This week: farmers live-streaming, singles Zoom dating, and dropshipping. Sandra Peter (Sydney Business Insights) and Kai Riemer (Digital Disruption Research Group) meet once a week to put their own spin on news that is impacting the future of business in The Future, This Week.
The stories this week
17:08 – the weird world of dropshipping
Other stories we bring up
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This transcript is the product of an artificial intelligence - human collaboration. Any mistakes are the human's fault. (Just saying. Accurately yours, AI)
Disclaimer We'd like to advise that the following program may contain real news, occasional philosophy and ideas that may offend some listeners.
Intro This is The Future, This Week on Sydney Business Insights. I'm Sandra Peter, and I'm Kai Riemer. Every week we get together and look at the news of the week. We discuss technology, the future of business, the weird and the wonderful and things that change the world. Okay, let's start. Let's start!
Sandra Today on The Future, This Week: farmers live-streaming, singles Zoom dating and nomads dropshipping. I'm Sandra Peter, I'm the Director of Sydney Business Insights.
Kai I'm Kai Riemer, professor at the Business School and leader of the Digital Disruption Research Group. So what are we doing this week?
Sandra Well, we could talk about oil prices continuing to fall. Well, not as bad as a week ago, but they're still below $30 a barrel.
Kai And that's bad news for the US oil industry. Shale oil production, which has boomed in recent times, needs about a $40 price to be profitable.
Sandra And there'd be an interesting story in there about how the oil industry is being affected and what the crisis might mean for the oil industry going forward. But we just did that on Corona Business Insights.
Kai So if you're interested in that, hop over to our spin-off podcast and listen to how it impacts the oil industry.
Sandra We could talk about Elon Musk's new baby. Well, about the baby's name. It's a Musk.
Kai And I'm sure it's not okay to call bullshit on a baby's name, but I cannot pronounce it.
Sandra Neither can the Internet, so we'll skip that one.
Kai So, look it up. It's a series of symbols and numbers that have significance to the happy couple, but the rest of us don't quite know what to do with it.
Sandra Airbnb has laid off about a quarter of its workforce, ah but we can't do that because we've already talked about Airbnb for quite a bit, we had a special episode.
Kai So we're taking this as an update on our episode from a couple of weeks ago. There was also an interesting story about patents and AI, this one in The Verge.
Sandra The US Patent Office ruled that artificial intelligence cannot be a legal inventor.
Kai So at first we thought, oh, this is one of those stories where someone put forward AI as a person, you know, with intelligence, as an inventor. And this is rehashing the whole story about do they have sentience, are the robots coming for us? But this is actually a little bit less provocative and a bit more serious.
Sandra The question that was raised had to do with what happens if a number of people contribute to a software program or contribute to a machine learning algorithm, contribute the input, but then the algorithm itself comes up with a solution, whether that might be a drug patent, whether that might be a new material or a new way to solve the problem. Who gets the credit for that solution?
Kai No one wanted AI to be a person to own a patent. But the question was who do we list as an inventor? And so the group putting forward the patent argued the fairest would be if the AI itself was listed as the inventor on the patent. But the patent office...
Sandra Computer says no.
Kai Computer says no. The patent office basically rejected this, leaving this problem unresolved. So something to look out for in the future.
Sandra Then we found this whole other range of articles about weird and wonderful business models and some had to deal with live-streaming farmers, and others with dating online or dropshipping. So we thought, well, why not tackle those?
Kai So, let's do an episode on how people use digital technology in new ways, some to do with the COVID crisis, some actually not for once. So let's go. So, Sandra. What happened in the future this week?
Sandra So our first story for today comes from the South China Morning Post and its title, "Coronavirus: live-streaming sales prove a lifeline for China's small retailers as the pandemic disrupts business models and consumer behaviour". And the article focuses on the fact that Chinese consumers have taken to buying large quantities of products from farming produce, apples and vegetables and flowers, to houses to cars, clothes, food, makeup, film tickets, all via the Internet and via live-streams. So this is going to be the farmers showing off the way they grow the produce, or it might be social media influencers showing what lipsticks and makeup looks like when you put it on, all the way to party officials selling their favourite noodles online.
Kai And before we go into the details, we should say that this is a really big thing in China. It's quite an alien commerce concept to Western audiences, but in China, it has existed for a while and the corona crisis has made it into a really big part of online sales, 8.7 percent of online sales is now done via livestreaming and is set to be a 130 billion dollar industry. So by no means just a fringe concept, but actually seen to be a major contributor to Chinese consumption. Given that the economy shrank by 6.8 percent in the first three months because of the shutdown, a lot of hope rests on some of these new concepts, helping to bounce back as the country reopens.
