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#151 – Amazon reduces fees, Chinese app jurors, and TikTok’s big investment

by | Dec 11, 2023 | Recent Newsletters

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This week I've got an edition chock full of lawsuits, intense rivalries, and… a jury of your peers?

Today's edition covers: 

  • Amazon's new (and reduced) seller fees
  • TikTok's big investment in Indonesia
  • Updates on the Epic vs Google trial
  • Amazon and Venmo's relationship ending
  • Key risks in 2024 as determined by the OCC
  • An innovative review system employed by Chinese apps
  • X progressing farther into bank-hood
  • Amazon's lawsuit against cybercriminals
  • The USPS banning the word “Amazon”
  • Pepsi's upcoming super app

All this and more in this week's 151st Edition of Shopifreaks. Thanks for subscribing and sharing.

PS: If you've been enjoying Shopifreaks, please write me a review on Google!

Stat of the Week 📈

Temu accounted for 17% of market share in the U.S. within the discount stores category. That compares to 43% for Dollar General, 28% for Dollar Tree, and 8% for Five Below. — According to Reuters

Dollar General has seen the steepest decline in market share compared to competitors, down to 43% from 57% in January, while Dollar Tree's share slid from 32% to 28% during the same period.

Share this week's stat on X & LinkedIn.

1. Amazon reduces seller fees

Well there's a headline I never thought I'd be typing! However the full story isn't as exciting for all sellers…

It's true that Amazon is reducing its seller fees, but only for clothing items under $20.

(That unfortunately means I'll still be paying Amazon $5.97 in seller and FBA fees on my World Map Coloring Poster.)

Starting in January, the seller fee will be reduced from 17% to 5% for apparel under $15, and clothing priced between $15 to $20 will incur a 10% fee. 

Something tells me we're about to see a lot of clothing items for sale at $14.99…


Look Back: Amazon increased its seller fee on clothing to 17% from 15% five years ago, in April 2018.


Business Insider acknowledged that the reduced fee strategy could help Amazon compete with Shein, where a t-shirt costs about $5 and jeans sell for around $15.

However Juozas Kaziukėnas, founder of Marketplace Pulse, feels that the fee reduction won't be enough to combat Shein.

He wrote, “Amazon doesn't have the tens of millions of followers Shein has on Instagram nor the billions of views Shein hauls have on TikTok. Focusing on fees is missing the forest for the trees.”

Despite Shein's popularity, it's still significantly smaller than Amazon in the U.S. in regards to GMV — for now. While Shein's GMV will exceed $40B this year, that's less than 10% of Amazon's. The difference though, is that most of Shein's revenue is from clothing sales, which the company is best known for. 

In other Amazon fee news this week…

  • Amazon is increasing fees on Multi-Channel Fulfillment by 3.5% across all delivery speeds, beginning Feb 5, 2024.
  • Amazon is also introducing a new low-inventory-level fee, which it says sellers can avoid by maintaining more than four weeks of inventory relative to sales. So now there's low-inventory and long-term storage fees. You've really got to Goldilocks your inventory if you want to avoid fees on Amazon!
  • Lastly, Amazon is piloting an add-on grocery subscription for Prime members in three cities (Denver CO, Sacramento CA, and Columbus OH), which gives members access to unlimited grocery delivery on orders over $35 from Whole Foods and Amazon Fresh, as well as unlimited 30-minute pickup on orders of any size. Amazon previously offered free grocery deliveries over $35, but later upped the threshold to $150. They've been playing around with the fees / benefits ever since. 

2. TikTok to invest $1.5B in Tokopedia

ByteDance is investing $1.5B in a new joint venture that will bring together Tokopedia, the e-commerce unit of Indonesian tech giant GoTo, with TikTok Shop in Indonesia.

ByteDance will have a 75.01% controlling stake in the new entity, which will allow TikTok to once again do e-commerce in the country. 

