NVIDIA Takes Off, Temu + Shein Deep Dive

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: [email protected] Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Alex Kantrowitz?

  This episode is brought to you by Genesis. What does it actually take to put Agentic AI to work across an entire enterprise? I recently spoke with Genesis chairman and CEO Tony Bates about why orchestration is emerging as a competitive advantage in customer experience and what companies need to get right in the AI era. Then I sat down with Adam Mitchell, head of enterprise business solutions at Voya Financial, to go inside a large-scale Agentic CX transformation, including the business decisions, trade-offs, and lessons along the way. You can watch both conversations now on my YouTube channel today. It's never been more challenging to get frontier compute. How do you know where to look, who to trust, or how much to pay?

• 0:43Alex Kantrowitz?

  Akash is an open cloud that provides easy access, flexibility, and peace of mind. That's how companies like Razer were able to cut their inference cost by 15 times. Visit akash.network/alex for a free consultation. That's akash.network/alex for a free consultation.

• 1:13Alex Kantrowitz?

  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 Shein and Temu. 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.

• 1:40Speaker 01

  Thanks for having me.

• 1:42Alex Kantrowitz?

  And we're also joined by Ranjan Roy, the writer of Margins. You can get it at readmargins.com. Ranjan, welcome back.

• 1:49Speaker 02

  Good to be here.

• 1:50Alex Kantrowitz?

  Ranjan, how stoked are you? This is going to be the show that we've all been waiting for.

• 1:55Speaker 02

  The Shein-Temu blowout extravaganza.

• 1:59Alex Kantrowitz?

  John, I don't think I can possibly put into words how stoked Ranjan is for this one, because...

• 2:04Speaker 01

  Well, I can tell from the newsletter just alone that this is, you know, a subject.

• 2:08Speaker 02

  I feel like a Temu notification right now. I'm so over the job.

• 2:13Alex Kantrowitz?

  Yeah, that's right.

• 2:13Speaker 01

  Well, just one more button. Press one more button, advance through one more game, recommend to one more friend, and it's all going to pay off.

• 2:20Alex Kantrowitz?

  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, uh, make the, the, the show so great. And you're here, which is awesome. And last week, for those who listened, we went into Shein a little bit. Um, 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, uh, 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 Nvidia. Okay, Nvidia had basically a historic, not even basically, a historic quarter. Um, it went up 24% on Thursday.

• 3:03Alex Kantrowitz?

  Its market cap as we talk is 947 million, a billion dollars. 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. Um, they have, uh, projected $4 billion more than the consensus among analysts in 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 Nvidia, obviously it's a 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?

• 3:46Speaker 02

  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 model for the Microsofts, for the Googles. I mean, right now, again, as we say over and over, ChatGPT, every query loses money. So no one has quite figured out how they're going to make money, except Nvidia. 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 like this was the most obvious

• 4:29Speaker 02

  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.

• 4:40Speaker 01

  I can't play, I can't play in the market like that because of my job. So it's all like my, my regrets are all about like calling things wrong or whatever. It's all a very silly, stupid game for me. But 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, and right away he was just like, yeah, the compute is insane. We're spending so much money on, 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, we're bleaching ahead of coral or, you know, we're like clearing an acre of rainforest. There's just so much power going into these things.

• 5:25Speaker 01

  And it was, yeah, that was, that was always going to be if this, if the hype cycle was going to continue, it was going to just result in enormous compute needs and tons of orders for Nvidia, who, you know, it, it to zoom out a little bit, this, as someone who grew up at like a time where, you know, as a teenager, you're, you're engaging in the, the processor wars between AMD and Intel. You're, you're talking about ATI and Nvidia graphics cards, which one can run Counter Strike better and all that stuff. It's wild to think that those companies, and 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.

• 6:09Speaker 01

  They just keep like, obviously they're planning deliberately. Obviously they're, they're investing an enormous amount in R and D, but like also incredibly fortunate that here comes crypto. Everyone needs Nvidia hardware. Here comes AI. Everyone needs more GPU. It's just a wild, wild.

