Latest / The Interline Podcast / Risk, Reward, And Cultural Pushback on AI In Fashion - And A New Play For the Secondary Market

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Risk, Reward, And Cultural Pushback on AI In Fashion - And A New Play For the Secondary Market · The Interline Podcast

• Grace: Welcome to the Edit from The Interline, the show where we run quickfire analysis on our pick of the most important fashion and beauty technology stories from the last seven days. I'm Grace, the social editor, and I'm joined by Ben, the editor in chief. And today we have less than twenty five minutes to give our analysis on the stories that we think really matter. Ben: Hey, Grace, good to be here again, as per usual, second time doing this. We'll notice we now have a motion graphics intro. We do not have theme music yet. We are working on theme music. Surprisingly hard to pick, believe it or not. We somehow looked into having one for the interview show ages ago that we've been able to stick with for a long time. We've been agonizing over this one and we're gonna have it sorted out. But for now, no jingle. From next week, jingle. to get in the spirit of the event, in the spirit of the whole thing, Hit me, let's go. Grace: So, the first story that I wanted to talk to you about was more of a general technology story. So, Anthropic, the company behind Claude, released Fable V on the 9th of June, but just three days after it was released, the US government took it down. This was the company's most powerful artificial intelligence that they'd released yet, and it was capable of very complex. Projects. Obviously, this is a more general technology story, like I said, but I was curious is this gonna impact fashion technology? Ben: Yeah, so 100 % and in two ways. So the first is everybody likes to be on top of the state of the art when it comes to AI models. Everyone is familiar with the fact that something that you're building that is LLM centric, generative image model, diffusion centric, whatever. If you're building on a foundation of AI, it's become a bit of a cliche that at some point in the process of putting that together, you're going to have to stop and start the work again because the capabilities of the frontier models are going to change. Fable 5 represented a pretty significant step capability wise. was the user friendly, safe approved, ideally version of Mythos, which Atropiq had previously talked about as a model that was too dangerous to release. So it's interesting from a state of the art point of view, the especially interesting bit is how the US government went about banning it or rather you know, encouraging Anthropic to take it away from users and the mechanisms that they've used to do it. So they've used, export controls. so the reason that it's not available to anybody to use at the moment is because the U S government stipulated that it couldn't be used or interacted with by any non-U S citizen, including anybody who worked within Anthropic. So effectively making it impossible for it to be available now. There's a world where that holds and what ends up happening is that the frontier AI models are only available to US citizens. There's a world where this kind of stuff happens over and over again, where frontier models get released and they are consigned the same way that cryptography was in the past, that message cryptography was classed as munitions at one point for export. They get flagged in the same way. Now, if you are building on the basis of AI models that are made by American companies hosted in America and under the jurisdiction of the American government, and you're not a US company and not solely employing US citizens, this suddenly opens up a horizon where the models that everybody is building on, whether that's NanoBanana, NanoBanana Pro, Gemini, Chet GPT, GPT Image 1.5, any of these things, they can go away. and they can go away in a way that represents potentially an uneven playing field and uneven distribution. The US is supposed to be trying to compete with China on AI. This potentially opens the floodgates there. Long story short, if you're building on frontier models, yes, the capabilities change quickly, but the availability might suddenly shift from underneath you. And if something like NanoBanana went away, all of a sudden, basically every generative workspace that fashion uses is suddenly unavailable to its customers and to brands. It's a huge deal. Grace: Staying on the topic of AI, it probably won't surprise you that each week when we're looking at the stories, there's a handful of negative stories that we could pick from about people disliking AI. And that's exactly why the next two stories stood out to me because they were actually positive. So Adobe reported that more and more people are using AI search. And this is yielding positive results for traveler websites and also retailer websites as well. Specifically, Adobe reported that visitors coming from AI sources converted 54% better than those from non-AI sources and And that's nearly doubled in the last year in terms of how many people are using it. Adobe also found that 80% of consumers who use AI while shopping say that they now rely on it more than they used to, and 79% say it makes them feel more confident about their purchases. On top of this, I also saw data from the RAMP AI Index. And they were talking about how as more US businesses adopt AI, It's actually costing less for those businesses than they initially thought. These are obviously two positive AI stories in my opinion, but what's your take on them? Ben: I'll play a bit of devil's advocate with those. So