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work Live and moved to the

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Uk. The

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Economist. On

0:40

Thursday March seventh. I.

0:42

Invited My K presented Tom to

0:44

the studio for secret challenge. Tight

0:47

on. A I was. So do

0:49

you have any idea why we're

0:52

here? I do not. It's a

0:54

complete mystery to me what I'm

0:56

doing it in the studio. So

0:59

the topic is t me, which

1:01

is this a third and coming

1:03

retailing be him off which is

1:05

competing very aggressively to win over

1:08

customers in America. We thought

1:10

it might be fun to the have

1:12

a race between eight and the other

1:14

be him. Off retailer in America

1:16

which is Amazon so we're going

1:18

to order some bits for each

1:20

retailer. You're going to take Amazon,

1:23

I'm going to take T and

1:25

we get to see who wins.

1:27

Mohammed A Competition. I'm.

1:29

Going to send you a link. Here

1:31

we go: Goody King Beads for

1:34

jewelry Make in Friendship bracelet making

1:36

Kids Love in La Mia Friendship

1:38

bracelet If you've been paying attention

1:40

to popular culture over the last

1:43

year, you might have noticed the

1:45

people were making an awful lot

1:47

of friendship bracelets for what event

1:49

in particular. Ah, yes, this is

1:52

for Taylor Swift's epic concerts isn't

1:54

And. Yes, exactly. So basically I

1:56

wanted. To buy some of these for

1:58

an upcoming. Events. That I might

2:01

be heading hands. I'm going to

2:03

make you by the specific arrives

2:05

so my wife is going to

2:08

be very confused when this sets

2:10

of five thousand plus beads said

2:13

may seem friendship bracelets arise and

2:15

should arrive by tomorrow. If I

2:17

order within the next eight hours

2:20

it says and it costs nineteen

2:22

pounds, ninety nine or twenty five

2:24

is stars. I am ordering what

2:27

looks like exactly the same thing.

2:29

Same. Colors will be the same,

2:32

less is and twine and status.

2:34

It is significantly movie just about

2:36

eleven thousand feeds. It costs sixteen

2:39

dollars and twenty nine cents which

2:41

is about twelve pounds. Say it's

2:43

sixty percent of the prices. Doubled

2:45

the beads Roughly estimated delivery service

2:48

between mocked said he'd and most

2:50

sensitive to save up said he

2:52

weeks from today. So we

2:55

keep this race else. Are you ready

2:57

to submit your order As door at

2:59

a case? So I had by now

3:02

three two One Submit. Our eyes. My.

3:07

Friendship bracelet kids maybe more beads

3:09

so less money. That. Because

3:12

it's from Tv is elusive straight from China

3:14

where it was made. So. While.

3:17

I wait. Okay, it is Friday

3:19

eight of months and I am pleased

3:21

to report that mice friendship bracelet making

3:23

kiss has arrived from Amazon. Here it

3:25

is in all it's glory. I'm not

3:28

sure exactly what a minute do with

3:30

about it's have over in Washington. I'm

3:32

guessing. Endless updates and team is about

3:35

the status of my packets telling me

3:37

what it was, tax cuts, the airport

3:39

was on a plane of play customers

3:41

and so on until about a week

3:44

after I he clicks by. And

3:47

k it is March fourteenth,

3:49

Seven pm and. I think

3:51

might see new order has

3:53

just arrived. Who

3:56

says? Those right?

3:59

right? He may may be

4:01

slower than Allison, but american said seem

4:03

to mind. The. Appeal of

4:05

more cheap south has people turning

4:07

to the app in droves so

4:10

we'll see me change the course

4:12

of ecommerce in America. You're

4:21

listening to money Talks with the Economist's.

4:23

A weekly podcast on the markets,

4:26

the economy and the world's business.

4:28

In New York, I'm all for

4:30

with in London. I'm Tommy Dublin.

4:32

A long pro bong on my

4:34

birth. And in

4:37

today. so we'll tiny the com

4:39

a science be able to outcompete

4:41

Amazon. First. We

4:43

look at how team he burst onto

4:45

the scene and quickly had been us

4:47

gripped. She has these like let. We'll

4:49

send you know flashing stuff and oh

4:51

my god it just hits all these

4:54

pleasure centers. Then we find

4:56

out what is longer term strategy could

4:58

be. It would be foolish to think

5:01

that this is with the business models.

5:03

Been over a year or two or

5:05

three years and and finally we hear

5:07

from the both of Etsy on what

5:10

this means the his business. There are

5:12

and always will be people who compete

5:14

to sell commodity items cheaper and ship

5:16

them faster and those people are gonna

5:19

have of fight to the bottom. Item:

5:30

Hi Mike Hello Alice mouth Before

5:32

we start I think my you

5:34

owe a word of explanation were in

5:37

the world are you? I must

5:39

admit there are no good Asia Business

5:41

finance stories in Luang Prabang. A loud

5:43

i'm on boot cleave having months she's

5:46

home and reserve nine. Open the Clinton

5:48

in the podcast I have to

5:50

know about mine. sorry writing a book

5:52

months yes I am. I dunno the

5:55

resentments and it. I will be back.

5:57

Seen an O B C My

5:59

commitment. Money talks know so few

6:01

pounds that you haven't actually missed me

6:03

on any upsets His. Face. You

6:06

just have a beer. The Andes up

6:08

rightly time in a nice pearl. Passive

6:10

Wow. This is a a good Paul

6:12

the World's get your head down. The

6:14

air quality is loud. the moment is

6:16

so poor that I was in pets

6:18

very much indoors and writing it has

6:20

been a good discipline process quite well

6:22

lol. Use of the beavering away on

6:24

your book tabun I have been upset

6:26

all sides antics how might the dying

6:28

to find out how your week has

6:30

been now that you're the proud. Owner

6:32

of a friendship bracelet making kits I

6:34

see me crack today than straight away

6:36

at I. Had ago making things. Ah

6:39

no no, I can't say I've been

6:41

spending a lot of time making. Friendship.