Sandra There were quite a few articles on this topic hitting the mainstream Western media. Obviously, this has been quite a popular concept in China for months now, as you have mentioned. But in the Western media, the BBC picked it up this week. The MIT Technology Review had a long article on it, and all of them tried to give a flavour of what this looks like. And it's really a wide ranging market. For farmers, Taobao, which is one of their platforms that offers this service, has about 50000 rural live-streamers and they're looking at bringing on board another 200000 people. These are produce the growers themselves who spend a couple of hours a day live-streaming as they go around their work, and at the same time selling their produce directly via the live-stream.
Kai So the MIT article features Li, who is 27, and he's a flower grower in Yunnan Province, China, and his sales severely diminished when China shut down. His logistics supply chain got disrupted, his sales plummeted and flowers basically went to waste. He was recruited on to this platform and he has made a sizeable followership of people who now learn from him about how he grows these flowers. It has made the kind of flower that he grows, known as pon pon, much more widely popular. He talks about how to care for the flowers. So the people who live-stream and who hear from Li can see where they buy from, and also learn a lot about the flowers and what to do with them.
Sandra But it's not just farmers, right? Party officials began appearing on live-streaming services, endorsing a wide variety of products and services to revitalise the economy in regions like Wuhan.
Kai So Xi Jinping himself went online for one of the Taobao live events around the sales of black fungus, which is a mushroom that is very popular in China. And off the back of this, the producers of this mushroom basically saw their produce sell out overnight, which has also boosted the platform's success and live-streaming even further.
Sandra One of the examples in the BBC article had to do with 'Lipstick Brother No 1', an unassuming shop assistant who used to earn very little money before the lockdown, who now has more than 40 million followers on the platform Douyin, and sold something like 15000 lipsticks in five minutes. But it's also big foreign brands that are trying to join in. So, for instance, Louis Vuitton hosted the live-streaming sale last month and this was the first time they have ever done so since they entered the market. And both JD.com and the Alibaba-owned Taobao are looking to boost the number of brands, not just of individuals who joined the platform, so for instance, Alibaba aims to bring around the thousand new brands over the next 12 months.
Kai So let's take a look at why this is significant. So, first of all, I think video is a really important technology. As we know, we had Simon Kemp on a previous podcast who collects all this data about what the Internet is doing. And he sees this trend towards video platforms, especially in places like China and India, because video is an important medium to bring online those who are less digitally or even literate at all. It allows the direct contact for them with audiences such as consumers. So that makes video a much more important platform than it might be in the Western world. There's also a different attitude towards privacy. While we might find video overly intrusive, in countries like China and India video has become a really good way of connecting producers with their audiences.
Sandra But also live-streaming has been quite big, not selling via life-stream, but live-streaming itself has been very big in China for quite a while, with many ordinary people becoming celebrities via live-streaming.
Kai Chinese consumers are also increasingly value to know about the origins of their product, so rather than going to a supermarket or having things delivered via anonymous platforms, they value to hear directly from the producers, which has given farmers a boost and brought them online without having to rely on selling to wholesalers so they get a bigger cut of the margin. And if we look at these platforms like Alibaba, where of course you can sell things via the platform, they facilitate the entire spectrum of online sales and happily use their Taobao Live service to connect producers directly with consumers, still taking a cut, but not facilitating the sales via a traditional e-commerce transaction.
Sandra And that is in stark contrast to what the same environment looks like in the West, where companies like Amazon or eBay have a very limited set of channels via which producers sell to the consumer. Companies like Alibaba do not only allow for the full spectrum of services, but also engage widely with communities, often disadvantaged communities, to develop their skills so that they can make use of the platforms in ways that can augment their sales. So, for instance, the Alibaba Group had the project around alleviating poverty in the countryside, encouraging farmers to actually take up life, drumming and teaching them skills to engage with audiences online.
Kai So live-streaming has become a really important instrument for regional development in China, and we had Barney Tan from the Business School on a podcast quite a while back, where he also talked about the importance of e-commerce to bring online regional producers. And he had these stories about villages that all produce the same product, such as wicker baskets or fresh produce, that use e-commerce. So this live-streaming popularity is the next step in trying to bring online and bring the fresh products to audiences in China, but at the same time lift vast numbers of people out of poverty in rural areas of China.
