Big Technology Podcast - NVIDIA Takes Off, Temu + Shein Deep Dive

Episode Date: May 27, 2023

John Herrman is a contributing editor at New York Magazine. He joins Ranjan Roy and Alex Kantrowitz to break down the week’s news. We cover 1) NVIDIA’s Blowout quarter 2) The emergence of Temu and Shein — in great depth.  -- 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/ Questions? Feedback? Write to: [e-mail]

Welcome to Big Technology Podcast Friday edition, where we break down the news in our traditional cool-headed and nuanced format. We have a terrific show for you. This week, we're going to be speaking about NVIDIA's bombs away, earnings results. But really, this is the show where we're going to dive deep on Cheyenne and Timu. and to do it we have an amazing guest with us john herman is here with us he's a contributing editor at new york magazine john welcome to the show thanks for having me and we're also joined by ron john roy the uh writer of margins you can get it at read margins dot com ron john welcome back

good to be here ron john how stoked are you this is going to be the show that we've all been waiting for the she and timu blowout extravaganza john i don't think i can possibly put into words how stoked is for this one because well I can tell from the newsletter just alone that this is you know I feel like a T-moon notification right now I'm so yeah that's right well just just one more button press one more button advance through one more game recommend the one more friend and it's all going to pay off absolutely and we've been sort of you know saying okay is this the week we do the big e-commerce episode is this the week we do it and I was like oh if we could just get John for this. It would really make

the show so great and you're here which is awesome and last week for those who listened we went into Shia in a little bit. I think this is going to be a way more in-depth discussion covering. I just learned about it last week so we're going to cover some of the downsides

as well and I think that you folks are going to love it for those listening and those watching live with us on LinkedIn and YouTube. Let's start with invidia. Okay, Nvidia had basically a historic, not even basically a historic quarter. It went up 24% on Thursday. It's market cap as we talk is $947 million, a billion. So it's getting close to a trillion. If you had predicted who was going to be in that

trillion range, not many people would have put NVIDIA in there. They have projected four billion dollars more than the consensus among analysts and revenue for next quarter. Four billion more. It's a tremendous amount of money, and its prediction is $11 billion for the coming quarter, which is just huge. Okay, what do you guys make of the fact that at Vidia, obviously, it's kind of an AI meme stock, but the money is coming, which is very different from some of these stocks we've seen in the past catch fire. Yeah, I think last week we were talking about one of the biggest problems about the current AI bubble is the fact that there is absolutely no clear business. business model for the Microsoft, for the Googles, I mean, right now again, as we say over and over, chat GPT, every query loses money. So no one has quite figured out how they're going to make money except Invidia. The one thing we know among all of these companies, we might not know how

this is going to change search and advertising and content creation or whatever else, but we know it will need chips to power it. And I think that's where Nvidia is sitting very pretty. I'll admit myself, I am kicking myself after seeing those numbers because this was the most obvious thing to buy when this all started. When I've been very interested in this, there's absolutely no reason this should not have been abundantly clear, but I didn't. I can't play in the market like that because of my job. So it's all like my regrets are all about like calling things wrong or whatever. It's all a very silly, stupid game for me. But I remember. I remember talking to the founder of Mid Journey some point last year about, you know, the rise of image generation and all this stuff.

And right away, he was just like, yeah, the compute is insane. We're spending so much money on computing. Like every time, and it sort of became a joke among friends as we're using these things. Like every time we press the button to generate a stupid image, it's like we're bleaching ahead of coral. We're, you know, we're like clearing an acre of rainforest. There's just so much power going into these things. And it was, yeah, that was always going to be, if the hype cycle is going to continue, it was going to just result in enormous compute needs and tons of orders for

NVIDIA, who, you know, to zoom out a little bit, as someone who grew up at, like, a time where, you know, as a teenager, you're engaging in the processor wars between AMD and Intel. You're talking about ATI and NVIDIA graphics cards, which one can run Counterstrike better and all that stuff. It's wild to think that those companies, in particular, Nvidia, was sitting on this territory that they just keep discovering new reserves of like oil or minerals or something on that space that they occupied. They just keep like, obviously they're planning deliberately. Obviously, they're investing in enormous amount in R&D, but like it's also incredibly fortunate that here comes crypto everyone needs nVIDia hardware here comes a i everyone needs more gp

it's just a wild wild uh electric cars right around the corner could need more chips as well it's just there's no stopping to me it's still you know do i am i am i getting the the gforce four or am i getting the radion 9800 it's just like a completely different scale of thinking about this stuff but do you guys think that there's any What's NVIDIA's potential downside or how do they lose right now? It seems like even especially against the intels and the MDs of the world, they're far, far better positioned. What could make them vulnerable?