Here's a quick backstory if you're out of the loop: 

  • In October, Indonesia banned e-commerce transactions (see story #3) on social media in an aim to protect its small businesses from predatory pricing and avoid flooding the country with cheap Chinese-made products.
  • Indonesia was TikTok's second-largest global market after the U.S.
  • With a connected population of more than 270M, Indonesia accounted for nearly $52B of e-commerce transactions last year.
  • One week after the ban was implemented, TikTok Shop shut down in Indonesia. Since sellers could no longer checkout on TikTok, they began sharing links to their storefronts on Shopee, Tokopedia, Lazada, and WhatsApp.
  • A month later, TikTok, YouTube, Meta, and other social media giants began exploring the idea of applying for e-commerce licenses in the country.
  • TikTok also entered into discussions with Indonesian e-commerce players including GoTo, Blibli, and Bukalapak to revive its e-commerce ambitions.
  • Two weeks ago I reported that TikTok had entered into negotiations with GoTo, which have now come into fruition.

Here's how the deal between ByteDance and GoTo will work: 

  • First Tokopedia will acquire TikTok Shop's Indonesia business for $340M before the end of the year.
  • Next TikTok will acquire the majority stake in Tokopedia for $840M.
  • Further money will be invested up to $1.5B over an unspecified period to build out the entity.
  • The overall transaction is expected to close in the first quarter of 2024.

As I mentioned, the purpose of the original ban on social media e-commerce transactions was to protect small businesses. 

TikTok and GoTo recognized this and said in a statement, “More than 90 percent of the combined business’s merchants are micro, small and medium enterprises and the companies will undertake a series of joint initiatives to support them.”

They added, “Going forward, TikTok, Tokopedia and GoTo will transform Indonesia’s e-commerce sector, creating millions of new job opportunities over the next five years.”

What just happened here?

To protect consumers and small businesses in Indonesia from Chinese companies taking over their e-commerce economy, the solution is to have the Chinese companies buy a controlling stake in Indonesia's marketplaces? 

As Morty Smith would say, that just sounds like extra steps.

The joint venture, despite potentially being a legal sidestep, doesn't feel like it's following the spirit of the new laws.

I'm curious how this will all shake out — if the Indonesian government will permit the transaction to go through, if they'll adapt their new laws to prevent TikTok and others from blatantly superseding their rules, etc.

3. Epic vs Google Trial Updates

As you might recall, Epic Games is suing Google over whether Google's Android app store is an unfair monopoly.

The trial kicked off Nov 6th, and The Verge's Sean Hollister has been chronicling the case, writing nearly 600 updates from the courtroom.

Here's a recap of 14 of the most interesting things he's learned so far during the trial: 

  1. Epic could win even though they lost a similar case against Apple.
  2. Google internally saw Epic Games as a “contagion” that would infect Android's biggest game and app developers, so it went on the offensive several years ago to come up with multiple strategies to mitigate the risk.
  3. One of those strategies, Project Hug, was a plan to invest money in game developers that were at risk of following Epic's lead. Google approached 22 of them in total to make deals.
  4. In Epic's opening arguments, it promised to show the jury that Google pays competitors not to compete, but Google contended that the deals were more like giving a discount.
  5. One of the other strategies, Project Banyan, would have seen Google hosting the games through the Galaxy Store on Samsung phones, but the deal never happened.
  6. Project Elektra would have seen Google purchase a controlling stake in Epic, but that didn't happen either.
  7. It was revealed in internal documents that Google execs wanted to block other app stores and accomplished that goal in several instances by offering incentives not to move forward with them.
  8. The trial destroyed any notion that Google treats developers fairly and equally.
  9. Google is well aware that its “User Choice Billing”, which allows developers to switch off Play Billing, is a “fake choice”, because devs would then have to pay for their own alternative payment processor.
  10. Google internally estimated that many app developers overpaid as much as $1.43B per year compared to the value they received.
  11. In 2020, Google internally bragged that it was “one of the most profitable businesses” in the world, and “very close to being a Fortune 100 company all by itself” after its profit margins on the Play Store grew from 26% to 71%. 
  12. Although Google subjectively might be charging too much for its services, it argued successfully that it deserves something for Play, but that it could have figured out a different way to charge for its services other than through payment processing.
  13. Both Google and Epic planted fake or unfair stories in the press to advance their agendas against the other company.
  14. Epic isn't suing for cash. It's asking for an injunction that stops Google from blocking alternative app stores and billing systems.