I think you're generally right. And I think we sometimes, or me personally, I fall on the AI skeptical side of things, just from a value return and a spend point of view. And these are both interesting from that perspective. So I'll do them in reverse order. The Ramp AI index is especially interesting because it's updated on a very regular basis and it tracks AI adoption, spend, and a few other variables specifically for US enterprises a lot of people have written in the recent past about the fact that a lot of kind of AI workflows, AI tools, AI business models and things are predicated on the token cost, the cost of inference being subsidized. So effectively, if Right now you do all your e-commerce PDP images using a generative image model that has a fixed token cost. So you know roughly what each image is going to cost you to do. There's been a very real kind of prevailing understanding that that token cost is artificially held down, artificially depressed, and what it would actually cost you to do these things if the model providers pass the direct cost onto you would be much, much, much higher. So the unit economics of replacing traditional photography with generative photography makes sense right now from like a pure commercial point of view. Maybe they wouldn't if the direct costs were passed on. Now the ramp AI index doesn't change that calculus, but what it does show is that actually the median US company is spending a lot less on AI than you would think. And that means they're a lot less exposed to token price increases than you would suspect. Now the top 1 % is spending something insane like $7,000 per employee per month on AI tokens. The median though is something like $11 a month in AI token usage per employee. Now you can inflate that 5X, 10X, 15X, 20X, and it still doesn't completely invalidate the business model. So if you fall in that median bracket and you're thinking, you know, I'm spending $50 a month or whatever on AI tokens for my e-commerce employees or a bit more. Sure, it might go up, but your exposure is a lot lower than the top 1 % would suggest. And the headlines do talk about the top 1 % a lot. So that's interesting. The Adobe data is, it does suggest two things. It suggests that people who come from AI sources to retail storefronts are readier to spend, That's what we mean by conversions. You can spin that two ways. This is what I meant by devil's advocate. So you can say, yes, the traffic you get from AI is higher intent, higher quality, higher value. That's what this seems to be indicating. That's also what Google and people tell publishers is that you will get better readers. What this doesn't reckon with is volume. So yes, your visitors may be 54 % more likely to convert. If you get half as many visitors, then it doesn't matter. It's like the net effect is the same. What you need to do meaningfully to make this data make sense is to step up the volume as well. So if you're an e-commerce company and you're saying, okay, AI is bringing me really good high intent, high value, high quality traffic. If it's bringing you significantly less of that, you need to make sure that it's compensating for the drop in overall volume. Grace: Next, I want to talk about two stories I saw this week Epic Games gave some more visibility on how they're using generative AI and how they use it to create concept art for their games and also the digital skins in games like Fortnite. Obviously, this did have a negative response from some Fortnite users, but I know that the Interline has actually worked with Epic in the past on a report that was talking about 3D tools in fashion. So I wanted to get your take on this story. On top of this, I also saw this week that Epic is finally figuring out a way for users of their games to take their digital skins and use them in other digital ecosystems and other games. This is something that digital fashion has been talking about for years, but I do think it is actually one of the like only really good use cases for digital fashion. So I wanted to get your take on this story as well. Ben: I think it's useful for us to benchmark this. Do you play video games, I have done my entire life and I continue to do so. Grace: I used to play Sims, but that's it. Ben: Okay, fine, good. It's good to know. So yes, we have done work with Epic in the past, and I'm personally very interested in the video game space, but also the real-time 3D space. always been like a passion project of mine. So that was the thing we did with them last year, the real-time roadmap was really interesting, like personally and professionally. I'll do these in the order that you presented them to me. any... kind of behind the scenes look at the minute into anybody's creative workflow that has even the merest suggestion that incorporates generative AI, it leads to a lot of backlash. People do not like the idea that properties that they engage with, the things that are, know, like live service forever games like Fortnite, Minecraft, the sort of things that you stake your identity to. I think people feel a sense of betrayal if they see the behind the scenes that there's generative AI being used there, particularly younger people. If you actually go through the trouble of watching the videos of the artistic process here, so Epic talk about using their own in-house kind of packaged up generative tools, which is called GenMedia, It's the best possible version of this that I think there could be. You have people drawing things by hand. You have artists saying, have, I've got to the stage where I have this idea and I just want to refine it to present it. Or I want to