#138 – Europe’s gatekeepers, forced labor, & Amazon garage fees

What happens when tech companies get so big it creates an uneven playing field for startups?

Whose responsibility is it to eradicate forced labor in the international economy? 

Is Elon Musk's X unfit to hold a banking license?

How much more will Amazon increase delivery fees in 2023?

Is WhatsApp finally going to pay off for Mark Zuckerberg? 

Answers to these questions and more in this week's 138th Edition of Shopifreaks. Thanks for subscribing and sharing!

PS: We're heading back to Ecuador tonight after several months in North Carolina visiting family. If you find yourself down in South America near the equator this year, give me a shout!

Stat of the Week 📈

There were 17,762,467 claims in the Facebook settlement over the Cambridge Analytica Scandal. The plaintiffs' attorney said it was the most ever submitted claims in a class action case in history. — According to Law.com

Share this week's stat on X & LinkedIn.

1. EU names six gatekeepers

The European Union released its first list of “gatekeeper” companies, which are defined as businesses that self-preference and require users to use their own services by banning others.

The EU views that these gatekeeper companies restrict access to core services like online search, advertising, messaging, and communications, and plans to shake up the business models of these digital platforms with its new Digital Markets Act rules.

Criteria for gatekeeper status include:

• Having 45M+ active local users
• A turnover of €7.5B+ in the last three years
• Market capitalization that exceeds €75B
• The Commission also withholds a degree of discretion to target platforms that are heading towards gatekeeper status, but haven't quite reached the thresholds above.

The six gatekeepers listed were: 

1. Amazon
2. Apple
3. Alphabet
4. Meta
5. Microsoft
6. ByteDance

Not surprisingly, five out of the six companies listed were American.

In total, the Commission named 22 services operated by the six gatekeepers including: TikTok, Facebook, Instagram, LinkedIn, Google Maps, Google Play, Google Shopping, Amazon Marketplace, iOS App Store, Meta Marketplace, Google Ads, Amazon Ads, Meta Ads, Chrome browser, Safari browser, Android OS, iOS, Windows OS, WhatsApp, Facebook Messenger, Google Search, and YouTube.

Surprisingly not listed as core platform services were Gmail and Outlook, which collectively hold over 30% e-mail market share worldwide. (Gmail actually owns over 75% e-mail market share in the US — but this is an EU law.)

The regulation technically started to apply in May, after the final details had been agreed by EU lawmakers. At the time, Samsung was also included on the list of potential companies to target, but Samsung didn't make it to the official list. 

The EU wrote that “although Gmail, Outlook.com and Samsung Internet Browser meet the thresholds under the DMA to qualify as a gatekeeper” the companies had provided “sufficiently justified arguments showing that these services do not qualify as gateways for the respective core platform services.”

The list of core services was also notably missing cloud storage services like AWS or Google Cloud, which the Commission said they had considered, but ultimately did not meet the thresholds.

When asked why Bing was not listed as a core service, the Commission asked, “Chandler?”

However the Commission later added that it reserves the right to monitor market developments and add services and companies to the list of gatekeepers at their discretion.

The gatekeepers will have six months to bring their core platform services into compliance with the obligations laid out in the Digital Markets Act, which includes prohibiting self-preferencing, tying, and bundling practices, and enacts data-sharing obligations, among other things.

2. Temu forced labor allegations

US lawmakers warned of an “extremely high risk” that products sold on Temu have been made with forced labor. Nika, Adidas, and Shein are also being investigated. 

[Insert shocked Pikachu face meme]

The House Select Committee said in its report, “American consumers should know that there is an extremely high risk that Temu's supply chains are contaminated with forced labor.”

It later added, “Temu does not have any system to ensure compliance with the Uyghur Forced Labor Prevention Act (UFLPA). This all but guarantees that shipments from Temu containing products made with forced labor are entering the United States on a regular basis.”

Aren't these products coming from the same manufacturers that were previously selling to middlemen who in turn sold their products on Amazon? And still are? Has this just become a bigger problem because Temu is now bypassing those American middlemen companies? It smells a little like Amazon lobbying in here…

Temu said it was not responsible for third-party sellers using its platform — which is both fair and also a cop out at the same time. 

How are these platforms really supposed to enforce UFLPA? By requiring that their vendors check a box on their product listing that says, “I promise this was not made with forced labor?”