The full story along with the live updates are “epic” reads. Closing arguments are happening this afternoon. 

4. Amazon drops Venmo after one year

Venmo users will no longer be able to pay for their Amazon purchases through the service, beginning Jan 10th.

From Jan 10th onward, customers will still be able to use their Venmo credit and debit cards, just as they would any other bank card, but they will be unable to directly link a Venmo account.

PayPal, which acquired Venmo in 2013, said in a statement, “Venmo and Amazon have agreed to disable Venmo as an option to pay on Amazon at this time. Customers can continue to add their Venmo debit card or credit card to their Amazon wallet to pay on Amazon. We have a strong relationship with Amazon and look forward to continuing to build on it.”

Neither company offered further explanation as to why the payment partnership was coming to an end after just over a year. 

PayPal had about 58M Venmo users as of March 2023, according to PayPal Senior VP Doug Bland. At the time, Bland said that PayPal was working with Amazon on ramping the use of Venmo on its marketplace after an initial roll-out in Oct / Nov 2022. However it looks like Amazon opted to take the exit ramp instead.

Amazon’s decision to remove Venmo from its selection of payment options will create a setback for PayPal's growth strategy, which has been moving forward steadily. 

In PayPal’s most recent Q3 earnings results, the company noted that total peer-to-peer payments volume from PayPal, Venmo, and Xoom increased 4% to $97B, with Venmo representing the bulk of that.

5. The OCC weighs in on 2024 risks

The Office of the Comptroller of the Currency shed light on key risks facing the federal banking system in its Semiannual Risk Perspective for Fall 2023, which include: 

  • Credit risk increasing due to higher interest rates.
  • Rising deposit rates due to higher interest rates and increased competition for deposits among banks, which could negatively impact investment portfolio values.
  • Increased operational risks such as cyber threats due to increased digitalization efforts by banks.
  • Compliance risks due to a heightened focus on ensuring equal access to credit and fair treatment to consumers, including expanded partnerships with third parties like fintechs and BNPL firms.
  • Artificial intelligence, which could present challenges and risks relating to compliance, credit, reputation, and operations.
  • The report underscored the overall robustness of the banking system while urging banks to maintain diligent risk management practices.

The OCC also issued guidance to U.S. banks around offering BNPL to their customers and addressed some of the risks of BNPL including:

  • Borrowers could overextend themselves or may not fully understand BNPL loan repayment obligations.
  • BNPL applicants might have limited or no credit history.
  • The lack of clear, standardized disclosure language could obscure the true nature of the loan, result in consumer harm.
  • Lenders could have no visibility into an applicant's borrowing activity on BNPL platforms given limited capture of BNPL activity by credit reporting agencies.

The report wrote, “Banks should maintain underwriting, repayment terms, pricing, and safeguards that minimize adverse customer outcomes and should ensure that marketing materials and disclosures are clear and conspicuous.”

Wow, very timely OCC! Thanks for those too-little-too-late suggestions about safeguarding consumers from BNPL. I could've written that report in 2020.

6. Chinese apps let users settle customer disputes

Did you know that many Chinese apps invite users to serve as juries that weigh in on disputes between sellers and other customers?

I never knew this! Although it's not technically news that happened last week (which is what I usually cover), I wanted to share because the system is quite fascinating. 

Here's how it works: 

  • A customer makes a complaint on an app, such as their food being cold after ordering delivery from a restaurant.
  • The restaurant appeals the review if it feels that it is unfair, fraudulent, or malicious.
  • A case is opened and jurors, comprised of both users and other sellers, read the customer's review, evaluate the original order and delivery records, and consider additional information provided by the restaurant and customer before casting a vote for one side.
  • If they find in favor of the seller, the review is removed.