• 6:27Speaker 02

  Electric cars right around the corner. Could need more chips as well.

• 6:31Speaker 01

  It's just.

• 6:32Speaker 02

  There's no stopping.

• 6:33Speaker 01

  Thing to me, it's still, you know, do I, am I, am I getting the, the GeForce four or am I getting the Radeon 9800? It's just like a completely different scale of thinking about this stuff.

• 6:44Speaker 02

  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 AMDs of the world, they're far, far better positioned. What, what could make them vulnerable?

• 7:03Speaker 01

  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 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, the, the sort of like, you know, large tech corporation of this era can somehow like squander an

• 7:48Speaker 01

  incredible opportunity and lead just because of the, the like strange momentum they have, the, the strange incentives of the markets and, and leadership and everything else. I suppose they, they could be exposed to that, but that's, I mean, it seems like good news for them mostly.

• 8:04Speaker 02

  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, uh, sitting pretty and then did not capitalize on it in any innovative way. Are there others that you think of?

• 8:22Speaker 01

  A much, a much smaller example, well, a, a more niche example would be Peloton, where it's like, you know, expensive product, recurring subscriptions, tons of new customers. There, there should have been a way to handle that, you know, that like, that's the kind of thing that if you, 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 a sort of a funny paradox with these companies. But yeah, Zoom, absolutely. You've got a bunch of new customers. That should be the end of the story.

• 8:55Alex Kantrowitz?

  Yeah, Ranjan just got rid of his Peloton, so perfect example there.

• 8:59Speaker 02

  I know, and I don't even, 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.

• 9:04Alex Kantrowitz?

  Wait, no, what is the Peloton rebrand? Let's just take a minute to talk about it.

• 9:07Speaker 02

  Sorry, if you, 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 working 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.

• 9:49Speaker 02

  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.

• 10:02Speaker 01

  Yeah, now they're playing against a bunch of free competitors that are fine, you know?

• 10:07Alex Kantrowitz?

  Can we go back to the Nvidia example for, for a moment? Because Sam Lessin had this really interesting thread or one of his card posts that he does talking about.

• 10:19Speaker 02

  Not quite, not quite a thread, whatever those are.

• 10:22Alex Kantrowitz?

  Yeah. 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?

• 10:38Speaker 01

  It makes, 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, in a really profound way, personal computers, desktop computers, laptop computers. They are, 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, from desktops, they have to pivot to, you know, mobile processors. As mobile processors pivot to like ARM architecture, they have to, they're then sort of ill-equipped to deal with that. If we imagine a relatively.

• 11:19Speaker 01

  Straightforward progression of AI technology, like building on the same sort of computing systems, uh, uh, maybe flowing through some of the same cloud and computing providers. Then maybe, yeah, they, they sort of, uh, they give or, or competitors are left with time to catch up. They end up in a market that gradually becomes more crowded. Um, they are sort of reduced over the long term to, to just, you know, uh, enabling computing power, uh, which if, if you leave that long enough without too much change, obviously seems kind of dangerous. But the, their story recently has also been like being well positioned,

• 12:02Speaker 01

  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. Um, 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, um, big proprietary models, the open source models, running AI, uh, uh, services locally versus, you know, uh, uh, uh, renting them from providers. Maybe we're looking at a situation in a few years where, um, Apple is in an unusually good position because their, you know, their architecture is suited

• 12:44Speaker 01

  to running certain kinds of software locally. Maybe this is another, I mean, there, there are just a lot of possibilities there, um, that I, that I wouldn't want to discount. Um, but yeah, if, if they sort of won early, then they could, they could lose it. If, 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.

• 13:06Alex Kantrowitz?

  Yeah, I had a comment that said that the CEO Jensen Huang has just been so good at getting ahead of these trends, 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, 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 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, Shein, Temu. I'm sure there are some others. John, you had a great story about Temu in particular. We talked a little bit about Shein last week, but I think to kick off this part of the discussion, why don't you talk a little bit about what Temu is and your experience with it? Because well, both you and Ranjan

• 13:51Alex Kantrowitz?

  have both ordered products from it. So would love to kind of hear how that's gone.

