Big Technology Podcast - How Shein and Temu Snuck Up On Amazon — With Louise Matsakis

Episode Date: May 29, 2024

Louise Matsakis is a technology reporter and writes You May Also Like on Beehiiv. Matsakis joins Big Technology Podcast to discuss her recent story for Big Technology about how Shein and Temu snuck up on Amazon and what these two Chinese ecommerce companies have done to carve out a growing slice of the online retail market. In this story, we talk about demographics, marketing, tariff loopholes, and more. Stay tuned for the second half where we discuss the state of the TikTok ban and how China is competing with U.S. Tech. Read the full story: How Shein and Temu Snuck Up on Amazon --- Enjoying Big Technology Podcast? Please rate us five stars ⭐⭐⭐⭐⭐ in your podcast app of choice. For weekly updates on the show, sign up for the pod newsletter on LinkedIn: https://www.linkedin.com/newsletters/6901970121829801984/ Want a discount for Big Technology on Substack? Here’s 40% off for the first year: https://tinyurl.com/bigtechnology Questions? Feedback? Write to: [e-mail]

Let's talk about how Amazon is facing what may be its most serious challenge yet as Chinese retailers Sheehan and Timu make inroads in the United States and elsewhere. All that and more coming up right after this. Welcome to Big Technology Podcast, a show for cool-headed, nuanced conversation of the tech world and beyond today. We're diving deep into Sheehan and Timu with the author of a great story live on bigtechnology.com right now. Louise Metzakis is here in the house. She's a friend of the show and the author of You May Also Like, which you can find that you may also like.bhive.com.

Louise, welcome to the show. Thanks for having me, Alex. Great to have you here. Great to be doing this in person, which is cool and a new capability that we have here at Big Technology H.Q. So you just wrote this great story for us on Shian and Timu. And these are obviously two retailers that people are starting to hear about. Their name recognition is getting much more out there with big Super Bowl ads

and lots of marketing on Facebook and Twitter. And also people are just buying this stuff. Like, it's not uncommon now to be, like, speaking with someone and be like, oh, where did you get that? And it's from Shiet. Can we talk a little bit at the start about how big these companies are and whether they're actually posing a real challenge to Amazon? Yeah. So let's start with Timo or Tammu. It's funny, actually.

What's the right pronunciation? So there actually is no right pronunciation. So I think a couple of times their PR people have corrected people and said, oh, it's Temu. And then the other day I was listening to another podcast. It was Planet Money and PR's economics podcast, and they did an episode about Timu, and they asked, and Timu's response was, it's however you feel like you want to pronounce it. That is like some of the weirdest branding. I think I've ever heard of. Yeah, their PR strategy is a little bit questionable. But so I like to say Timu, I think that's fine. But so Timu is the sister app of Pinco Duo, which is now the most valuable e-commerce company in China, has about, you know, 750 million plus users.

So they're a much larger sort of like parent company. And TEMU itself has hundreds of millions of users around the world already. They are operating in around like 60, 65 countries. And in the U.S., they have, you know, it sort of fluctuates, but I would say around 40 million monthly active users right now. And then there's Sheehan, which specializes more in women's fashion, although they've branched out into a lot of other categories as well. pet supplies, makeup, small electronics, home goods.

So they have about 20 to 30 million monthly active users in the U.S. on any given month. And they're in over 100 countries around the world. And it's interesting, like they did kind of come out of nowhere. And then all of a sudden to be running like, what, six Super Bowl commercials? Like, you're like, oh, these things are, you know, people were like, I can't believe Temo or team who actually has the money to run these commercials. But they had actually built big businesses.

And one of the reasons they've been able to do it is because they've gone to, I would say, an underappreciated demographic, right, to start to grow within the United States. So talk about that a little bit. So it's interesting. When I first pitched, Sheehan was, you know, earlier than Timu's team. It didn't launch until the end of 2022. And I remember pitching Sheehan and said, hey, I want to run a feature about this big, you know, Chinese online e-commerce company. And I had editors push back and say, oh, that's not a tech story.