Some of the jurors take the responsibility very seriously! They look closely at the order notes, zoom in on the photos of food uploaded by the customers, and scrutinize the delivery time stamps.

Zeyi Yang of MIT Technology Review, who is fascinated by these types of peer review systems and has written extensively on the subject, compares the system to judging “Am I The Asshole” posts on Reddit.

It's not a new phenomenon at all in China. I've just never heard of it.

Companies that employ / have employed this type of system include: 

  • Meituan, a popular food delivery app in China, first introduced the feature in 2020 and called it “Kangaroo Juries,” since the app’s mascot is a yellow kangaroo.
  • Idle Fish, a secondhand marketplace operated by Alibaba, has a similar system where any dispute between buyers and sellers can be decided by a panel made up of 17 volunteer jurors.
  • Douyin, the Chinese version of TikTok, allows users to become jurors and help the platform screen out content that violates its rules.
  • WeChat once had a system in which volunteers could decide whether articles had been plagiarized.
  • Weibo at one point recruited volunteer content moderators who could suspend other users.

Angela Zhang, a law professor at the University of Hong Kong, who has done extensive research on what she calls “crowd-judging” features, says that the public jury function can improve efficiency in resolving disputes and bring more transparency to a platform’s decision-making process.

“Since these decisions are crowdsourced, they align more closely with community norms, helping platforms better understand and integrate these standards.”

Personally I'm all for it! Maybe I spend too much time on Reddit, but I feel like I'm constantly reading consumer horror stories about ride sharing platforms, retail marketplaces, cable companies, and airlines. I'd love to be able to weigh in on those complaints and have some impact on their outcome. Wouldn't you?

7. X secures 12 money transmitter licenses

Elon Musk is moving forward with his plans to turn X into an “everything app” that includes its own payments system.

The company was granted three additional money transmitter licenses in the U.S. states of South Dakota, Kansas, and Wyoming, bringing the total number of states where X is allowed to engage in money transfers to 12.

The other states where X is licensed are Arizona, Georgia, Iowa, Maryland, Michigan, Mississippi, Missouri, New Hampshire, and Rhode Island.

The registrations are under the business named “X Payments LLC,” which will operate the money transfer operations at X.

Musk confirmed the news with a one word tweet reply that simply read, “Progress.”

Musk has previously spoken about his plans to evolve X into a payments platform, describing the platform as a place where users would be able to send money to others on the platform, withdraw their funds to authenticated bank accounts, and possibly even deposit them into high-yield savings and money market accounts that would encourage people to keep their cash with X.

He recognizes that his plans to build a payment system put him in direct competition with PayPal, a company he co-founded.

Payments are also tied to X's broader move into the creator economy, where users can become eligible for revenue sharing on ads. It also ties into any ambitions X has to facilitate e-commerce on its platform. 

In other X news, Elon Musk's artificial intelligence company, X.AI, filed with the SEC to raise up to $1B in an equity offering. The company has raised nearly $135M from four investors, with the first sale occurring on Nov. 29, according to the filing.

The AI startup, which Musk announced in July, seeks to “understand the true nature of the universe.”

X.AI began rolling out its A.I. chatbot Grok last week to U.S. users who subscribe to X Premium. Grok is similar to ChatGPT and Google Bard in that it's trained on real-world data, but differentiates itself from the competition with its access to real-time data flowing through the X network. For example, Grok was able to mention the launch of Google's Gemini, which happened only hours ago at the time.

8. Amazon sues cyber criminals

Amazon filed a lawsuit against REKK, an international group of cyber criminals, for allegedly exploiting the company's return and refund system to steal millions of dollars.

The group manipulated Amazon's system to log fake returns, stealing high-priced items like laptops and game consoles.

I'm surprised Rekk.io (a non-related company) hasn't made light of the news on their homepage. “The Internet's #1 call recording and transcription service NOT being sued by Amazon!”

