How Do You Sell a Product When You Can't Really Say What It Does?
"Here they are," says James Monsees, extracting two smallish white boxes that scream upscale gadget and laying them on the table with a proud grin. It's a grin that goes nicely with his business-casual attire, his guileless enthusiasm, and his upbeat, low-key demeanor. you'd never suspect these devices were designed to deliver a drug.
The boxes open with classy fabric pulls, revealing their densely packed contents. These are soon splayed across the table: two gleaming, handheld gadgets--one tube-shaped, the other closer in form to a phone--and a cluster of accessories that includes stands, chargers, cables, and small bullet-shaped cartridges. Monsees deftly works the minimalist controls on the two devices, and soon multicolored LEDs are pulsing meaningfully beneath their surfaces. They're sleek things, really, and Monsees can't help bragging that earlier in the day he was notified that one of the devices won a prestigious Red Dot award for design.
It's just what you would expect from a high-tech startup founder who graduated from Stanford and has been backed by some of Silicon Valley's brightest luminaries. On the other hand, it's not exactly what you would expect from a tobacco company, which is what Monsees is running. The glowing gadgets d'art on the table are essentially the future of the cigarette, or will be if Monsees's company, Ploom, continues to gain traction.
There are two big factors that favor Monsees and his co-founder Adam Bowen in their quest to make tobacco cool again. One is that their devices let users pull from tobacco most of the nicotine and flavor of cigarettes in the form of vapor, without taking in the cigarette smoke--thus removing many of the health risks, according to some experts. And, as a major bonus, one of their devices has become the darling of the pot-smoking world, which is steadily converting to vapor even as that world swells with growing legitimacy.
But two big factors are also working against Ploom. One is predictable: fierce competition that's likely to stiffen as both startups and tobacco giants invade the "e-cigarette" market--already worth nearly $2 billion a year and growing fast. The other is a bit less typical in the business world: Ploom can't market on its strengths. That's because making health claims and wooing drug users cause all sorts of problems for a company that's trying to remain squeaky clean in the face of widespread disdain for, and the threat of regulation of, anything linked to tobacco.
That leaves Ploom with a burning problem: How do you expand a company when you can't really talk about what your products are good for?
Monsees and Bowen met in 2004 while pursuing master's degrees in design at Stanford. They hit it off and worked together on multiple design projects there. Monsees was designing user-moldable furniture, while Bowen worked on a desk that could be folded away while preserving all the clutter on it. They interrupted long brainstorming sessions with smoking breaks outside the school building. Perhaps inevitably, the two spent one such break lamenting the drawbacks of the burning paper cylinders dangling from their lips.
The cigarette, they observed, is a centuries-old design whose use shamed them, irritated others, polluted the immediate environment, and might well kill them. Yet it's big business--cigarettes are nearly a trillion-dollar industry worldwide. With that kind of money and user pain at stake, where was all the innovation that was disrupting every other old-school business? "We realized it would never come from the industry itself, which was locked into old ways of thinking," says Bowen. "It would have to come from an outside party." Someone like…well, them?
They started ambushing smokers to ask what they liked and didn't like about smoking. They took apart lighters and hookahs and rejiggered the components to construct experimental prototypes of tobacco-consumption devices. Inspired by the way pods had changed the world of coffeemakers, they started to fashion tobacco pods.
Months into their work, they read that the Chinese were developing a new "e-cigarette" that vaporized a nicotine-infused liquid. Fearing this technology might have beaten them to the punch, Monsees managed to have someone he knew in China track one down and ship it to him. "I think I was the first person in America to hold an e-cigarette," he says. Their conclusion: Sucking in vaporized liquid wouldn't be nearly as satisfying to a smoker as what they had in mind.
What they had in mind was a device that could quickly heat a tiny pod of tobacco to almost 400 degrees Fahrenheit. That turns out to be hot enough to get the tobacco to release most of its nicotine and many of the flavors and aromas in tobacco smoke, but not hot enough to ignite the tobacco. The user would inhale a warm vapor, not smoke.
When they completed Stanford's design program in 2005, the partners kept working on the project, first out of Bowen's house in a room so small they had to work standing up, and then in a slightly larger space at a friend's tech startup in San Francisco. The first several years were a tough slog through product-development hell. "We had thought this would be easy and fun," says Bowen. "We were naive. We had no tobacco expertise, and there wasn't a lot of it to be found in the Bay Area."
The good news was that not having access to conventional expertise forced them to rethink everything about tobacco. They also got support and encouragement from some of their high-powered Stanford contacts, including David Kelley, founder of iconic design company IDEO. A professor at Stanford's design school, Kelley was a mentor of Monsees's. "He taught me not to fear failure, just to minimize it," says Monsees. "Our goal was to fail early, fail often, and fail cheaply."