One could argue that forced labor is a China-problem, not a Temu-problem, and that companies internationally should be free to assume that they're working with Chinese manufacturers that don't use forced labor, because them's the rules. If America has an issue with continued forced labor practices, they should take it up with China's government for enforcement, not with e-commerce marketplaces. 

On the other hand, marketplaces like Temu and Shein have built their business model around direct relationships with thousands of manufacturers across China. So you could also argue that they could take the proper steps to verify these manufacturer's labor practices prior to working together. 

Regardless of who's to blame, forced labor products are definitely making it across US borders, which is aided by the exploitation of current US law which exempts packages worth less than $800 from customs duties.

Temu and Shein are collectively responsible for around 600,000 packages worth less than $800 entering the US each day.

3. Is X / Twitter unfit for banking?

A law firm representing a Saudi Arabian family has issued a warning to US authorities via an open letter about Elon Musk's plans to turn X into an everything app with fintech services.

The letter claims that:

• X is unfit to hold banking licenses for various reasons.
• X has problems regarding personal data handling of its current users.
• Twitter has acted at the direction of the Kingdom of Saudi Arabia to further the kingdom's “long-running campaign of transnational repression.”
• The actions have resulted in the “savage murder and dismemberment of Washington Post correspondent Jamal Khashoggi and the arrest torture, and imprisonment of Abdulrahman Al-Sadhan, a human rights worker.”
• Former Twitter employees / KSA Agents disclosed confidential user data for over 6,000 Saudi reform advocates to the kingdom, including people living in the US.
• Twitter abused its emergency disclosures policy, which was meant for situations that risk death or serious injury, to identify political dissidents.
• Elon Musk is intentionally complicit in human rights violations.
• As recently as last week, the Kingdom of Saudi Arabia sentenced a retired schoolteacher to death because he shared tweets critical of the government with his eight followers.

The letter wrote, “For these reasons, we believe Twitter is unfit to hold money-transmitting licenses.”

The letter was sent to the Attorneys General and banking commissioners of all 50 states, including the eight states that have already issued X banking licenses.

The letter alleges that Twitter has pushed the blame for the data leaks onto the misconduct of its employees, even though it was Twitter who “sold its corporate soul” to get Saudi investments and ensure that the platform remained in the country, where it has over 11 million users.

The letter ends, “Before KSA potentially expands its reach into running money-transmitting entities in your states through Twitter, which will give it access to even more sensitive user data, your citizens need your vigilance.”

What are your thoughts? Are these reasons to not let Elon Musk's X platform obtain banking licenses? Or should Musk / X not be punished for the sins of their predecessors? Hit reply and let me know. 

4. Amazon to up fees for garage delivery

Beginning Oct 4th, Amazon will charge $1.99 per delivery for in-garage deliveries, which used to be free, other than ones made on the customer's Amazon Day.

The change is a bit confusing so I'll explain below: 

Previously, Prime members could have Amazon drivers drop packages inside their garages for free, regardless of the day, if they enabled the service and used a supported smart home garage door opener.

Now the delivery feature will only be free on a customer's “Amazon Day”, which is a customer-selected day of the week when all of their orders arrive at the same time.

Customers can still choose to have garage deliveries any day of the week, but deliveries outside of their Amazon Day will come with the $1.99 charge.

Some customers aren't happy with the change. One user wrote on Reddit, “When I started with Prime it was $79 a year. Now it's $170 and I was already having a hard time justifying that since I don't use any of the other ‘perks'. 90% of my packages use key delivery. If now I only get key delivery once a week, why am I paying $170 for 2 day service! If I have to wait that long I may as well cancel Prime and just order multiple things in one order that qualifies for free shipping.”

It feels like every week recently, I'm posting news about Amazon increasing their delivery fees:

• Two weeks ago I reported that Amazon will begin charging Prime members £1.99 for same-day delivery in the U.K. on orders under £20.
• In March, Amazon raised the minimum threshold for Prime free shipping to $150 from $35 and added charges of $3.95 to $9.95 on orders below the new limit.
• In April, Amazon began charging a $1 fee in the US to return drop-offs to UPS stores.
• Three weeks ago, I reported that Amazon will begin adding a 2% fulfillment fee for members of its Seller Fulfilled Prime program, which allows merchants to ship their own packages, but still include the Prime badge on their listing.
• And last month, I reported that Amazon going to begin delivering more products directly in the manufacturer's box, without an Amazon box wrapped around it.

5. TikTok to enhance social networking and messaging features

TikTok recently posted job openings for roles dedicated to enhancing social networking elements and expanding direct messaging capabilities.