• 13:56Speaker 01

  Yeah, I think most people, if they're familiar with Temu, it's probably from the Super Bowl that Temu spent, I think it was 14 or 15 million dollars 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 US 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 the 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

• 14:38Speaker 01

  of originated with by 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 Temu. 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 Shein, which is pretty similar, or Wish, which we might remember from a few years ago. But anyway,

• 15:18Speaker 01

  it's 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.

• 15:33Speaker 01

  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. 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, 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, that marketing spend is paying off. It's a place where you can buy not everything, but a lot of things.

• 16:18Speaker 01

  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. It's, you can sort of think of it as, as like a very, very large discount version of Amazon, where products from the cheaper tier and some brands that, that are popular on Amazon, on the cheaper side of things, mostly sourced directly from China, are, are really well represented. But if you go looking for, 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 shock, often shockingly cheap. It's super gamified.

• 17:03Speaker 01

  It's very aggressive in its, uh, 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 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 US market and dozens of others from an e-commerce company that is, that is based in China with very close relationships to Chinese merchants and, 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 the, on, on what happens.

• 17:47Speaker 01

  In China, it's it's it's sort of like, if you imagine Amazon as as you know, kind of a last mile service for for Chinese manufacturers, which in a way it it kind of is these days.

• 18:00Speaker 01

  Timo is is a kind of an attempt to to shore up the logistics on the other side to to create an experience as as close to Amazon as possible, like relatively quick shipping.

• 18:11Alex Kantrowitz?

  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 Shein, 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

• 18:52Alex Kantrowitz?

  issues here. I've read up on it. We should definitely talk about it. But it is very interesting how they're cutting out the middlemen. And it sort of leads you to believe like, have US 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 than we could have thought, especially Amazon.

• 19:11Speaker 02

  Yeah, I think the quote you had, it was like, made in China, which start what I call the 1990s, cutting out domestic manufacturing, sold by China, starting to kind of cut out domestic sellers, and now marketed by China, cutting 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 Temu or a Shein or both or all these practices, because all these companies, because they built out their supply

• 19:52Speaker 02

  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 side. 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?

• 20:22Speaker 01

  That made in China to marketed from China shift is 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 Temu versus Amazon matchup doesn't seem that intuitive if you're just using them both as an American customer. Like they're quite different. They, they, one is more of, one kind of feels like a game. It feels like, ah, 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, not in the sense that you can have whatever you want in the world instantly.

• 21:06Speaker 01

  But in the sense that you can buy things without thinking about it, without worrying about how much they cost because they're like.

• 21:12Speaker 02

  I don't actually think I, I don't think that quite hit me before. And now that makes a lot more sense. It's actually not bad.

• 21:19Speaker 01

  It's weird. I mean, you can, 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 move.

• 21:29Speaker 02

  I like it at every level, at every level.

• 21:31Speaker 01

  Incredible externalities that, you know, ripple through civilization. But for Temu, it is absolutely a direct approach to Amazon. Overseas, they're poaching people who worked with Amazon, more aggressively poaching people who worked with, with Shein. They are imagining, I think that, that Amazon is hoping to move up market 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 like battle a bit of this reputation that they've accumulated in recent years as kind of a junk shop.

• 22:12Speaker 01

  But I I think 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 Temu who also operate on Amazon. I found a few who used to operate on Amazon who now operate on Temu. 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

• 22:53Speaker 01

  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 are trying to sell directly through Amazon, who saw Amazon as

• 23:34Speaker 01

  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 a hundred million dollars 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 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 Temu. Now, Temu is also been, there's a great Wired piece this week about how they are also putting huge pressure on sellers.

• 24:15Speaker 01

  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, Temu itself is just a money hole for PDD Holdings.

• 24:30Speaker 01

  But, you know, this is, they're, they're sort of doing, you can, you can think of it as like a very, very fast, very, 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 that does that, but as a commerce, as a commerce.

