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#145 – Shein & Temu call truce, Meta’s addiction, & AR beauty tools

by | Oct 30, 2023 | Recent Newsletters

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This week I cover: 

  • The huge multi-state lawsuit against Meta
  • AI & AR ads coming to Google and Amazon
  • An update on the Shein vs Temu legal battle
  • Apple Pay Later
  • The Happy Returns acquisition
  • Amazon's first DSA transparency report
  • And of course… Twitter dating?

All this and more in this week's 145th Edition of Shopifreaks. Thanks for subscribing and sharing!

Stat of the Week 📈

Third party merchants on Amazon saw a 76% volume increase in Q3 2023 compared to Q3 2022. All other marketplaces analyzed by Extensiv Market Insights remained static.

Share this week's stat on X & LinkedIn.

1. Is Meta addictive to teen users?

A coalition of 42 US attorneys general from 33 states launched legal action against Meta, accusing it of utilizing addictive processes to hook younger users to its apps.

The lawsuit accuses Meta of deliberately designing its algorithms, alerts, and notifications in a way that keeps young users in its apps for a longer period of time, and gets them to keep coming back to its apps repeatedly.

Just young users? Maybe they should take a look at how addicted Gen X, Millenials and Baby Boomers are to Facebook and Instagram as well. Or would that involve some self reflection? 

Honestly this lawsuit sounds like a bunch of angry parents screaming, “Would you get off your phone!” at their kids while trying to force feed a decade of neglected bonding into their lives on their aging timelines. 

You can't shove your phone in your kids' faces for 12 years when they're being cute or doing something that'll impress your Facebook friends, and then baulk at their own desire to incessantly use their phones when they become teens. 

That's not to say that what the lawsuit alleges isn't true — because it is.

Meta, TikTok, Snapchat, Epic Games, and every other major app maker have unequivocally designed apps that are addictive to all ages. Teens, however, are unfortunately the most susceptible to it. 

The legal action also alleges that features within Meta’s platforms negatively impact teens’ mental health through social comparison, and accuses Meta of violating the Children’s Online Privacy Protection Act (COPPA) through the collection of personal data on users under 13.

The states are seeking to put an end to such practices, while also calling for adequate penalties and restitution. 

In order to do so, they will have to prove that social networks are “addictive” to the letter of the law, which will be difficult because most legal precedent around addiction is related to substances, which doesn't directly relate. For this case, the attorneys general will focus on the triggering of dopamine as proof of addiction.

They will also have to prove that Meta deliberately presents young users with content that will “provoke intense reactions,” such as bullying content or posts related to eating disorders or violence.

Meta says that doing those thing would go against its own long-term commercial interests. “Teens don't want to be exposed to harmful content or hurtful interactions, and advertisers don't want their ads showing up alongside content that isn't appropriate for teens.”

In regards to violating COPPA, that would be the easiest to prove. If Meta has “actual knowledge” of kids younger than 13 using its services and has tracked those accounts, it’s violating the law.

2. Google expands AR beauty tools

Three years ago, Google first unveiled its beauty AR tools for lip color and eye shadow to help shoppers find the right products for their skin tones.

Last week Google expanded the tools to include virtual hair-color and foundation try-ons.

L’Oréal is kicking off the hair-color feature, but advertisers will soon grow to include Splat, Revlon and others.

Customers have the option of viewing the hair-color and foundations on themselves or on models that share similar characteristics.

This builds off Google's foundation-match tool, which launched last year, and allows users to choose from a library of 148 models representing a wide array of skin tones, ages, genders, face shapes, ethnicities, and skin types.

The AR tool is paired with a product description and pricing information, alongside a simplified checkout designed to streamline the purchasing process.

Google's AR efforts are also expanding to ads.

The company claims that shoppers are 10% more likely to interact with beauty products when presented with AR features.

Now beauty brands can test that claim themselves with Google's new option that allows advertisers to play virtual-try-ons in place of featured product images within their advertisements. The ads will only show up on mobile-specific channels so that customers can utilize their phone's cameras as part of the interaction. 

3. Amazon launches AI generated ads

Amazon is also diving headfirst into the shallow end of the AI advertising pool with the beta launch of its AI-generated ad images feature. 