I think there's so much at the front of this AI cycle that could get out of hand and they could sort of experience that downstream a little bit. There's so much money pouring in, so many big things. firms making big commitments, maybe they're very wise about how they handle that kind of order growth and that kind of growth. But like over the story of the last three years for me is how companies that either lucked into something incredible, had something incredible, saw incredible growth that was actually based in something, how they can still blow it, how like the sort of like, you know, large tech corporation of this era can somehow,

like squander an incredible opportunity and lead just because of the like strange momentum they have the strange incentives of the markets and and leadership and everything else i suppose they could be exposed to that but that's i mean it seems like good news for them mostly i guess uh who wait who would be the most squandering of big tech i guess i would put zoom in there i think in terms of sitting pretty and then did not capitalize on it in any innovative way. Are there others that you think of? A much smaller example, well, a more niche example would be Peloton, where it's like, you know, expensive product, recurring subscriptions, tons of new customers.

There should have been a way to handle that, you know? That's the kind of thing that if you aren't involved in a company like that, if you aren't too close to it or in it or subjected to the like strange novel pressures that you get from the inside, you could write a simple plan that would work. But that's, you know, outsiders don't run these things. It's sort of a funny paradox of these companies. But yeah, Zoom, absolutely. You've got a bunch of new customers. That should be the end of the story. Yeah. Ranjan just got rid of his Peloton. So perfect example there. I know. And I don't even want to talk about this rebrand this week. I don't know if you've

seen it, but it's too much. Wait, no, what is the Peloton rebrand? Let's just take a minute to talk about. Sorry. If I may, Peloton is no longer a bike company. It's now simply a streaming fitness company, which I don't know why you would do in trying to make the app the centerpiece when you're competing against Apple Fitness or whatever else. Suddenly you're in a whole new competitive landscape. But also, they're trying to rebrand themselves away from hardcore fitness people. And I don't quite put myself in that category, but at least like, you know, people enjoy more. out to the everyday fitness, you know, entry level fitness person. Basically, they're trying to increase their total addressable market. You can totally picture some slide in a presentation. So they have this whole new, I think it's called like everyone always on or something like that, but they're basically every single strength that they have had as a company. They're completely just giving away trying to become something new.

Yeah. Now they're playing against a bunch of free competitors that are fine, you know. Can we go back to the NVIDIA example for a moment? Because Sam Lesson had this really interesting thread or one of his card post that he does. Not quite a thread, whatever those are. So he basically says that, you know, if it's a car analogy, they're not an oil company. They aren't building cars. They're a parts manufacturer that's going to ride the wave of demand and do great for a while.

But ultimately, you know, they're going to become commodified. And what do you guys think about that? It makes sense if you imagine the demands of the moment extending for a long time. If you think of them a bit like maybe a close competitor, like Intel, where they get sort of stuck to a particular type of product in a really profound way, personal computers, desktop computers, laptop computers, they are then going to have to, they're they're going to be tied to the cycle of that technology. So as people move away from desktops, they have to pivot to mobile processors. As mobile processors pivot to like arm architecture, they're then sort of ill-equipped to deal with that. If we imagine a relatively straightforward progression of AI technology, like building on the same sort of computing systems, maybe flowing through some of the same cloud and computing providers, then maybe, yeah, they, sort of they give or competitors are left with time to catch up they end up in a market that

gradually becomes more crowded they are sort of reduced over the long term to to just you know enabling computing power which if you leave that long enough without too much change obviously seems kind of dangerous but their story recently has also been like being well positioned somewhat coincidentally to handle relatively novel demands from like fast changing technologies and maybe that's a run of luck maybe that's something they can sustain for a longer time maybe in five years we're talking about really really different things maybe there's a you know with all this talk about about the the big proprietary models the open source models running AI services locally versus, you know, renting them from providers.

Maybe we're looking at a situation in a few years where Apple is in an unusually good position because their, you know, their architecture is suited to running certain kinds of software locally. Maybe this is another, I mean, there are just a lot of possibilities there that I wouldn't want to discount. But yeah, if they sort of won early, then they could they could lose it. But if we're looking at a 10 or 20 year cycle where people just need more of what NVIDIA has, like I can't protect it for that long.

Yeah, I had a comment that said that the CEO, Jensen Wong, has just been so good at getting ahead of these trains, which I think is sort of the theme that like, yeah, if they stop today, maybe that would be the case, but they're not stopping. And so that is like one of the big reasons to be a bull on NVIDIA is just their ability to get ahead of what's coming and then maybe find a way to get to where the more. market is going. So very interesting week. I'm sure it won't be the last time we speak about them, but definitely wanted to touch on it this week. Let's talk about these companies, Xi and Timu. I'm sure there are some others. John, you had a great story about Timu in particular. We talked a little bit

