Over the past four months, a little-known shopping app has quietly overtaken TikTok, YouTube, and Amazon to become the most downloaded free app in both the Apple App and Google Play stores in the U.S. Launched last September, Temu is a discovery-based shopping app that offers users a personalized feed of recommended and relatively inexpensive products, in addition to searchable categories of products. Users can also earn credits and better deals if they play certain in-app games (e.g., raise a family of digital fish to earn a $12 pair of shark slippers) or recommend the app to their friends on their social media feeds.
Fans of the site say Temu is taking off because it offers a wide range of products, including from brand names, at dirt-cheap prices; Lenovo wireless earbuds, for example, are available for just $8.98. Critics dismiss Temu’s current top status as the result of Pinduoduo, Temu’s Chinese parent company, being willing to spend big on paid marketing to draw in customers. But these cursory observations about pricing and marketing spend, while true, obscure two major insights about Temu’s launch in the U.S.
First, Temu’s marketing-heavy strategy reflects a fundamental disconnect between how Chinese and U.S. consumer companies do business. While many consumer startups and venture capitalists in the U.S. are allergic to relying on paid spend for growth, in China, consumer companies—particularly those focused on AI-driven recommendations and discovery—recognize that deploying a high marketing budget at launch is often the price they must pay to get off the ground. Such companies can’t wait to steadily develop a growing user base because their algorithm recommendations won’t work on small user sets. Instead, they need an initial explosion (zhà in Chinese) of a lot of user data, and paid spend is the fastest way to get there.
Take TikTok as an example. Its Chinese owner ByteDance reportedly spent roughly $1 billion on advertising in 2018 to launch the algorithm-powered discovery app in the U.S. because they knew they needed an addictive and sticky “for you” page with high-quality recommendations right from the start—a feature that required them to gather a lot of data, quickly. (TikTok also had the advantage of seeing how Douyin, its sister app under ByteDance, ballooned to 600 million daily active users using a similar playbook.) Given that TikTok now has nearly 100 million U.S. monthly active users, it’s clear that growing social platforms with high spend and high customer acquisition costs (CAC) can work, so long as 1) you have a long-term monetization plan (that’s not dependent on ongoing spend) in place, and 2) the spend is meant to catalyze something that requires scale or network effects.
Temu is now actively following TikTok’s U.S. launch strategy. Like TikTok, it has a deep-pocketed Chinese parent company willing to invest huge sums into its launch so it can continue growing outside of the Chinese market. And like TikTok (as well as fellow Chinese shopping app SHEIN), it also needs a large number of users for its recommendation algorithm to work and to smartly decide what to show you next.
Second, and more importantly, discovery-based shopping—the core offering of Temu—is a new and fresh idea that hasn’t been explored much in the U.S. outside of the fast-fashion ecommerce giant SHEIN. Just like TikTok gives you an endless scroll of videos to entertain you, Temu serves you an endless scroll of things you might want to buy to pass the time, to inspire you, or to find things that might improve your life. Think of it as the digital equivalent of walking into a Target with the aim of buying one item and walking out with a dozen, or having an algo version of the human curators that grouped content collections for you at Pinterest.
To be able to make recommendations based on your browsing or past purchases, discovery-based shopping apps need to know which products are related to each other, and what sorts of people are likely to buy those groupings—information that only rings true if you have enough new purchasing data, from enough customers and enough new products, to make the purchasing algorithm work. If a store only has, say, 1,000 or even 10,000 items, that’s not enough to personalize the shopping experience for the end user (SHEIN, for example, adds roughly 6,000 new items daily).
Like putting forth a massive marketing campaign at launch, being discovery-first is a very China-centric way of shopping. In China, both Taobao, China’s largest ecommerce platform, and its spinoff Tmall are discovery first; in the U.S., online retailers, as personified by Amazon, are search first. The importance of discovery-based shopping is that it better mimics the in-store shopping experience and frankly, it’s fun. It’s literally shopatainment, which we’ve written about in the past. And consumers are far more likely to spend time—and consequently money—with apps that they enjoy spending time with. In fact, in China, many people open the Taobao app when they are bored, with no specific thing they need to buy. Users might start building a shopping cart, sit on it and curate it over a few days, and then place an order a week later. When was the last time you opened the Amazon app with no specific thing you needed to buy?
Discovery-based shopping is also a stronger foundation for other new online shopping behaviors. For example, social add-ons like features where you can ask friends their opinions on items, or to rank the items you’re considering buying. These don’t work when you are buying something with time sensitivity, but they can when you’re in the browsing mindset.
By tactically launching before the holidays, spending big on promoting the app and its inexpensive products, and leaning into its discovery model, it’s no wonder Temu remains the country’s most downloaded mobile app. My bet is that its customer retention continues post holiday—not just because the prices are good, but because its primary differentiator, in-app product discovery, is new, powerful, and truly differentiated from what’s currently in the market.
Furthermore, while I’m betting Temu will have staying power here in the U.S., I’m even more excited to see how the platform introduces U.S. shoppers to new online shopping norms and behaviors that will continue to shake up online shopping here.