Money Talks: Why Amazon should be afraid of Temu

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On Thursday, March 7th, I invited my co-presenter Tom to the studio for a secret challenge. Hi, Tom. Hey, Alice. So do you have any idea why we're here?

I do not. It's a complete mystery to me what I am doing in the studio.

So the topic is Temu, which is this up-and-coming retailing behemoth, which is competing very aggressively to win over customers in America. We thought it might be fun to have a race between it and the other behemoth retailer in America, which is Amazon. We're going to order some bits from each retailer. You're going to take Amazon. I'm going to take Temu and we're going to see who wins.

Love a bit of competition.

I'm going to send you a link.

Here we go. Goody King beads for jewelry making. Friendship bracelet making kit. Love it. Love me a friendship bracelet.

If you've been paying attention to popular culture over the last year, you might have noticed that people have been making an awful lot of friendship bracelets for one event in particular.

Ah, yes, this is for Taylor Swift's epic concerts, isn't it?

Yes, exactly. So basically I wanted to buy some of these for an upcoming event that I might be attending, and I'm gonna make you buy them too.

All right, so my wife is going to be very confused when this set of 5,000+ beads for making friendship bracelets arrives. And it should arrive by tomorrow if I order within the next 8 hours, it says. And it costs £19.99 or $25-ish.

I am ordering what looks like exactly the same thing, same colorful beads, same letters and twine and stuff. It is significantly more beads, it's about 11,000 beads. It costs $15.29, which is about £12. So it's 60% of the price for double the beads, roughly. Estimated delivery for this is between March 13th and March 20th. So up to 2 weeks from today. Should we kick this race off? Are you ready to submit your order?

Let's do it.

Okay.

Should I hit buy now?

3, 2, 1, submit.

All right.

My friendship bracelet kit may be more beads for less money. But because it's from Temu, it will be shipped straight from China, where it was made. So, while I wait—

Okay, it is Friday, 8th of March, and I am pleased to report that my friendship bracelet-making kit has arrived from Amazon. Here it is in all its glory. I'm not sure exactly what I'm going to do with it, but it's here.

Over in Washington, I was getting endless updates from Temu about the status of my package. Telling me when it was packed, got to the airport, was on a plane, had cleared customs, and so on. Until about a week after I had clicked buy. Okay, it is March 14th, it is 7 PM, and I think my Temu order has just arrived. Ooh, that sounds right. All right. Temu may be slower than Amazon, but Americans don't seem to mind. The appeal of more cheap stuff has people turning to the app in droves. So will Temu change the course of e-commerce in America? You're listening to Money Talks from The Economist, our weekly podcast on the markets, the economy and the world of business. In New York, I'm Alice Fullwood.

In London, I'm Tom Lee Devlin.

In Luang Prabang, I'm Mike Bird.

And in today's show, will Chinese e-commerce giants be able to outcompete Amazon?

First, we look at how Temu burst onto the scene and quickly had the US gripped.

Temu has these like roulette wheels and, you know, flashing stuff and oh my God, it just hits all these pleasure centers.

Then we find out what its longer-term strategy could be.

It would be foolish to think that this is what the business model's gonna look like a year or two 2 or 3 years from now.

And finally, we hear from the boss of Etsy on what this means for his business.

There are and always will be people who compete to sell commodity items cheaper and ship them faster. And those people are going to have a fight to the bottom.

Hi, Tom. Hi, Mike.

Hello. Hey, Alice. Now, before we start, I think, Mike, you owe a word of explanation. Where in the world are you?

I must admit there are no good Asia business and finance stories in Luang Prabang in Laos. I'm on book leave, having mocked you, Tom, incessantly for talking about your book on the podcast. I have to now talk about mine.

Sorry, are you writing a book, Mike?

Yes, I am. I don't know whether I'd ever mentioned it. I will be back soon, and obviously my commitment to Money Talks knows so few few bounds that you haven't actually missed me on any episodes yet.

So basically you're just having a bit of a, an ease-up, writerly time in a nice rural part of Laos.

This is a good part of the world to get your head down. The air quality in Laos at the moment is so poor that I have been kept very much indoors and writing. It has been a good disciplined process.