Like, I don't get it. Who cares what, like, you know, 13-year-olds are buying 700. buying $7 leggings, like, why does that matter? You know, like, I don't really see the use case. And I thought that was so interesting because there had been all of these others of direct-to-consumer startups that had the same sort of e-commerce model and they had gone after upper middle class urbanites, right? You know, there were so many of these, you know, I'm thinking of like the soilence of the, like,

all the luggage startups. There was all these different types of clothing, you know, the all-birds. right? There were all these consumer startups that sort of the archetype they were going after was men and women who were making, you know, I would say over like $80,000 a year, right? In sort of like New York, San Francisco. And in a lot of ways, Sheen and Timu went after the opposite of that demographic. So a lot of times I'll talk to someone in New York City or in Los Angeles where I live and they'll say, oh, you know, my aunt in Texas loves Timu or my nephew who lives in Wisconsin is obsessed with Timu. My granddaughter who lives, you know, in Iowa is really

into Shan. And that is no mistake. They specifically went after sort of lower income demographics outside of major cities. And they often, you know, overwhelmingly, both sites are dominated by female consumers. So I think that in Silicon Valley, a lot of these sort of men who were the the perfect target customer for the Albers or the Soylent, just sort of missed the rise of these companies. Because, you know, while they had these enormous advertising budgets, they were not advertising towards those people because those people already so well catered to, right? That's a really crowded market. And it was already dominated by Amazon, right? Like all of those people already have a prime membership. Yeah. And so some of the demographics you have in the story, the average

American Shia shopper is female in her early 30s, earns roughly $65,000. thousand a year. Timu's fastest growing demographic, this kind of surprised me. Ages, between the ages of 55 and 64, eating young people to make fun of their older relatives for becoming TEMU victims. And then also TEMU's customers are also women, and more than half of them make less than $50,000 annually. Let me ask you this. There is a sort of agreed upon feature of a bug within these platforms that a lot of this stuff is it's low quality, it breaks, you kind of take like a 50-50 chance at like whether this is going to work or not. Do you think that our like our society has like push people toward these like sort of

low quality sites that have these goods that are not from the U.S. Because they get paid so little and they sort of almost have no choice but to do that. And then doesn't that sort of help like put us in this like almost death spiral where like we pay people less. They buy low quality goods. Eventually they buy those low quality goods from outside the United States. The economy gets worse and so on and so on. Yeah, I think there's a lot to unpack there. So I think to play sort of the devil's advocate here,

I do think that the other big sort of category of retail that Sheen and Tim are competing with is dollar stores, right? And in a lot of markets where people are shopping at, they're not shopping on Amazon, they're shopping at sort of the dollar general or the Walmart. And I would say generally, the Sheen and Timu, the quality is actually better that a lot of those retail experiences. Because in a lot of cases, Sheen and Timu are working directly with the suppliers. So while the price might be similar to a dollar general, there's not a middleman in the middle who's even reducing the quality further. Right. And Timu in particular has a reputation for being

incredibly aggressive in terms of quality. They will cut off their suppliers if there's a quality issue or if the return rate is too high, that's not to say these are the most luxurious handmade, luxurious, you know, handmade artisan goods by any means. But I do think for this demographic, potentially, I would rather shop on TEMU if I were, you know, in a rural part of the United States than having to drive the five miles or whatever to the dollar general, that I think the quality is generally going to be worse. And there's going to be far less selection, right? So I think that that's sort of the devil's, the devil's advocate argument. But on the other hand, I do think that this is sort of like the hyper rise of this

incredible level of consumerism. And I think that there is sort of an inherent darkness and trepidation that a lot of people have. And I think that, you know, as a China reporter, what I've sort of seen is that get tripped up and mixed into sort of like synophobia, right? And sort of this like, oh, because it's made in China, it's inherently bad. And so, I think I'll feel better if I shop at this other site where, like, everything is also made in China, but it has a nice American name that I know how to pronounce. And they don't remind me that it's made in China, and the news doesn't remind me of that. And if I call customer service, they tell me that the executives are in America, right?

And so I think what I worry about is sort of like, do those companies get off the hook for also selling stuff that's, like, really bad? but because they're not Chinese and because they're not maybe using sort of this low-end marketing, they get off the hook for sort of this exact same practices, right? Absolutely. I mean, isn't that a case with Amazon? Like, they're selling a lot of the same goods

from the same manufacturers. We're going to get into the human rights stuff, but they have the same human rights problems. Totally. I think it's really true that Amazon sort of originally pioneered a lot of what Timu and Sheen are doing and that, like, these are both marketplaces, right, where they're working