Here's how the heist worked: 

  • REKK advertised its services to a Telegram channel with 30k followers.
  • The criminals would take additional payment as part of the item's original price.
  • Then they'd manipulate Amazon's systems to log a return that never happened. 
  • The customer would only be out REKK's fee and not incur any cost for the item itself. 

In some cases, REKK used a phishing attack against fulfillment center employees to mark the items as returned. Other times they'd simply bribe Amazon employees to approve returns.

One employee bribed by REKK approved 76 product returns worth over $100,000 for $3,500, while another was paid $5,000 to approve 56 fake returns worth over $75,000.

The lawsuit names 27 individuals from the U.S., the U.K., Canada, Greece, Lithuania, and the Netherlands who were involved in the scheme.

9. Other e-commerce news of interest

Amazon filed a motion to dismiss the FTC antitrust lawsuit against it, alleging the company of using monopolistic practices against its competitors and customers. Amazon is arguing that the FTC did not provide evidence that its practices have driven up prices or harmed consumers.


Mail carriers in rural Minnesota were warned by U.S. Postal Service management not to use the word “Amazon” when customers ask why the mail is delayed, and instead to use words like “Delivery Partners” or “Distributors”. They were also told that their jobs could be at risk if they speak publicly about post office issues. Last week I reported that rural postal workers are being overrun with Amazon orders, causing carriers to quit or stage strikes.


Amazon is being accused by union organizers of breaking the law for not allowing off-duty workers access to its facilities to persuade co-workers to join a union. Amazon says its off-duty access rule is “a lawful, common-sense policy.” Several former Amazon employees have also claimed that their firings were a response to their union organizing efforts, but Amazon says the recent disciplinary actions were strictly due to rule violations, not union organizing.


In other Amazon logistics news, pilots for Air Transport International, a cargo airline that operates half of the 80 U.S. aircraft currently in service for Amazon, voted to authorize a strike last month, which could upset Amazon's logistics network in the coming year. Federal law requires airline labor disputes to be mediated by the U.S. Government's National Mediation Board, which will implement a 30-day cooling-off period if it determines the parties have reached an impasse and they refuse arbitration, which comes to an end at the start of the year.


Meta launched the Purple Llama project to develop parameters around generative AI tools in order to prevent “risky AI outputs”, as well as to create cybersecurity safety evaluations for large language models. Meta, which is also working in partnership with Microsoft, Amazon, Nvidia, and Google (among others) with the newly established AI Alliance, says its Purple Llama project is designed to “bring together tools and evaluations to help the community build responsibly with open generative AI models.”


Elon Musk filed a petition with the Supreme Court requesting it undo a 2018 settlement with the SEC that requires a company lawyer to vet any X posts he makes about Tesla before he sends them. Musk says that this “Twitter sitter” imposes “unconstitutional conditions” by limiting his freedom of speech.


Twitch is quitting operations in South Korea, citing that network access costs ten times higher than it pays in any other country as its reason for the exit. The company claims that the expensive network fees have caused Twitch to operate at a significant loss in the country.


Block launched Bitkey, a self-custody bitcoin wallet that uses a 2-of-3 multi-signature mechanism for wallet recovery. Rather than rely on seed phrases like traditional wallets, Bitkey prompts a user to provide a combination of one key from the mobile app, another stored in a separate hardware device, and a third held by Bitkey itself.


Affirm CEO Max Levchin told Bloomberg in an interview that BNPL offers a better way for consumers to manage their finances and make sound financial decisions. Levchin said that Affirm’s model provides simplicity, transparency and control over finances. Yeah, okay Max — maybe for the financially literate, but that's not exactly BNPL's target demographic is it?


Meta is rolling out end-to-end encryption for all calls and messages across its Facebook and Messenger platforms, which means that no one other than the sender and recipient (not even Meta) can decipher people's messages. Encrypted messaging was first announced in 2019, but the company says that it's taken years to deliver “because we've taken our time to get this right.”