Right, well, while you have been beavering away on your book, Tom and I have been up to all kinds of antics. Tom, I've been dying to find out how your week has been now that you're the proud owner of Friendship bracelet-making kit. I assume you cracked it open straight away and had a go at making things.

No, no, I can't say I've been spending a lot of time making friendship bracelets. When it arrived, I did get a WhatsApp message from my wife who had opened the package asking, what on earth is this? But no, unfortunately, I've been too busy in the daily cut and thrust of my job to have a go at making one. Maybe it's something I'll give to my wife.

Yeah, I'm sure she'd love a handmade bracelet. Or, you know, you could make one for Mike, who sadly didn't get a kit. Unless he just has one lying around already.

I wish. I did consider one for my trip to go see Taylor Swift. Very popular with the young Swifties, the friendship bracelets. But yeah, honestly, I thought that might be a step too far. I think my days of potentially owning a DIY friendship bracelet-making kit are behind me.

Well, you are. You don't know what you're missing out on, Mike. But all this buying of beads isn't just because you are going to a certain concert yourself, is it, Alice? We had a, a bit of an experiment that we had to do related to this week's show.

Yes, exactly. So this week we are talking about the Chinese e-commerce giant Temu, or Temu as I hear it's now starting to call itself in America. And just over a year ago, no one had really even heard of it, and now it seems to be all over the place. Temu is an online retailer and third-party marketplace, much like Amazon. But on steroids. And I've been taking a look at their first year in the US.

Feels like a dream, feels like magic.

Americans watching the Super Bowl last month will be familiar with this catchy tune. It's from a Temu ad that played 3 times during the game and twice in the coverage afterwards. It shows an animated shopper dancing through her CGI world. Buying everything her heart desires and turning each scene a bright orange in the process. All the price tags are under $10. And then there's this promise: shop like a billionaire. Temu splashed out tens of millions of dollars on the 30-second ad spots. And a bunch of coupons and giveaways tied to the Super Bowl. It's part of an aggressive marketing strategy that Temu has pursued since it was launched in America in September 2022. And it's working. Temu became the most downloaded free app in the US last year.

A lot of people I talk to are talking about Temu. Oh, you know, like, I just went on this site, I just bought all of this stuff.

Wendy Woolason is a history professor at Rutgers University Camden. And author of Crap: A History of Cheap Stuff in America.

I complimented a woman on her hat the other day and she's like, oh my gosh, I got it on Temu. You have to go check out this site for $30. I got this whole box of hats. And she went on and on and on.

Open up the Temu app and it offers a mass of random unbranded goods. A set of men's shirts next to a reclining office chair, next to a nonstick baking set, next to a self-cleaning brush for your pet cat, and all for rock-bottom prices.

You can just scroll and scroll and scroll like you would scroll TikTok or Instagram. So it seems designed to take advantage of the social media habits that we've developed. The cheapness and the variety together creates a consuming environment where you just want to buy stuff.

How is it all so cheap? Temu's business model is to ship directly from factories in China rather than holding things in warehouses in the US.

As Mark Shmulek, a US internet analyst at Bernstein, explains, they really haven't stepped into kind of building out US logistics, fulfillment, distribution centers, etc., which, as we know from Amazon, is incredibly expensive. But in exchange, you effectively do not guarantee when the product or the package gets delivered. But maybe the product comes in 1 to 2 weeks versus 1 to 2 days.

Sending things this way also means suppliers listed on Temu can take advantage of a US rule on imports. Packages sent directly to customers and valued under $800 can enter the US duty-free and with less scrutiny from customs. Tmall is owned by PDD, the group behind the Chinese online shopping giant Pinduoduo. The model that worked in China, which the firm is replicating in America, is to make shopping a game for customers to play.

They have ingeniously sort of gamified it. Tmall has these like roulette wheels and, you know, flashing stuff and oh my God, it just Hits all these pleasure centers.

Timers count down the seconds until a sale ends. There are lightning deals and roulette wheels. Here's your fish. The more your fish grows, the closer you get to your desired reward. Customers can win free things by keeping a virtual tank of fish alive or tending to a virtual farm. I have won a bunch of free stuff, and I mean a whole bunch of free stuff. Influencers and enthusiasts are lining up on YouTube TikTok channels to talk about the hacks that seem to guarantee an endless stream of free stuff to your door. I've been getting these orange Temu packages twice a week, and it's to the point where I don't even know what's inside these things. But all those freebies are costing PDD dearly. Bernstein analysts in China estimate that PDD is currently losing around $10 per item sold in America. Here's Mark Shmulik again.