with thousands of different supplies. and that's why they're able to have so much selection. That's why the selection changes so often. And that's what Amazon did, right? And a lot of Chinese manufacturing towns and Chinese suppliers learned how to cater to the U.S. market because of Amazon, right? So, like, we're all now used to going on Amazon and seeing these, like, you know, you could buy a cup or something that would be a sort of weird string of letters

and it was some like Chinese company, right? And they sort of took off the veneer of. of like maybe a few years before that, you would go to Target and would have some cute name, right? Because there was a middleman, there was a U.S. middleman that was sort of hiding the reality of this stuff being made overseas. And now sort of that veneer is gone. It's easier to sort of see into like, oh, like, this is all coming from China,

and there's so much of it. And it's under all these weird brand names. And, you know, how am I supposed to feel about that as a consumer? Yeah. Well, we should talk about the human rights thing because it is an issue, right? Like, there are noted human rights violations that these companies have been involved with. And it's almost like, I think about, okay, so, like, on one hand, maybe we shouldn't single them out for human rights violation. Like, there may be no worse than some of the suppliers on Amazon.

On the other hand, like, why is it so freaking hard for us to have a supply chain that, like, doesn't rely on slavery? It's crazy. Yeah, I think that one of the sort of, like, fundamental reasons that I get up in the morning and that I want to do this reporting is because I believe, that consumers and societies deserve to know more about where the things they buy come from. And I think it is ludicrous that we live in a world where it is now functionally impossible to understand where something you bought actually came from and how it arrived at your doorstep and who was potentially exploited in that supply chain. And I think it's unhealthy for society to have that distraction and to have no connection to sort of like where

things come from. I think that like fundamentally as humans, we like, you know, want to know that we can produce things with our hands and like, where does this stuff come from and who makes it? And I think that that's something that we're losing right now and that allows sort of these companies to, yeah, you know, exploit people to, I think, engage in sort of practices that are really questionable. I don't know if you want to get into the specifics of what the accusations have been. Yeah, go for it. In this case. So I think just to give people, I think there's sort of like this vague aura of badness. That's exactly the right way to describe it.

Yeah, and I think it's worth just sort of like being very specific. So in the western region of China, there is an area called Xinjiang where an ethnic minority called the Uyghurs have been persecuted for a long time. And around, you know, one to two millions of, one to two million of them have been put into camps. And as part of sort of that religious and ethnic crackdown, there are. have been accusations of forced labor. And so in particular, one of the concerns is about cotton. So the majority of cotton in China is grown in Xinjiang. And the concern is that U.Gers are

being forced to pick this cotton and to process it and to make clothes there. So the United States government outlawed basically anything in particular cotton being imported to the U.S. that has ties to Xinjiang. So the concern is that Timu and Shian have continued to use cotton from this part of China, those accusations. So I think it's just important for people to know precisely what the accusation is. I think sometimes people say, oh, everything on Sheehan is made with child labor. And that's not necessarily true, right? Like, I think it's important to just be specific about what we're talking about. Yeah. And whatever the case, I mean, clearly, like, the American consumer is not too worried because this stuff is pouring in through the mail. And you and your article cite this, I think it was

a TikTok of a U.S. mail carrier. He goes, every day it's Timu, Timu, Timu, Timu, I'm Timu tired. Yeah, because I think they have this tendency to put everything into one package and then kind of like wrap it in a bunch of duct tape. So it's like these like amorphous big packages that the four mail carriers have to deal with. So it stuff is pouring in through the postal service. Yeah, exactly. And a lot of it is coming in in sort of these small packages and they're going directly to

consumer's doorsteps, which is a problem in terms of being able to catch whether something was made before slavery, because we used to have a system where, you know, a big shipping container would come in and we'd be able to say like, okay, all of these t-shirts we can see on the manifest came from Xinjiang. So, you know, we're going to block this import and we're able to sort of enforce our laws. But when instead of that big shipping container, you have 2,000 tiny little packages that are going all over the U.S., it's a lot harder to sort of do any supply chain policing. So that's another sort of like added, you know, complication to the Shian and Timu story

is that a lot of the stuff is coming directly from China to individual people's houses or whatever. And so that makes it a lot harder for the U.S. government to know what is coming. Is it safe? and should we be concerned. Right. And interestingly, they're not sending us these, there's not sending people these packages

individually because they want to like try to get around human rights. They're trying to get around it because they have a loophole that allows them to send anything, I think, under $600. $800 without paying the tariff. So talk about that, this de minimis loophole. Yeah, so the de minimis threshold, which sounds like this sort of obscure thing, If you've ever left the U.S., you've probably benefited from this, and it allows you to come back

into the United States and bring $800 worth of goods and not pay tariffs on it. It's also what allows eBay to thrive. It's also what allows Amazon to thrive. You know, I like to buy vintage stuff from Japan on eBay, and I'm allowed to import it to the U.S. You know, no problem, and it ships via DHS, and I don't have to pay any tariffs on it. So this is a huge benefit to consumers, but what Sheen and Timu realize is that they could also use it to avoid the normal tariffs that their competitors have to pay in order to sell, you know, the same type of clothing in stores.