6:44

Bracelets, Or when it arrived

6:46

I did get a what's that message from

6:48

my wife who would open successes asked what

6:50

on earth is this Ah But now. unfortunately

6:52

I been too busy and the daily cut

6:55

and thrust of my job to have a

6:57

go at making one. Maybe. Someday

6:59

they'll give to my wife. yeah, I'm Suzy

7:01

Deliver a handmade bracelet all leader you could

7:04

make one for my He says he didn't

7:06

get a kids unless he just has one

7:08

lying around already. I wish I did consider

7:10

one for my trip to go see Taylor

7:13

Swift. Very popular with the young Swiss, These

7:15

the friendship bracelets for them. Yeah, honestly I

7:17

thought that might be a sense who? Far

7:19

I think my days of potentially owning a

7:22

D I Y friendship bracelet making kids are

7:24

behind a while. You're right, I know what

7:26

you missed out on my middle of his

7:28

spine. Of Beads isn't just because you're

7:30

going to a certain comfort yourself. Is

7:33

it Alice? We had a a bit

7:35

of an experiment that we had to

7:37

do related to this week's show Yes,

7:39

exactly. Say this week we're talking about

7:41

the Chinese ecommerce site teenager or today's

7:43

as I hear it's now a soft

7:46

and call itself it America and just

7:48

every year ago, no one had really

7:50

even heard of it and now it

7:52

seems to be all over the place.

7:54

Cheaters, an online retailer and said policy

7:56

Marketplace much like Amazon but on steroids.

7:59

And I said taking. Americans

8:06

watching the Super Bowl last month will

8:08

be familiar with is catchy. Keep. It

8:14

from a Tv as a played three. Times

8:16

during the game. And face in

8:18

the comfort afterwards. It. says

8:21

an automated supper dancing. Through

8:23

her Cia world. Buying. Everything

8:25

her heart desires. And tanning

8:27

each seen a bright orange. the process.

8:30

Or. The price tags on the ten dollars.

8:33

And then says this

8:36

promise. Self

8:41

like a billionaire. Team

8:46

is passed out tens of millions of

8:48

dollars on the Thirty Second ad swamps

8:51

and a bunch of coupons and giveaways

8:53

tied to the Superbowl. It's part of

8:55

an aggressive marketing stress see the Team

8:57

is is perceived. Since it was launched

9:00

in America in September, Twenty Two Two

9:02

Two and It's Working Female became the

9:04

most downloaded free. App in the Us

9:06

last year. A lot of people

9:08

I talk to are talking about Teemu oh

9:11

the in a like I just went on

9:13

this site I just bought all of this

9:15

stuff when he will listen is a history

9:17

professor at. Rutgers University Camden. an

9:20

author of crap a history

9:22

of cheap South America by

9:24

complimented. A woman on her half the

9:27

other day and she's like oh my

9:29

gosh, I got it on Teemu! You

9:31

have to go check out this site

9:33

For thirty dollars I got this whole

9:35

box of half since she went on

9:37

and on and on. Open Up! The

9:39

team is up and it off as

9:41

a month of random unbranded assessment shirts.

9:43

next who are planning officer next to

9:45

a nonstick baking sets. Next was self

9:47

cleaning brush. Feel pet cat and

9:49

all for rock bottom prices. You

9:52

can just scroll and scroll a

9:54

scroll like you with scroll tic

9:56

toc her instagram so it seems

9:59

designed to. Take advantage of

10:01

the social media habits that

10:03

we've developed. The cheapness and

10:05

the variety to gather creates

10:08

a consuming environment where you

10:10

just wanna buy stuff. How

10:13

is it all so cheap? Teammate

10:15

business model is shipped directly from

10:17

factories in China Brothers and holding

10:19

things in warehouses in the Us.

10:22

As Marx me like a Us internet

10:24

analysts it's own steam explains. They

10:27

really haven't stepped in to kind

10:29

of building out Us Logistics Fulfillment

10:32

Distribution Centers successor which as we

10:34

know from Amazon is incredibly expensive

10:36

but in exchange for you effectively

10:38

do not guarantee when that the

10:41

product or the package gets delivered,

10:43

but maybe the product comes in

10:45

one to two weeks versus one

10:47

to two days sending things this

10:49

way. Also been supplies listed on

10:52

t be to take advantage of

10:54

the Us rule on imports packages

10:56

sent directly. To customers and valued

10:58

and eight hundred dollars can enter

11:00

the U S duty free and

11:02

with the scrutiny from customs. Team

11:08

is owned by Pdt the group

11:10

behind the Chinese online something Giants

11:12

pin do a duet. The.

11:14

Model The Works Insider which the side

11:16

is replicated in America. Is

11:19

to make something a game for

11:21

customers Play Bay has ingeniously sort

11:23

of game I it seems has

11:25

these like roulette wheel thin you

11:27

know flashing stars and oh my

11:29

god it just hits all these

11:31

pleasure centers. Time as can't down

11:34

the seconds until sale ends. There were

11:36

lightning deals and roulette wheel. Here's

11:38

your fists. The more your fist growls,

11:40

the closer you get your desired reward.

11:43

Customers can winfrey things like he

11:45

be a virtual tag, assists allies,

11:47

or tending to. A virtual farm.

11:49

I have worn a bunch of free

11:52

stuff. I mean a whole bunch of

11:54

free stuff influences that enthusiasts are lining

11:56

up on the cheap and take them

11:59

channels. Talk. the hacks that seem

12:01

to guarantee an endless stream of free

12:03

stuff to your door. I've been getting

12:05

these orange Teemu packages twice a week

12:07

and it's to the point where I

12:09

don't even know what's inside these things.

12:11

But all those freebies are costing PDD

12:13

dearly. Bernstein analysts in

12:16

China estimate that PDD is currently losing

12:18

around $10 per item sold in America.