• Roles posted for Android and iOS engineers say the team is looking to build a platform that “enables users to meet and interact with their real-life friends seamlessly on TikTok, and encourage them to share their life moments with each other and stay connected regardless of where they are.”
• A job listing for product manager for “TikTok Social” says the company is looking to “expand the boundaries of TikTok by encouraging building meaningful social connections between users.”
• A job posting for a backend tech lead acknowledges that TikTok's messaging experience is in “its infancy.”

TikTok told Axios that there's concern internally that users are sharing TikTok videos on other social media and messaging apps when they want to discuss them with friends.

While TikTok does currently offer direct messaging, it's functionality is very limited, and the company wants to retain user engagement within the app as it looks to offer more e-commerce and live shopping capabilities.

TikTok has historically positioned itself as an “entertainment platform”, especially amid regulatory scrutiny. While they still plan to continue offering “entertainment” its core feature, TikTok says it will “experiment with new features to enhance the user experience.”

6. WhatsApp is ready to make money

Speaking of messaging apps… while TikTok is looking to grow their direct messaging feature, WhatsApp is looking to finally monetize theirs. 

Since purchasing WhatsApp for $19B almost a decade ago, WhatsApp has never been much of a moneymaker for the company. Unlike Instagram, which Meta bought in 2012 for only $1B, WhatsApp doesn't show ads, which is Meta's core business model.

However in many Latin American and Southeast Asian countries (including Ecuador where we live), WhatsApp is the number one way that people communicate with each other and with businesses — which is where the monetization opportunity lies.

Alice Newton-Rex, WhatsApp's product director, told CNBC. “If you go to India or Brazil and you look around, you’ll see WhatsApp numbers posted up in shop windows everywhere. This is how businesses want to engage with their customers.”

Newton-Rex's group is now tasked with building features that can unlock WhatsApp's business, which is estimated to currently only drive between $500M and $1 billion in revenue, equaling less than 1% of Meta's total sales. Instagram, in comparison, will bring in around $40B in revenue this year for Meta. 

Meta launched its WhatsApp Business app in 2018, pitching it as a way for companies to more easily communicate with users through verified commercial accounts and in-app tools. In June, Meta reported that the WhatsApp Business app has 200M monthly active users.

Premium offerings of the WhatsApp Business App include: 

• The ability to build a WhatsApp website
• Access a corporate account on up to 10 devices
• Features to help provide more customer service and support to big audiences
• Meta charges per conversation for the upper-tier service, which varies by country, but can range up to 6 or 7 cents per convo.
• While companies can't run ads on WhatsApp, they can buy a special “click-to-message” feature, which redirects IG and FB users to WhatsApp to initiate an immediate convo.
• In June, Meta launched its Channel feature, which they describe as a “private broadcast service” (but I say is just another “Story”). Meta plans to monetize the service by potentially allowing users to subscribe to channels for a small fee.

WhatsApp is biggest in Spain, Italy, and Argentina, where at least 80% of Internet users accessed the app once a month or more. However that number is only 21.8% in the U.S.

7. eBay's new image generated product descriptions

eBay introduced a new tool that uses images uploaded by sellers to fill in other information about the products.

The feature will give sellers the option to have their entire product listing generated just from uploading a photo including product title, description, item category, and other key information.

The tool, in combination with eBay's other tech, can also suggest a listing price and shipping cost.

eBay previously experimented with a lighter version of the AI tool that generated a product description based on a few seller inputs. Now the company feels like it's capable of generating the product info it needs just from photos with no text input by the seller.

Sellers were overall unimpressed with the previous tool, and the new version still leaves a lot to be desired for some product categories. 

Mia Sato of the Verge wrote, “When I experimented with it, the result was stilted, cliché language that added more words but nothing very useful. My initial description included a note about the condition of a vintage clothing item and a misleading size tag, but the AI tool removed that information that a potential buyer would probably want to know. In the end, the AI description tool didn’t save me any time — and if left without edits, I’d expect a complaint from whoever ends up purchasing my item.”

To be fair though, I'd imagine that the tool can work great for some products that have a ton of public information (like playing cards, sneakers, electronics), but not as great for other products (like Mia's stinky thrift shop sweater). 

eBay wrote in its announcement, “Take trading cards, for example. Even just identifying a specific trading card, from the millions out there, can be difficult. Buyers demand a great deal of information before they make a purchase, including manufacturer, set, league, team, card number, parallel/variety, grade, year and more. We think we can provide a more efficient way for sellers to provide that information.”