So they have to pay retail tariffs because they're sending those shipping containers to go to a target store or to go to a Forever 21. And so it could be like, you know, a 30% tariff that they're able to dodge by just sending that stuff directly. And I don't know who in the world is spending more than $800 on Timor or she in. And it's only the individual one, right? So let's say you did place some gigantic order, you could just split it up into two parts and you would still be able to avoid having to pay tariffs.

So they're always effectively going to be cheaper than like going to a brick and mortar store that's selling Chinese made goods and saying, can I just buy this? Exactly. So sometimes people wonder like, oh, you know, why is that skirt that's the same quality, you know, $40 in a local boutique, but it's only, you know, $15 on Sheen. And that's part of the reason is that they're able to sort of dodge those tariffs. Yeah. Louise Metzakis is here. She's a friend of the show and the author of You May Also Like. It's at you may also like.com. She also has a story up on bigtechnology.com just went up this past week. How Sheehan and Timu snuck up on Amazon. It's free and available at everybody to read. So I definitely hope you go check it out. On the other side of this break, we're going to talk a little bit about what these companies do to get access to the American consumer because they don't have storefronts. They need to go through. some other millions to find their way to us.

And that, of course, is social media advertising. So we're going to talk about how important they are to Facebook's business, a little bit more on this supply chain. And maybe we can talk a little bit about whether they're going to get banned and whether TikTok is actually going to get banned on the other side of this break. Back right after this. Hey, everyone. Let me tell you about The Hustle Daily Show,

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And we're back here on Big Technology Podcast with Louise Metzakis. You can find her newsletter. And you may also like.bhive.com. Also her story, how Chian and Timu, or Temu, if that's what you, prefer snuck up on Amazon is live on big technology.com these companies have also so they don't have storefronts right so okay we know that they are they they are able to sell items cheaper than you know your typical retail store with a storefront cheaper than maybe even the dollar store but they have to find a way like they have to set up a digital storefront that has to have

traffic and the way to get that traffic is Facebook ads so how important are they to the Facebook ecosystem and how have they been able to make this work in the in their in their system. And by the way, as we talk through this, it's just amazing because you think it's like this kind of silly casino-like, you know, retail experience, but actually every little intricate piece of their business model is very well thought out and positioned in a way to take advantage of the American system. Totally. So a few things. So one I will say is that she does have some retail stores, but they're usually temporary pop-ups. But it's fascinating because I remember they had one in Texas and there were lines down the block and they sort of revitalized this mall

temporarily because all of a sudden like the mall was flooded. Yeah, with girls who were there to go to the Sheehan store. So I will say that they have tried sort of like experimenting with retail. But generally, yes, they're a digital only experience. And I think the meta point is really important because I think one thing I hear often, you know, reporting in China is, oh, you know, the American tech companies have no presence in China, right? And while that's true, they don't have a consumer presence. They do often have an ad's business, right? So there are a lot of Chinese companies that are advertising to American consumers or to, you know, consumers in other parts of the world. And right now, two of the biggest ones are Sheen and Timu. So they're spending, you know,

collectively billions of dollars. Yeah, from your story, we have Timu spent two billion on Instagram and Facebook advertisements last year. That's a lot of money. It is an enormous amount of money, and it has resulted in META's China business growing much faster than its U.S. ads business. So I think, you know, just to take a step back, one way to sort of think about Sheen and Timu and the difference between them and Amazon sort of conceptually is that they are thinking about shopping, online shopping, as a form of entertainment. And so they are, you know, using these spinning wheels where you can earn a discount. There are these games. They're incentivizing you to leave reviews. They will give you points that you can use tourist purchases if you log into the Sheean app every day.