12:21

Here's Mark Schmuelick again. The

12:24

way to think about the economics

12:26

for Teemu is they'd certainly lose

12:29

money on the very first sale and

12:31

the first download. But the idea being

12:33

is that they are acquiring you as

12:36

a valuable repeat customer and they'll eventually

12:38

break even and then start to profit

12:40

off of you the more frequent purchases

12:42

that you do make. Goods

12:45

may also come at a high ethical cost.

12:48

The US Congress report criticized the company,

12:50

saying there was an extremely high

12:52

risk that its supply chains are

12:54

contaminated with forced labor. Products

12:56

from China's Xinjiang province, which abandoned the US

12:59

over concerns they're made by the forced labor

13:01

of the Uyghurs, are the main

13:03

concern. In a statement, Teemu

13:05

said the allegations were completely ungrounded.

13:08

We strictly prohibit the use of forced, penal

13:10

or child labor and employment by all our

13:13

merchants and suppliers must be voluntary. Our

13:15

current standards and practices are no different

13:17

from those of major US e-commerce platforms

13:19

such as Amazon, eBay and Etsy. Still,

13:23

the company has clearly ruffled feathers among

13:25

US lawmakers, who have just

13:27

passed a bill which might ban another successful

13:30

Chinese app, TikTok. But

13:34

for now, Teemu is quickly making

13:36

inroads. It has already gained around

13:38

a 1% share of America's

13:40

e-commerce market. And

13:43

that is a huge stride for a new entrant

13:45

to have made in just over a year. So

13:52

that's the story of Teemu. But

13:55

it's not the only Chinese e-commerce giant trying to crack the US

13:57

market. There's a lot of money in the market. There's a lot

13:59

of money in the market. Another tree company called

14:01

see In that's been attracting similar attention.

14:04

She has been around longer and six is

14:06

mainly on sauce fashion rather than the and

14:08

podium of everything The team he tapes to

14:10

be both companies have a direct from China

14:13

business model that shaken up the U S

14:15

E commerce lock it. To find out more

14:17

about this Sg and the impact it's having

14:19

on existing he commented america. I. Speak

14:21

To Michael Morton. He's. A senior

14:23

research analysts and of such from most it

14:26

nice Anson. Hi

14:31

Michael wasn't the money talks I have

14:34

pretty be sales team is has been

14:36

on something off and advertising blitz recently.

14:38

I detected lot of attention set aside

14:40

ads it ran during the most recent

14:42

super and that was probably the first

14:44

time I really became aware of the

14:46

platform. So what is this thoughtful but

14:48

what? does it? Tried to do it

14:50

America. It's well known.

14:53

At this point that growth has slowed down

14:55

in China. And you've seen a

14:57

lot of these China Bass players

14:59

look to the west for opportunities

15:01

to take their business model and

15:04

grow and it uses different methods.

15:06

them were used to hear something.

15:08

Must occasionally to go on. The

15:10

app with the website says Spinning

15:12

Wheels and Countdowns Frau Long that

15:14

the O S and it's heavily

15:16

promo. So as you said, a

15:18

lot of advertisements on the Super

15:20

Bowl of his growth occurs. Any

15:22

type of social media you're inundated

15:24

with Temur ads and as sir,

15:26

aggressive. Push to get a foothold

15:28

into these western markets. And what

15:30

is the real appeal but then begin

15:32

to consumers over other Big Eat or

15:35

Mr Holmes that people would ease like

15:37

out of it. Why is it that

15:39

someone would get a teenage Rothys enough

15:41

recall the site their one simple worse

15:43

price. The discounts or stream

15:45

it's a fraction of what you

15:47

see. We've published some research showing

15:50

the product overlap Amazon and and

15:52

Seats and E Bay and depending

15:54

on the product and the category,

15:56

they can be two to four

15:58

times as x. On

16:00

the domestic website and really what have is

16:03

it's it's descent or mediating. A

16:05

distribution platform and camera work

16:07

directly with the manufacturers. Buys

16:09

large quantities of units from

16:12

a toy manufacturer base in

16:14

China and then posted on

16:16

the website at dramatically discounted

16:18

price. When. You go in, you

16:20

buy it since it directly to you

16:23

and an individual package. It avoids his

16:25

whole stuff where it sits in an

16:27

Amazon says Selman center and then you

16:29

also pay much higher commission. take great

16:31

revenue share whatever the I said the

16:33

terminology as by each individual companies. so

16:35

and as such a relationship between you

16:37

and the manufacture as a purchaser with

16:40

know and I'll send the in between

16:42

you other than ten are taking a

16:44

very very tiny sliver. A gay couple

16:46

of reasons why signal for that kind

16:48

of very the tested price. But

16:50

obeyed. Aggressive. Yeah, because you can wait. It

16:52

is Navy unsustainable. Or do you think that? that's. At

16:54

a price differential can carry on. Yet.

16:57

The important thing to emphasize when

16:59

talking about Tamil and Pt the

17:01

in general and also seen these

17:03

are highly secret is companies they

17:06

don't play golf, The financials as

17:08

Tamil on the earnings call them

17:10

might make one or two comments

17:12

and the comments are effectively we

17:14

don't care about unit economics right

17:17

now, we just wanna show everybody

17:19

the Tdd experience so there's really

17:21

no way to cut it at

17:23

this moment that the business model

17:25

they're operating in. Is profitable. They

17:28

spend an enormous amount of money on

17:30

a per customer bases to get you

17:32

onto the platform and then they're putting

17:34

these really cheap discounted goods on jets

17:36

flying around the world and then by

17:38

the him into the Us distribution system.

17:41

So they're losing money. But it would

17:43

be foolish to think that this is

17:45

what the business models gonna look like.

17:47

A year or two or three years.

17:49

Somehow they pivoted their strategy and China

17:51

and it is not a static thing.

