Deal of the Year: L'Oréal buys Modiface
Sales in first nine months of 2018:
19.86 billion euros
E-commerce sales growth this year:
The deal gives L'Oréal an edge over competitors, moving the makeup industry further into the digital age as they race to offer the newest immersive features.
After years of purchasing beauty brands, L'Oréal made a significant move in beauty tech with its March acquisition of Modiface. Toronto-based Modiface is a key player in the world of augmented reality (AR) makeup try-ons, and before the acquisition, had worked with Estée Lauder, Sephora, Allergan, Unilever and Coty. By scooping up Modiface, L'Oréal grabbed the go-to solution for major brands, catapulting itself to the head of the pack when it comes to using AR in beauty — and forcing its competitors to use other, less-vetted solutions for AR.
The commitment to AR goes all the way to the top of the company, and Modiface is a key part of it. "The acquisition of Modiface in the first half is also a major milestone in transformation of L'Oréal into a digitally augmented beauty company," said Jean-Paul Agon, Chairman and CEO, on the company's Q2 2018 earnings call.
As AR continues to disrupt mobile marketing to the tune of an estimated market value of more than $80 billion by 2021, brands and marketers are seeking innovative ways to earn a piece of the pie. Virtual try-ons have been one of the most popular uses of the technology, and unlike Pokemon Go-styled gamification or Snapchat's various branded AR lenses, AR try-ons have allowed L'Oréal to directly affect sales by reducing friction through making a visit to a brick-and-mortar location unnecessary. Even the expertise offered by makeup professionals at physical stores has been made redundant: L'Oréal added two-way consultations powered by AR and video chat to its offering in June.
L'Oréal didn't stop there, partnering with Facebook to tap into the social network's 2.2 billion-person strong user base, just as the platform began testing and rolling out AR ads. Facebook's move into AR was part of its effort to hold onto its 20% share of the U.S. digital advertising market amid competition from market leader Google and the looming threat of Amazon.
The beauty giant also rolled out AR try-ons as a web experience that doesn't require a mobile app. While revenue from app marketing has increased, developers face greater challenges in boosting user loyalty, retention and profitability, according to a report from measurement platform AppsFlyer. Without requiring an app, L'Oréal bypasses the challenges that come with developing, maintaining and promoting adoption of a standalone app.
With mobile commerce set to overtake e-commerce by next year, L'Oréal's acquisition of Modiface and application of the firm's technology leaves it poised to be at the forefront of m-commerce growth. During the first nine months of 2018, L'Oréal grew by 6.8%. Of its nearly 20 billion euros in sales, 9.7% are via e-commerce channels. Overall, e-commerce sales have grown by 38.3%.
While the impact of Modiface on the company's bottom line is not explicit, L'Oréal is clearly committed to tech innovation, and has been for much of the decade. It launched a Technology Incubator in 2012 and invested in tech startup incubator Founders Factory in 2016, which led to partnerships with startups that specialize in influencer marketing, digital ads, e-commerce and beauty.
"Digital is at the center of everything we do at L'Oréal. It's not something which is 'nice to have' but something that is going to profoundly change the way we do business," Lubomira Rochet, L'Oréal's chief digital officer, told Forbes in June.