And that is such a different type of, you know, approach and philosophy than Amazon, which has been, I think, their archetype of their ideal customer is sort of this, you know, stressed out high earning, person in a big city who they just want that buy-now button, why don't you put the toilet paper on auto, you know, replenish or whatever? Remember when they had those, I was thinking the other day about the dash button? Yeah, really, don't even log onto our app. Just click the bounty paper towel button, right? Like, that was a huge, I think part of the ethos for Amazon was, how can we get this to be as convenient as possible?

Whereas she and and Timo were saying, hey, get on our app, download our app will reward you for that. want you to come and stay a while, right? I think that's why you're seeing sort of this older demographic, spending a lot of time on Timo because they're like, hey, this is fun. I'm having a nice time. I'm seeing things I didn't expect. And there's a lot more sort of like surprise and delay. You know, pick a free gift of like, you know, from the selection of like, you know, quirky little things that you didn't know you wanted. And so that is a big sort of, you know, fundamental part of the philosophy is a ton of advertising. We're going to get you on there. We're going to

going to hook you, but then we're going to keep you there in the same way that TikTok is going to keep you there or Instagram is going to keep you there. And it's sort of like this slot machine function of, well, when you refresh it, you never know what you're going to see. Whereas I think with Amazon, it's like, no, we want you to, every time you can ensure your donned dish soap comes every six weeks, right? That's totally different just in terms of the approach. Yeah. And you mentioned in the story that there's a photo of this guy with all the things that he's bought from Timu, I think, and it's kind of hilarious? Yeah. So I, you know, it's important, I think, with Timu, to look back to what was Pinduodwa, the parent company, what was their approach in China? And they did

the exact same thing. They went after people in, in China, there's this tier system of cities. So, you know, first tier is sort of like, you know, the Beijing, the Shanghai's. And so they went after people in like third, fourth tier cities in these, you know, county level towns. who had time on their hands. And I think it was in 2018, the New York Times took this amazing photo. And it's of a guy who was like, I think, in his 40s. And he's surrounded by all this stuff that he impulse bought on Pin Baudua. And it's like an electric pink car for his daughter.

I think there's like a dark game. There's an inflatable raft. It's like all this stuff he didn't really mean. But he was like, oh, this is such a good deal. This is so delightful. This will sort of make me happy. This is entertaining. Whereas I think, you know, of course there is sort of that impulse component on Amazon,

but I think a lot of what you would see is like, oh, yeah, I got like storage containers for to organize my kitchen, right? Or I got like planters, you know, for the plants that I got. Or like, it's much more sort of like this productivity, efficiency ethos. Whereas I think with these sites, it's much more about like, can we get you something funny or that will delight you or that, you know, you can plan a birthday party or, you know, you can decorate for Christmas. That is much more how they're thinking about the holes that they want to fill in terms of,

like, you know, consumer behavior. Right. And going back to the social media ads, I mean, if this stuff disappeared, how big of a hit would it be to, like, a Facebook's business? I think it would be big, right? I think that for Facebook, and it's also, you know, it's not just Facebook, it's also YouTube. It's also, we should know, you know, we talked earlier about, I think, Timo had six separate

Super Bowl ads. It's also traditional advertising. channels that would be hit. I think that no matter what, though, this is going to slow down over time. You know, I've heard people sort of make the mistake where they're like, oh, well, it's all just advertising fluff, right? And once the advertising goes away, you know, Timo will go away. But I think this is exactly what they did in China.

And it's a very deliberate strategy where they are, you know, flooding the market with advertisements. But they're watching closely to ensure that these people are repeat buyers. I don't think that Timo is like Wish. which is another platform that was like this that sort of had this huge rise based on all these Facebook ads and then they sort of fell off, right? I don't think you're going to see the same pattern. They're very carefully sort of watching like, we're making this huge investment, we're going

to give all these free gifts, we're going to have all these Facebook ads, but that's a very deliberate strategy that over time, the advertising will cool, the average price of the product will go up slightly. But by then, hopefully we have sort of, you know, gotten a big enough user base that's already converted and already in love with us and has canceled their prime membership or whatever until we have a sustainable business yeah and it sounds a lot like tic-tok strategy and before we talk about tic-tac i just want to note that louisa's story was at the top of tech meme over the weekend and road tech meme the whole weekend which was which was great our first contributor to make it