The magical listing tool is currently only available on the iOS app, but will be available on Android in the coming weeks.

8. PayPal + Meta for Donations

PayPal is expanding its partnership with Meta to enable charitable giving on Facebook and Instagram in the US, UK, Australia, and Canada.

Charities will now be able to raise money through fundraisers and donation buttons on the social networks, and donations will be received by PayPal Giving Fund and granted to the benefiting charities.

The integration previously worked exclusively on Facebook only in Australia, Canada, and the UK, and now the new expanded partnership will bring it to Instagram and the US.

I thought Facebook already had a donations feature?

They did, for several years now. Remember all those birthday donation requests from people you haven't spoken to in 15 years?

However per their website, Meta is now exclusively partnering with PayPal's Giving Fund to collect the donations.

They did not specify why. However, my guess is that it'll streamline their donations operations by outsourcing the accounting and compliance to PayPal. Now Meta can still receive praise for facilitating charitable donations on their platform, without having to deal with the logistics headache behind the scenes. 

9. Other e-commerce news of interest

Amazon is now requiring writers to disclose to them if their work includes AI-written material, following months of complaints from the Authors Guild and other groups. Impact of the policy change may be limited at first because Amazon will not be publicly identifying books.

Thousands of Square and Cash App customers were unable to access their accounts or send money Thursday afternoon or Friday morning due to system outages impacting the platforms. Services steadily regained their functionality by late Friday morning. 

Flexport's CEO Ryan Petersen announced on X that the company was rescinding dozens of job offers on Friday morning, some of which were set to start as early as Monday the following week. He wrote, “It's messed up. But no way around it, we have had a hiring freeze for months I have no ideas why more than 75 people were signed to join. Or why we had over 200 open roles are on our website.”

Affirm and Booking.com teamed up to offer BNPL at checkout across several of Booking Holdings travel brands including KAYAK, Agoda, and Priceline. Customers will have the option to pay for their travels in monthly or bi-weekly installments. 

Also in the world of paying for travel in installments, Klarna teamed up with APEXX, a platform that lets merchants host BNPL services through a single API. The partnership will open up the travel sector for Klarna, where APEXX has a large list of clients.

Meta is looking to rival OpenAI with a new model that will supposedly be several times more powerful than the Llama 2 generative AI model that was released earlier this year. Meta wants to accelerate the development of AI models capable of generating more humanlike expressions (for when Mark Zuckerberg takes photos I guess).

H-E-B opened a 100,000 square-foot fulfillment center in Katy, Texas, its largest facility to date and the first standalone one in its network of now seven fulfillment centers. The new facility is nearly double the size of its others and will support the company's curbside and home delivery offerings in the Houston area.

X has been caught running unlabeled ads in users' Following feeds — meaning the ads did not properly display the “Ad” label at the top right of the post. It's currently unclear whether it was a glitch with X's advertising platform or a deliberate change to deceive consumers into believing that some ads were organic posts.

Facebook is the most used social platform by small and medium sized businesses, and also the best channel for ROI, according to a survey from Taradel. Over two thirds of surveyed businesses plan to advertise on Facebook in the coming year.

In August, TikTok was banned in Senegal and Somalia, and now there have been efforts to do the same in Kenya, Uganda, and Egypt. Citizens believe that the motive behind the ban is to suppress public criticism of the government. 

Last March, Amazon announced that it was dropping all of its print and Kindle magazine and newspaper subscriptions, which went into effect last week. Independent publishers have since been scrambling to figure out how to make up for the loss in income due to the loss of subscribers, who they could not reach directly to re-platform since they subscribed through Amazon.

Speaking of Kindles, Amazon updated the Kindle App on Mac with the new name Kindle Classic, which is set to be discontinued next month. A new Kindle app for the macOS will be released in the coming weeks, which features an enhanced booking reading and library management solution.

Intuit is bringing its new generative AI powered assistant into its TurboTax and QuickBooks products to create personalized experiences for its customers. The new service, Intuit Assist, will give users a personalized chat experience with their financial and customer data. Does everything have to be chat based now? I'm fine with simply clicking “Reports” to access the data I need.

Instacart launched a Shopify app to enable emerging consumer packaged goods brands on Shopify to access Instacart Ads. Merchants can now connect to InstaCart Ads products, tools, insights, and automation from directly within the Shopify dashboard.