17:53

Expect them to try to grow the

17:56

user base and. In Chains. Pricing.

17:58

Offering. Can. I.

18:00

Also, have not heard that much about

18:03

Pdt before. Genius At the same say

18:05

in China: How dominant is it? How

18:07

successful. As it's and what is that model

18:09

look like in China is as successful Hear

18:12

what what is obliged he refused other like

18:14

a. They've done a

18:16

really impressive job teaching market

18:18

sir. Over. The years and. A.

18:21

Red Someone else referring to Pdd

18:23

always the David in the David

18:25

versus Goliath stores in China the

18:27

absolute down and powerhouses Alibaba and

18:29

Jd with their different platforms and

18:32

years ago as lot of complaints

18:34

about counterfeit goods from like western

18:36

companies are being sold on Alibaba

18:38

and Alibaba kickers merchants off at

18:41

a very close overlap and time

18:43

Pdd sprung and that says a

18:45

lot of merchants landed on T

18:47

V D and they have a

18:50

unique business. Model is a lot

18:52

of a group. Buying were few

18:54

and I were friends and we

18:56

wanted to buy twenty wife undershirt

18:58

speakers. Huge discount by Together and

19:00

that would see early strategy at

19:02

download. Zebra uses on with platform

19:04

and critics from the outside or

19:07

send their spending too much and

19:09

marketing this doesn't make sense, this

19:11

isn't sustainable and then they pivoted

19:13

and they started selling items on

19:15

their race or out of nowhere.

19:17

They took market share from what

19:19

was viewed as is unassailable. Giants

19:21

so when you're now. thing about this

19:23

in the western version the during the

19:26

strategies that looks crazy. But.

19:28

They could change. Of the see,

19:30

the price is going to be very

19:32

appealing. Such displays like earnest and things

19:34

like to believe. That. Every key

19:36

to that they're offering. So if you're sipping

19:38

everything from sort of local benefactors inside, I

19:41

have a really good be able to compete

19:43

with Amazon or something like that. This

19:46

is the great question and what

19:48

we've seen so far as the

19:50

smaller players were at their. Platform.

19:53

Is Not. Offering.

19:55

next day for some anti first same day

19:57

and some york city said amazon And

20:00

I'm speaking about Etsy. They've had

20:02

a problem, right, where what's really

20:04

important to emphasize, Teemu is not just

20:07

offering stuff at cheap prices. It's

20:09

bidding up the cost to

20:11

acquire customers for everyone. Etsy's had

20:14

a real problem acquiring customers and

20:17

getting traffic in the search auction on Google. You

20:19

go in and you say you want some winter

20:21

mittens. And all of a sudden,

20:24

Etsy was paying a certain amount of price for

20:26

that impression at the top of Google search. Now,

20:28

Teemu has bid up that cost

20:30

so much that it's uneconomical for

20:33

Etsy to do it. And then when you

20:35

look at Amazon, who is acknowledged, pulling back

20:37

on some of this variable spend as well,

20:39

and they didn't grow advertising spend year over

20:42

year. It goes back to

20:44

that view, wow, they are impacting

20:46

everyone today, some more so than

20:48

others. A smaller Etsy who can't

20:50

offer you the same the next

20:52

day and is feeling it at

20:54

the top of their funnel. They're in the

20:56

crosshairs right now trying to grow through it

20:58

and find other ways to acquire customers. Amazon

21:01

is really successful in growing their non discretionary

21:03

business right now. And these

21:05

high frequency items Amazon is forming really

21:08

well on. And you have

21:10

this level of customer lock, right? Where

21:12

for your daily household type needs, not

21:14

the impulse of buy, you just open your Amazon

21:16

app. You seek and destroy, you type in the

21:19

search bar, you buy, it shows up at the

21:21

house the next day. And

21:23

Amazon has continued to aggressively push

21:25

Sam and next day to kind

21:27

of try to expand that moat

21:30

against Timu and Chin. They lowered

21:32

their fees for the, they call

21:34

it referral fee, you

21:36

and I would just call it take rate for

21:38

apparel goods. And that's where Chin is

21:40

growing aggressively and Temu is as well.

21:43

Two thoughts, make it more profitable for the

21:45

merchants or allow the merchants to

21:47

cut their price and be more cost competitive.

21:50

I love to you describing me

21:53

buying laundry powder as seeking and

21:55

destroying my purchase. So

21:57

without you've met in my household. Michael

22:00

did you see what's going to? Save has been really

22:02

fast as a conversation I guess. We.

22:08

Reached out to cheat me for a

22:10

sponsor Some of the claims they made

22:13

about the company On the transparency point.

22:15

a spokesperson said that Pdt believe them.

22:17

Responsible and transparent corporate governance. And

22:19

it hits all disclosure obligations mandated

22:21

by Nasa listing requirements. On

22:24

the matter of counterfeit goods, they said

22:26

Tv has strict policies against counterfeits at

22:28

a full of them through a combination

22:30

of this thing, proactive monitoring and reporting

22:32

and enforcement. So that's what Tv has

22:34

to say. And listening to what we've

22:36

had say far. I think it's. Very

22:38

clear that Tb is making

22:40

this very aggressive play into

22:42

the American ecommerce. Markets.

22:45

And see it coming into this at the sage. My

22:47

assumption was it's already very saturated

22:49

space. It's very dominated by these

22:51

to seek incumbents who are already

22:54

had a very. Competitive. And actually

22:56

I've been surprised by how

22:58

successful tt his didn't even.

23:00

Though it's just every year in business.

23:02

But Tom Mike, what about you both?

