FLIPping the script on Tiktok

I had a plan for how the first few pieces in this newsletter would go. But I think it was Mike Tyson who said, “everybody’s got a plan until they get punched in the mouth by Gen Z’s newest pyramid scheme.” And by god, these damn kids may have just shown me the future of commerce. You could say I got FLIP turned upside down. 

So, what the hell is Flip? The comapny bills itself as the “shopping social network” but the vibe is much more TikTok than Facebook. The core product is essentially short form shoppable videos with a major focus on authenticity and rating other Flippers’ reviews. It’s all wrapped with an in-app marketplace that hooks into a brand’s Shopify account for slick fulfillment. 

For brands, the offering is basically a no-brainer. For a slightly higher than average marketplace take rate (~20%), you get a net new distribution channel full of high intent shopping zealots and a little bonus free UGC as the cherry on top.

Flip was founded in 2019 and launched somewhat stealthily in 2021 in beauty and skincare. In 2022, Flip closed a $60M Series B and began to get a bit of public love but still flew mostly under the radar. That is until someone cranked the Daddy Yankee record and turned on a growth hack that would make Travis Kalanick foam at the mouth. The company built a scaled bonus model where the value of referral cash you can send to a contact in your phone is directly proportional to how many of their friends were early Flip adopters. Damme mas gasolina! 

Let’s get one thing straight– I’m too old for this shit. My first thought when I saw Flip’s GTM in action was to wonder what kind of juicy yield someone got for referring Fred Wilpon to Bernie Madoff. I joked earlier this year that I wasn’t sure if I wanted Tiktok banned because I’m an ardent patriot or just a crusty 31 year-old in CPG who doesn’t want to learn another social media platform. So when I say I don’t get a lot about Flip, keep that in mind.

But…. I don’t get a lot of what they are doing. First and foremost, the cash you get to spend on Flip from watching videos isn’t at all noticeably correlated with how you engage with the content. Said simply, the easiest way to rack up cash on Flip is to just Sonic the Hedgehog your thumb across the screen until the occasional interstitial stops you. I was able to hit >$50 in about 12 minutes of thumbing. 

Unlike the friend referral cash, the credits earned by “watching” videos are only redeemable for 30% off purchases. But if Flip is only taking 20% and footing the bill for the full 30% coupon, the unit economics there are….not ideal. On the surface, this has all the makings of a little economic redistribution from VCs to up and coming consumer brands. Lord knows we can use it right now. 

The most obnoxiously midwit take about any bold new technology is that myopically speaking, the numbers don’t work. It’s easy to be a cynical dickhead and does nobody any good. Flip CEO Noor Agha promises that the true magic of Flip is many layers deeper and I believe him. 

I think I know where he’s headed. Read on, my child. 

Audacity is SO Back

Credit where it’s due–-Flip is going balls to the wall when it’s beyond contrarian to do so. And it couldn’t come at a better time. For all of the hundreds of billions of dollars in market cap added by Amazon in the last decade, the basic architecture of its shopping experience is kinda the same. Ditto for most of your favorite retailers who were serving up static boxes of products for five and fifteen inch screens in 2013 and are doing it today. Etsy, Instagram and Pinterest have all tweaked their aesthetic but they essentially function the same as product discovery engines. Something new is longing to come to pass. 

In the year of our lord 2023, we worship at the altar of almighty EBITDA and audacity is no longer in vogue. Look, I’m a simple man. I like businesses that make money more than those that lose it. But the pendulum has swung too dangerously far towards sure things in VC broadly, but especially in retail tech. This tweet in particular from Eniac partner Hadley Harris really got me.  

My brother in christ, if you will only look at a SaaS company doing >$2M ARR and 2x growth for an A, you ain’t venture, you’re just capital. Maybe it’s not quite a slam dunk but it’s basically Victor Wembenyama shooting an uncontested layup.   