The way to think about the economics for Temu is they'd certainly lose money on the very first sale and the first download. But the idea being is that they are acquiring you as a valuable repeat customer, and they'll eventually break even and then, you know, start to profit off of you the more frequent purchases that you do make.

Goods may also come at a high ethical cost. A US Congress report criticized the company saying there was an extremely high risk that its supply chains are contaminated with forced labor. Products from China's Xinjiang province, which are banned in the US over concerns they're made by the forced labor of the Uyghurs, are the main concern. In a statement, Temu said the allegations were completely ungrounded.

We strictly prohibit the use of forced, penal, or child labor, and employment by all our merchants and suppliers must be voluntary. Our current standards and practices are no different from those of major US e-commerce platforms such as Amazon, eBay, and Etsy.

Still, the company has clearly ruffled feathers among US lawmakers, who have just passed a bill which might ban another successful Chinese app, TikTok. But for now, Temu is quickly making inroads. It has already gained around a 1% share of America's e-commerce market. And that is a huge stride for a new entrant to have made in just over a year. So that's the story of Temu, but it's not the only Chinese e-commerce giant trying to crack the US market. There's another Chinese company called Shein that's been attracting similar attention. Shein's been around longer and focuses mainly on fast fashion rather than the emporium of everything that Temu claims to be. Both companies have a direct-from-China business model that's shaken up the US e-commerce market. To find out more about this strategy and the impact it's having on existing e-commerce in America, I spoke to Michael Morton. He's a senior research analyst at the research firm Moffett Nathanson. Hi Michael, welcome to Money Talks.

Hi Alice, great to be here.

So Temu has been on something of an advertising blitz recently. It attracted a lot of attention for the 5 ads it ran during the most recent Super Bowl, and that was probably the first time I really became aware of the platform. So what is this platform and, and what is it trying to do in America?

It's well known at this point that growth has slowed down in China, and you've seen a lot of the China-based players look to the West for opportunities to take their business model and grow. And it uses different methods than we're used to here. Some gamification. If you go on the app or the website, you see like spinning wheels and countdowns for how long the deal lasts. And it's heavily promotional, like you said, a lot of advertisements on the Super If you scroll through any type of social media, uh, you're inundated with Temu ads, and it's their aggressive push to get a foothold into these Western markets.

And what is the real appeal that they're making to consumers over other big e-commerce platforms that people already use, like Amazon? Why is it that someone would go to Temu rather than another e-commerce site?

One simple word: price. The discounts are extreme. It's a fraction of what you see. We've published some research showing the product overlap on Amazon and Etsy and eBay, and depending on the product and the category, they can be 2 to 4 times as expensive on the domestic website. And really what it is, is it's disintermediating a distribution platform. And Temu works directly with the manufacturers, buys large quantities of units from a toy manufacturer based in China, and then posts it on the website at dramatically discounted price. When you go and you buy it, it sends it directly to you in an individual package. It avoids this whole step where it sits in an Amazon fulfillment center, and then you also pay a much higher commission, take rate, revenue share, whatever the— I said the terminology is by each individual company. So in effect, a relationship between you and the manufacturer as a purchaser with no one else standing in between you other than Temu taking a very, very tiny sliver.

Okay. You explained a couple of reasons why they can offer that kind of very competitive price, but are they aggressively undercutting in a way that is maybe unsustainable, or do you think that that sort of price differential can carry on?

Yeah, the important thing to emphasize when talking about Temu and PDD in general, and also Shein, these are highly secretive companies. They don't break out the financials of Temu on the earnings calls. They might make one or two comments, and the comments are, Effectively, we don't care about unit economics right now. We just want to show everybody the PDD experience. So there's really no way to cut it at this moment that the business model they're operating in is profitable. They spend an enormous amount of money on a per-customer basis to get you onto the platform, and then they're putting these really cheap discounted goods on jets and flying them around the world and then plugging them into the US distribution system. So they're losing money. But it would be foolish to think that this is what the business model is going to look like a year or two or three years from now. They pivoted their strategy in China, and this is not a static thing. Expect them to try to grow their user base and then change pricing, offering, everything.

