calling or voice — is also coming, she noted.
The goal, ultimately, is to simplify the shopper journey online and off-line.
“To close the loop of that journey and make it as seamless as possible — that’s the holy grail,” Nobbs said.