Sandra This also makes it much more likely that such trends will continue in China after the end of the pandemic. Whilst we're seeing some similar developments in the West, and an article on the World Economic Forum, was talking about American farmers adapting to the pandemic by offering at-home delivery. You mentioned last week that you're getting your bread delivered at home by local bakers. Instead of selling to restaurants, farmers are now selling direct to the consumer. Many of them are accelerating their businesses and transforming themselves into a consumer-friendly businesses rather than restaurants and catering companies. However, those models are much less likely to persist in the West as we come out of the pandemic and people spend less time cooking at home and return to their normal shopping habits online and offline.
Kai And if we take one more look at the live-streaming itself, people like Li, the flower seller, say that they really have become addicted to having a fanbase and a followership, they enjoy this personal contact, and they certainly think that they will continue with this practise after the COVID-19 crisis. On the other hand, it remains to be seen how much time consumers will have after they're not stuck in their houses all day. Whether it actually makes sense to watch, you know, a 20 minute video if you just want to buy apples. So that's the downside., that streaming is, of course, much more time consuming when you just want to purchase everyday products.
Sandra But we did find another area where engaging with online video was becoming part of the business model and could potentially make that business model more efficient.
Kai Well, it could be more efficient and less time consuming because the area we're talking about is dating, not dating in person, but dating via online streaming, via platforms such as Zoom, which of course, again, is driven by the lockdown.
Sandra So Zoom matchmaking has been in the media for quite a while, the reinvention of popular TV shows like The Bachelorette. There are now Zoom Bachelorette phenomena inspired by the TV show, and there is even a business model associated with it where viewers spend fifteen dollars via GoFundMe to watch the process unfold live on Twitch, or rehashes of Netflix's reality show Love is Blind via Twitch. But more conventional dating platforms, dating platforms like Tinder or OkCupid or Coffee Meets Bagel have embraced video and video calls as a way to keep their services going during the lockdown.
Kai And of course, dating apps, much like many services that rely on people coming together face to-face, have struggled quite immensely. Match, that is the company behind Tinder and OkCupid has seen its stock tank by about 25 percent. And so they are looking for new ways of attracting customers, attracting users.
Sandra So one way has been for companies like Tinder and OkCupid to make a lot of their premium services free. So, for instance, Passport, the ability to meet people in locations other than your own, so meeting people overseas is now available for free. But some companies, like Coffee Meets Bagel have started to host virtual meetups. This is basically a video called moderated by someone from the company where participants can meet each other and see if they feel the spark, and if they do, then the company representative will connect them. And these video calls are supposed to function as a 'vibe check', a way to figure out whether there is chemistry between the people going beyond text banter, or beyond seeing someone else's photos. And the co-founder of Coffee Meets Bagel predicts that these 'vibe checks' will become the norm even after the COVID-19 crisis has passed, as people are trying to move away from that very curated tradition of selfies.
Kai So basically the putting up of a better self, this highly Photoshopped shopfront, which often leads to disappointment when people then meet in real life. Also, this practise, of course, puts a lot of pressure on people, because you look around and everyone's doing it. So there's a bit of an arms race who has the most well curated, the nicest Instagrammable. We've talked about #VanLife. This idea that the online portrayal of real life often descends into creating its own dynamic, and then portraying pictures that cannot actually stand up to what happens in real life. So this might actually be something that comes out of this crisis where this practise of video matching adds a human touch to a practise that wouldn't have happened if it wasn't for the lockdown and these companies having to reinvent what they do.
Sandra But there is one more story we want to bring up today around innovative digital business models. And we really wanted to find at least one story that wasn't a COVID story.
Kai And since it had bullshit in the title, we were drawn to it.
Sandra So our last story for today comes from Wired UK, and it's titled "'It's Bullshit': Inside the weird, get-rich-quick world of dropshipping". Most people might not be familiar with dropshipping. so we thought, let's have a quick dive into the weird and wonderful tradition of selling products that you have never handled from countries that you've never visited to consumers you've never met.
Kai And we want to say upfront that the two of us had a discussion around this, and we don't actually think that the practise of dropshipping itself is bullshit, because it presents quite a clever way of how people can exploit or play with the affordances of various digital platforms to generate new and clever business models to match demand and supply and make money. Although, to be fair, there is a bit of bullshit around this story because every successful business practise also attracts scammers and you know, an underbelly of shady things. So let's unpack this.