They were achieving that goal nicely with a series of bulky, unappealing prototypes, except that they weren't doing it cheaply enough to keep going without investors. So in 2007, they hit the angel and VC circuit and promptly collected 50 rejections out of 50 tries. Investors usually cited "vice clauses" that prohibited tobacco-related investments. "No one was willing to bend the rules to be able to invest in us," says Monsees.
Finally, a few did, including Sand Hill Angels's Ralph Eschenbach, renowned for commercializing GPS technology. "They had a good idea and good technology," he says.
Meanwhile, Chinese-style, liquid-based e-cigarettes had invaded the U.S. and were becoming cheap and ubiquitous. In comparison, the first product that Ploom brought to market was a dud. Called the modelOne and introduced in 2010, it sold for $40, just when disposable e-cigarettes were heading down below $10. The modelOne, which vaporized little pods of tobacco that the company sold separately, was powered by butane rather than batteries. Monsees and Bowen thought that would be an advantage, given the limitations of batteries, but it made the device seem lower tech. They sold a few thousand of them. "The company had to pivot," says Eschenbach.
By 2011, Ploom, which had expanded to a dozen employees, was short on money, technological expertise, and marketing know-how. The solution to all three problems came in the form of an investment from Japan Tobacco International, a division of Japan Tobacco, which owns Camel and Winston and is the fourth-largest tobacco company in the world. JTI took a minority stake in the company and became a strategic partner. "We were still doing a lot of our own internal product development," says Bowen, "but now we had access to floors of scientists at JTI." They also now had a partner with massive marketing muscle around the world.
In 2012, Ploom unveiled the Pax. Shorter than the modelOne, the $250 device looks a bit like a stubby iPhone. Made of anodized aluminum, the Pax offers adjustable temperature settings, a retractable mouthpiece, and a stainless-steel bowl with a magnetic lid. It doesn't use pods: You just stuff a small wad of tobacco into the bowl and turn it on. The device turns itself off when laid down for more than a minute, and fires right back up when picked up again. A quick shake yields a battery-strength readout. It's a pretty sophisticated item, especially when you consider it's replacing a burning stick.
The device was a hit, receiving glowing praise from the press and tech blogs. Last year, the company unveiled the modelTwo, a device with much the same gadgetry as the Pax, but with a return to the tobacco pods. "Pods are cleaner, neater, and simpler than loose-leaf tobacco," says Monsees, "and I think they'll eventually be our bigger seller."
There are, in fact, a number of "loose-leaf" vaporizers on the market capable of burning tobacco in roughly the same way Pax does, but they are generally more popular with pot smokers than tobacco users. The best known is the Volcano, a big, ungainly tabletop device that goes for around $500, depending on the model. But there's also the Atmos, the G Pen, and the DaVinci, among many others. A perusal of the many online rave reviews of Pax suggests it has quickly become a new favorite among pot users, thanks to its small size, light weight, elegant design, and sophisticated controls.
Meanwhile, the U.S. pot market is growing rapidly--or at least the legal side of it is. It stands at about $1.5 billion now, according to market research firm ArcView in San Francisco, and should grow to $2.5 billion next year. The market is expected to top $10 billion within five years, as more states legalize marijuana for medical and recreational use.
Can Ploom capitalize on its early headway in this burgeoning market? Maybe, but it doesn't intend to try by marketing to it. Ploom marketing director Sarah Richardson, who was hired when the Pax launched, is clear on this question: "We only market Pax for tobacco," she says. Monsees is a bit more equivocal. "The tobacco market is our focus, but I wouldn't rule it out," he says, referring to the possibility of openly marketing Pax or other products for pot. "It would be hard for us not to acknowledge that the product is being used that way--we can't stop people from buying it for that--and if we have clarity from the government on its legality, we can consider addressing that market. But right now, the vast majority of our customers are using it for tobacco."
Eschenbach, however, concedes the company has faced a real dilemma in the pot market. "We know how Pax is being used by some people, and for a while we struggled mightily with what to do about it," he says. "We didn't want to advertise it for pot use, and we talked about splitting off a company to handle pot use. But we've decided not to go that route." Explicitly associating Ploom with what is still by and large an illegal narcotics market might trigger tougher regulation.
So Pax has to be marketed as an alternative to smoking cigarettes, not to smoking joints. That's not a bad market to be limited to, given that one out of five Americans smokes, more than half of smokers say they want to quit, and most of the rest want to either cut down or at least have an alternative in places where smoking is banned or frowned upon.
