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Change Generation

How Ipsy Founder Michelle Phan Is Using Influencers To Reinvent The Cosmetics Industry

With her growing network of vloggers and beauty-box subscribers, YouTube star Michelle Phan is changing the marketing playbook for makeup.

A new model: Ipsy’s Michelle Phan has logged more than a billion views for her beauty tutorials.

[Photos: Rene & Radka]

"Hi! I’m Michelle." Michelle Phan is poking her head into a spacious room at the Ipsy Open Studio in Santa Monica, California, an outpost of the San Mateo–based beauty subscription company she cofounded four years ago. A young woman named Sophie Torres is sitting at a table, neatly arranging brushes, bottles, and tubes in preparation for a video tutorial she is going to film about hard-to-pull-off hairstyles. She is a member of Ipsy’s extended family of online beauty influencers, who, like Phan, are using YouTube, Instagram, and other social media to build careers as beauty gurus.

Phan is the biggest guru of all. Since 2007, when she started making videos of herself applying makeup in her bedroom and uploading them to YouTube, she has amassed a following of more than 8 million subscribers who tune in to watch her dreamy-voiced instructions on everything from "grunge beauty" to how to achieve the Daenerys Targaryen look from Game of Thrones. Now, through Ipsy, she’s helping others follow in her footsteps—last May, Ipsy opened this 10,000-square-foot studio, complete with 360-degree cameras, state-of-the-art lighting, and elaborate props, for its network of beauty vloggers to shoot their videos.   

Torres seems a little flustered by the sudden appearance of the 28-year-old Phan and apologizes for not wearing any makeup. Phan, who’s dressed in a simple black turtleneck dress and colorful Nikes, smiles warmly. "It’s fine. We don’t judge here. I don’t have any makeup on either." 

It’s true. But though there is nary a hint of kohl or foundation on Phan’s porcelain complexion, it’s clear she takes beauty very seriously. Phan has written a book and is developing a premium video network and music label, but Ipsy demands most of her attention—and brings in the most money. The subscription service works in much the same way as rival Birchbox, sending out a set of personalized beauty goodies each month in an ever-changing set of "Glam Bags." Ipsy now boasts more than 1.5 million subscribers (who pay $10 a month for the bags), surpassing Birchbox at just over a million. In the fall, Ipsy raised $100 million in Series B funding from the high-profile firms TPG Growth and Sherpa Capital, valuing the company at a reported $800 million. Since then, Phan and her partners, CEO Marcelo Camberos and president Jennifer Goldfarb, have been busy. They bought back her two-year-old cosmetics line, Em, from L’Oréal, to reassert creative control and fully profit from its sales. But their ambition is much more far-reaching. While Birchbox takes in a reported 35% of its revenue from sales of full-size beauty products online and in flagship stores, Ipsy remains focused on using its community to drive subscriptions. Its bet: that as the cosmetics industry grows ever more decentralized, Ipsy will emerge as the go-to source for beauty advice and intelligence.

Beauty squad: Ipsy president Jennifer Goldfarb is a veteran of Bare Escentuals; CEO Marcelo Camberos (left) came from viral-video website Funny or Die.

To realize this, Ipsy is investing heavily into building up its already 10,000-person-strong network of amateur beauty vloggers, such as Torres. These content creators aren’t bound by a stringent contract. "They just have to make a few videos a month that are Ipsy related; the rest is up to them," Phan says. Together with Ipsy’s in-house stylists, they generate 300 million social media impressions a month for the company. Ipsy gets exposure (it has so far done very little paid advertising) and more views of its ad-embedded YouTube content. In exchange, it gives these vloggers access to the Open Studio, mentoring, networking, and publicity opportunities, and special tools, such as a mobile app that helps with beauty giveaways.

"There are hundreds if not millions of beauty content creators online. We want all of them," says Goldfarb. The idea is to develop a whole stable full of Phan-level gurus promoting and creating content, who, in turn, will draw in and help retain subscribers. As Camberos says, people join Ipsy to get the Glam Bags, but the community experience "is why they stay."

Ipsy’s plan reflects where the cosmetics industry is heading. No longer do many women (particularly millennials) get their makeup tips at the department-store MAC counter or from a celebrity spokesperson. Rather, they head to the Internet and binge-watch DIY videos posted by people like Phan and Karen O, one of Ipsy’s in-house stylists. The fact that these new voices of authority are both diverse and relatable makes them invaluable marketing tools for brands. One recent study by Defy Media found that more than 60% of 13- to 24-year-olds said they would try a product suggested by a YouTuber. "The standard of beauty, the idea of beauty, is changing," says Phan. "The one-size-fits-all look no longer really exists in this new paradigm."

The YouTube-wrought democratization of beauty has also allowed smaller makeup lines, which lack the marketing budgets of bigger competitors, to break through. Researchers at the Kline Group estimate that sales of indie cosmetics brands grew by 19.6% from 2013 to 2014 (though they still represent just 7.3% of the total market). NYX, a Los Angeles–based cosmetics company now owned by L’Oréal, skyrocketed to $100 million in sales in 2014, thanks largely to beauty influencers who participated in NYX’s annual video contest.

Given this new reality, major cosmetics brands are aggressively courting social media stars. Smashbox has opened its photo studios to vloggers who create "Made at Smashbox" videos. And the campaign for Garnier’s Fructis Full and Plush hair-care line last year was put entirely in the hands of 100 vloggers; the resulting YouTube videos received more than 3 million views. "We get complaints if we launch a product and it’s not reviewed by key vloggers," says Beth DiNardo, Smashbox’s global general manager.

For companies unaccustomed to the strange new world of social media celebrity, Ipsy serves as a guide, helping to get their products not only out to subscribers but also into the right tutorials. In return, Ipsy gets its Glam Bag products for free. "Part of our proposition to brands is ‘We will give you an amazing marketing campaign and an amazing experience with our community,’ " explains Goldfarb. Ipsy also provides brands with a detailed report on their products based on feedback from subscribers. According to Goldfarb, there are no plans to charge for this intelligence, but it helps the company attract "the best of the best" beauty companies, from more established brands such as Urban Decay to up-and-comers like the two-year-old Trust Fund Beauty.

But even with its army of vloggers, Ipsy faces a stiff challenge: Consumers may be getting their beauty tips online, but most still buy their products in brick-and-mortar stores. According to Shannon Romanowski, senior beauty analyst at Mintel, less than 5% of women who are 18 and older and online use subscription services like Ipsy and Birchbox. "Although the beauty subscription model is a growing trend, beauty tends to be an in-store purchase," she says.

Ipsy’s response is to keep growing its community. The company’s latest effort is hosting a series of Generation Beauty conferences—a Comic Con of sorts for beauty lovers. In 2016, there will be four events in cities including San Francisco, up from two last year. "The one we just had in New York, we had 850 creators, plus 3,000 people paying $150 each to attend, plus all these brands," says Camberos.

At the heart of Ipsy’s community, of course, is Phan, whom Camberos calls its "soul." Although she’s become fluent in MBA–speak, chatting easily about new "business paradigms," she still uploads a video every week and is Ipsy’s primary source of trendsetting ideas. As we talk, she opens up a notepad and starts absentmindedly sketching a pair of enormous, seductive eyes with long lashes. "I think this will be the design of a new bag," she says, holding it up like a mask in front of her face. "If this was the Glam Bag, you could take a selfie like this and just have fun with it."

A version of this article appeared in the February 2016 issue of Fast Company magazine.