I get it– investors are burned from the ZIRP madness. They’ve heard crazy pitches from charismatic geniuses promising to rewrite the payments layer of the internet that ended in something called love.com and an SEC subpoena. It feels like a lifetime ago but we’re less than two years removed from Bolt raising at a $14B valuation. 

Ultimately, the problem with hundreds of millions of dollars being thrown at companies like Bolt and Fast specifically is that they were effectively solutions seeking a problem. Tossing aside the existence of Google, Amazon and Shop Pay for a second, it’s worth asking the fundamental question of how much of a pain point entering your payment information manually when making a purchase really is. 

But the basic idea of a billion dollars of capital being used to build to use fundamentally new experiences in spaces where incumbents have massive distribution and network effect advantages is the right aspiration. 

And lord knows, there’s a certain Chinese entity (or several) that isn’t about to live with our current status quo.  

Tick….tock.. It’s regulation o’clock.

Despite the near impossible challenge of going up against Amazon in logistics, TikTok is starting to fire up the growth machine against Shop with a vigor not seen since Gretchen tried to make fetch happen. 

To understand why TikTok is so wildly hot for Shop, remember that the company’s existential threat is regulatory. Thus, the near-term grand strategy is simple: ensure that Grandpa Joe says that we can keep on Tiktokin in the free world. From there, it only gets trickier.

TikTok is in a tough political position as the 2024 campaign heats up, with neither candidate a great bedfellow. Shou Chew’s testimony was perhaps the high water mark for bi-partisanship in Congress in my adult lifetime as Democrats and Republicans united against a common enemy.   

But it’s a bit harder to be seen as a psyop if more of your business moves from media to commerce. Investment in Shop is a lobbying expense. Starting to get what United States of Amazon is about yet? 

Tiktok loves to fashion itself as the last sunny corner of the internet and some kind of whimsical success story but the reality is that this thing was brute forced into supremacy.  Bytedance was Snapchat’s biggest advertiser in 2019 (whoops!), spending as much as $1M per day to hack the teenage consciousness. They are beginning to run the same playbook with Shop and while the initial rollout has been chaotic to say the least, 

Tiktok has a massive team, gargantuan war chest, and damn near existential need to pull Shop off. All this says nothing of Temu who we’ll talk plenty about in time. For better or worse, new operating systems for online shopping are headed our way. 

Amazon and other large US companies are besieged by the innovator’s dilemma here and will counter with smart, but ultimately incremental moves like embedding Buy With Prime into Facebook ads. For all the hoopla about Project Nile, it’s hard to see Amazon taking on the risk associated with fundamentally changing its search experience, especially when it has the chance to be the most profitable ads business ever. 

It’s up to startups like Flip and free-wheeling capital backers to take the paradigm changing swings.  

The Product Graph

So what is Flip’s radical endgame?   

There are a few possibilities. The most obvious based on Flip’s branding is that the company is trying to build a new sort of verticalized social network geared around shopping. Flip could be the 47th gallant attempt at trying to make the digital QVC style of shopping prevalent in China take hold in the West (the company’s Series A feature in TechCrunch hints at that direction). Or perhaps the lofty positioning is just crafty smoke and mirrors behind trying to effectively build an ads-based, shopping ads business, loosely in the model of Snapchat and Pinterest. 

I believe Flip aims to build a product graph as a means to create a search engine for commerce. Flip hinted as much in a 2022 blog post describing a world where “instead of landing on a page with an overwhelming sea of products, you’d land on a page with videos of people talking about these products, sharing their own experiences, and adding context around each product, while the platform delivers the best post-purchase experience.”

Building a product graph is an insanely hard technical problem but beyond that, it’s a non-starter unless you have access to the most uniquely valuable data source. So how the hell could Flip possibly win here against Google and Amazon?

Google has access to a treasure trove of written product recommendations and reviews, though not necessarily a great system for ascertaining which affiliate articles are sacriscent and which are stealthily pay to play. Amazon has all the purchase and conversion data in the world alongside billions of reviews. To bet on Flip is to bet on the idea that a reasonably small number of high-quality reviews, delivered primarily as short-term videos is the core dataset needed to reimagine discovery.