• 24:49Speaker 02

  They were the famous one. Yeah.

• 24:51Speaker 01

  Yeah. And the Amazon, I mean, the Amazon thing where it's like, oh yeah, you, you're selling, you're selling a dollar for 95 cents or whatever is, it was always sort of a funny joke, but with, with Temu, it's like you're selling, you know, $10 headphones and losing $20 in order. It's like really severe.

• 25:09Speaker 02

  The wired piece, the wired piece, it, they had us in 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 the, 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 and 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

• 25:51Speaker 02

  $30 on, 14 of that is going to logistics, which they provide for free. But then J and T Express apparently is trying to go public soon. And so analysts are theorizing that there is also taking on some of this loss 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.

• 26:25Speaker 01

  Well, there's also.

• 26:26Speaker 02

  Get your $10 or $8 headphones.

• 26:31Speaker 01

  Right. And in addition to that, there's sort of this, this condescending, uh, uh, western perspective that like, oh, this, this is, these are upstarts that are going to come in and, and, and bring these new ways of doing things to the US market and, and, you know, we are not prepared or whatever. But it's like, no, these are, these are like mature firms dealing with like domestic retail slowdown, um, dealing with, as you're talking about, uh, you know, these complex calculations about, uh, uh, partners going public and, and, you know, recruiting against domestic rivals and stuff. Temu is important. It is like a, an ambitious play, but it's the kind of thing that I think domestically might read as like an over ambitious expansion strategy from an arrogant company, you know, like we're not the center of the story with PDD Holdings.

• 27:15Speaker 01

  It's just a very interesting, very, very expensive project, uh, by a, a already successful, uh, foreign firm, which is not the, I mean, this has come up with TikTok a lot. This is not something that US analysts, reporters, um, also customers, uh, are totally used to being like sort of the, the, the B story in a, in a plot for a, a tech company. Like normally it's an American tech company getting really big, uh, with a, with a sort of clear domestic story and then getting into misadventures overseas. Like we are the misadventures, uh, now for, for some of these firms, which is, you know, we live in a, in a global economy, but, uh.

• 27:56Speaker 02

  What, 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, uh, pushed hard in that direction. At least let's say money, losing money to, for grow market share. One thing I've been thinking about, I loved one line you had, it's about what the shopping experience. And again, I have bought on Temu, I posted a TikTok of me dumping out a big box of stuff from Temu just to try to be an influencer for a moment.

• 28:33Speaker 02

  The shopping experience, so you, you had a line, it was like, you know, uh, Temu's new American users express uncertainty, ambivalence about what they're seeing. Until the products show out their door and surpass rock bottom expectations with their mirror presence. I literally, I ordered a bunch of stuff.

• 28:53Speaker 02

  A few of the, I had like a couple of 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. Fifty percent, they were so cheap that I was like, actually, okay, I guess this is okay. I, I ordered a couple of like power strips or some other, I ordered a drone for $12, which is probably, I don't know how that happened, but like, I would say maybe 75% of it worked. And that surpassed my rock bottom expectations and I was okay. And, and the, the aggressiveness for anyone who downloads the app or signs up for an account, it's, it's wild.

• 29:34Speaker 02

  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. The, 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 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.

• 30:15Speaker 02

  And just be like, no, we're, deep down, everyone is happy to run after these kind of practices.

• 30:22Alex Kantrowitz?

  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 Shein, right? Which is again, coming along this wave with Temu. And it's based off of a Channel 4 report that workers receive a base salary of $4,000 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 as another factory, workers receive the equivalent of four cents per item.

• 31:05Alex Kantrowitz?

  And workers in both factories were working up to 18-hour days and were given off, given one day off a 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 Shein 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, I'm happy to pay more in other places and I wonder, A, like, if, if

• 31:50Alex Kantrowitz?

  that is, if we think that's still part of the situation and B, eventually that's gonna catch up with these companies, I would imagine.