Squarespace launched its latest campaign, Designed to Sell, which shows how entrepreneurs can stand out online by showcasing the endless possibilities of its websites. The video ad showcases businesses and products such as acting workshops, hair stylists, auto restoration, self defense classes, 3D nail sets, audio classes, underwater photography, handball coaching, contemporary furniture, and fashion brands leveraging Squarespace's website builder to create powerful online presences.

eBay informed sellers that it will begin charging them for UPS and FedEx shipping labels at the time of printing instead of after delivery. The company already charges sellers for USPS labels at the time of printing, so this will align all three with the same policy.

Etsy introduced a new program called Share & Save, which rewards sellers who drive traffic to their listings. When a buyer visits a seller's Etsy shop via their unique link and makes a purchase, Etsy will take 4% of the order total off the seller's bill, helping them save on fees.

Apple suppliers in Vietnam are scrambling to fill over 40k jobs in the country in a bid to expand outside of China, but have so far only been able to hire half as many workers as desired. The previous rounds of massive layoffs caused many laborers to move back to their hometowns, now making it difficult for the manufacturers to rehire the same number of staff. Wow, turns out people need stable work and don't just sit around waiting to be rehired!

Insiders say that the FTC is likely to sue Amazon later this month over merchants complaints that the company unfairly ties access to its marketplace with its logistics service, capping a four-year antitrust investigation into the company. Amazon executives met with the FTC’s three commissioners in mid-August to discuss the suit, but no settlement was discussed.

X's downloads plummeted by almost 30% within two months of the rebranding from Twitter, marking its lowest point in over a decade. The web version also saw a 10% reduction in traffic in August compared to the year prior. 

Amazon is facing lawsuits from landlords in Long Island, New Jersey, Philadelphia, and Seattle for signing leases to open Amazon Fresh stores, but never opening them, and subsequently never paying rent. The latest example is with Salisbury Partners in Long Island, who say that Amazon used stall tactics to delay the commencement of the lease before eventually backing out.

commercetools appointed Dan Murphy as its first CFO. Murphy joins the company from Unqork, where he was responsible for scaling the business, and previously served as CFO for LivePerson.

A judge ruled that Amazon must face a prospective consumer class action lawsuit accusing the company of a price-fixing scheme that artificially inflated prices for goods on its platform. The lawsuit is among several current suits that accuse Amazon of business practices violating consumer protection laws or antitrust provisions.

10. Seed rounds, IPOs, & acquisitions

Treyd, a Sweden-based BNPL service for supplier invoices, raised $12M in Series A extension round led by Nineyards Equity, bringing its total amount raised to $25M. The company plans to use the funds to invest in its core product offering and continue growing in its existing markets throughout the UK and the Nordics.

Zopa Bank, a British neobank that services 1M customers, raised £75M via a debt fundraise led by IAG SilverStripe, bringing its total amount raised to £530M. The company plans to use the funds to make some acquisitions and build more products alongside its loans, savings, and BNPL services. 

Shop Circle, an e-commerce platform that aims to create an operating system for e-commerce brands with AI-driven tools and processes, raised $120M in a Series A round led by 645 Ventures and 3VC. The funds will be used to continue building and expanding the company's suite of e-commerce tools including its data-driven tech stack consultation program.

Rocketfy, a Colombia-based e-commerce platform that connects 400k entrepreneurs across Latin America, raised $7M in debt funding from Aluna Partners. The funds will be used to enhance the platform's technology and develop new logistics and payment solutions.

Wayflyer, a platform that provides financing to e-commerce startups in exchange for a portion of their future revenue, secured $1B in capital from Neuberger Berman. The company, which isn't yet profitable, will use the proceeds to continue fueling its growth, particularly in the U.S.

Harmonya, a startup that uses AI to provide companies with insights to enhance their consumer packaged goods and retail data, raised $20M in a Series A round led by Bright Pixel Capital, bringing its total amount raised to $25M. The platform can ingest information from millions of online product listings and create unique tags from titles, descriptions, ingredients, and reviews to help map related products.

Penny Black, a UK-based packaging startup that aims to make e-commerce packages more rewarding and personalized, raised £1.5M in a round led by AGFA. The company's tool is already being deployed across Europe by fulfillment providers and they plan on using the funds to expand operations. 

💖 Thanks for being a Shopifreak!

If you found this newsletter valuable, please leave a review on Google and share the newsletter with your friends and colleagues to help us grow.

See you next Monday,

PAUL

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

PS: I told my doctor that I broke my arm in two places. He told me to stop going to those places.