23:04

would you make of Tv? Yeah, I

23:06

mean it's fascinating that I'm one of

23:08

the things that's really jumped out at

23:10

me is just how much money the

23:12

company is passing out on this growth

23:14

poor. So those Super Bowl ads were

23:16

about seven million dollars each and it'd

23:19

five of them. Apparently it spent two

23:21

billion dollars on ads just with metre

23:23

last year which is huge I basically

23:25

goes straight to met his bottom line

23:27

and it's price to n is most

23:29

boys around about forty. At the moment

23:31

so that eighty billion dollars of market

23:33

value for matter actually in it's latest

23:35

earnings met a cold out Chinese advertises

23:37

as a big driver of it's growth

23:40

and is Michael said all that spending

23:42

may make things difficult for smaller a

23:44

com as companies that are competing for

23:46

visibility on some of those add pot

23:48

forms. Filthy. Was interesting to

23:50

me is that this strategy of you're

23:52

throwing money at rapid expansion has gone

23:55

out of fashion in Silicon Valley as

23:57

interest rates have gone up and investors

23:59

have become. More. Focused on profitability,

24:01

but mean, apparently Pity Day hasn't gotten

24:03

that memory. And. So. Yeah,

24:06

this is a making me think

24:08

about sort of ecommerce in Southeast

24:10

Asia. Teemu isn't a huge player

24:12

in Singapore yet, but the model

24:14

does sound a lot like some

24:17

of the things you can get

24:19

from some of the major Southeast

24:21

Asian retailers. Your showpiece, your lozada

24:23

as which slug much more directly

24:25

done this sort of American and

24:27

European options and Amazon in particular

24:30

insert the sort of Chinese manufacturing

24:32

nexus A When I lived in

24:34

Hong Kong, See the was how

24:36

bout of is the Ali Baba's offering

24:38

which was even more plugged in. Not

24:41

only could you by basically anything under

24:43

the sun France and Price has used

24:45

by industrial society if you wanted a

24:47

massive pile of steel rebar, you have

24:50

said it out of the aisle. I

24:52

believe someone that she bought slain on

24:54

there was a similar family was the

24:57

sort of a one stop shop but

24:59

there's an interesting element hit to when

25:01

it comes to the conversation about the

25:03

sort of Us China relationship. In

25:05

particular, a lot of larger Chinese

25:08

products are faced with American Paris

25:10

now and so on the Trump

25:12

Administration which has never been repealed,

25:14

but almost everything so by a

25:16

company like P Move or or

25:18

at least the vast majority what

25:20

they sell come in under a

25:22

hundred dollars, which is the level

25:24

covered by water cooled de minimis

25:26

rules. That means yeah, did I

25:29

just not subject to these terrorists

25:31

and the growth of packages in

25:33

that category as absolutely exploded So.

25:35

Does American legislators very upset about that? And

25:37

so with this whole business model I do

25:39

feel like his little bit of a watch

25:42

this space phenomenon and that we may have

25:44

the sort of rug pulled out from under

25:46

us. Yes well yes all makers are not

25:48

the only people who have noticed he these

25:51

explosives grace in us. We are about to

25:53

hear from the boss of Etsy about how

25:55

he is dealing with the increased. Cost

25:57

of advertising to attract new car.

26:00

But before we do that, we want to let you

26:02

know that we have made this episode of Money Talks

26:05

available to listen to for free. To

26:07

listen every week, you'll need a subscription

26:09

to The Economist or to Economist Podcasts

26:11

Plus. To subscribe, just search

26:13

Economist Podcasts or click the link in the

26:15

show notes. Ryan

26:19

Reynolds here from IntMobile. Ryan

26:21

Reynolds here for Mint Mobile. With the price

26:23

of just about everything going up during inflation,

26:25

we thought we'd bring our prices down. So to help us, we brought

26:27

in a reverse auctioneer, which is apparently a

26:29

thing. So to help us, we brought in a reverse auctioneer, which is apparently a

26:31

thing. Mint Mobile unlimited, premium wireless.

26:33

How did you get 30-30? How

26:35

did you get 30-30? How did you get 30-30? How did you get

26:37

30-40? You bet you get 20-20, you bet you get 15-15, 15-15, just

26:39

15 bucks a month. Sold! To

26:55

hear more about the impact on rival e-commerce

26:57

firms, I spoke to Josh Silverman,

26:59

who is the CEO of Etsy. And

27:02

I was particularly keen to talk to Josh

27:04

now because last month, Etsy added Mark Steinberg

27:06

to its board. Steinberg

27:08

works for activist investor, Elliott Investment Management,

27:10

which has taken a 13% stake

27:13

in Etsy and now, with Steinberg on the

27:15

board, wants to increase the value of the

27:17

company. Hi,

27:23

Josh. Welcome to Money Talks. Thank you for having me.

27:25

For the uninitiated, could you quickly explain

27:28

what kind of platform Etsy is? You

27:30

know, who sells goods on Etsy? What

27:32

kind of goods are they? And how

27:34

do you make money from transactions that

27:36

take place on your site? Etsy

27:38

is a marketplace for things that

27:40

are made or designed directly by

27:42

the seller or vintage items. We

27:45

have about seven million sellers around

27:47

the world and about 92 million

27:49

active buyers who bought about

27:52

$12 billion of products

27:54

from our sellers in 2023.

27:59

And What's allowed on the Internet? the

28:01

merchant marketplace or items that are made

28:03

directly by the seller, items that are

28:05

designed by the seller and made and

28:07

very close partnership with Us partner, or

28:09

things that are over twenty years old.

28:12

And terms of our economic model, it

28:14

costs twenty cents to list an item

28:16

on Etsy and six and a half

28:18

percent commission when that I themselves and

28:20

your description of the kinds of things

28:22

that people buy and sell on Etsy.

28:24

saying they have had made things all

28:26

things they by sellers and it's vintage

28:28

items they don't really the kinds of

28:30

things like they're looking for on other

28:32

com a stop on like Amazon or

28:34

you do some of the new entrants

28:36

that we're talking about in this episode

28:38

like teenage So how do you compete

28:40

with other a common platform with we.