quickly experiment with some iterations and things here. And that's when they bring in the use of their general media tools to do that. For me, if this is something that people object to, then there is never going to be. an acceptable use of AI in creative workflows from people's point of view. And I happen to believe in this case, it's allowed minority probably rather than a majority. Now I do sympathize with the fact that generative AI tools, particularly in artistic purposes, are trained largely unlicensed in a lot of cases, not talking about ethics tools here generally, on creative output that people were not compensated for. I understand why people are justifiably angry about that. Equally, this is exactly what the creative workflow will look like in fashion. Every artist has their own kind of red lines. Every artist has their own ideas. Every artist has their own thing they want to do with it. If you're visualizing your own creative ideas and expressing them through drawing, and you're then using AI to get them quickly to a stage where you can then present them to other people and iterate on them, to me, that seems just like the most. everyday prosaic, but also perfect use case for AI. So it's difficult for me that people object to that because I don't see how you then have a sensible conversation about AI in creative tasks. Now, the other story there very quickly, we've written before that people like to talk about skins in Fortnite similar games as being like the frontier of digital fashion. Every time you say, well, Digital fashion doesn't work because it's not something people want, it's not interoperable or what have you. People will always say, well, look at the amount of money that gets spent on skins in Fortnite. If you want to look like Sabrina Carpenter, go for it. That's your avenue of self-expression. Great. Now, it is Absolutely true, and we've talked about it before. The commercial incentives are not usually there for people to take skins from one game or one universe, one IP, one engine into somewhere else. Because the people who develop FIFA or the people who develop 2K or whatever would much rather that you buy the skins and keep them there and then you buy them again the next year. What Epic are doing here, if I understand it correctly, is that Unreal Engine 6, which is the upcoming big point release of UE, are saying that other... games that also use UE6 have the ability to bring in people's wardrobes of skins and other items. It raises a bunch of stylistic questions. It raises a bunch of commercial questions. Do Epic want to cut of that? I imagine they probably do, but time will tell. But that is a shot in the arm, I think, for the idea that you can... take skins and have them be interoperable and extensible as long as you're building on the same technology foundations, that's actually quite a step in the right direction. Grace: The next story is about the online secondary marketplace StockX. So they've been in the news for the past couple of weeks. This week they announced that they just opened their first permanent store in Soho. And this was interesting because it's acting more of a third space rather than just a generic retail store. On top of this, last week, StockX also announced that they've just introduced live shopping, and this is the first time that their users will actually get the chance to interact with each other on StockX. On the surface this just looks like a business kind of levelling up its capabilities, but I was wondering if you think that there's a different kind of platform play going on here. Ben: I do put the words in my mouth there. So if I understand the StockX business model correctly, now I've never sold anything through it personally, so this is just professional curiosity, that largely the selling is done. StockX do the authentication and the listing and everything else, and they become. As a result of that, they're the gatekeepers, the key holders, the arbiters of authenticity and quality and a bunch of other things. You go to purchase from StockX, you are not buying direct from a seller. Now, the live shopping thing seems to be their watershed moment. was some great analysis from Business Efficient around this last week. It seems to be their watershed moment of saying, hey, we don't... need to be that intermediary all the time. We're comfortable if sellers connect directly with buyers. And if the trading happens through StockX, but StockX is not directly responsible for doing all of the heavy lifting in the middle. Now that does make it a very different platform, but it puts it closer to some traditional P2P stuff like eBay, which I'm sure is a comparison that they don't want. But it also is probably necessary to crack the live stream side of things that they want to do because the alternative is that you say, sellers send us everything, we do all the authentication and we have to stand up, we, StockX, have to stand up an internal team, internal studios and everything else to start to do live shopping. Live shopping is something you and I talked about last week. This way they can say, actually we've opened a physical space and there's a content studio in it. which is true, but the physical space in New York is now permanent and it now has a content studio in. So they're actually becoming a live streaming platform for sellers to sell directly to buyers, as well as being really morphing into a different type of intermediary between sellers and buyers for a secondary market as well. I think this is part of the bigger picture you and I have talked about before, which is The secondary market has to offer the same