about Xi'an last week. But I think to kick off this part of the discussion, why don't you talk a little bit about what Timu is and your experience with it? Because, well, both you and Ranjan have both ordered products from it. So I'd love to kind of hear how that's gone. Yeah. I think most people, if they're familiar with Timu, it's probably from the Super Bowl that Timu spent, I think it was $14 or $15 million on a pair of spots, which is a relatively small part of an enormous marketing campaign to launch an e-commerce, a whole new e-commerce platform in the U.S. and a bunch of other countries. They're based in China, part of PDD holdings. I'll only say this once because the pronunciation is bad, but my pronunciation will be horrible, but they're a sort of sister service or platform to Pinduoduo, which is a very large Chinese e-commerce platform that sort of originated with a system that recruited local merchants

to sell produce, groceries, then budget household goods. then gradually sort of everything. But a big, big player in Chinese e-commerce, money from the parent companies being used to fund a huge launch for Timo. So we've got this feeling of sudden visibility, very cheap products, sort of a somewhat novel app and shopping experience, unless you've used Sheehan, which is pretty similar, or Wish,

which we might remember from a few years ago. But anyway, it's suddenly kind of everywhere. One thing I came across was postal carriers remarking on how many orange envelopes they were delivering on their routes almost seemingly out of nowhere. There are advertisements across virtually every social media platform, every big ad network, hundreds of millions, allegedly billions of dollars have been spent already marketing this app. And in some ways, it's like a little strange. It just, it feels like it kind of came out of nowhere. It's not, it's, it's interesting to use at first if you've never used anything like it, but it's kind of like a large discount shopping app.

So it's, it's a little bewildering from like an analyst perspective, from a consumer's perspective, but it really is everywhere. It's really like getting some traction or, you know, that marketing spend is paying off. It's a place where you can buy not everything, but a lot of things. It's not Amazon. It's not like a comprehensive marketplace where you can sort of expect to find virtually anything that you can buy through the mail. It is pretty comprehensive. You can sort of think of it as like a very, very large discount version of Amazon where products from the cheaper tier and some brands that are popular on Amazon on the cheaper side of things, mostly sourced directly from China, are really well represented.

presented. But if you go looking for particular things, if you set out with a shopping list, you might not be able to get everything. If you do, it might not be the type of thing you want. But it's often shockingly cheap. It's super gamified. It's very aggressive in its style of promotion. It has sort of imported a lot of UX and marketing techniques from its Chinese counterpart. So to American users, they'll feel sort of of new and unusual. And it's like a real strategic play. It's a multi-billion dollar attempt to take on Amazon or at least to penetrate the U.S. market and dozens of others from an e-commerce company that is based in China with very close relationships to Chinese merchants and through them Chinese manufacturers. And it's also an attempt to build like a big logistics infrastructure that is a little bit more focused on what happens in China. It's sort of like, if you imagine Amazon as, as, you know, kind of a last mile service for Chinese manufacturers, which in a way it kind of is these days.

Timo is kind of an attempt to shore up the logistics on the other side, to create an experience as close to Amazon as possible, like relatively quick shipping. Yeah, you have a great line in the story that says if America's retail giants are becoming mere middlemen, why not just cut them out? And this goes to like Amazon building the third party marketplace. Like they initially started first party. So everything that they would sell to you, they would be buying from vendors and then shipping out. And they decided to become more of a marketplace, challenging that third party marketplace,

challenging that first party marketplace that they had, bringing the third parties in. And then eventually they opened up manufacturer, they opened up their sales channel to a lot of Chinese manufacturers. And that's kind of what Amazon is today. So it is interesting that this is sort of what they've become between them and Xi'an, right? I think there's this, and we're going to get to the labor issues.

By the way, I heard from people loud and clear there's some labor issues here. I've read up on it. We should definitely talk about it. But it is very interesting how they're cuddling out the middlemen. And it sort of leads you to believe, like, have U.S. companies put themselves in a position where they're too vulnerable? They've made themselves too vulnerable. And it seems like they're more vulnerable than we could have thought, especially Amazon. Yeah, I think the quote you had, it was like made in China, which start what I call it the 1990.

cutting out domestic manufacturing, sold by China, starting to cut out, cut out domestic sellers, and now marketed by China cutting out domestic retailers, the idea that at every point that an American retailer gave up part of its value chain, that it made them more vulnerable to this kind of disruption. To me, was one of the most interesting parts to think through this, because I mean, I think Amazon, we talked about this last week, is by far the most vulnerable from a teamu or is she in or both or all these practices because all these companies because they built out their supply chain they essentially lowered their own product quality reliability the product reviews like the whole experience of shopping on amazon they allowed to degrade in order to

sell cheaper stuff and gain more markets around that size so so like do you think amazon is vulnerable from a TEMU? And do you think, if not just Amazon, who else? What other retailers or tech companies do you think this actually presents a significant threat to? That made in China to marketed from China shift. That's from Joe at Marketplace Pulse, who's a great analyst on these things. And what's weird about it a little is that the like Timu versus Amazon matchup doesn't seem that intuitive if you're just using them both as an American customer. Like, they're quite different. One is more of, one kind of feels like a game.