The image generation capabilities available within Amazon Ads are fairly limited at the beginning, mostly focused on generating backgrounds that product images can be overlaid atop of, such as placing a toaster oven on a kitchen counter. The AI tool can also handle simple tedious tasks like generating multiple image sizes.

Amazon wrote, “When that same toaster is placed in a lifestyle context—on a kitchen counter, next to a croissant—in a mobile Sponsored Brands ad, click-through rates can be 40% higher compared to ads with standard product images.”

The author of the article I read on The Register was dismissive of the value that the AI tools brought to advertisers. He wrote, “Who knew that mixing isolated toaster images with kitchen counters and croissants would result in a better performing ad? Every ad agency ever?”

However Amazon isn't looking to attract William Sonoma with this feature. Amazon is aiming at “those that do not have in-house capabilities or agency support.” 

I'm actually personally working with a cookware supply company, and for the past two years I've been advising them to allocate some budget towards creating lifestyle images for their ads — with no success. AI might save the day here! No having to wait for a photoshoot when I can simply apply an AI generated background to their photos myself.

Not only can the tool quickly place a toaster oven next to a croissant (the example Amazon used in their announcement), it can also help advertisers quickly create seasonal ads like replacing the croissant with a slice of pumpkin pie in the fall or a fresh baked cookie around back to school time. Or it could help create geographically specific ads such as changing the type of food shown around the product depending on the country. Although simple, I feel that the tool is very promising.

Here's a 1 minute video if you'd like to see the new tool in action. 

4. Shein and Temu call truce

Last December, Shein sued Temu. Then in July, Temu sued Shein. Now the two rival companies are calling truce so that they can get back to their respective businesses of invoking death by a thousand cuts to US marketplaces.

Here's a brief recap of what went down: 

  • Last December, Shein accused Temu of paying social media influencers to make “false and deceptive statements” against the company in their promotions of Temu, and tricking customers into downloading the Temu app using “imposter” social media accounts.
  • In July, Temu accused Shein of violating US antitrust laws by abusing its market power and forcing manufacturers to sign loyalty oaths certifying that they will not do business with Temu.
  • Last week lawyers representing the companies filed joint declarations requesting that the two legal cases be dismissed “without prejudice” by their judges.

The filings did not contain details on why they decided to drop their complaints or whether any settlement had been made, and neither company has made a public statement about dropping the suits.

I guess Shein and Temu realized that they could spend the next few years battling it out in court and bringing negative public attention to the unscrupulous business practices that they both employ, giving US regulators even more ammunition against Chinese tech companies, or they could turn a blind eye to the other while they focus on carving out their respective dominance in the US market.

Or maybe Xi Jinping said, “Stop it.”

5. Indonesian e-commerce licenses

One month ago, I reported that the government of Indonesia officially banned e-commerce transactions on social media platforms in an aim to protect its small businesses from predatory pricing and avoid flooding the country with cheap Chinese-made products.

Trade Minister Zulkifli Hasan said at the time, “Now, e-commerce cannot become social media. It is separated.”

The new regulation means that social commerce companies are prohibited from facilitating payment transactions on their electronic systems. They can still place ads “like TV,” Hasan said, but the ads can't be transactional. The social networks can't directly sell.

Flash forward a month later and TikTok, YouTube, and Meta are now exploring the idea of applying for e-commerce licenses in Indonesia. 

Meta has already submitted their application for a specific type of e-commerce license that permits the promotion of goods on its platforms, but does not allow direct e-commerce transactions. The license will enable vendors to advertise their products and conduct market surveys through Facebook, WhatsApp, and Instagram.

TikTok and YouTube have yet to submit applications yet. However if TikTok decides to pursue an e-commerce license, it must establish a domestic unit to comply with Indonesian regulations.

TikTok is holding talks for potential partnerships with local e-commerce companies like Tokopedia, while building a standalone TikTok Shop app for Indonesia.

With these new regulations, the Indonesian government hopes that it can help small and mid-sized businesses stay competitive.

6. Apple BNPL is here

Apple officially launched its long-awaited Apple Pay Later service, which is its own in-house BNPL solution for customers. The service is now available for all eligible US residents in the Wallet app on the iPhone.

