Did Lululemon Just Achieve Digital Independence?
Lululemon acquired Mirror for $500 million cash. I love the move.
They’re aiming to be one of the few companies to escape the black hole of Amazon, Facebook, and Google.
Amazon has done a masterful job of chewing up the margins of the sellers on its platform.
They start with the base service fee charged for any transaction that processes. The online retailer then grows by charging a greater fee to house seller’s goods in one of its warehouses and fulfill the order with its in-house logistics network.
More recently, Amazon’s advertising business has grown into a multi-billion dollar behemoth by charging sellers for preferential placement and rankings within the Amazon ecosystem. Amazon gets to incur these fees because it controls an enormous pool of buyer attention and, therefore, owns the demand.
Facebook and Google run a similar playbook.
The firms are referred to, within the world of advertising, as the digital duopoly. Together, they occupy almost all of the growth in digital marketing budgets across large companies.
Google has turned the top result for their search bar into the most valuable real estate on the internet. They own attention and intent, so brands pay up.
Facebook takes a composite of all its 2+ billion users’ behavior to segment into valuable psychographic and demographic profiles. The result is an enormously powerful tool for advertisers, political campaigns, and privacy erosion.
Both platforms use an auction-based ad sales model to ensure they extract the largest amount from the advertisers competing for their valuable digital attention.
At the dawn of the 2020s, all three tech behemoths surveyed the landscape and recognized the exact same opportunity on the horizon.
Smart devices installed in the homes of their consumers.
Sunday NFL football games, award shows, and the Bachelor are peppered with ads for Amazon Echo, Google Home, and Facebook Portal.
Each company hopes you’ll install their physical hardware that’s always listening and always connected to the Internet into your home. Their desire is to further reduce the friction between when you decide to buy and where you place your order. By getting even closer to the consumer, they make their advertising inventory even more rare and valuable.
Brands hoping to sell soap, cleaning supplies, or clocks will have to hand their margins over to the tech firms.
What is a brand to do? I believe Lululemon has solved the problem.
Last week, Lululemon announced they had acquired Mirror for $500 million in cash, the company’s first acquisition in its 22-year history.
Mirror is a smart mirror that is connected to the Internet and trains its clients with an Augmented Reality trainer. For $1,500 you can install one in your home and maintain your connection to the service for $39 per month.
$1,500 is a lot. The Mirror won’t get in 1/10th as many homes, but that’s ok.
Lulu just needs to slice off their segment of the market (affluent millennials) and deliver. Lulu’s vertically-integrated ecommerce retail experience has now established a beachhead in the homes of its most valuable consumers. The same folks that will pay $1500 to install a smart mirror for there at home workouts during a pandemic are the exact same folks that will drop $120 on a pair of yoga pants and get the matching top.
Lulu will be able to collect qualitative data on each consumer’s workout preferences and activity, which they’ll use to determine whether to show that consumer a pair of yoga pants, training gloves, or a new experimental product.
This strategic acquisition reminds me of the same principles that make me love The Walt Disney's internal pivot to launch Disney+. The media giant’s streaming service is a loss leader and has required substantial upfront investment.
However, Disney established a relationship directly with its consumer which will ultimately improve its margins in other businesses and allow for increased personalization. Knowing which Disney princess you watch the most, will inform the merch, ticket sales, and cruise line experiences they want to sell you.
Cyclically, we’re still in the early stages of the fitness and wellness industry.
Wearables like Whoop, Oura Ring, and Fitbit continue to grow in popularity. The pandemic has made everyone more aware that they need to take their health into their own hands.
The data that we collect about our personal health will be both our most valuable and warrant the greatest barriers of privacy.
You know that I have a dog and want to show me ads for kibble? Cool.
You detect a heart arrhythmia and fail to tell me? We got problems.
Lululemon gets the advantage of starting with a blank slate. They have not (yet) infringed on consumer rights, been wielding a political weapon, or exploited its workers.
Now it’s got the hardware to continue differentiating itself.