28:42

Don't think handmade is it's on market

28:44

is a differentiate within a bunch of

28:47

other markets. So the largest category of

28:49

items for sale on Etsy, for example

28:51

Us home furnishings. So very commonly you'll

28:53

find things like throw pillows or flatware.

28:56

It's just gonna be a throw pillow

28:58

that made with beautiful textiles fi a

29:00

seller who may be designed and made

29:03

that fabric themselves. So. What

29:05

kind of effect? On your business

29:07

has the entrances to new players

29:09

like Keanu as. I. Think the

29:12

entrance of the brand new players from

29:14

Asia has been overstated. On Etsy, they

29:16

have gone from zero to you know,

29:18

well over ten billion dollars for sales

29:21

in a short amount of time that

29:23

obviously had to come from somewhere, and

29:25

I think broadly quasi commerce everyone is

29:27

feeling of a little bit. I think

29:29

the baker narrative right now is just

29:32

a flight to value. I think that

29:34

the rising cost of the Central's in

29:36

particular food prices are shocking to buyers

29:38

in places like the Us, the Uk

29:40

where there's. So much higher than they

29:43

were before. Rent or your mortgage is

29:45

so much higher because of rising interest

29:47

rates. And so people are really in

29:49

a mode in this part of the

29:51

economic cycle where when they're buying discretionary

29:54

items, the looking for value, so I

29:56

feel like that's a sign of the

29:58

times. However, broadly speaking, There are

30:00

and always will be people who

30:02

compete to sell commodity items cheaper

30:04

and ship them faster. And those

30:06

people are going have a fight

30:08

to the bottom because they're effectively

30:10

just selling commodities. We think what

30:12

we do it at sea is

30:14

really different and really important for

30:16

every time that someone was buying

30:18

something very disposable. There are many

30:20

times in their life when they

30:22

want something that means more than

30:24

feel special. To them. And

30:26

so we think we do something

30:29

very important and very different. And

30:31

the more that Commodities commerce prose,

30:33

the more people crave an alternative

30:35

to that. Okay and you

30:37

talked about Essential Race the boss of

30:39

in Quality Goods being why you think

30:41

the impact since he let players like

30:44

Keanu might be said of most a

30:46

Keats but we did hear from i

30:48

can see my list earlier and say

30:50

and he was talking about the cost

30:53

of marketing being a set of really

30:55

fiercely competitive field at the moment so

30:57

could you explain what you're seeing in

30:59

terms of these costs and as team

31:01

you had an impact on it that

31:04

get some of the new and friends

31:06

are spending. In marketing channels in

31:08

ways that don't appear to be

31:10

our allies focused. So it does

31:12

appear that some these new entrants

31:15

are having an impact on the

31:17

cost of marketing generally, particularly in

31:19

the long tail of the auction

31:21

in Google. That. Said as

31:23

he drove more sales from our performance

31:26

marketing and Twenty Twenty Three than we

31:28

did and Twenty Twenty Two So we

31:30

are still able to adapt and we

31:33

shifted some of our budget from performance

31:35

marketing to television which is also been

31:37

very effective for us. So our strategy

31:40

it at sea is not growth at

31:42

all cost. We believe in profitable growth

31:44

and reinvest very significantly behind our solar

31:47

success, but we do so always with

31:49

an eye to what a sustainable and

31:51

profitable for the long. Term. Spending.

31:54

On add to the way that is not consistent

31:56

with our allies, very diplomatic and say we have

31:58

no idea how that Hey Sarah! for these

32:00

ads. Just for those who

32:02

aren't super familiar with Google Auctions and how

32:05

this fitting process works, say I search

32:07

for, you know, a scarf or

32:09

something, what is it that you're competing with

32:11

Teemu for so that I see your scarf

32:13

instead of theirs? Yeah, so there's

32:15

going to be hundreds and hundreds of different

32:18

players who, for a keyword like scarf, who

32:20

might have scarfs for sale, and Google's got

32:22

to decide which item is

32:24

going to get clicked on, and also

32:26

how much that advertiser is willing to

32:29

pay per click. And so there's a

32:31

dynamic auction there where one sets thresholds

32:33

around kind of what ROI you

32:35

would need in order to be at

32:38

the top. And, you know, SC

32:40

scores are very well on quality scores, meaning

32:42

we offer something that's compelling, that's unique, that's

32:44

exciting, that buyers like, and so people are

32:46

likely to click on our ads. But

32:48

we do have an eye on how much we're

32:50

willing to pay per click in

32:52

order to make sure that that's

32:54

sustainable growth for us. Okay,

32:57

but I guess it's reasonable to potentially

32:59

think that if some of these newer

33:01

players are being aggressive in that form

33:03

of marketing, that that channel of traffic

33:05

for Etsy might have shrunk a little.

33:08

Are you hearing anything from your Etsy sellers about

33:10

these kinds of dynamics? Or what are you hearing from that

33:12

side of the business? You know, our sellers

33:14

aren't really talking to us about the new

33:16

entrants. And candidly, our buyers aren't either. It's

33:18

investors that are doing most of the

33:21

talking about these new entrants.

33:23

That's where 99% of the conversations we're

33:25

hearing are from the investor community ourselves

33:27

are really just focused on growing

33:30

their sales. And what they find is

33:32

that Etsy is far more effective. Many

33:34

of our sellers also market themselves on

33:36

eBay and also market themselves on Amazon

33:38

and also have a Shopify

33:40

site where they market themselves on places

33:42

like Facebook and Instagram. And what they

33:45

find is that more than half of their

33:47

sales come from Etsy. The Second

33:49

most common platform for them is the

33:51

market that they go to in person

33:54

that they sell at those weekend markets.

33:56

And Then all of those other channels

33:58

combined eBay, Amazon, Shopify, accounts etc.

