THE EXPLOSION OF TEMU
By now, I’m sure most of you have heard about Temu. They’re the sketchy online retailer that sells counterfeits and unbelievably cheap items. If you’re not familiar with Temu, just take a look at what happens if you look up Apple Watch on Temu.
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You get all these results that only cost $10 to $25 and that’s not just for the band, it’s for the entire watch itself. It’s the same thing if you look up Apple Airpods. You get a bunch of knockoffs that are as cheap as $4.
Obviously, these counterfeits don’t quite stack up to the real deal but for the price, they’re actually insane. Oftentimes, you can’t even tell which one is fake and which one is real even when they’re side by side. It’s not just electronics that are cheap in Temu either.
Everything from shows and sweatshirts to power tools and pet supplies can be found for ridiculously cheap prices in Temu. And if you think all of this seems too good to be true, well then, it’s because it is. The only reason Temu can sell all of these items for so cheap is because they take a massive loss on each and every item sold.
In fact, according to Wired, Temu is losing an average of $30 on every single order which added up to a total loss of over $3 billion last year. And I think now would be a good time to mention that Temu wasn’t even launched till September of 2022.
So, they haven’t even been in business for 18 months at this point, and their burn rate is already over $3 billion per year. But, there is a method behind all the madness. Thanks to Temu’s promotional prices, they’ve exploded in popularity.
Within a matter of 18 months, they’ve been able to take on Amazon and all the other physical retailers to go from 0 to 89th most visited website within the US and 148th most visited website in the world pulling in over 400 million visits every single month.
For perspective, they rank higher than established media outlets like Fox Business, NBC News, CNBC, and AP News. And that’s just their website. Temu is often the most downloaded app within the US on both the iOS app store and the Google Play Store in any given month.
So, who exactly are the people behind Temu, and will they actually be able to make it to the other side, or are these losses gonna end up killing them from the inside out.
HUMBLE BEGINNINGS OF TEMU
Taking a look back, the story of Temu takes us back to a middle-class Chinese man named Colin Huang or Huang Zheng. Colin was born in Zhejiang, China on January 1, 1980, to two factory workers. As you could guess, Colin really didn’t start off with much and he would follow the path of any hard-working Asian immigrant.
He would study his butt off and get into one of the most prestigious universities in China: Zhejiang University where he majored in computer science. From there, he would turn around and attend the University of Wisconsin, where he would obtain a master's in computer science.
This background allowed him to score internships at Microsoft and Google and receive job offers from several top-tier tech companies including Microsoft, Oracle, IBM, and Google who at the time was just a small startup.
But, on the recommendation of one of his friends/mentors, William Ding who is a multi-billionaire today himself, Colin would end up joining Google as a full-time software engineer at Google in 2004. This would turn out to be a brilliant move as Google would go public that same year and they would reach a $100 billion market cap just 1 year later.
This meant that Colin’s stock compensation went to the moon and he would become a multi-millionaire in his mid-20s. For most Asian immigrants, this is where the arc would naturally come to a conclusion.
From here, they would just work up the corporate ladder into the upper echelons of management and executive leadership, and that would pretty much be it. But, Colin would become part of a growing group of Asian immigrants who were interested in bringing American tech back home to China.
Technically, this was actually his official job at Google itself. He was supposed to help Google with its expansion into China, but this didn’t work out all that well as Google wasn’t really able to compete against Chinese giants like Baidu.
Colin saw the writing on the wall by 2007 and he would leave Google to create his own e-commerce startup called Ouku in China. Ouku was just you’re run of the mill e-commerce electronics shop. Thanks to how big the internet is, Ouku was able to achieve moderate success in the millions of dollars but it didn’t even hold a candle against real giants like Alibaba, JD.com, and Tencent.
As such, Colin would end up flipping Ouku for $2.2 million in 2010 and start looking for a new angle within the e-commerce market. This sort of spiritual journey ended up taking multiple years and at one point he even considered moving back to the United States and just opening a tech hedge fund.
But eventually, he would find his unique angle in 2015 thanks to the rise of mobile social media. Colin noticed that there were massive online retailers like Amazon and Alibaba and massive social media giants like Facebook and Tencent, but there was no one who was trying to do both at the same time.
This would end up being the unique spin he would integrate into his new e-commerce business in 2015. The goal of this business was to gamify shopping like never before by combining the most addictive parts of shopping and the most addictive parts of social media and he would call it Pinduoduo.
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MAKING A NAME
Pinduoduo was exactly the e-commerce breakthrough that Colin was looking for that could take on the Chinese giants? What did Pinduoduo do that was so unique you ask? Well, like Temu, it offered rock-bottom prices but instead of the price being subsidized by Pinduoduo, it was subsidized by scale.
For example, users might see an ad about how they could get groceries like fruits and vegetables for half the price. There was just one catch. To get the groceries for half the price, you needed to recruit 50 or 100 people to buy it with you.
