Jul 10, 2023
t’s 9:30 a.m. and Alice Chang is dressed for the day in her favorite color, hot pink, but hasn’t bothered to put on any makeup. She logs onto her computer from her office in a Taipei high-rise, outfitted with pink walls, a large portrait of a pink rose and a framed photo of Audrey Hepburn. With the click of a button, she applies a full face of virtual makeup, including pink lip gloss, blush and lilac eyeshadow. It’s so convincing that no one on the other side of her video meetings that day will be the wiser.
Meet the godmother of virtual makeup. Chang, 60, is the creator of virtual try-on technology that has been adopted by beauty giants like Estee Lauder, Shiseido, Chanel and Revlon. Shoppers, who used to have to guess what shade of lipstick, foundation or eyeshadow would look good on them, can increasingly test options online and in stores before purchasing.
“We let them know exactly what product fits them best,” said Chang, running her fingers through her long, black hair. “Instead of you having to try, try, try. Or buy and then return.”
Her company, Perfect Corp., has rapidly become the dominant player in virtual try-on technology, a burgeoning area of investment for retailers looking to boost sales and lower return rates, especially for online purchases. Backed by $130 million in funding from investors like Goldman Sachs, Snap, Alibaba and Chanel, the seven-year-old company has trained its technology on hundreds of millions of users who have used its tech to complete billions of virtual try-ons.
Perfect Corp.’s customer roster includes 17 of the world’s 20 largest beauty companies, encompassing over 450 brands. “Front and center, she has 85% of the top companies that matter,” said Clarke Jeffries, an analyst at Piper Sandler. “Usually, you don’t get that type of market share this early.”
Tech giants like Meta, Google and Snap are also licensing her technology to let users try and buy products within their platforms. Nineteen million consumers, a tiny fraction of whom are paying subscribers, use the company’s virtual try-on and photo-editing apps. Altogether, subscription fees drove annual revenue of $47 million in the last 12 months, with rich gross margins of 85%.
After braving the rocky public markets and proceeding with a SPAC in October, which briefly valued Chang’s 14% stake at $250 million, she’s eyeing opportunities beyond makeup. Next up: Pitching the product to hair stylists, clothing brands and even plastic surgeons and dentists.
Chang was born in Taiwan in 1961, in the middle of a decades-long stretch of martial law, and her parents served in the military before becoming government bureaucrats. “It was a very normal family,” she said. Her parents expected her to become a teacher, but instead she studied business administration at National Taiwan University and got a job at a bank. To look the part, she started wearing suits and experimenting with makeup for the first time in her life, attempting to teach herself in an age before YouTube videos. Her mom, who didn’t wear makeup, was no help.
Still unsure what she wanted to do, Chang headed to UCLA for business school in 1986, where she met her husband, Jau Huang. Together they returned to Taiwan, where she took an investment banking job at Citibank and he became a computer science professor. Two years later, she joined anti-virus software company Trend Micro to help them restructure and prepare for an IPO. She ended up taking over not only finance but also operations and marketing.
In 1997, she took an 80% pay cut to start an entrepreneurial venture with her husband called CyberLink, a rare software company in a nation known for manufacturing computer chips and other hardware. They created a program called PowerDVD, which would end up as the default software much of the world used to watch movies via DVD on their computers. The couple won business from PC giants like Dell, HP, Lenovo and others, and eventually their software was pre-loaded onto 90% of computer shipments worldwide. Chang served as CEO for 18 years, taking the company public in 2000 and expanding into other types of multimedia software, such as methods for burning CDs and editing photos. Annual sales climbed as high as $150 million in 2010.
However, as PC sales started to slow, Chang began thinking about how her company could expand into smartphones. She had become increasingly fond of taking selfies to share with her friends and family, but there was no great way to touch up images. In 2014, she created a free app called YouCam Perfect, which enabled users to “perfect” their selfies by whitening their teeth, erasing a zit or removing dark circles under their eyes. In the first year, it garnered 17 million downloads, despite zero marketing.
“If you try more, you buy more.”
The demand was validating. “My belief is that the search for beauty is the fundamental demand of every human being,” Chang said. She released a second app, called YouCam Makeup, which was also free and let users add lipstick, mascara, eyeshadow and other virtual makeup to their photos.
However, the fledgling business was still struggling to figure out how to monetize its growing success. In 2015, Chang took 80 employees (mostly engineers) and spun off the company from CyberLink, calling it Perfect Corp. She began pitching the technology to beauty brands, making 19 trips to New York, Paris, Tokyo and Shanghai in a single year, insisting that she could drive sales by giving shoppers more confidence to push the purchase button.
“If you try more, you buy more,” Chang said. “It solves the pain point of every beauty lover.”