But the fast-growing e-cigarette market presents its own challenges. Though most health experts can agree that vaping is much safer than smoking, federal law prohibits Ploom or its competitors from making health-related claims. (They're not allowed to market it for smoking cessation either.) "The evidence is that there's a lot more good than harm coming out of e-cigarettes," says Michael Siegel, a Boston University physician-researcher who has been studying the health impact of the new industry. But the notion that tobacco can be consumed safely in any form, including vapor, just isn't washing well with many.
Lately, there's been growing debate over whether e-cigarettes may be a gateway to the real thing, especially for teenagers. The Centers for Disease Control and Prevention raised the alarm when it found that e-cigarette use rose among high school students from 4.7 percent in 2011 to 10 percent in 2012 (about the same number who smoke regular cigarettes). Last year, the National Association of Attorneys General sent a letter to the Federal Drug Administration, urging more regulation and pointing to e-cigarettes featuring cartoon characters on the packaging and flavors such as "bubble gum" and "gummy bear" that could appeal to children.
Luckily for Ploom, its products have an adult look--and price tag. Monsees insists the company has no interest in having minors take to vaping, and that Ploom would never market to them. (He has no such qualms about marketing to nonsmoking adults.) Besides, he adds, everyone expects to see federal regulation banning sales and marketing to minors in the not-too-distant future, a move he welcomes. "The FDA will have some impact on how products are sold," he says, "but we're fine with that."
There's also been recent concern over the safety of e-cigarettes that use liquid nicotine, after some studies found them to yield tiny amounts of formaldehyde and other toxins--and after reports of poisonings from handling or ingesting liquid nicotine. Ploom's products don't use these liquids, but it still can't market them as "safe" or "healthier."
What's left for Ploom to brag about? For now, the company is left to trumpet its products' high-end appeal. The company claims that using heated tobacco instead of liquid nicotine to produce vapor provides a much more flavorful and satisfying experience. And its tobacco pods come in gourmet flavors such as Gold, a tobacco with hints of honey and cognac. "I've tried every tobacco alternative out there, and there's no product that delivers as good an experience," says Bowen.
In addition, in a market dominated by devices that look like toy cigarettes and clunky vaporizers that would have seemed at home in an '80s high school science lab, Ploom's products stand out as slick, compact models of smart, high-tech gadgetry. "It's a piece of industrial design that's beautiful and modern," says Bowen. "We're trying to deliver a sensorial experience that is altogether different, and better than a cigarette." Ploom's marketing literature calls Pax "part gadget, part museum piece, and part lifestyle companion." A 10-year warranty accents the emphasis on quality.
Yet the market for very-high-end tobacco- and pot-heating vaporizers is a small one right now compared with that of e-cigarettes, and Pax already has head-on competition in it. A roughly similar and fairly slick product called Firefly, created by a former Apple designer, hit the market last year with some buzz. Monsees points out that Firefly is more expensive than Pax, is much heavier, and has a shorter battery life. But Firefly provides instant vapor, versus the 30-second wait for Pax's fumes--a feature that seems to matter to some users, judging by the reviews.
Ploom's founders promise they have even more impressive products up their sleeves to help them hold their own in the rarefied territory at the top of the tobacco-based-vapor market. But that's not all: The company is going to invade the bigger, lower-end market now dominated by e-cigarettes, promises Eschenbach. "We've got lots of products in the works," he says. "We know we need something cheaper than Pax to go after the mass market. There are still huge opportunities out there."
Will puffing on a Pax in their now-spacious San Francisco digs provide the same design inspiration to Monsees and Bowen that they once got from their cigarette breaks? An increasingly vaporous world awaits the answer.
Update: In late April, the FDA proposed regulations that would prohibit the sales of e-cigarettes and vaporizers to those under 18, and would require manufacturers of those products to disclose to the FDA what ingredients they put into the substances that are vaporized. The FDA made clear that it sees the proposed regulations as only the first step in what is likely to be broader regulation of the industry. In particular, the proposal doesn't place any limits on the marketing and advertising of e-cigarettes, and that's likely to change at some point. The FDA also made clear the proposal doesn't reflect any findings that e-cigarettes and vaporizers are unsafe, though the agency did reaffirm that the industry remains prohibited from making any health or safety claims pending solid evidence to back such claims up. The proposal wouldn't become law until after a public comment period ending in mid-July, and even then the FDA could change or abandon the proposal, which could also face lawsuits from the e-cigarette industry. But most observers think the proposed regulations are likely to stick.
Smoking Deconstructed: James Monsees at TEDxBrussels