there so we appreciate that and folks at home if you don't know what tech meme it is it's my go-to site for finding out what's happening in the tech world as it's happening and i think you'll find great value from it too if you go and check it out so that's tech meme.com they are an awesome partner that we have a cross-promotion running with a big technology podcast i think this episode is going to be on their own page and i'm grateful for it they're they're a great site so it was very cool to see your your story up there i've been a reader for a long time definitely okay so let's talk about tick i mean this this strategy that you're you talk about go big on ads like and then and then hopefully you have a sustainable business that you don't need the advertising so propel some

sounds exactly like TikTok. I mean, TikTok basically built its business on the back of running Facebook ads and sending users to its app. So talk a little bit about the overlap years. This is just like a strategy that apps in China have employed to enter the United States? Is there some like taking notes from one to the other or is it just a coincidence? I don't think it's a coincidence. I think the big thing, I think one way to think about it, you might think is, okay, she and Timo and TikTok are all Chinese companies. So that's why we would look at them all together, right? But I think the actual more important similarity is that TikTok has an enormous e-commerce business in China. And they are now also rivaling Alibaba the same

way that Pinduodwa is. So that's why I would put them in that category. And it's important to look at their e-commerce strategy as well. You know, there's TikTok shop right now. And so I think that, yes, it is a strategy to answer your question directly to place all of these, you know, ads on other platforms and then sort of see if you can get a sustainable business out of doing that. But it's also that all three of these companies are really, you know, focused on e-commerce. And while we think of TikTok as just a video app primarily, they're also competing with Sheen and Timo in the exact same way. And so I think that's another reason that sort of considering TikTok as part of the mix is really important. How big is TikTok's retail business?

So in the U.S., it's not that big. I think that they're, I haven't looked at the, how there's daily sales recently, but they're doing like, you know, in the tens of millions of dollars of daily sales. But they're really big in other parts of the world as well, the same way that Sheen and Timu are. You know, so TikTok's, the TikTok shop is doing really well in Southeast Asia. It's doing fairly well in other corners of the world. And already it is the cash cow for Biden's in China. Yeah. So I think that. Wow. Yeah. So I think people miss that. And I think it's important to sort of like, you know, look at that as part of the mix. And also they're selling a lot of. sort of these household goods, these sort of like, you know, smaller ticket item priced,

these smaller ticket item priced products that are also made in China, right? So I think that's another avenue. And I think, again, they also have this ethos of shopping being entertainment, right, versus shopping being something you just try to get done as quickly as possible and move on with your day, right? It's this idea of like engaging with these businesses, you know, having a laugh before you click order, right? or, you know, having a little bit of fun, spending time looking at these products over and over again before you actually buy.

I think all three of those companies really are going in on that idea as being their thesis. And so far, it's bearing out. So do you think U.S. regulators, the U.S. Congress, is going to look at these two sites, She and then, Timu, and say, wait a second, like the same concerns we might have had about TikTok, we might have about these two, whether it's a challenge to American competitiveness or maybe, Data, I don't know, influencing culture. And is there a chance that we're going to see a same progression go on with Shian and Timu? I think so.

So you're already sort of seeing some hesitancy on Capitol Hill. There was a big astro-turf campaign against Sheehan in Washington, D.C., where I can't remember exactly what their ridiculous tagline was. But I think it was like, Sheen is the needle and TikTok is the drug. And it was like trying to connect the two to being some sort of nefarious. for that. We don't know because it was a dark money campaign. And you're already seeing, you know, Sheean originally wanted to IPO in New York. And you're already seeing the security stage commission sort of slow roll their application, not engage with them. And they're starting

to look at IPOing in London maybe instead. So you're already sort of seeing rumblings of, you know, displeasure and sort of like, you know, hesitation about these companies in Washington. And I think that there's no reason that that wouldn't continue to escalate. The question is, are we going to just keep playing whackamol with these Chinese apps, right? Like, I don't know if that's a good strategy. And I think that there's maybe some hesitation among certain lawmakers about whether that's really a good path to go down necessarily. But you're definitely starting to see the rumblings of them being the next TikTok. Okay, but I have one more question about TikTok and then we're going to go back to these two. Is TikTok actually going to get banned? I mean, I know they passed

the ban and apparently the clock is ticking. There's like 10 months. Do you think we're going to get to a point where they're actually going to sell or get banned? Or is this going to end up in lawsuits and just delay it indefinitely? I think it's going to be delayed indefinitely because of the lawsuits. But I have concerns, I guess, about whether or not the Supreme Court would strike down such a lawsuit on First Amendment grounds. I think that they might have some sort of convoluted First Amendment argument that would allow the ban to actually take place. But even if it did, I'm still unsure about the actual mechanics of like, will the app just keep working if you've already downloaded it?