Most women are all too aware of the pain points she is referring to. I, for instance, have been dragging my feet on buying a new foundation for months. While I’d selected a product after doing some online research, I knew I’d still have to go to the store and seek help from a salesperson to find the right shade. So I put it off. Then, while reporting this story, I started playing with Clinique’s virtual try-on tool. It requested access to my camera, and asked if my skin had warm or cool undertones. I had no clue, so it offered a hint: Your skin is warm if the veins in your wrist look more green and you look better in gold jewelry. It’s cool if your veins are more purple and you’re into silver jewelry. Warm it is.
Seconds later, it spit out a recommendation for my perfect shade (bone) and two accompanying lipsticks (blush and red hot). I examined the before-and-after images of myself on my screen, and without much more thought, added both products to the cart. The promise of free samples with my purchase, plus free shipping, sealed the deal.
Plenty of shoppers are being swayed. Clinique says that people who use its virtual try-on tool spend four or five times as long on its website and are 2.5 times more likely to make a purchase. Order values have shot up by 30%.
The tool is “highly realistic” and shoppers actually have fun using it, said Jeremy Harris, head of technology for Clinique, in a case study for the company published on its website.
That type of return has prompted hundreds of brands to add virtual try-on options to their stores and websites in recent years. Nars found that shoppers who use the tool try on an average of 27 lipsticks, helping conversion rates to quadruple. After Benefit Cosmetics started letting shoppers play around with the look of their eyebrows — taking the arch higher, adjusting the thickness or lightening the color — the number who bought a brow product jumped 113%. Aveda noticed that after people tried different hair colors virtually, traffic to the site’s location finder increase fivefold.
The technology is making its way into stores, too. Estee Lauder has installed 8,000 smart mirrors around the world, where shoppers can see a reflection of their own face and tap to easily try various products. Before, customers would’ve been limited to trying a handful of shades on their arm with the assistance of a sales clerk.
The push to create more personalized online experiences for shoppers accelerated during the pandemic when stores were closed, but has increasingly become something shoppers expect. Beauty brands spent $2.7 billion on artificial intelligence technology in 2021, a figure expected to rise to $13 billion in 2030, according to InsightAce Analytic, a market research firm.
“Now this is like table stakes,” Chang said.
Perfect Corp.’s advantage lies in its face-tracking technology, which creates a three-dimensional web by identifying 200 facial attributes in real time. That means the user can turn their head and the makeup stays in place. Its technology can identify over 90,000 skin tones, which it says makes it the most inclusive in the industry. It has over 500,000 products in its database and can display different textures, like shiny or matte.
“It is not something anyone can replicate overnight,” Chang said at a conference last year.
The company indeed faces little competition. Its closest rival, ModiFace, was snapped up by L’Oreal in 2018. Ulta Beauty has also developed its own try-on tool, called GlamLab, but it feels more rudimentary.
Privacy concerns lurk, since the company is handling sensitive information about a person’s face. Perfect Corp.’s technology has been the subject of a number of lawsuits alleging that its customers are collecting biometric data from users without their proper consent. A Perfect Corp. spokesperson said the company cannot comment on ongoing litigation as a matter of company policy, but that it is committed to protecting personal data and has never sold data to a third party.
Economic headwinds also loom. Many companies are cutting costs ahead of a potential recession, which could mean that Perfect Corp. has trouble convincing new and existing clients to approve new spending on its technology. The stock has been a tough sell, said Jeffries, the Piper Sandler analyst, with investors worried that the company’s growth will slow as economic conditions deteriorate, e-commerce spending normalizes and consumers pull back on spending. That has weighed on the stock, with Perfect Corp.’s shares losing a third of their value since the company’s public debut.
Still, the company forecasts sales will hit $100 million by 2024. Baked into that projection is the assumption that existing customers will add more products from sister brands. It’s also trying to capture business from smaller, independent beauty brands.
It sees opportunity for growth in new verticals, too. It’s exploring an expansion into plastic surgery and dentistry, for instance, where it can help patients see what they would look like after getting various procedures like a nose job, brow lift or lip filler. This not only aids in the sales pitch, but can help increase customer satisfaction by setting expectations upfront, according to marketing materials.
Chang asks if I’ve seen the recent announcement about its launch into jewelry, which lets users try on rings, bracelets, watches and necklaces. It’s one thing to see a product on a model, she said, and another to see it on yourself.
In her telling, empowering shoppers to preview purchases before they pull the trigger drives sales, and as such, will become a regular part of online commerce. No guesswork, store visit or consultation with a sales clerk required. “It democratizes the decision process,” Chang said. “Let them try and let them make decisions on their own.”