I also have not heard that much about PDD before doing this episode. So in China, how dominant is it? How successful is it? And what does that model look like in China? If they're successful here, What might it look like here a few years down the line?

I guess they've done a really impressive job taking market share over the years. And I read someone else referring to PDD as always the David in the David versus Goliath story. In China, the absolute dominant powerhouse was Alibaba and JD with their different e-commerce platforms. And years ago, there's a lot of complaints about counterfeit goods from like Western companies that were being sold on Alibaba, and Alibaba kicked those merchants off at a very close overlap in time PDD sprung up. And the thought is that a lot of those merchants landed on PDD and they had a unique business model. It was a lot of like group buying where if you and I were friends and we wanted to buy 20 white undershirts, we'd get a huge discount buying it together. And that was the early strategy. App downloads, you brought users onto the platform and critics from the outside were saying they're spending too much on marketing. This doesn't make sense. This isn't sustainable. And then they pivoted and they started selling iPhones on there, right? So out of nowhere, they took market share from what was viewed as these unassailable giants. So when you're now thinking about this in the Western version, they're doing this strategy that looks crazy, but it could change.

Obviously the price is going to be sort of very appealing, but with players like Amazon, it's things like convenience that are really key to their, their offering. So if you are shipping everything from sort of local manufacturers in China, are they really gonna be able to compete with Amazon on, on something like that?

This is a great question. And what we've seen so far is the smaller players where their platform is not offering next day fulfillment, right? Or same day in some US cities with Amazon. And I'm speaking about Etsy. They've had a problem, right? Where what's really important to emphasize Temu is not just offering stuff at cheap prices, it's bidding up the cost to acquire customers for everyone. Etsy's had a real problem acquiring customers and getting traffic in the search auction on Google. You go in and you say you want some winter mittens, and all of a sudden Etsy was paying a certain amount of price for that impression at the top of Google search. Now Temu has bid up that cost so much that it's uneconomical for Etsy to do it. And then when you look at Amazon, who's acknowledged pulling back on some of this variable spend as well, and they didn't grow advertising spend year over year, it goes back to that view. While they are impacting everyone today, some more so than others, a smaller Etsy who can't offer you same and next day and is feeling it at the top of their funnel, they're in the crosshairs right now trying to grow through it and find other ways to acquire customers. Amazon is really successful in growing their non-discretionary business right now. And these high-frequency items Amazon is performing really well on. And you have this level of customer lock, right? Where for your daily household type needs, not the impulsive buy, you just open your Amazon app, you seek and destroy, you type in the search bar, you buy it, it shows up at the house the next day. And Amazon has continued to aggressively push same and next day to kind of try to expand that moat against Temu and Shein. They lowered their fees for the, they call it referral fee, you and I would just call it take rate for apparel goods. And that's where Shein is growing aggressively and Temu is as well. Two thoughts, make it more profitable for the merchants or allow the merchants to cut their price and be more cost competitive.

I loved you describing me buying laundry powder as seeking and destroying My, my purchase. I'm gonna start using that in my household. Michael, thank you so much for joining the show. This has been a really fascinating conversation.

Thank you, Alice.

We reached out to Temu for a response to some of the claims being made about the company. On the transparency point, a spokesperson said that PDD believes in responsible and transparent corporate governance and adheres to all disclosure obligations mandated by NASDAQ listing requirements. On the matter of counterfeit goods, they said, Temu has strict policies against counterfeits and enforce them through a combination of vetting, proactive monitoring, and reporting and enforcement. So that's what Temu has to say. And listening to what we've heard so far, I think it's very clear that Temu is making this very aggressive play into the American e-commerce market. And, you know, coming into this episode, my assumption was it's already a very saturated space. It's very dominated by these sort of big incumbents who are already sort of very competitive. And actually, I've been surprised by how successful Temu has been, even with just over a year in business. But Tom, Mike, what about you both? What do you make of Temu?