It feels like, yeah, what can I find that's so cheap that I'm not even worried about buying it? The advertising campaign is like shop like a billionaire, which not in the sense that you can have whatever you want in the world instantly, but in the sense that you can buy things without thinking about it, without worrying. about how much they cost because I don't actually think I don't think that quite hit me before and now that makes a lot more sense. It's actually not bad. It's weird. I mean, you can kind of like, you can kind of approach that from a lot of angles that aren't so flattering where it's like, shop like a billionaire where you don't have to think about the rest of the world or shop like a billionaire where everything, every movie. I like it in every level at every level.

It has incredible externalities that, you know, ripple through civilization. But for Timu, it is absolutely a direct approach to Amazon. Overseas, they're poaching people who worked with Amazon, more aggressively poaching people who worked with Sheehan. They are imagining, I think, that Amazon is hoping to move upmarket a tiny bit, not in a big way, but in the sense that they're trying to increase each cart size before they ship, that they're trying to battle a bit of this reputation that they've accumulated in recent years is kind of a junk shop. But I think these things will come into line

a little bit more obviously stateside because when I was researching this piece, I did find quite a few sellers who are operating on Timu who also operate on Amazon. I found a few who used to operate on Amazon who now operate on Timu. And one thing that's sort of under-recognized here is that,

in this effort to do something, maybe clean things up a little bit, maybe regain control of the review system, unclear. Amazon in the last couple of years has banned thousands of overseas sellers, many of them in China, not because they were selling bad stuff necessarily, but because they were using marketing tactics

that were sort of over the line. They were accusing them often of review manipulation, a lot of pretty successful brands, that sold stuff that people genuinely liked, maybe projectors or rechargeable batteries or headphones, you know, they'd include like a solicitation for a review in the box or a coupon if you, if you, you know, wrote a review or something like that, which is over the line policy-wise, but resulted in a sense among Chinese merchants and manufacturers who were trying to sell directly through Amazon, who saw Amazon as this wide open portal to overseas markets,

that they're kind of at risk, that Amazon has way too much control, that building a business around this one channel where, you know, maybe you sell $100 million worth of product a year, but you can't get someone on the phone. And they're kind of treating you in this antagonistic way and sort of treating you as a different kind of seller than their domestic sellers after years of courting you. There's a real sense, I think, that Amazon is not,

as reliable a partner as before. And so that will drive some merchants to Timu. Now, Timu has also been, there's a great wired piece this week about how they are also putting huge pressure on sellers, asking some of them to sell at a loss, just to sort of, you know, keep their contracts or get market share about how, you know, Timu itself is just a money hole for PDD holdings. but you know this is they're sort of doing you can you can think of it as like a very very fast very capital intensive version of the amazon playbook which is like let's lose money for a while and get market share and then everything will sort of work out i mean it's not just amazon anymore it does that but as a commerce uh as a commerce they were the famous one yeah yeah and the amazon i mean the amazon thing where it's like oh yeah you're selling you're selling a dollar

for 95 cents or whatever is it was always sort of a fun joke, but with Timu, it's like, you're selling, you know, $10 headphones and losing $20 an order. It's like really severe. The wired piece, the wired piece, they had an analysis where the average order is $25, and they lose $30, meaning they're spending $55 in total to actually push it through. And one of the things I thought was most interesting, in terms of thinking about like all the different market and company dynamics to get these prices so low. One of the things I had never actually seen before was their logistics partner, J&T Express, which is a large Chinese logistics provider,

they are essentially, apparently it costs $14 on average to ship a package. And again, a $25 average order value that they're losing $30 on. 14 of that is going to logistics, which they provide for free. But then J&T Express apparently is trying to go public soon. And so analysts are theorizing that there is also taking on some of this gloss to subsidize it so they can build more volume and market share for when they go public. So it's just like another piece of this puzzle because obviously everyone's just trying to figure out how do they get things so cheap for the customer and realizing there's almost all these different people in this entire value chain who are ready to lose a little bit of money for you.