Apple Pay Later allows users to divide purchases between $75 and $1000 into four payments over six weeks, with no interest or fees. Users can track, manage, and repay their loans in the Apple Wallet.

Originally when I reported on Apple Pay Later in February this year, they said the minimum purchase amount was $50, but they've since raised it to $75 during its beta testing phase.

More details about the service include: 

  • Purchases can be made either on iPhone or iPad on most websites and apps that accept Apple Pay.
  • The loans do not impact a customer's credit score.
  • Every purchase requires a new application. Meaning just because you were approved for a purchase before, doesn't mean you're guaranteed to be the next time.
  • Before making a purchase, customers can see the proposed four new payments alongside their other upcoming Apple Pay Later payments to get an overview of what to expect. 
  • Payments can be made either automatically or manually.
  • Apple sends reminders as due dates approach.
  • There's also a calendar tool that automatically tracks the customer's payment progress, showing what amounts they owe and when payments are due.

Welcome to the collections business, Apple!

7. UPS buys Happy Returns

PayPal is selling Happy Returns, its box-free, in-person return processing business, to UPS for an undisclosed amount. 

(What's with all the “undisclosed” deals? Public companies should be required to disclose the terms of the deal, especially when acquiring businesses or assets from other publicly traded companies. This information is material to evaluating the financial literacy of the current executives and board members. But I digress…)

Happy Returns currently works with 800 merchants to offer their customers a local drop-off point to make box-free returns at 9,000 locations worldwide. 

UPS said that approximately 5,200 of its UPS Store locations will join Happy Returns' established drop-off points, making the service available at more than 12,000 US locations. 

Happy Returns CEO and co-founder David Sobie, who will continue to lead the business for UPS, said, “Joining the UPS team is a win for both our employees and our customers. In recent years, the growth of Happy Returns has accelerated, and we’ve built an enterprise-grade solution. This new chapter is a natural next step for Happy Returns and allows us to harness the power of the UPS network to transform the returns industry.”

The announcement from UPS to buy Happy Returns came just a month after it signaled its intent to purchase healthcare specialist MNX Global Logistics.

Happy Returns was acquired by PayPal in 2021, six years after it was founded in 2015. In March 2022, I reported that PayPal made the feature available to all PayPal Checkout merchants at no extra cost. Will that continue to be the case after UPS takes over? I don't imagine so, but it's yet to be determined.


So PayPal is unloading Happy Returns, and earlier this year Shopify unloaded Deliverr. It seems that payments and logistics don't fit together under one roof as easily as Amazon made it look all these years. 

8. How many Amazon customers in the EU?

Amazon disclosed that it has more than 181M users and directly employs more than 150,000 people in the European Union in its first store transparency report as required by the Digital Services Act.

In August, the Digital Services Act imposed new content, privacy, and transparency requirements for platforms and search engines labelled as “very large online platforms” (VLOP), which are defined as having more than 45M users in the EU.

Amazon initially challenged its inclusion in the group, claiming it was not the largest retailer in any of the EU countries in which it operates — but that's neither here nor there, Amazon.

The Digital Services Act doesn't require only the “biggest online platform” (BOP) to adhere to its new rules; it requires all “very large online platforms” (VLOP) to adhere, whether the biggest or not. 

Amazon was trying to get granular with its user count by looking at its number of users in each country, but the Digital Services Act looks at the collective number of users across all countries in the EU.

Germany is the biggest market for Amazon with more than 60M monthly active users, followed by Italy with 38M users and Spain with 25M users.

Here's an alphabetical breakdown of Amazon's monthly active user count in each EU country. I highlighted the countries in bold which have millions of users to make it easier on your eyes to see Amazon's biggest markets.

  • Austria – 5.7M
  • Belgium – 2.7M
  • Bulgaria 82k
  • Croatia 143k
  • Cyprus 76k
  • Czech Republic – 167k
  • Denmark – 269k
  • Estonia – 63k
  • Finland – 180k
  • France – 34M
  • Germany – 60M
  • Greece – 171k
  • Hungary – 116k
  • Ireland – 1.8M
  • Italy – 38M
  • Latvia – 61k
  • Lithuania – 69k
  • Luxembourg – 408k
  • Malta – 76k
  • Netherlands – 4.5M
  • Poland – 2.4M
  • Portugal – 1.5M
  • Romania – 140k
  • Slovakia – 51k
  • Slovenia – 163k
  • Spain – 25M
  • Sweden – 2.0M

9. Other e-commerce news of interest

India asked World Trade Organization members to work on a clear definition of e-commerce trade in goods and services to help provide developing countries a policy space to make decisions. Presently there is a difference of understanding between developed and developing members countries of WTO, especially in regards to issuing customs duties on goods versus services. 