Yeah, I mean, it's fascinating. And one of the things that's really jumped out at me is just how much money the company is splashing out on this growth push. So those Super Bowl ads were about $7 million each, and it did 5 of them. Apparently it spent $2 billion on ads just with Meta last year, which is huge. That basically goes straight to Meta's bottom line, and its price-to-earnings multiple is around about 40 at the moment. So that's $80 billion of market value for Meta. Actually, in its latest earnings, Meta called out Chinese advertisers as a big driver of its growth. And as Michael said, all that spending may make things difficult for smaller e-commerce companies that are competing for visibility on some of those ad platforms. The other thing that's interesting to me is that this strategy of, you know, throwing money at rapid expansion has kind of gone out of fashion in Silicon Valley as interest rates have gone up and investors have become more focused on profitability. But, you know, apparently PDD hasn't gotten that memo yet.

So yeah, this was making me think about sort of e-commerce in Southeast Asia. Temu isn't a huge player in Singapore yet, but the model does sound a lot like some of the things you can get from some of the major Southeast Asian retailers. Your Shoppies, your Lazadas, which plug much more directly than the sort of American and European options and Amazon in particular into the sort of Chinese manufacturing nexus. When I lived in Hong Kong too, there was Taobao, obviously Alibaba's offering, which was even more plugged in. Not only could you buy basically anything under the sun for absurdly low prices, you could buy industrial goods as well. If you wanted a massive pile of steel rebar, you could get it ordered to your house. I believe someone actually bought a plane on there once. So it really was a sort of one-stop shop. But there's an interesting element here too when it comes to the conversation about the sort of US-China relationship. In particular, a lot of larger Chinese products are faced with American tariffs now instituted by the Trump administration, which have never been repealed. But almost everything sold by a company like Temu or Shein, or at least the vast majority of what they sell, come in under $800, which is the level covered by what are called de minimis rules. That means, yeah, that they're just not subject to these tariffs. And the growth of packages in that category has absolutely exploded. So there's American legislators very upset about that. And so with this whole business model, I do feel like it's a little bit of a watch this space phenomenon and that we may have the sort of rug pulled out from under us.

Yes. Well, US lawmakers are not the only people who have noticed Temu's explosive growth in the US. We are about to hear from the boss of Etsy about how he is dealing with the increased cost of advertising to attract new customers. But before we do that, we want to let you know that we have made this episode of Money Talks available to listen to for free.

To listen every week, you'll need a subscription to The Economist or to Economist Podcasts Plus. To subscribe, just search Economist Podcasts or click the link in the show notes.

So we've talked about how Temu operates. But to hear more about the impact on rival e-commerce firms, I spoke to Josh Silverman, who is the CEO of Etsy. And I was particularly keen to talk to Josh now because last month Etsy added Mark Steinberg to its board. Steinberg works for activist investor Elliott Investment Management, which has taken a 13% stake in Etsy and now, with Steinberg on the board, wants to increase the value of the company. Hi, Josh. Welcome to Money Talks.

Thank you for having me.

For the uninitiated, could you quickly explain what kind of platform Etsy is? You know, who sells goods on Etsy? What kind of goods are they? And how do you make money from transactions that take place on your site?

Etsy is a marketplace for things that are made or designed directly by the seller or vintage items. We have about 7 million sellers around the world in about 92 2 million active buyers who bought about $12 billion of products from our sellers in 2023. And what's allowed on the Etsy merchant marketplace are items that are made directly by the seller, items that are designed by the seller and made in very close partnership with a partner, or things that are over 20 years old. In terms of our economic model, it costs $0.20 to list an item on Etsy and 6.5% commission when that item sells.

And your description of the kinds of things that people buy and sell on Etsy, so, you know, handmade things or things made by sellers and vintage items, those aren't really the kinds of things that I go looking for on other e-commerce platforms like Amazon or, you know, some of the newer entrants that we are talking about in this episode, like Temu. So how do you compete with other e-commerce platforms?

We don't think handmade is its own market. It's a differentiator within a bunch of other markets. So the largest category of items for sale on Etsy see, for example, is home furnishings. So very commonly you'll find things like throw pillows or flatware. It's just going to be a throw pillow that's made with beautiful textiles by a seller who maybe designed and made that fabric themselves.