34:00

make or third series to said earlier

34:02

about not doing great at all costs

34:04

and looking at i guess like other

34:07

kind says marketing channels to try and

34:09

set of grow like things like a

34:11

television which sounds it's pretty old school

34:13

I guess these days it is the

34:15

sort of major ways you can try

34:17

to compete Do is also the fact

34:19

that against some of these new entrants

34:21

or that awarded the be distressed sees

34:23

that the a we think the solution

34:25

is for as see to be even

34:27

more etsy. Keeping commerce human is what

34:29

the world needs. Gifting itself as a

34:31

huge market within just in the Us, people

34:33

spent about two hundred billion dollars on desks

34:35

and that's an expression of yourself and your

34:37

chair for someone else. You don't want to

34:40

buy a gift for someone on the cheapest

34:42

most commodities platform you want to buy it

34:44

on. Etsy is the signal it might send

34:46

to say you got a gift from team

34:48

if I'm not sure his and that one

34:50

thing that I dataset as he recently added

34:52

Marc Stein bag of Elliott's activists funds to

34:54

It's forwards and in the past week the

34:57

when out he said he thought that was

34:59

speeds a significant value. Creation of the company

35:01

so clearly he called think that piece here.

35:03

Entrance: I gotta be a fatal blow for

35:05

companies like at sea but what kind of

35:07

strategies are you that? Yeah it's and concept

35:10

with the kinds of view investors. Yes,

35:12

Oh first delighted to have marked to

35:14

board. I think he's really thoughtful, has

35:17

lot of great experience from his

35:19

work at Interest and Exposure and their

35:21

investments e Bay in other places

35:23

and really great thoughtful partners. I think

35:25

that he like we feel like

35:27

Etsy has tremendous value with the market

35:30

may not entirely be appreciating today,

35:32

but they well over time and that

35:34

the war there is a race

35:36

to the bottom and commoditized commerce. The.

35:38

More people will crave an

35:41

alternative. Eighty percent of sales

35:43

on Etsy happen. Because.

35:45

people come to add see through free

35:47

channels but half hour traffic they just

35:49

take been dubbed dub dub that etsy.com

35:51

or they launch our up or they've

35:54

come to our emails they went to

35:56

google and typed in at sea and

35:58

navigated there are very few brown that

36:00

are important enough to people, often enough

36:02

to people that they remember those brands

36:04

and come to them. And that is

36:06

incredibly valuable. And we think over the

36:08

coming years, the opportunity for

36:11

us is absolutely enormous. We think we're gonna

36:13

be one of the few places that

36:15

people really remember and come to

36:18

again and again. And there will be

36:20

some very cheap, very commoditized places that

36:22

people go to a lot. And we

36:24

expect and believe we're gonna be the

36:26

leading alternative to that. Josh Silverman, thank

36:28

you so much for joining Money Talks. Thank

36:31

you. So

36:36

Tom, Mike, which way do you

36:38

think the future is heading? Are we buying

36:40

handmade on Etsy or bulk buying the next

36:43

50 birthday presents for friends on Teamu? Well,

36:45

I think I have a kind of personal

36:47

and a professional take on this. I mean,

36:49

my personal take is that I think the

36:52

world probably needs less junk, not more of

36:54

it. I mean, if we just look at

36:56

the type of ultra fast fashion that companies

36:58

like Teamu and Sheena Peddling, huge amounts of

37:00

that is just worn a few times and

37:03

then discarded. So the world already produces 92

37:05

million tons of

37:07

textile waste every year, which is a lot. But

37:10

ranting aside, there is an interesting

37:12

business strategy question here around which

37:15

of the models in e-commerce will

37:17

prevail. So Michael Porter,

37:19

who's a famed business professor, argued

37:21

that companies could have one of

37:24

two sources of competitive advantage, either

37:26

be the lowest cost or be

37:28

differentiated. And both of those can exist

37:30

in a market. So even if Teamu is

37:33

cheaper than everyone else, Amazon can

37:35

differentiate on convenience and range.

37:37

Etsy can differentiate on sort of

37:39

artisanal wares and all those businesses can

37:42

coexist because different customers want different things

37:44

at different times. And very few markets

37:46

are genuinely kind of winner takes all.

37:49

What I think is still kind of unknown

37:51

here is what are the size of those

37:53

different segments? So Amazon in the last few

37:56

years has made a huge bet on convenience

37:58

with all of its investments network

38:00

and it'll be interesting to see how wise

38:02

that actually turns out to be over the

38:04

long run. Yeah I think Tom's absolutely

38:07

right there. I enjoy that there's a

38:09

service I can go to for really

38:11

quick fulfillment and one which may be

38:14

less time sensitive but I get a big

38:16

pricing advantage. It seems good to me that

38:18

both of those exist actually unlike Tom. I

38:20

quite like being able to get loads of

38:23

cheap junk from the internet. You're the problem.

38:25

Yeah I am the problem and unless somebody

38:27

stops me with something like a carbon tax

38:30

I will simply never stop. But I

38:32

do find it interesting putting this individual

38:35

corporate story in the macro perspective.

