Why AI could unbundle the beauty industry

The beauty industry may undergo a significant transformation due to artificial intelligence (AI), which could lead to smaller, more specialized companies. Traditional beauty brands require significant resources such as manufacturing facilities, product development teams, and extensive retail networks. However, AI can reduce these costs and streamline various aspects of the business.

Firstly, AI can decrease the expenses associated with product development, research, design, copywriting, photography, customer support, translation, social media management, and influencer management. This reduction in costs allows smaller teams to operate more efficiently, lowering the minimum viable size of a company and the minimum market size required for economic viability.

Secondly, AI enables agentic discovery, which alters the way smaller companies can reach customers. Traditional advertising and retail shelves favored large brands due to their ability to generate visibility. AI-powered shopping agents, however, can search through a vast product universe and match specific customer requirements with precise products. Consequently, smaller niches can become both more affordable to serve and easier to discover.

To illustrate this concept, consider a market with only 20,000 consumers seeking a unique foundation. Traditional beauty companies would need to invest in research, design, photography, copywriting, e-commerce, customer support, market research, and advertising and influencer management teams. Even if the product could be outsourced, the overall organization would impose a minimum level of sales, making it difficult for a niche to support a separate business.

With AI, the costs associated with these organizational functions are reduced, enabling smaller teams to produce more research, marketing materials, and customer communication. This lower minimum viable size of the business allows products previously confined to broader brands to become specialized offerings catering to narrower groups. Essentially, AI does not create the niche but makes it economically feasible.

The beauty industry has already begun this process, as many aspects of the physical infrastructure have been outsourced. Companies like COSMAX, a global cosmetics manufacturer, offer services ranging from market analysis to product formulation, packaging, and manufacturing. AI further enhances these existing capabilities by reducing the human work required around the outsourced factory.

In summary, AI's dual mechanism of reducing costs and facilitating agentic discovery will likely result in the unbundling of the beauty industry, allowing for the emergence of numerous smaller, specialized businesses targeting specific customer needs. This shift in the industry landscape will provide numerous opportunities for niche businesses to thrive without the need to compete against large beauty conglomerates.