So what kind of effect on your business has the entrance of sort of new players like Temu had?

I think the entrance of the brand new players from Asia has been overstated on Etsy. They have gone from zero to, you know, well over $10 billion of sales in a short amount of time. And that obviously had to come from somewhere. And I think broadly across e-commerce, everyone is feeling it a little bit. I think the bigger narrative right now is just a flight to value. I think that the rising cost of essentials and in particular food prices are shocking to buyers in places like the US and the UK, where they're so much higher than they were before. Rent or your mortgage is so much higher because of rising interest rates. And so So people are really in a mode in this part of the economic cycle where when they're buying discretionary items, they're looking for value. So I feel like that's a sign of the times. However, broadly speaking, there are and always will be people who compete to sell commodity items cheaper and ship them faster. And those people are going to have a fight to the bottom because they're effectively just selling commodities. We think what we do at Etsy is really different and really important. For every time that someone is buying something very disposable, there are many times in their life when they want something that means more, that feels special to them. And so we think we do something very important and very different. And the more that commoditized commerce grows, the more people crave an alternative to that.

Okay. And you talked about this potential race to the bottom in commodity goods being where you think the impact of newer players like Temu might be sort of most acute. But we did hear from a consumer analyst earlier in the show, and he was talking about the cost of marketing being a sort of really fiercely competitive field at the moment. So could you maybe explain what you are seeing in terms of those costs, and has Temu had an impact on Etsy there?

Yeah, some of the new entrants are spending in marketing channels in ways that don't appear to be ROI-focused. So it does appear that some of these new entrants are having an impact on the cost of marketing generally, particularly in the long tail of the auction in Google. That said, Etsy drove more sales from our performance marketing in 2023 than we did in 2022. So we are still able to adapt, and we shifted some of our budget from performance marketing to television. Which has also been very effective for us. So our strategy at Etsy is not growth at all cost. We believe in profitable growth, and we invest very significantly behind our sellers' success, but we do so always with an eye to what is sustainable and profitable for the long term.

Spending on ads in a way that is not consistent with ROI is a very diplomatic way of saying we have no idea how they're paying so much for these ads. Just for those who aren't super familiar with Google Auctions and how this bidding process works, works. Say I search for, you know, a scarf or something. What is it that you're competing with Temu for so that I see your scarf instead of theirs?

Yeah, so there's going to be hundreds and hundreds of different players who, for a keyword like scarf, who might have scarves for sale. And Google's got to decide which item is going to get clicked on and also how much that advertiser is willing to pay per click. And so there's a dynamic auction there where One sets thresholds around kind of what ROI you would need in order to be at the top. And, you know, Etsy scores very well on quality scores, meaning we offer something that's compelling, that's unique, that's exciting, that buyers like. And so people are likely to click on our ads, but we do have an eye on how much we're willing to pay per click in order to make sure that that's sustainable growth for us.

Okay. But I guess it's reasonable to potentially think that if some of these newer players are being aggressive in that form of marketing, that that channel of traffic for Etsy might have shrunk a little. Are you hearing anything from your Etsy sellers about these kinds of dynamics, or what are you hearing from that side of the business?

You know, our sellers aren't really talking to us about the new entrants, and candidly, our buyers aren't either. It's investors that are doing most of the talking about these new entrants. That's where 99% of the conversations we're hearing are from the investor community. Our sellers are really just focused on growing their sales. And what they find is that Etsy is far more effective. Many of our sellers also market themselves on eBay and also market themselves on Amazon and also have a Shopify site where they market themselves on places like Facebook and Instagram. And what they find is that more than half of their sales come from Etsy. The second most common platform for them is the market that they go to in in-person that they sell at, those weekend markets. And then all of those other channels combined, eBay, Amazon, their Shopify accounts, et cetera, make up our third.

So you've talked a bit earlier about not doing growth at all costs and looking at, I guess, like other kinds of marketing channels to try and sort of grow, like things like television, which sounds pretty old school, I guess, these days. Are those the sort of major ways you can try to compete with or sort of fight back against some of these newer entrants, or sort of what are the major strategies there?