Well, then also get your $10 or $8 headphones. Right. And in addition to that, there's sort of this condescending Western perspective that like, oh, this is, these are upstarts that are going to come in and,

and bring these new ways of doing things to the U.S. market and, you know, we are not prepared or whatever. But it's like, no, these are like mature firms dealing with like domestic retail slowdown, dealing with, as you're talking about, you know, these complex calculations about

partners going public and, you know, recruiting against domestic rivals and stuff, Timu is important. It is like an ambitious play, but it's the kind of thing that I think domestically might read as like an overambitious expansion strategy from an arrogant company. You know, like we're not the center of the story with PDD holdings. It's just a very interesting, very, very expensive project by already. successful foreign firm, which is not the, I mean, this has come up with TikTok a lot, this is not something that U.S. analysts, reporters, also customers are totally used to being like sort of the B story in a plot for a tech company. Like normally it's an American tech

company getting really big with a sort of clear domestic story and then getting into misadventures overseas. Like we are the misadventures now for, for some of these firms, which is, you know, we live in a global economy, but what about like, okay, so if the business model and business practices, let's say aren't unique to a Chinese company, but are very, you know, every American firm is potentially, you know, like pushed hard in that direction, at least, let's say, losing money for grow market share. One thing I've been thinking about, I love one line you had, it's about what the shopping experience. And again, I have bought on Timu. I posted a TikTok of me dumping out a big box of

stuff from Timu just to try to be an influencer for a moment. The shopping experience, so you had a line. It was like, you know, Timu's new American users express uncertainty and ambivalence about what they're seeing until the products show out their door and surpass rock bottom expectations with their mere presence. I literally, I ordered a bunch of stuff a few of the i had like a couple of uh the what's the iPhone charger that you can just put your phone on like the wireless pad two of four didn't work but that was fine 50 percent they were so cheap that i was like actually okay i guess this is okay i uh i ordered a couple of like power strips or some other i ordered a drone for

twelve dollars which is probably i don't know how that happened but like literally i would say maybe 75% of it worked and that surpassed my rock bottom expectations and I was okay. And the aggressiveness for anyone who downloads the app or signs up for an account, it's wild. It's actually kind of fun for me as a writer like to see the push notifications, there's no punctuation, there's no grammar. When you open it, there's deal wheels popping up left and right you're getting $70 off, $50. You don't know what's happening. There's this ad that's circulating around the entire internet. I don't know if you've gotten it. It's this weird finger that's like poised and apparently it's like a fingernail to practice painting nail

nail polish on or whatever. I don't know. Basically the whole thing to me is like everything that everyone has always said who works in e-commerce that American shoppers would never go for and are above and just being like no we're deep down everyone is happy to run after these kind of practices but isn't it more than just the american shopper i mean part of this and i think this is important for us to talk about when we talk about shop like a billionaire and the negative externalities there and the fact this has been able to be so cheap and john i'm going to let you answer ron john's question for sure but i just think we need to point out what's going on behind the scenes in terms of the labor situation here. So this is another New York magazine piece about Shia in, right, which is, again,

coming along this wave with Timu. And it's based off of a Channel 4 report that workers receive a base salary of 4,000 yuan per month, which is roughly $556 to make 500 pieces of clothing per day. And their first month's pay is withheld from them. And then has another factory workers receive the equivalent of four cents per item. And workers in both factories working up to 18 hour days. And we're given off, given one day off a month. month and in one factory the outlet found women were washing their hair during lunch breaks and workers were penalized two-thirds of their daily wage if they made a mistake on a clothing item so I wonder I mean when we talk about these low prices when we talk about like you know bringing in a model that's not

the not American of course it's like a marketing model but it's also a labor model that we need to discuss here and quite frankly just like I was looking at she and after we talked last week and I was like, oh, ready to buy stuff. And then, you know, I, so I couldn't, once I read this stuff, I said, okay, like, I'm happy to pay more in other places. And I wonder, A, like, if, if that is, if we think that's still part of the situation and B, eventually that's going to catch up with these companies, I would imagine. I think, I mean, it's like, we can get as broad as, as, as we want about this. It's very hard to say, with any certainty that's spending, like, $12 instead of $8 on a product from a brand you've never heard of,

manufactured somewhere that you don't really have a grip on, is going to be any more ethically produced. We are sort of virtually all of these conversations talking about things that are hard to know because they're meant to be hard to know. And also it's worth noting that Amazon, in its gradual shift over, nearly two decades now to a third-party merchant system is selling goods through merchants that are that are based overseas. It is therefore insulated even another level than just a brand that manufactures overseas from the source of the goods that are sold through the platform. So you

buy a t-shirt through Amazon. To you, it is an Amazon Prime t-shirt. But what you're sort of doing there is buying something that is yet another layer removed from accountability. So you're already in sort of like a bad situation there in terms of knowing what's happening. And you can make reliably some assumptions about working conditions at the $12 shirt factory. What's interesting about Timu and Sheen is that these are hypergrowth companies. moving products through a system that currently and, you know, in theory, perpetually is extremely low margin. Like, these are companies that are undercutting Amazon. So if you're, if you're, if you have a manufacturing operation in China and you see Amazon as a channel to foreign markets,

you're also imagining even after all the, the, um, uh, Amazon fees and the fulfillment fees and everything else, that you're getting some margins. Like this is a pretty good deal. You're getting access to a really big market. with a lot of fairly wealthy customers ordering things at, you know, with some markup. With Sheehan, you're getting, well, with Timu, I think is a clearer, a clearer analog here. You're hearing reports from factories that have manufactured even for Sheehan, where Timu is giving them some leeway as independent merchants,

but making extraordinarily severe demands for production. targets for pricing, you upload your products into Timu, and they're just like, this should be cheaper. With She and, you know, the company will be ordering directly. They have a more direct relationship with suppliers, although they are also working in a marketplace model now. They're just saying like, okay, you produced this many units last month. Can you do twice as many? And the people running these factories are like, well, do we lose this client or do we just push even harder? Like, it's so obviously unsustainable from like a human point of view. It's so obviously exploitative.