Will we see sort of like the surreal moment where Americans are downloading VPNs to use apps that have been banned the same way that people in China do that? So I don't foresee a world where we can't actually access TikTok, but I am sort of pessimistic about whether the lawsuits will resolve, result in a, you know, clear win for TikTok in the sense of like, you know, the highest court in the land saying, you know, this is unconstitutional and the law that Biden signed banning the app being struck down just very clearly. I think it will get messy, I guess is what I'm saying. It is amazing, you know, it wouldn't be a huge deal if reels or YouTube shorts were on the level, but it is amazing how much better TikTok remains above Reels and YouTube shorts. Do you have any thoughts on why that is? You know, so I actually do. So last night, I deleted TikTok for my phone and I very specifically said, I'm going to really give reels a shot. So I set a timer for 90 minutes and I said I'm going to spend 90 minutes scrolling through reels and just see like, what is the deal? I think a fundamental issue is that you have this group of creators who knows how to make static content because that's what they did on Instagram. And they don't actually know how to make good videos. And so a lot of the time it's like,

kind of a really short video that like should just be a photo with some like background music put on but you don't actually need the audio does it make sense it's kind of like a meme with music playing in the background but it's the it's different creators effectively so you think that tick tech native creators are doing a better job I there's so much reach available on instagram if you do well I think it's still really hard to just join Instagram and to go viral in the way that you can on TikTok because there isn't that same for you page capability where people are starting just at this algorithm. They're starting at like looking at their friend's stories, right? And then maybe they wander over to reels. I think that fundamentally you have creators who don't understand the video format and you have a platform that is not built to support those video creators, those video creators first and foremost. Instagram is kind of in a weird place right now. It has the static images. It has like a Twitter, like a worse iteration of Twitter and threads, and it has this like, I don't know,

TikTok knockoff, it's not very good. You're seeing the same thing that happened with Facebook where the app is getting bloated in all these sort of like strange ways and people just still want to see their friends and family. Yeah. Fundamentally. So let's just wrap up this conversation about Chea and Team Amazon.

How are they going to respond? So they're already responding. So what you're seeing Amazon do is that they have lowered the fees, the amount that they charge sellers, for specifically clothing items, like very affordable clothing items. So they've reduced the amount of fees, I think, so that these items can be listed for prices that are closer to what she in charge is. And so I think you're going to see a continuation of that,

where you're going to see Amazon roll out with policies that are better for sellers to maybe reducing more fees, you know, improving customer service for sellers. Because for a long time, Amazon's have had the advantage. But I think you're going to see some of these sellers in China say like, oh, well, I'm just going to go work with Sheen and Timo. They're banging on my door, right? I'm a top Amazon seller. And so I'm going to go take their incentives to go over to that platform.

And I'm going to spend less time on your platform. So I think that that's one thing that you're going to see them do. And I think also they're going to maybe shift less of their focus. I think that they realize that they've saturated the U.S. e-commerce market. And so, you know, it's still a huge business for them. I don't think it's going to go anywhere. But I think you're going to see them invest more in AI, invest more in AWS,

invest more in these newer areas. and I think you're especially going to see them invest more in AWS in these emerging markets. Because it's like, hey, everyone's shopping on Sheen and Timu, we're at least going to make sure that the rest of the internet infrastructure in these countries is on AWS. Yeah, they'll find a way to make their dollar no matter what. Oh, for sure, for sure. So just stepping back here, it's interesting how in a moment where the U.S. and China's relations are about as bad as they've been in recent memory,

that China has effectively introduced a answer for two of our biggest tech giants. We have meta still effectively on its heels against TikTok, right? They're not on Facebook anymore. They change the name. They're all about the metaverse. Now they're all about AI. We don't hear very much about how they're trailing in like the main thing they do, which is social media.