Yeah, we think the solution is for Etsy to be even more Etsy. Keeping commerce human is what the world needs. Gifting itself is a huge market. We think just in the US, people spent about $200 billion on gifts. And that's an expression of yourself and your care for someone else. You don't want to buy a gift for someone on, you know, the cheapest, most commoditized platform. You want to buy it on Etsy.

Yes, the signal it might send if you got a gift from Temu, I'm not sure. And one thing that I noticed is that Etsy recently added Mark Steinberg of Elliott's activist fund to its board. And in the press release that went out, he said he thought there was room for significant value creation at the company. So clearly he can't think that these new entrants are going to be a fatal blow for companies like Etsy. But, you know, what kind of strategies are you looking at in concert with these kinds of new investors?

Yeah, so first, delighted to add Mark to the board. I think he's really thoughtful. Paul has a lot of great experience from his work at Pinterest and exposure and their investments in eBay and other places, and really great thoughtful partners. I think that he, like we, feel like Etsy has tremendous value that the market may not entirely be appreciating today, but they will over time. And that the more there is a race to the bottom in commoditized commerce, the more people will crave an alternative. 80% of sales on Etsy happen because people come to Etsy through free channels. But half our traffic, they just type in www.etsy.com or they launch our app or they've come through our emails. They went to Google and typed in Etsy and navigated. There are very few brands that are important enough to people, often enough to people that they remember those brands and come to them. And that is incredibly valuable. And we think over the coming years, You know, the opportunity for us is absolutely enormous. We think we're going to be one of the few places that people really remember and come to again and again. And there will be some very cheap, very commoditized places that people go to a lot. And we expect and believe we're going to be the leading alternative to that.

Josh Silverman, thank you so much for joining Money Talks.

Thank you.

So Tom, Mike, which way do you think the future is heading? Are we buying handmade on Etsy or bulk buying the next 50 birthday presents for friends on Temu?

Well, I think I have a kind of personal and a professional take on this. I mean, my personal take is that I think the world probably needs less junk, not more of it. I mean, if we just look at the type of ultra-fast fashion that companies like Temu and Shein are peddling, huge amounts of that is just worn a few times and then discarded. So the world already produces 92 million tons of textile waste every year, which is a lot. But, uh, ranting aside, there is an interesting business strategy question here around which of the models in e-commerce will prevail. So Michael Porter, who's a famed business professor, argued that companies could have one of two sources of competitive advantage: either be the lowest cost or be differentiated. And both of those can exist in a market. So even if Temu is cheaper than everyone else, Amazon can differentiate on convenience and range. Etsy can differentiate on sort of artisanal wares, and all those businesses can coexist because different customers want different things at different times. And very few markets are genuinely kind of winner takes all. What I think is still kind of unknown here is what are the size of those different segments? So Amazon in the last few years has made a huge bet on convenience with with all of its investments in its logistics network. And it'll be interesting to see how wise that actually turns out to be over the long run.

Yeah, I think Tom's absolutely right there. I enjoy that there's a service I can go to for really quick fulfilment and one which may be less time-sensitive, but I get a big pricing advantage. It seems good to me that both of those exist. Actually, unlike Tom, I quite like being able to get loads of cheap junk from the internet.

You're the problem.

Yeah, I am the problem. And unless somebody stops me with something like a carbon tax, I will simply never stop. But I, I do find it interesting putting this individual corporate story in the macro perspective. That seems fascinating to me as well, because Temu is basically offering something at these prices that simply can't be done, not just in the United States or in most of Europe, but because of China's manufacturing capacity, it can't be done basically anywhere else in the world. And it's been interesting in particular because until fairly recently, these e-commerce worlds were sort of hived off from each other. Amazon had really no impact in China, and honestly, in large parts of Asia, it's second or third fiddle. It's sort of gone back and forth in different markets, and the big Chinese e-commerce companies had almost no impact in the US. And so it's really interesting to see that changing a little bit, given that the level of rancor between Beijing and Washington has really gotten worse. And yeah, I do wonder whether this is going to end up as another trade war casualty at some point, and whether that sort of extremely efficient, for whatever other ills it has, that extremely efficient Chinese manufacturing is still welcome in major product markets in the US.