There is no fuzzy like, well, we can't really tell. We can't really see. There is no world in which a $3 skirt is in any way ethical. It's like it's like $3 of skirt and like $10 of externality and then a million dollars of sort of ethical externality. You know, there's no unit for that. It's just pure. It's just pure externality at some point.

And so that's unavoidable with Tim. It's like this fun, strange environment, shop like a billionaire, games everywhere, promotions all the time, coupons in your push notifications, invite your friends. It's like this wild, but you're absolutely just sort of you're spent, you're not just losing money for a company, you're spending something else as you, as you use this. And it's just completely unavoidable. But I mean, of course it is what people avoid it all the time, but it's right there. It's just so in your face.

Well, in terms of the unavoidable, that's one of the things that's most fascinating to me, because on one side, you see endless studies. Gen Z wants to buy things sustainably, fashion is going to be slower. Everyone wants to buy ethically and you see endless retailers moving that direction. But then she and sales are up. I think they overtook H&M. We saw last week 23 billion fastest growing retailer in history. TEMU is exploding. I mean, again, but going back to the, let's take the U.S. consumer, are they going to be shopping on these sites in a year or two? Or like, is this something that's fun, temporary? And you get your items. And again, they surpass your rock bottom expectations. And that's fine the first time. This may be the

second time. But after a while, it gets boring. Even Amazon for me, I mean, now I'll probably buy like batteries and stuff on there or if I need something pretty quick and I don't want to go to the store but overall I don't definitely do not look at it as like a shopping destination to browse and find inspiration and other things like like do that will people shop at these places in a year or two one one thing about that that startling like you know $30 loss figure or whatever it was is that that's not just the product that's not just the result of of you know direct operational things and products and manufacturing and labor costing this much and the customer paying that much. It's so much marketing. It's unbelievable. It's like already, you know,

the, I think the wired piece projected something like $4 billion. Next year. It was one point four billion last year, four point three billion next year. Or I think in 2023. And so I think we can kind we can't we don't know how real this it like if you're giving stuff away to people um obviously you will be very popular if you are super visible with app install ads in every possible channel you are going to be the top app unless you're just completely useless for a very long time and so there i think there are two there are two ways to sort of like guess at what might happen one and i feel like this is this is a little bit i think people do miss this a little bit with with Timu is that they are just playing this like heightened Amazon strategy and they are selling a lot of

things that are actually fine. I talk about the rock bottom expectations. You mentioned some of these totally absurd products. They get advertised a lot. But the presence of sellers that are that are popular on Amazon is really striking to me. They are seeing this as potentially another channel. And if it works for them, you know, if this is a place, I mentioned in the piece, there are areas that I just pay really close attention to in all these years of researching the sort of fringes of Amazon. But, you know, personal electronics, bicycle stuff, there are, there are brands that are absolutely not household names in any real sense. But if you are deep in like Amazon, you know, seller world are big, pretty big names that make like serviceable discount items that people

buy a lot on Amazon that people kind of frankly associate with Amazon now in a way that's more complicated than I think a lot of analysts and pundits would suggest where it's like, oh, this is cheap stuff with with sort of nonsense names. You know, this is Amazon is just getting worse and worse. That's also kind of an, that's part of the appeal of Amazon for, for many segments of customers, either people who don't have much money to spend or people who are kind of looking for a deal. Like the Amazon brand has a certain identity now that's very diffuse and very weird, but but real and has some value. I'm sure Amazon would prefer, you know, people think of them as, as, as, you know, both quality, premium and convenient, but there's some, they've definitely discovered some value with the, with the, um, the quote unquote Amazon brands, not the Amazon brand brands, but the, uh, you know. So there, there is a world where they commit to that, this money, you know, the spend kind of pays off. They get a foothold. People think of them as a place to get that kind of stuff cheaper. But the other story, the cautionary tale, here is Wish, which now, you know, it's been almost 10 years since they, since they really

kicked off. They started as an ad tech company and then sort of pivoted to commerce. And they really specialized in direct from China extremely cheap stuff. When you talk about rock bottom expectations, sometimes it just wouldn't show up. It would, it was basically instantly trash, but occasionally it wasn't. It was almost like you were, the, the products themselves were often sort of secondary to the experience of just getting the pleasure of buying something for 99 cents and then it shows up four weeks later it's sort of like a much worse version of of timu and working as a merchant on wish was miserable it was basically all overflow products it wasn't any kind of uh company you would want to build a business in it was also based in the united states it didn't have quite that direct connection to manufacturing in china although you know they worked hard to sort of of established one, didn't have a useful logistics infrastructure to start with. But they also spent huge. They were the top spenders on, I believe, uh, uh, Instagram, Snapchat. I don't know about Twitter. Certainly big spenders on Google for like a year or two, hundreds of millions of dollars.