The more people you recruit, the lower the price. And given that Pinduoduo wasn’t selling smartphones and computers or something, and instead selling simple cheap everyday goods that everybody needed, it was quite easy to recruit people because the ask was so small and straightforward.
You could share it with your friends and family the people in your apartment or your classmates and colleagues. Together, you could all save 25 or 50% on everyday goods, and on the flip side, Pinduoduo just got 50 or 100 repeating customers by advertising to just one person.
And that’s just the first cycle, imagine what happens when each of those 50 people tells 50 more people. The network effect simply becomes ridiculous and that’s exactly what happened. Before you knew it, Pinduoduo would become a sizeable player within the Chinese e-commerce market.
As of 2023, they stood at 17.4% market share across the country. And Colin would simply fuel this fire with practices that he learned from Google. For example, instead of trying to pay engineers as little as possible, he would pay them 30% more than they would earn at Alibaba and 60% more than they would earn at JD.com.
Also, instead of hiring candidates with decades of experience, Colin would hire fresh college graduates who were hungry for success.
And I think this chart tells you everything you need to know regarding what happened next. Pinduoduo would essentially grow from 0 to $18 billion worth of annual revenue within a matter of 6 years. And it was from this mountaintop that Colin would launch Temu.
The concept behind Temu is extremely simple. It’s no secret that basically all the listings on Amazon and Shopify are just highly marked-up low-quality goods from China, and people are not only starting to notice but they’re getting frustrated. Why pay $20 for something that you can get for $5 on Alibaba?
At least then, the quality will match the price. There’s only one problem with this logic though. The average Westerner isn’t familiar with Alibaba or Aliexpress. All they know is that their Amazon purchases are shit, and that’s where Temu comes in.
Temu’s main goal has been to bridge this knowledge gap and show people that they can buy the same stuff they get on Amazon for way cheaper.
Now, I should mention that Alibaba has been trying to do this with Aliexpress since 2010, but let’s just say that Alibaba never understood social media the same way that Temu does which brings us to Temu’s brilliant launch strategy.
MARKET DOMINATION OF TEMU
Temu’s strategy was actually extraordinarily simple. Instead of spending millions on Google ads or influencer sponsorships, Temu decided to spend millions on brilliantly positioned giveaways. Temu basically went out and purchased thousands if not tens of thousands of legitimate products that Westerners wanted like Nintendo Switches.
They didn’t just straight up give these away though. If they had just run a giveaway, no one would’ve batted an eye. It would’ve just been seen as an obvious promotional event. Instead, what Temu did was price these products at ridiculously low prices.
For example, they offered the Switch for $7. All of a sudden, Temu was able to create an insane amount of mystery and intrigue as to what was going on here. Is it a scam? Is it a counterfeit? Were these units stolen? You know, all those normal natural questions.
As such, 99.99% of the people who saw this probably chuckled and moved on. But 0.01% thought: hey this is probably a scam but it’s only $7. I’ll just use my burner PayPal account to pay for it. If I get it, I get it, if I don’t, I don’t.
And to their surprise, they actually end up receiving the Switch, and it’s not a counterfeit or stolen unit either, it’s straight-up legit. This only has to happen to a few hundred people before it becomes international headlines and millions of people are talking about it on social media.
And that’s exactly what happened. Honestly, credit to Temu for running such a genius marketing campaign. In terms of the ratio between exposure and dollars spent, this was probably one of the best campaigns in history.
Basically, overnight, hundreds of millions of people now knew about Temu. When they check out the website or app, they’ll see that they can’t quite get a $7 Switch every day of the week, but they can get products that are way cheaper than on Amazon or American retailers, and naturally, a lot of people are quite interested.
And honestly, I think that’s great because it’s about time that we stop overpaying for junk on Amazon and dropshipping stores. In terms of the viability of Temu, normally, burning $3 billion per year would be an extremely dangerous game to play even with a bunch of VC capital.
But, luckily for Temu, they’re backed by the giant that is Pinduoduo who is currently worth $128 billion. So, it’s highly likely that Temu is here to stay and they’re only gonna grow in popularity. With that being said though, if you’re gonna buy on Temu, you should be wary of 2 things.
Number 1, Temu is not a scam but they do have terrible customer support because the entire platform is essentially just a bunch of Chinese factories and warehouses that don’t really care about the customer experience.
So, it’s definitely a possibility that your order gets lost and you have no recourse. So, definitely be careful about how much you spend on Temu and what exactly you buy.
Number 2. Well, I’m not trying to stereotype here, but Temu is almost certainly installing spyware, and malware, tracking a bunch of your data, and who knows what else. In fact, Pinduoduo was removed from the Google Play Store for exactly those reasons.
Wrapping Up
With that being said though, if it’s not Temu that’s tracking you, it’s gonna be Google, Facebook, and all the other American tech giants. So, it’s really up to you as to whether you’re ok with a Chinese company doing the same thing.
But either way, this is only the beginning of Temu and Chinese tech in general and it’s only gonna get crazier from here. TikTok has already started implementing some brilliant strategies to ensure that they never get banned from the US. Check out this video to learn more.