The company is not being particularly selective about the early brands that it brings on the platform but it has built its incentive structure to bring on the right shoppers/UGC creators to ensure each product is indexed with authentic, high-quality content. In other words, Flip cares a lot more about the people and what they have to say about the products than the initial products currently on their marketplace. And they’re willing to bet the house and raise a fuckton of cash to build a moat based on content. You only do that if you’re aiming to build a graph that an rejigger the whole notion of online product search.

So…….amirite Noor and team?  

Amazonia
A collection of the week’s top stories in and around Amazon 

Amazon Inks Partnership with Facebook and Instagram (Marketplace Pulse): Lots of hot takes on this hitting the web, namely that it’s a win-win for both companies and American rivals saying that the enemy of my enemy is my friend with regards to China. I agree with both takes and would also add that this is perhaps final proof that the decade of single channel arbitrage via Facebook or Amazon PPC is effectively over.  Also huge credit to Joe @ Marketplace Pulse for being the first to break this news.

Amazon allegedly welcomed defect ads. What does that mean for retail media? (Retail Dive): The FTC’s antitrust case got a little more juice as a recently unredacted portion shows that Amazon knowingly pushed junk ads that were irrelevant to the customer. Perhaps the most surprising aspect of this story is that this happened under Bezos’s watch. Feels a bit day 2ish, no? 

Amazon advertising’s hiring freeze is over and it’s staffing up like crazy (Business Insider): If you want to know where a company is headed, look at its careers page. 

Shopify’s marketplace expands to the web (Marketplace Pulse): For a long time, one of the meta stories in commerce was if/when Shopify would build a marketplace of rebels to challenge Amazon. Well now, they essentially have done just that and……nobody really cares? 

Dispatches from America
A potpurri of vibes from across the land

History Books: New Jersey Americana band extraordinaire The Gaslight Anthem is back with a new album titled History Books. It’s perfectly unfussy, good, clean rock and roll with the band finally embracing and bringing on Bruce Springsteen to feature on the title track duet.

There’s even almost a Taylor Swift level cheekiness to some of the lyrics. “I’ll love you forever ‘til the day that I don’t” deserves particular consideration for best quip of the year 

The God Damn Jets: The Jets lost arguably the Jetsiest game of my lifetime Sunday Night. Zach Wilson finally got to make the stupid, fucking throw from his pro day that set our franchise back a decade in a live game…only for a game-winning hail mary to be broken up by his own teammate. 

There’s only one theory to explain the Jets prolonged ineptitude. Jets ownership, coaches, players and fans are in a collective, unspoken pact to maintain our current state of pain and ennui as it is the only life we’ve ever known.  

Our identity as Jets faithful is so tied to just enduring the suffering that we might lose our fundamental sense of self if we start to win. We’ve become institutionalized in losing and we’re terrified of life on the outside. 

American Justice: “Yes Warden, I would like to tell the family of the victim that I could never figure out the words to fix what I have broken. I just want you to know that this 53 year old is not the same reckless 19 year old from kid from 1990. I hope you find peace. Thank you Warden.”

The final words of Brent Brewer, the 7th man executed in Texas this year and 21st in America. I implore you to read a bit about his case here.  

If you’ve made it this far, thank you from the bottom of my heart. I’ll use this bottom section to be a little meta and break the fourth wall on building this newsletter. Today I’m coming right out with a couple of asks.

1. If you’re using gmail, go ahead and slide me into that primary inbox. We’ve made it this far, might as well kick our relationship up a notch.

2. If you enjoyed, please share this newsletter with at least one friend who will dig it too. I love every second I spend writing these pieces and hate every moment I have to try to growth hack an audience. Your generosity in spreading these pieces will be the fuel that keeps me keepin’ on!
   

I love you all,

Mike