I don't even know if you would call TikTok a social media company. But like it's essentially in the same vein of like you're going to like user generate a content. algorithmic recommendations, which is what basically the business now. So China's attacked Facebook there, and now it's coming for Amazon with these two companies. Is that a coincidence that it's been able to make such inroads with these companies at this moment? Or is there some plan going on there or some intentionality there? I think what the missing piece of that story is, is that for the last decade, the narrative of

Chinese tech has been the enormous rise of the Alibaba, of the bite dance, of, you know, they went from, you know, being fairly modest tech companies to they took over the whole country, right? But these companies have now saturated the domestic market. You know, there are very few rural pockets of China now where people don't have smartphones and they're not already on TikTok. They're not already familiar with Alibaba, right? They're not, they're already not using Pinduadua. So in order to continue growing, they have to move out. So I think while relations between the U.S. and China have, you know, they're probably the worst they've been in my lifetime. These companies have no choice but to figure out an international strategy and to move outward. And I think

that the government has been very encouraging of that. So it's like, if we want to keep growing, we're just going to have to weather the politics. And if it doesn't go that well in the U.S., okay, well, we're going to get everywhere else in the world. Right. I think people forget that it's a really big world and that, of course, everyone wants the U.S. market. It's still the most valuable. You can maybe learn a lot of lessons there that you can apply to Mexico, that you can apply to Brazil, that you can apply to Thailand or Vietnam or these emerging markets where I think they have a lot more in common with the Chinese domestic market in a lot of ways. And so the Xi and the Timo, the TikToks of the world are better poised to do well there. Whereas I think, you know, Facebook's done really well, but Amazon hasn't done that well, right? Like, you know, I think there's a case to be made that these people coming online and who are, you know, getting a disposable income for the first time, they're probably more likely to shop on Xi'an and to use TikTok than they are to be a loyal Instagram user or buy stuff from Amazon if Amazon even operates in their country. Yeah. And as we're talking, I'm like it's not just like social media and e-commerce. It's electric cars that China is really pushing hard into and phones with the Huawei Mate. Yeah.

like Huawei made 60, which is apparently finally reaching parity with like an Android phone and is selling like crazy in China. Do you want to talk a little bit about those two initiatives before we head out? Yeah. I think the electric cars thing is another is going to be another one of these examples where in a few years you're going to go abroad and you're going to see Chinese electric cars everywhere, affordable, high quality electric cars. I got the chance to ride in some of them in Shanghai recently and I can attest that they are just as good, if not better than Tesla's. Whereas here, you know, we're seeing a protectionist policy where it's going to be, you know, functionally impossible to buy a lot of these cars in the U.S. if they're going to be imported at all.

And so I think that's going to be really strange. But I do think there is a slightly different story with the phones in that the Huawei, the new Huawei phone is selling pretty well in China. But I have seen this trend again and again where the richer country gets the more iPhones they buy. And that is true, even in places like South Korea, the home of San. Samsung is losing its home market because people in South Korea don't want Samsung's, they want iPhones. And you're seeing that in India, you're seeing that in Latin America. I think for whatever reason, Apple still has a chokehold onto the premier phone market.

And no matter how good the Androids are, the second people can afford an iPhone, they get one. That's interesting because Apple is like the revenue is declining in China, precipitously. But it's getting better in these other places. I think even if you do go to China and they are losing out there, but I think that on the global scale, they just continue to do better in these other places. So I do worry about their business in China because of Huawei, but I think in the end, you're not going to see a world,

even where people are driving a BID or a Chinese electric vehicle, they still want an iPhone. Okay, take us five years out. So let's go to 2029. Are Shian and Timu have they cut dramatically into Amazon's market share in the United States and are they banned or on their way to being banned? I would say they're on their way to being banned and that they've become synonymous with sort of like questionable ethical practices. I'm not sure they're going to be able to sort of turn around the PR story, but they're not banned yet.

And I do think that they've cut into a fair amount of Amazon's retail business. And I think that they have become a serious threat to sort of the more traditional dollar store targets of the world. I think we'll see a world where you go into Target and it looks a little bit more like going on Sheen or Timu. That's crazy. You're going to be spinning a wheel and deciding slippers you're going to get. Maybe not quite, but there's going to be more. I'm ready for that. I'm ready for. You're ready to walk into a target and spin a wheel for a discount? I'm ready to spin for a discount. I would do it. I'd be back more often. Same. Yeah. Same. All right, the story is how Sheen and Timu snuck up on Amazon. It's free to read on big technology.

Luis, thanks so much for coming down today. It's great to speak with you. And thank you again for writing this terrific story for us. Thanks for having me, Alex. It's always for to talk to you. Likewise. All right, everybody, thank you so much for listening. We'll be back on Friday breaking down the week's news with Brian McCullough of the TechMeme Ride Home podcast. So that should be fun. And we'll see you next time on Big Technology Podcast.