• 31:57Speaker 01

  I think, well, 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 spending like $12 instead of $8 on a, on a product from a brand you've never heard of, manufactured somewhere that you don't really have a grip on, is gonna be any more ethically produced. We are sort of, in virtually all of these conversations, talking about, about

• 32:29Speaker 01

  things that are not, that are hard to know because they're meant to be hard to know. But I do, and I, and also it's worth noting that, that Amazon, in its gradual shift over nearly two decades now, to a third-party merchant system, is, is selling goods through, through merchants that are, that are based overseas. It is, it is therefore insulated even, even another level than just, you know, a brand that, that manufactures overseas, from the source of the goods that are sold through the platform. So you buy a t-shirt through Amazon, it, to you, it is an Amazon Prime t-shirt.

• 33:10Speaker 01

  But in what you're, what you're sort of doing there is buying something that has yet another layer removed from, from accountability. So you're already in sort of like a, a bad situation there in terms of knowing what's happening and you can make, you can make reliably, you know, some assumptions about working conditions at the $12 shirt factory.

• 33:32Speaker 01

  What's interesting about Temu and Shein is that these are hyper-growth companies.

• 33:39Speaker 01

  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, 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 Shein, you're getting, well, with Temu, I think is a clearer, a clearer analog here.

• 34:21Speaker 01

  You're, you're hearing reports from factories that have manufactured even for Shein, where Temu is giving them some leeway as, as independent merchants, but making extraordinarily, uh, uh, uh, severe demands for production targets, um, for pricing. You upload your products into Temu and they're just like, this should be cheaper. With Shein, 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?

• 35:00Speaker 01

  And the, the people running these, 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, 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, at some point. And so that's unavoidable with Temu. It's like this fun, strange environment. Shop like a billionaire, games everywhere, promotions all the time.

• 35:45Speaker 01

  Coupons in your push notifications, invite your friends. It's like this, this wild, but you're, you're absolutely just sort of. You're not just losing money for a company, you're spending something else as you use this. And it's just, it's just completely unavoidable. But I mean, of course, it is, people avoid it all the time, but it's right there. It's just so in your face.

• 36:06Speaker 02

  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, but fashion is going to be slower. Everyone wants to buy ethically and you see endless retailers moving that direction. But then Shein sales are up. I think they overtook H and 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 US consumer. Are they going to be shopping on these sites in a year or two? Or like, is this something that's fun, temporary?

• 36:49Speaker 02

  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, will people shop at these places in a year or two?

• 37:21Speaker 01

  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, the, I think the Wired piece projected something like $4 billion.

• 37:50Speaker 02

  Next year, I was 1.4 billion last year, 4.3 billion next year, or I think in 2023.

• 37:57Speaker 01

  And so I think we can kind of, we, we can't, we don't know how real this, like if you're giving stuff away to people, 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, and I feel like this is, this is a little bit, I think people do miss this a little bit with, with Temu, 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, you've mentioned some of these totally absurd products. They get advertised a lot.

• 38:42Speaker 01

  But the presence of sellers that are, that are popular on Amazon is really striking to me. They're seeing this as potentially another channel. And if it works for them, you know, if this is a place, I, I mentioned in the piece, there, 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, 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

• 39:26Speaker 01

  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, 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

• 39:57Speaker 02

  Quality.

• 39:58Speaker 01

  Premium and convenient, but there, there's some, they've definitely discovered some value with the, with the,

• 40:05Speaker 01

  the quote unquote, Amazon brands, not the Amazon brand, brands, but the, the, 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 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.

• 40:48Speaker 01

  It would, it was basically instantly trash, but occasionally it wasn't. It was almost like you were, 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 Temu and working as a merchant on Wish was miserable. It was basically all overflow products. It wasn't any kind of a 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 establish one. Didn't have a useful logistics infrastructure to start with.

• 41:30Speaker 01

  But they also spent, they were the top spenders on, I believe,

• 41:36Speaker 01

  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 like 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. Literal loopholes in the global postal system that have Actually.

• 42:18Speaker 02

  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 Temu now advertises they are a Boston-based company proudly on their About Us page.