Sandra So first, what is dropshipping? And it's really pretty much just a fulfilment method. So what happens is an entrepreneur identifies a product, usually from China, or usually through a Chinese e-commerce platform like AliExpress, which they believe that they can find an audience for somewhere in the West, usually in the US or in Europe. And what they do is then create a website using Shopify that identify and target buyers via Facebook ads or Instagram. Then when they receive an order, they acquire the item by AliExpress but have it shipped directly to the buyer, thus making a profit out of the mark-up that they put on that product, minus all the marketing spend to make that product available to a specific audience.
Kai So the skill that is involved here is of course, first of all, knowledge of how to work all these platforms. So you need the digital skills to create these Shopify presences. Often they create these videos to showcase the product, and then how to use Facebook ad manager to identify and then sell it to the right audiences. But the beauty of it is you don't actually hold stock and you pretty much own the product only for that very small amount of time to clear the transaction. So you don't actually run the risk of stock appreciation or investing in large stock that then doesn't sell. The tricky bit is to actually identify those audiences, so the way this works is that people invest a bit of cash up front. They call it funnelling, so they run ad campaigns towards the audiences that they think might be interested in a product such as a hands-free dog leash for running or household items or any such items that are non-perishable and that can be shipped from overseas directly. So you run these ads and you run these experiments to hone in on where the sale is coming from. Once you have narrowed down the extra audience, you then target that audience and sell your products until demand is satisfied and then you move on to the next idea and repeat this.
Sandra And the article in Wired UK also points out that this is very much digital nomad territory, in that these are people in co-working spaces in Bali or on beaches in Thailand. People who are building business empires from the beach on their laptop without any other infrastructure needed to create their businesses.
Kai So the business entirely run from a MacBook Pro at a co-workspace, at the beach, of course to finance their independent lifestyle in a way that sees them work a few hours a day, make enough money to finance their otherwise outdoor lifestyle.
Sandra So then where does the bullshit come from? Because other than some clear drawbacks or potential problems with this business model, the fact that all this relies on having a trustworthy producer in China who can fulfil all the orders that you've sent out and that the product is of the quality that is being advertised, or problems with positioning on Google or with the spend which is ever-increasing on Facebook to advertise your products and services, dropshipping does seem like a reasonable way of making a margin by capitalising on your ability to market things.
Kai Yeah, so I don't think there's anything wrong with the practise as such. You're using your skill to exploit a market opportunity. There's nothing wrong with that. The bullshit comes in off the back of what happens when a practise like that runs its course. So there's now a couple of problems. On the one hand, it has attracted scammers. So business shopfronts that look like dropshipping, but there's no actual operation behind it. The money just ends up in a third world country. The consumer never gets its it. So Facebook is now cracking down on the scammers, making it harder for legitimate dropshippers in the process. There's also more competition among dropshippers, which means it's getting harder to identify good ideas and to make money. So some dropshippers have pivoted to become self-proclaimed dropshipping gurus. They rent a Lamborghini for the day, they create all this motivation of videos, and they sell their services as get-rich-quick schemes to audiences outside of the digital nomad communities, to more desperate people, who, especially among the crisis now are looking for ways to making an income, charging thousands of dollars for imparting their wisdom. But then, in the process, ending up giving false hope to people who do not possess the digital skills or the cultural acumen to identify those audiences, who try to invest money into Facebook ads and basically end up burning a lot of money, never actually getting their dropshipping business off the ground. So I think there's a bullshit angle that comes off the back of this in seeing it as a scheme to make money in a very easy and straightforward way, when that is in fact not the case, as with most business practices.
Sandra But in the way the story does take us full circle to where we started today, which was talking about small retailers or smaller businesses, small entrepreneurs that are finding innovative ways of using digital technologies to stay afloat during the pandemic, and potentially changing practices after the crisis is over.
Kai And it remains to be seen whether new ideas or the changing of business models will continue as the world keeps changing around us. But that's all we have time for today. See you soon.
Sandra On The Future...
Kai Next week.
Sandra This week?
Kai Yes, but next week.
Sandra On The Future, This Week. Next week. Thanks for listening.
Kai Thanks for listening.
Outro This was The Future, This Week, made possible by the Sydney Business Insights team and members of the Digital Disruption Research Group. And every week right here with us, our sound editor Megan Wedge, who makes us sound good and keeps us honest. Our theme music was composed and played live on a set of garden hoses by Linsey Pollak. You can subscribe to this podcast on iTunes, Stitcher, Spotify, YouTube, SoundCloud or wherever you get your podcasts. You can follow us online on Flipboard, Twitter or sbi.sydney.edu.au. If you have any news that you want us to discuss, please send them to firstname.lastname@example.org.