“When a product or service is free it is because the product is you.” Different variations of this phrase have been used for decades to portray the capitalist economy. And more specifically, the digital economy that came with the internet. It was used – and continues to be used – to explain the business of technological giants like Google, whose search engine and related products (Maps, Gmail, Drive, YouTube, etc.) are apparently free. But only in appearance. An important part of their commercial activity is based on the data that we generously give them for using their services.
This same logic can be applied to the Temu phenomenon, the number 1 app in downloads in recent weeks in the Apple (App Store) and Android (Google Play) application stores in Spain and in many other Western countries. Temu is a Chinese-owned e-commerce app that has been on the market for just over a year. The presence of their propaganda on social networks, especially on TikTok and Instagram, is overwhelming: “Shop like a millionaire”; “Discounts of up to 90%”; “Three gifts are waiting for you”; “Win a $100 coupon kit.”
What’s behind these bombastic slogans? According to an exhaustive report by Grizzly Research, a cybersecurity analyst firm specialized in the Chinese market, Temu is a fraudulent business whose objective is to obtain the data of the devices that download its app to sell them to the highest bidder. Nathan Espinoza explains it in just over a minute in this TikTok video that has accumulated almost 10 million views in just a couple of days:
Temu is the Western version of one of China’s leading e-commerce platforms, Pinduoduo. It offers products with irresistible discounts: sneakers for 10 euros, surveillance cameras for 5, children’s toys almost for free and many other items of all kinds that are sent from China to Western markets. Temu is owned by PDD Holding Inc., a conglomerate with a presence in the EU (it has a headquarters in Dublin) that is under investigation by US authorities for illegal practices. It is suspected that Pinduoduo installed malware on the devices of users who downloaded it in order to obtain much more data than its security policy specifies. And that’s exactly what Temu does too, according to the Grizzly Research report.
The report denounces that the hundred engineers behind Temu are the same ones who developed Pinduoduo and that the code they have built contains hidden functions that allow access to user data without their knowledge – and therefore, without their consent. . According to them, the company intentionally hides the malicious parts of this code so that regulatory bodies do not easily discover them. Apple already warned a few months ago that Temu had violated its mandatory privacy rules by misleading users about how it uses their data and temporarily removed it from its store. However, the app is available again on the App Store after apparently resolving these transparency issues.
Temu’s business model is shaking up its established competitors in the West, including giants like Amazon and AliExpress. According to the Grizzly Research report, Temu assumes losses of up to 30 euros on some orders. How can a company that uses these practices be sustainable? The answer is that the company allegedly sells the data it obtains from its customers on illegal markets. In other words, your business is not to sell products but to get people to download your app to traffic with the data you obtain from their devices.
In a context of growing concern about the role of Chinese technology in the West, the rapid rise of Temu has set off all the alarms in the United States. European data protection authorities, for their part, have not launched formal investigations into Temu’s data use to date. Still, the app’s opaque privacy and cybersecurity practices, the suspension of its Chinese sister app and the potential for Beijing to access Temu’s data have raised concerns among cybersecurity and privacy experts. All of this in a context marked by the branding of several countries towards all consumer technology that comes from China: in addition to the restrictions on the use of 5G telecommunications equipment from the Chinese technology giant Huawei in previous years, in recent months the ban on the use of the Chinese social network TikTok on the phones of government officials in the United States, the United Kingdom, Canada and several EU countries.
China, the world’s largest e-commerce market, has previously put Western competitors in trouble with its aggressive pricing strategies, with Alibaba as a benchmark. But the battle for value for money in e-commerce is now of much greater concern in the United States and Europe. The reason is that the emergence of these Chinese companies coincides with a period of economic insecurity and a slower-than-expected recovery in retail trade after the lifting of COVID-19 restrictions at the end of last year. The emergence of platforms such as Temu, Shein or TikTok Shop, which has recently opened operations in the US, only further aggravates a long-standing problem.
“These market dynamics that first emerged in China, or were invented in China, now dominate the Western world,” says Sharon Gai, former head of global key accounts at Alibaba and author of E-commerce Reimagined, an essay on the Chinese e-commerce market. “(Other online retailers) are seeing how these cheap Chinese products arrive aboard companies like Temu and Shein and have been shaken. They don’t know if they will be able to compete,” warns the analyst in an interview with the Reuters news agency.
Temu’s expansion into Western countries began in fall 2022 in the United States and extended to more than a dozen European Union countries, including Belgium, France and Germany, in April 2023. Temu’s parent company, PDD Holdings, moved its international operations office from Shanghai to Dublin in May. Now, these discount apps are being deployed very quickly in countries such as Canada or Australia, as well as in Latin America and some Asian markets, such as South Korea.
Consumers, many of them ignorant or indifferent to the supposedly fraudulent practices of these companies, are often satisfied with buying dresses for 10 euros or wireless headphones for 5. Even if they are of very poor quality or the customer service leaves much to be desired : It is easy to detect dissatisfied users on networks due to shipments that arrive very late or never arrive.
Some of the leading companies until now, such as Amazon, are entering this game of unprecedented discounts. Which sometimes leads to security mechanisms being relaxed, as demonstrated by La Vanguardia’s investigation into the best-selling hard drive on Amazon that turned out to be a scam. “From an e-commerce standpoint, you can definitely see the huge amounts of discounting going on right now, even on Amazon,” says Humphrey Ho, US managing partner at digital advertising agency Hylink Digital.
The battle in the e-commerce market is likely to become more aggressive with the more than likely consolidation of TikTok Shop, which has just burst into the United States offering products made in China, as Shein and Temu have done successfully. With the added advantage of the enormous number of potential customers who are already an active part of TikTok, many of them young people willing to spend the little money they have on very cheap products.
Temu has not responded to La Vanguardia’s request for his official position in relation to the conclusions contained in the Grizzly Research report presented in this report.