And of course they were hugely popular. And of course people were writing their stories. Like, what is wish? You know, it was not quite the scale, but it was the version of this that is purely not interested in product quality or anything else. It had sort of discovered a series of loopholes in the system, a loophole in how advertising works, a way to rapidly gain customers, to acquire customers of a certain sort very quickly. Literally like loopholes in the global postal system

that have sort of been tightened up since then. But speaking of, because you mentioned Wish was a US-based company, One of the other angles of this I find fascinating, and I'm curious to see how this develops is, so Timu now advertises they are a Boston-based company, proudly on their About Us page. Yes. Sheen, I believe, I think they opened a Dublin office

and are like going to start positioning themselves, but both these companies very clearly are trying to move away from the China origin story in their names, in their story in their branding like how do you see this playing out both politically both from the consumer side i don't know um but i just i encountered this when i was working on the the team of story i don't know what the state of i don't know what the state of things is with with sheehan um i know it's obviously like a uh sensitive subject but uh pddd holdings

opened an office in dublin um teamu is a subsidiary is based in Boston. Everything happens in Shanghai. Everything obviously happens to Shanghai. That's where the actual main office is. That's where the most important executives are. That's where the core of the business is. That's where the platform that's subsidizing Pimu is.

But I think it was February of this year. Their filings, because they're publicly traded in the United States as well, they're listed in the United States, rather, as well, on the NASDAQ started listing Dublin instead of Shanghai. And I reached out to them, didn't hear back. A few other reporters have tried to get into this. The company is a message differently depending on the audience in earnings calls and in marketing in China. It's very much like, no, we are a proud Chinese company.

of course we are what do you mean it couldn't be more obvious but then you have this like you know not so subtle but also not uh not exactly publicized change in incorporation that is hard to separate from like this increased tension in the united states about overseas companies and that's also interesting to think about in the longer tradition of American companies doing whatever they can to become sort of Irish for financial reasons. Like, Ireland is offering a lot to a lot of companies in a lot of places, apparently. And it's interesting to, it'll be interesting to see if they can actually offer anything to a company that feels like it has political liabilities in the United States. It seems apparent enough that I don't think there's a political advantage.

But I don't know. Can I just ask, does it make our society a little bit sick that we keep gravitating towards these? companies and products that have such low prices and you know want us to ignore some of the externalities i mean the fact that we're going to the fact that she and the fact that um team who are growing so much despite what they're doing in the people that are working on these products and sometimes the quality of the products right i had someone you know send me a story about potential chemical issues with you know one of these because of course like you're going to get those if they're though cheap but like what does it say about us that these are the companies that are rising to the

the top. You won't get me, we won't, we won't get too far. You won't get, you won't get, I won't get too far into, into politics here, but you're not going to get me to suggest anything except that this is about, you know, wealth inequality. I'm not going to make a, I'm not going to make a cultural case for like, all right, hold on. How about, how about you mentioned, you know, you've watched the fringes of Amazon and the internet for a long time. To me, is kind of like a fascinating it's almost like the fringes becoming coming to the forefront and becoming the central part the core of this new product and this new business like how much weirder and crazier could shopping get like do you see this as a continuation of the weirdness

of the fringes of amazon that have gotten us here and can it get weirder because this is a question that Alex and i always talk about can it get stupider can it get weirder yes and And yes. And one of the ways, so there was this fascinating, I think it was right after the 2016 election, the chief executive at Wish or at Context Logic or whatever, was made this case at some conference that Wish was the unheard American, just like the Trump voter. Like no one saw us coming, just like no one saw Trump coming. now that's you know that was a message from the Trump campaign that was a message from which they were sort of like speaking in the same language and what was interesting about that wasn't that it was really right but it was that there there was this sort of appeal to something that is fundamentally kind of dark or this description of something that was fundamentally kind of like a dark impulse like you know let's get back at our political enemies let's have a vengeful political movement whatever or let's just let's make things let's buy things that are so cheap that they're free and who cares if they're who cares where they come from and who like sort of just you know distillations of these expressions of of something

the fact that that that was available to to to wish as like a as a as a as a rhetorical strategy was kind of interesting it's like what's what was missed here what was missed is that there are people who who can't afford to spend much on stuff because you're not the avatar for for fixing that like Like, you're not solving anything there. You've found a problem and you found a way to kind of, like, maybe make it worse or something. Like, you're exploiting a problem, not fixing it. So there's something, there is certainly something there. But, yeah, it doesn't say, it doesn't say anything, it doesn't say anything great about, about anyone.