• 42:34Speaker 01

  Yes.

• 42:35Speaker 02

  Shein, 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 branding. Like, how do you see this playing out, both politically, both from the consumer side?

• 42:58Speaker 01

  I don't know. But I encountered this when I was working on the Temu story. I don't know what the state of things is with Shein. I know it's obviously like a sensitive subject. But PDD Holdings opened an office in Dublin. Temu, as a subsidiary, is based in Boston. Everything happens in Shanghai. Everything obviously happens in 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 Temu is.

• 43:40Speaker 01

  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 messaged differently depending on the audience. In earnings calls, 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...

• 44:25Speaker 01

  You know, not so subtle, but also not

• 44:31Speaker 01

  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 for financial reasons like they're 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.

• 45:12Alex Kantrowitz?

  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 and the fact that team who are growing so much despite what they're doing to 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 cheap. But like, what does it say about us? That these are the companies that are rising to the top?

• 45:49Speaker 01

  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.

• 46:05Speaker 01

  I'm not going to make a cultural case for like.

• 46:06Speaker 02

  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, this 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?

• 46:47Speaker 01

  Yes, and, and yes. And one of the, 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, 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 Wish, 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

• 47:28Speaker 01

  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, of something. The fact that, that, that was available to, to, to Wish as like a, as a, as a rhetorical strategy was kind of interesting. It's like, what's, what was missed here?

• 48:08Speaker 01

  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, you're not solving anything there, you're, you've found, you've found a problem, and you've found a way to kind of like, maybe make it worse, or something, like, you, 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, it's the...

• 48:39Speaker 01

  It's 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 American, you know, consumer habits. They're they are symptoms of something that is that is quite obviously somewhat somewhat ill.

• 48:56Alex Kantrowitz?

  Now, there's one more thing that I found super interesting about this story, which is kind of like the Tik Tok-ification of everything. So, John, you write, "In social media terms," this is about Temu, "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' base desires, or at least keep them occupied for a little while." 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's social media with recommendation algorithms, whether that's retail. And I wrote down this question, like,

• 49:39Alex Kantrowitz?

  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.

• 49:56Speaker 01

  It's so weirdly passive. And then I 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

• 50:37Speaker 01

  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 and leaving users kind of like unsettled or like or, you know, engaged and using Google, but also kind of thinking like this sucks a little like I'm not finding 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 Temu, but it's on the same spectrum.

• 51:21Speaker 01

  And so, yeah, it's it is like a move towards 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. This is supposed to be this thing that you're doing and you are controlling and this this tool is helping you do. Instead, you're kind of just like using Google. With TikTok, it's like the stakes are lower. You're kind of, 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.

• 52:05Speaker 01

  But with shopping, there have to be limits to that. It works now on Temu and Shein

• 52:13Speaker 01

  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 I am gonna jump on Temu 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.

• 52:56Speaker 01

  It's comparable to like going to an open air market or something or a

• 53:02Speaker 01

  a car dealership where the the sales are, the sales tactics 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.

• 53:17Speaker 02

  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.

• 53:27Speaker 01

  Also, I meant to, I meant to mention this up top, but the, uh, the AI apocalypse is, has actually occurred. We have created a, a general intelligence. It is a car dealer. Um, and it is in charge of all the apps we use. So, you know, look out.

• 53:42Speaker 02

  It took over.

• 53:44Alex Kantrowitz?

  Well, John, thank you so much for joining. Yeah. I mean, an amazing show. I, I think that like you have such deep insight into this. We definitely need to do it again. Um, red meat for Ron John, which we always love to serve up.

• 53:56Speaker 02

  Yes.

• 53:57Alex Kantrowitz?

  And, um, absolutely. So thanks, John. Thank you, Ron John. Thanks to everybody for listening. Next week, a conversation, uh, 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 Tik Tok in terms of regulation and bans. We're going to talk about Twitter's role in the 2024 election. Elizabeth Holmes, uh, 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.

• 54:53Speaker 03

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