Yeah, I think that's right. I agree with what you've both sort of alluded to, which is it's interesting that there is this sort of new e-commerce model that does seem to offer something unique, you know, these sort of really rock bottom prices. For a trade-off in terms of fulfillment time. And I guess it's sort of interesting to think a little bit about how much of that price differential can endure. So there have been a couple of things people have said this episode that have basically been euphemisms for, my God, they're throwing a lot of money at this. We had one analyst tell us that PDD had said on its earnings call that it wasn't focused on unit economics at the moment. We heard from the boss of Etsy that it's spending on Google search ads in a way that is not consistent with ROI. And it does really remind me of of my experience with Uber or sort of any of those big tech platforms sort of a decade or so ago, where I was like calling cars or getting food delivered for just impossibly low prices. And then, you know, once they gained market share, obviously we found out where the sort of actual equilibrium profitable price for that kind of business is. So I guess right now, the Temu proposition is very compelling from a price perspective. I wonder whether it's maybe slightly less compelling in the future. But I guess we'll see because it's already seemed to have captured the ire of a lot of US lawmakers, and it's not a particularly friendly time for big Chinese companies in Washington.

Making me reminisce there. Those really were the days. I mean, those zero interest rates, they made houses very expensive, but I certainly did take a lot of cheap car rides. I will say that.

The number of free burritos I got essentially paid for by the Saudi pension fund. What a time to have been. Middle life. That's it.

Thank you, Ben Bernanke.

But with that, it's probably time to pivot to our stats of the week. So, uh, who wants to go first?

I'm happy to kick us off. My stat of the week is 45,000, which is the number of people that now work at McKinsey, the consulting firm. And that is up by 60% since 2018, which is about twice as fast as the growth growth in the company's sales by one estimate. Earlier this month, there was an anonymous memo circulated online purporting to be written by a group of disgruntled alumni of the firm complaining about its overexpansion over the past few years. It has been on a kind of hiring binge, and as the industry has started to slow down, it's, it's really been wrestling with what to do about that, that massive expansion. So I may have gotten out of consulting just at the right Into the booming journalism market.

Well, I will jump in with my stat of the week, which is 6,236. It is a number of days, and it is the number of days between March 19th, when the Bank of Japan raised interest rates, and the last time it raised interest rates in 2007. And of course, just my luck that I managed to be away on leave when that happened. Something I've been waiting for, for the best part of a decade. But there you go. You can't win 'em all.

I swear this always happens. The most exciting things on my turf always happen as soon as I've sort of touched down in a sunny, warm climate. But, uh, they might raise interest rates again, Mike. Maybe you'll be around for the next hike.

Yeah. Historically, the interest rate cuts have been slightly more regular, so I may at least get to see a few more of those.

Well, my stat of the week this week is 22,370, and that is the number of crows that now live in downtown Portland in Oregon. And that is apparently twice as many as the number of people that live in that area of Portland. And this is something of a sort of crowsplosion or a crowpocalypse. You know, we usually think of urban areas as destroying habitats for birds and being sort of generally hostile to animals and nature. But apparently urban areas like downtown Portland are very habitable for crows in particular. There's sort of lots of food. They don't need sort of as many trees to nest in and that kind of thing. So apparently there's sort of been a massive explosion in the population of crows, such that there is now 2 crows for every 1 person.

Sorry, have you lost a bet or something? Where on earth did you get that stat from? What was the genesis of this?

There was a piece in The Atlantic about this crow explosion, and I clicked on it and nicked one of their stats.

Wow.

Maybe that journalist lost a bet. I don't know. You gonna take it up with them?

Do crows eat pigeons? Is there like a war between the crows and the pigeons?

The crows are to pigeons what Temu is to Amazon. Gonna eat it alive. I don't think that's true. I think they eat grubs. I don't think they eat pigeons. Can you imagine? Well, with that, all that is left for me to do is to thank Wendy Woolison, Mark Schmulich, Michael Morton, and Josh Silverman.

And thank you for listening to Money Talks.

You can always write to us at podcasts@economist.com.

Today's show was produced by Dan Asher and Marie Keyworth.

Our sound engineer is Ting Lei Lim, and the executive producer is Hannah Marino.

I'm Anna Mackenzie. I'm Alice Forward.

I'm Mike Bird.

I'm Tom Lee Devlin.

And this is The Economist.