38:37

That seems fascinating to me as

38:39

well because Teemu is

38:41

basically offering something at these prices

38:43

that simply can't be done not

38:46

just in the United States or

38:48

in most of Europe but because

38:50

of China's manufacturing capacity. It can't

38:52

be done basically anywhere else in

38:54

the world and it's been interesting

38:57

in particular because until fairly recently

38:59

these e-commerce worlds were sort of

39:01

hived off from each other. Amazon had

39:03

really no impact in China and honestly

39:06

in large parts of Asia it's second

39:08

or third fiddle it's sort of gone

39:10

back and forth in different markets and

39:12

the big Chinese e-commerce companies had almost

39:14

no impact in the US and so

39:16

it's really interesting to see that changing

39:18

a little bit given that the level

39:20

of rancor between Beijing and Washington has

39:23

really gotten worse. And yeah I do wonder

39:25

whether this is going to end up as

39:28

another trade war casualty at some point and

39:30

whether that's sort of extremely

39:32

efficient for whatever other ills it

39:34

has that extremely efficient Chinese manufacturing

39:36

is still welcome in major product

39:38

markets in the US. Yeah I

39:40

think that's right. I agree with

39:42

what you've both sort of alluded

39:44

to which is it's interesting

39:46

that there is this sort of new e-commerce

39:48

model that does seem to offer something unique

39:51

you know these sort of really rock bottom

39:53

prices for a trade-off

39:55

in terms of fulfillment time and I guess

39:57

it's sort of interesting to think a little bit

39:59

about how much of that price differential could

40:01

endure. So there have been a couple of

40:03

things people have said this episode that have

40:05

basically been euphemisms for my God, they're throwing

40:07

a lot of money at this. We had

40:09

one analyst tell us that PDD had said

40:11

in its earnings call that it wasn't focused

40:13

on a unit economics at the moment. We

40:15

had some of the box of Etsy that

40:17

it's spending on Google search ads in a

40:19

way that is not consistent with ROI. And

40:22

it does really remind me of my experience

40:25

with Uber or sort of any of those

40:27

big tech platforms sort of a decade or

40:29

so ago, where I was like

40:31

calling cars or getting food delivered for

40:33

just impossibly low prices. And then, you

40:35

know, once they gained market share, obviously

40:37

we found out where the sort of

40:39

actual equilibrium profitable price for that kind

40:41

of business is. So I

40:44

guess right now the Teemu

40:46

proposition is very compelling from a price

40:48

perspective. I wonder whether it's maybe slightly

40:50

less compelling in the future, but I

40:53

guess we'll see because it's already seen

40:55

to have captured the ire

40:57

of a lot of US lawmakers. And

40:59

it's not a particularly friendly time for

41:02

big Chinese companies in Washington. Making me

41:04

reminisce there. Those really were the days.

41:06

I mean, those zero interest rates, they

41:08

made houses very expensive, but I certainly

41:10

did take a lot of cheap car

41:12

rides. I will say that. The number

41:14

of free burritos I got essentially paid for

41:17

by the Saudi pension fund. What

41:19

a time to have been alive. That's it.

41:21

Thank you, Ben Bernanke. But

41:24

with that, it's probably time to pivot to

41:26

our stats of the week. So who wants

41:28

to go first? I'm happy to kick us

41:30

off. So my stat of the week is

41:32

16,000. And

41:35

this is now the number of people

41:37

that work at McKinsey according to an

41:39

anonymous memo that was circulated recently purporting

41:41

to be written by a group of

41:44

alumni at the firm who were complaining

41:46

about its overexpansion over the last

41:48

few years. So that headcount figure is apparently

41:50

up by 60% over

41:52

the past four years, which is about twice

41:55

as fast as the company has grown its

41:57

sales by one estimate. So McKinsey's been on

41:59

this... a hiring rampage and the market

42:01

is starting to slow down now and it's really

42:03

beginning to feel the effects of that. I

42:06

may have gotten out of consulting just at the right time. To

42:09

the booming journalism market. I

42:14

will jump in with my stat of the week which is

42:16

6,236. It

42:18

is a number of days and it is

42:20

the number of days between March the 19th when the Bank

42:27

of Japan raised interest rates and

42:29

the last time it raised interest rates

42:31

in 2007. And

42:35

of course, just my luck that I managed to

42:37

be away on leave when that happened. Something I've

42:39

been waiting for for the best part of a

42:41

decade. But there you go. You can't win them

42:43

all. I swear this always happens.

42:45

The most exciting things on my turf always

42:48

happen as soon as I've sort of touched

42:50

down in a sunny, warm climate. But they

42:52

might raise interest rates again, Mike. Maybe you'll

42:54

be around for the next hike. Yeah. Historically,

42:57

the interest rate cuts have been slightly more regular.

42:59

So I may at least get a few more of those.

43:02

Well my stat of the week this week is 22,370.

43:08

And that is the number of crows

43:11

that now live in downtown

43:13

Portland in Oregon. And

43:15

that is apparently twice as many as the number

43:17

of people that live in that area of Portland.

43:20

And this is something of a sort

43:22

of crow-splosion or a crow-pocalypse. We

43:26

usually think of urban areas as

43:28

destroying habitats for birds and being

43:31

generally hostile to animals and nature.

43:33

But apparently, urban areas like downtown

43:35

Portland are very habitable for crows

43:37

in particular. There's lots of food.

43:39

They don't need as many trees

43:42

to nest in and that kind

43:44

of thing. So apparently

43:46

there's a bit of massive explosion in the

43:48

population of crows, such that there is now

43:50

two crows for every one person. Sorry,

43:53

have you lost a bet or something? Where

43:55

on earth did you get that stuff from?

43:57

What was the genesis of this? in

44:00

the Atlantic about this crow explosion. And

44:02

I clicked on it and it's one

44:04

of their stats. Wow. Maybe

44:06

that journalist lost a bet. I don't know. You're going to take it

44:08

up with them. Do

44:11

crows eat pigeons? Is there like a war

44:13

between the crows and the pigeons? The crows

44:15

are to pigeons, what Timu is to Amazon.

44:18

I'm going to use it her life. I

44:22

don't think that's true. I think

44:24

they eat grubs. I don't think they eat

44:27

pigeons. Can you imagine? Well,

44:30

with that, all that is left for

44:32

me to do is to thank Wendy

44:34

Woolison, Mark Schmulich, Michael Morton, and Josh

44:37

Silverman. And thank you for

44:39

listening to Money Talks. You can

44:41

always write to us at podcastateconomist.com.

44:44

Today's show was produced by Dan Asher

44:46

and Marie Keyworth. Our sound

44:48

engineer is Ting-le Lim and the

44:50

executive producer is Hannah Marino. I'm

44:53

Alice Forward. I'm Mike Bird. I'm

44:55

Tom Lee Devlin. And this is

44:57

The Economist. Are

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