Elon Musk revealed his plans to turn X into a “fully-fledged” dating site by 2024, making it possible for users to connect with potential partners just like Tinder. On the same in-house call that took place last week, Musk also revealed plans to turn X into a financial hub that would eradicate the use of bank accounts. It sounds ambitious, but after recently reading the new biography on Musk by Walter Isaacson, I've learned not to underestimate him. 


Shopify is fighting back against frivolous DMCA takedown claims being used to harass the company and its merchants. Through discovery, Shopify hopes to identify and hold responsible the John Doe who launched the recent wave of DMCA abuse, as well as seek an injunction to prevent more false DMCA notices going forward.


A new study by the University of Illinois found that 69% of surveyed Amazon warehouse workers stayed home without pay to recover from pain or exhaustion sustained on the job, including 34% who did so three or more times. The data, which is based on a 98-question online survey that gathered responses from 1,484 warehouse workers at 451 facilities across 42 states, suggests that “injury and pain at Amazon are far more widespread” than previously known.


To comply new EU regulations, Meta is now offering users in the region the choice to pay a monthly subscription to use Facebook and Instagram without any ads or continue to use the services for free with ads. The service will be offered for €9.99/month on the web or €12.99/month on iOS and Android devices to account for additional fees for those platforms. Meta says it believes in an ad-supported Internet future, but respects the spirit and purpose of the EU regulations and are committed to complying with them. 


Klarna is facing a possible strike by employees in Sweden next month who claim that the company has repeatedly canceled and postponed previously scheduled negotiations with their union and failed to fulfill its commitments. The strike will commence on Nov 7 if a collective bargaining accord is not reached.


A new class action lawsuit alleges that Meta, Microsoft, and Bloomberg knowingly used 183,000 pirated e-books to train their large language models. Former Arkansas Gov. Mike Huckabee, authors David Kinnaman, Tsh Oxenreider, Lysa Terkeurst, John Blase and the Relevate Group, who are leading the case, want to represent a nationwide class of individuals that own a US copyright in any work that was used as data training since October 2020.


A Wix employee who worked in the Dublin office for over four years was fired from the Israeli company after describing Israel as a “terrorist state” and criticizing the “indiscriminate” bombing of Gaza by the Israel Defense Forces. She later clarified that she condemned “all forms of terrorism” and did not support Hamas, but the damage had been done and Wix “decided to part ways.” The issue was raised in the Dáil (the lower house of the Irish parliament) who encouraged the employee to seek legal advice as “under Irish employment law, it is not okay to dismiss somebody because of their political views.”


PhonePe is scaling up its e-commerce platform Pincode, which launched in April this year to compete with Flipkart (which PhonePe used to be a part of), Amazon, JioMart, and BigBasket. Pincode currently operates in ten cities and is planning to expand across Tier-II and Tier-III cities in the country.


RevolutionParts, an e-commerce platform that connects automotive parts buyers and sellers, is partnering with Walmart's white-label GoLocal delivery-as-a-service platform to offer same-day deliver to customers. Walmart initially launched its white-label GoLocal offering in October 2021, building on its existing infrastructure supporting the Express Delivery same-day delivery service it rolled out in 2020. 


Amazon is sitting on 75M sq.ft. of empty industrial space around the US, locking out competitors and leading to higher leases, according to data from real estate analytics firm Green Street. Amazon was a part of nearly one-third of all industrial lease deals in the first two years of the pandemic, which came to more than 220M sq.ft. of space, which doubled its industrial portfolio. Amazon denied Green Street's data and stated that it is a “significant overestimation.”