It's the, it's kind of, I would, but again, I would stress that I would say sort of the same thing about, about a majority of a, of a, of a majority of a, American, you know, consumer habits. They are symptoms of something that is, that is quite obviously somewhat, somewhat ill. Now, there's one more thing that I found super interesting about this story, which is kind of like the TikTokification of everything. So, John, you write, in social media terms, this is about Timu. It's a bit like TikTok, which swaps the illusion of control created by follower and friend models for total submission to a top-down recommendation algorithm, programmed to meet its users-based

desires or at least keep them occupied for a little wild and like it is interesting to watch so much of the internet transform into this version of you know it's not necessarily you know you dictating it's the internet dictating to you whether that social media with recommendation algorithms whether that retail that's retail and i i wrote down this question like is this sort of like what comes after web 2.0 like maybe this is the real web 3 right it's just like a world where you just have the algorithms take over and you sit back and it's just a very interesting trajectory for the internet that we're starting to see take hold it's so weirdly passive and and this always this always sort of bugs me with with so much of the conversations around like

generative AI and discussions that try to draw a line between this new class of tools that we're engaging with as AI and the last like five years of the internet changing in these really profound ways. Like, you know, TikTok is the clearest example of like the the recommendation engine growing to become the entire product. But Google's more like that now than it's ever been. When people talk about Google feeling worse and worse, they're really talking about like the very, very assertive application of machine learning in new ways. Not that it wasn't applied before, but you know, increasingly sophisticated, increasingly like alienated from its source material, machine learning models that are producing. the desired internal results and leaving users kind of like unsettled or like, you know, engaged and using Google, but also kind of thinking like, this sucks a little, like I'm not fine. This doesn't work like I thought it was supposed to. Like what kind of system am I using? Amazon has become a lot more like that too.

Amazon is like you're at war with these machine learning systems that, that like interpret reviews and produce search pages and recommend products and stuff like that. It's, it's, you know, kind of quaint next to what you get on something like Timu, but it's on the same spectrum. And so, yeah, it's, it is like a move toward something that's, that's really, really passive. And that, I think that has to reach a point with shopping where it becomes a problem. It certainly feels like it's doing that with Google, where the aggressiveness of the system that you're engaging with is starting to interfere with the actual act of searching. It's supposed to be this thing that you're doing and you are controlling and this tool is helping you do. Instead, you're kind of just like using Google.

With TikTok, it's like the stakes are lower. The whole point is to just spend time there and to waste time or to like, you know, get distracted or enjoy something or figure something, find something out. But it's very like the discovery is the point. But with shopping, there have to be limits to that. It works now on Timu and Sheen, to some degree, where you can kind of just get lost and be like, well, I don't know. This thing, I've been notified five times in a row with deals, and this thing now costs 99 cents. And it does kind of remind me of things I've seen somewhere else. Maybe I should buy it.

Or like, you know, I am going to jump on Timu and search for headphones and don't really see what I want, but I kind of feel like I want to buy something now. Let's just see where it takes me. Like, there's something there and there's also something to just the incredible cheapness of it where while you're doing that right next to you is the opportunity to buy something for $3. But when you like shopping is also a way to get things that you need. And like a system that is is sort of just like like ushering you around all the time, it's comparable to like going to an open air market or something or a car dealership where the sales or the sales tax. are so aggressive that you're sort of like, I need to leave here if I want to like achieve my goal here, which is like getting food or finding a new car. Like I need to reengage with something that I have a little more control over. I like going going into this Memorial Day weekend, recognizing we have ceded all control over our free will on the internet, one by one.

Yeah. Also, I meant to mention this up top, but the AI apocalypse has actually occurred. We have created a general intelligence. It is a car dealer, and it is in charge of all the apps we use. So, you know, look out. It took over. Well, John, thank you so much for joining. Yeah, I mean, an amazing show. I think that, like, you have such deep insight into this. We definitely need to do it again.

Red meat for Ron John, which we always love to serve up. Yes, as you saw. And absolutely. So thanks, John. Thank you, Ron, John. Thanks to everybody for listening. Next week, a conversation on next week on Wednesday. a conversation with two tech reporters,

Bobby Allen of NPR, Ryan Mack of the New York Times. We're going to talk about the latest with TikTok in terms of regulation and bans. We're going to talk about Twitter's role in the 2024 election, Elizabeth Holmes, potentially reporting to prison next week, and then the case for AI regulation and whether it's going to happen. Thanks again, John. Thanks again, Ron John. Great to have you all listening with us every week on Fridays and on Wednesdays,

and we will see you next time on Big Technology podcast. Thank you.