Tidal, the music streaming service owned by Block, is cutting more than 10% of its staff, or around 40 workers. Jack Dorsey recently told investors that it plans to cap the number of people at the company at 12,000 (currently over 13,000), and two weeks ago I reported that the company will no longer do performance reviews or performance-improvement plans, which Dorsey feels is a waste of time.


PepsiCo is working on a “super app” that will offer the company's entire portfolio of products and one central place for managing loyalty points and rewards programs across all their brands. The app will present the full scope of PepsiCo's product selection and help customers find products at various local and online retailers. 


Meta's AI character chatbots are fully rolled out across the U.S. for people to chat with across WhatsApp, Messenger, and Instagram. Personalities include Paris Hilton, MrBeast, Kendall Jenner, Tom Brady, and others. Additionally, more of its AI characters will support search powered by Bing, and it will begin experimenting with “long-term memory” in several, meaning the characters will learn and remember your convo when it's over.


Australia Post will soon end daily letter deliveries as part of a series of postal reforms designed to modernize the service and help it turn a profit. Letters will only be delivered every second business day for 98% of locations, but parcel delivery will continue daily. Australia Post delivered 500M parcels last year, but lost A$200M for the year, marking its second time in red since 1989.


Adyen and Klarna are extending their partnership, with Adyen agreeing to serve as the acquiring bank of Klarna to power card payments for its 150M consumers and 500M retail partners. The two fintechs first partnered ten years ago when Adyen started offering Klarna's BNPL technology to its customers.


Walmart Canada plans to invest around $1B in the coming year to update its stores, transforming its infrastructure and customer experience into the “store of the future”. The capital outlay will also be used to expand Walmart Canada's fulfillment network to bolster its online service at its more than 400 stores nationwide.


Mastercard is launching a new generative AI shopping tool called Shopping Muse, designed to help users get personalized product recommendations. The tool is powered by Dynamic Yield, a personalization company acquired by Mastercard in April 2022, and the company says it is designed to “revolutionize how customers search for and discover products in a retailer's digital catalogue.”


In October I reported (story #2) on a Shopify-Gallup survey which revealed that 80% of shoppers indicated that they planned to begin holiday shopping in November or earlier. I noted that it'd be interesting if Shopify followed up later to see when they actually started shopping. Turns out they did! In their most recent survey, 49% of holiday shoppers in the U.S. said they plan to do the bulk of their holiday shopping in December. How the turn tables!


A Brazilian student's case against Amazon, which aims to hold the marketplace liable for selling a spy camera that was used by her U.S. host to spy on her in the bathroom, is moving forward. The Hidden Clothes Hook Camera was accessible on Amazon's website until recently, and the lawsuit claims that Amazon facilitated illegal usage by accepting keyword searches like “bathroom spy camera” that indicate unlawful intent.

10. Seed rounds, IPOs, & acquisitions

ZestMoney, an India-based BNPL startup, is closing down by the end of December after efforts to find a buyer or raise additional capital were unsuccessful. At its peak, the company was valued at almost $450M after Zip acquired a $50M stake in the firm in 2021, and since its inception in 2015, the company raised more than $130M in funding. 


Rightbot, a startup developing suction-based robots that can unload truck freight, raised $6.25M in a round led by Amazon's Industrial Innovation Fund, which Amazon launched last April to bolster startups addressing challenges across fulfillment, logistics, and supply chain. Rightbot's robot can automatically unload trucks with an arm equipped with a suction cup and a camera with computer vision that's trained on thousands of hours of footage from warehouses. 


Omniful, a UAE-based supply chain and e-commerce enablement startup that's built systems for ordering, warehouse management, and transport management, raised $5.85M in a round led by VentureSouq. The company says its tech can handle up to 3M orders per day per client, making it ideal for customers pursuing growth.

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See you next Monday,

PAUL

Paul E. Drecksler
www.shopifreaks.com
[email protected]
LinkedIn | Reddit

PS: Why did the pirate go to the spa? He needed some argh and argh!

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