Amazon delivery drivers at hundreds of sites around the world will soon be asked to drive through camera-filled archways equipped with an AI-powered technology called AVI, or automated vehicle inspection, that log every scratch, dent, or damaged tire. One camera system scans a vehicle's undercarriage, another checks tire quality, and another focuses on the vehicle exterior, and then all the data is compiled into a 3D image to identify whether the vehicle is damaged or needs maintenance. 


Uber was fined $412,500 AUD by the Australian Communications and Media Authority for sending more than 2 million marketing e-mails advertising an alcohol delivery service that breached Australian anti-spam laws. Uber failed to include an unsubscribe link in the e-mails, of which over 500k e-mails were sent to customers who had previously unsubscribed. Uber fail!


Ulta Beauty is trialing smart vending machines in 10 stores across the US to provide an interactive sampling experience for Ultamate Rewards members and incentivize new member sign-ups. Members can claim a free sample every week from a range of travel-sized products from brands that offer cosmetics, skincare, and haircare products. The machines will also serve as interactive advertising platforms to announce product launches and brand messaging. 


Shopify signed a lease for 36,000 sq.ft. on the eighth floor of an eleven story office building in Chelsea, a neighborhood on the far west side of Manhattan where tech companies have been gravitating to in recent years. Bloomberg reported that the rent was above $100 per sq.ft. So does that mean workers will have to return to the office?


Pebble, the Twitter-clone formerly called T2 Social created by ex-Twitter employees, announced that it is shutting down the service just five weeks after its rebrand. The company said that they “were not growing quickly enough for investors to believe that we will break out.”

10. Seed rounds, IPOs, & acquisitions

Shein acquired the Missguided brand from Mike Ashley's Frasers for an undisclosed amount, marking the company's first purchase of a British brand. The deal will bring the Missguided label to Shein's online platform and could open the door to offline collaboration between the company and Frasers UK store portfolio, perhaps in the form of pop-up stores like Shein did with Forever 21 last week (story #7). 


I Own My Data, a startup that lets consumers manage, retrieve, and save all their online interactions, purchases, and profiles only on their devices, raised $2.75M in a round led by Neotribe Ventures. The company is currently onboarding merchants into its beta program and has a live app in the App Store.


Assureful, an insurance provider built exclusively for e-commerce sellers, raised $1.5M in a pre-seed funding round let by Markd. The platform uses generative AI and machine learning to rate, price, and underwrite insurance coverage for e-commerce businesses. 


Meolaa, an India-based e-commerce marketplace that hosts sustainable consumer products, raised $2M in a round led by Turbostart. The company will put the funds towards building its team for its next stage of growth.


WorkMagic, a Shopify app that handles everything from image and copy generation to campaign management and attribution analytics, raised $2M from Sinovation Ventures. The startup's agent technology is targeting small merchants with an annual GMV of less than $1M while its attribution model aims to help larger brands increase their media budget efficiency. 


Automattic acquired Texts.com, an all-in-one messaging platform that enables users to log into WhatsApp, Instagram, LinkedIn, Signal, iMessage, and other apps and respond to all their messages in one place, for $50M. The deal allows Texts.com to further pursue its path of dashboarding all messages, and fits into Automattic's plans of supporting everything that people use for their messaging needs


Ozon, a publicly traded Russian e-commerce firm, voluntarily delisted from the Nasdaq stock exchange in an aim to reduce compliance costs with the SEC. The move comes after Nasdaq suspended trading of Ozon in Feb 2022, followed by a forced delisting notice in March, which it appealed twice without success.


WeBuy Global, a Singapore-based social commerce and travel platform, had its IPO on the Nasdaq under the symbol WBUY. The company priced its IPO of 3.8M ordinary shares at $4/share and raised about $15M before expenses, which it plans to use for product development, marketing, and expansion into new markets.


Shift4, a integrated payments and commerce platform, completed its acquisition of Finaro, a cross-border e-commerce payments provider that is also a licensed bank. The deal expands Shift4's market in terms of geographic coverage and industry verticals.


Flexport is in talks to acquire the technology of collapsed digital freight startup, Convoy, to expand its push into the domestic US trucking market. As part of the deal, Flexport would bring on a small team of business, product, and tech experts from Convoy, which ceased operations this month.

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See you next Monday,

PAUL

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

PS: Why don't scientists trust atoms? Because they make up everything.

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