kinds of experiences that the first-hand market offers in order for it to start to eat more of that pie. If the secondary market is always like a lesser cousin from an interaction and experience point of view, it's not gonna scale to the level that people want it to. So I see this as part of that. They're both smart moves, but I see it very much as. You have to become a different type of company and a much more technology first company if you want to eat more of the share that the first-hand market currently has. Grace: The final stories are venturing more into the beauty space, but they still really stood out to me this week. The first was from Fast Company, and it was talking about Charlotte Tilbury. Specifically, the beauty mogul was explaining how they've always been this beauty technology company from the start. So this is in terms of the formulas that they use, but also the digital customer experiences that they employ. I found the term beauty technology kind of ill-defined here, so I wanted to ask you about that. On top of this, I also saw a really interesting news piece that Deep Scent Inc. actually unveiled an AI-powered digital fragrance content platform, which again feels like a bit of a tricky label to define. My question to you is basically in brief across beauty, cosmetics, fragrance, what's actually happening with technology and how does this differ to what's going on in fashion? Ben: Yeah, cool. And I'm glad you asked. the Interline has kind of slow rolled into covering beauty more over the last couple of years. And in the process of doing that, we've discovered that beauty tech is a really malleable definition. Now, your guess is as good as mine as to what AI powered digital fragrance content platform means. The press release from DeepScent does a reasonable job of explaining that and I'll get into it in a sec. Charlotte Tilbury's taking a claim to that is interesting because it's also you will have device companies saying the same thing. So if you think about there is a beauty tech company that based here in Cheshire actually in the UK that does a huge amount of like LED masks and similar kind of in home kind technology first devices that they class as beauty technology. And then you will have people who run clinics saying that that's what represents beauty technology. You will have companies like Perfect Ink and so on saying that actually being able to try on cosmetics virtually is what constitutes beauty technology. Or you will have companies like L'Oreal, I believe did this, which is like a print your own foundation formulation blend at home from different canisters and that constitutes beauty technology. Now that means it's broad in the same way that fashion technology is, which good thing. It also means that the way we look at this is Beauty has a different technology opportunity to what fashion has. So you can take tech and use it in product creation and in design and formulation. You can take it and you can use it across optimizing your supply chain, doing the same kind of generative AI imagery and things that we've talked about for selling. All of that is on the table for beauty the same way as for fashion. What Charlotte Tilbury talks about in that piece, which is actually directly written by her. is saying that beauty tech is a unique way of getting the product to the consumer. like wherever the consumer has demand and the beauty brand doesn't have supply in the form that that the consumer wants it, they'll use technology to bridge that gap. And I think that's actually pretty good working definition because you can't do technology devices in fashion. That's not really a thing. I can sell you some wearable. glasses with AI in them, that kind of counts. I could sell you a pin or something. That's basically it. Those are the only devices that I can sell to you. You could argue that phones and things are wearable technology, whatever. Beauty can sell you hardware. It can sell you technology. In fact, that's probably a bigger fixture of a lot of the way that fragrance and cosmetics and companies work than the actual products are these days. That's where they're heavily leaning into. That's a really exciting category because it makes beauty companies much closer to tech companies in that sense than fashion companies are. And the DeepScent one was interesting because it's a technology platform that's deployed on. So in that case, it's fragrances for hospitality and retail and things like that, like buying up ingredients, having those combined, like at the edge, it were, like live, in order to create a fragrance profile for your store or for your hotel or for your bar or restaurant or what have you. Now, that's the same thing that beauty can do that fashion can't. I can't, in a cost-effective way, I can't sew a t-shirt down the road from you. and give it to you in a retail store. Could do some garment decoration and printing and things like that. That's not a thing that's available to me. I can do that with fragrance. I can do that with foundation and formulations. I can do that with other categories. They can live in your house. They can live in the store down the street. They can live in a clinic. There are so many steps of the supply chain that technology can live at for beauty that are just not available to fashion. And that for us is why beauty tech is interesting. If it was just the same as fashion tech, we probably wouldn't. have started to cover it. We like it because it just represents a different category to what fashion can do. Grace: Amazing. Ben: Grace, I enjoy talking about these things with you. I'm looking forward to next week.