Unlock the Next E-Commerce Boom with Amazon and TikTok!

I still have reservations about the concept of “social commerce.” While it has gained popularity in Asia, it essentially expands the role of influencers to the general public. The process involves purchasing a product, creating a persuasive video to encourage friends to buy it, and earning money from it. Personally, I find it distasteful. However, analysts predict that this industry will become a $100 billion market by 2025.

In the US, taking advantage of this opportunity is said to be a battle between two existing giants, with each player having what the other wants. Amazon.com Inc. has shopping capabilities, but not a compelling social platform. ByteDance Ltd.’s TikTok has an addictive social secret sauce, but it’s only had limited access to shopping. Both are working hard to try to overcome their shortcomings.

But a potential new player has entered this world: Flip. Founded by Noor Agha, a 37-year-old Iraqi refugee, Flip has received little attention so far, but in certain circles it’s creating a buzz unlike any app I’ve come across in a while. Because it doesn’t have an existing business to protect, the Flip app tries to fix a few e-commerce frustrations. It can also be an interesting test case: Looking at the power of the big technology platforms, can a new entrant with new ideas really compete with the incumbents?

Flip works in the same way as TikTok. The user sees a vertical video and scrolls through it by swiping up from one clip to another. All posts are about products that can be purchased directly via the “Add to Cart” button in the video. A counter in the upper right corner shows a dollar amount that increases by a few cents for every video you watch – an amount that can be used as a discount.

Traction for Flip comes thanks to a recent aggressive viral referral program, the details of which are still being closely guarded by Agha, who I recently caught up with for a chat. “This is a virus engine that beats every virus engine in history,” he claimed, declining to elaborate. He said he was worried that another company might steal it. From the outside, it appears to be some combination of consensual phone directory harvesting and heavy discounting for both users and their persuaders. Some have said it resembles multi-level marketing.

Agha said, in the exuberance of a man who hasn’t yet done much press, that his viral plan has increased revenue “50-fold” in the past month — but by what, he won’t say. Independent data from SensorTower points to an uptick, though: The research firm says the Flip app has been downloaded 3.6 million times worldwide, up from October, coinciding with the company’s viral expansion and expansion beyond the beauty category. Data.ai, another analytics group, said that in October Flip was the second-fastest growing shopping app on both iOS and Android.

Flip pales in comparison to Amazon and TikTok. But Agha’s app may find an opportunity by replicating the inherent weaknesses of these larger competitors. Amazon’s user experience, as I wrote recently, has deteriorated as it has leaned heavily in recent years to expand its selection with foreign sellers and offer unreliable sponsored listings. TikTok’s Chinese ownership, meanwhile, is a constant cloud, and on a practical level, the app faces the challenge of adding shopping functionality to a platform known for its dance and comedy. Growing up in the age of influencers, Gen Z consumers are savvy enough to recognize inauthentic endorsements when they see them.

Things are designed a little differently in Flip. “I said we didn’t come up with anything,” Agha said. “We’re just putting together the best bits that people want.” Unlike Amazon’s free-for-all third-party sellers, Flip only allows verified brands to sell directly. Agha says there are about 1,000 on board, but he believes the number will be around 7,000 by the end of this year. Only brands shipped from the United States are eligible. Importantly, unlike the lucrative “brand partnerships” that fund the influencer industry, brands are strictly prohibited from contacting Flip users directly in an attempt to get them to review their products. Approval must come for products that users have purchased themselves, and the app includes a mechanism to report brands that cross the line — about “four or five” have been banned from the platform so far, Agha said, but he again declined to elaborate.

When users make a sale, they get a variable reward depending on the product. But users also get paid for engagement, so posting a negative review is theoretically just as profitable as a positive one. Agha says that on average, 70 cents of every dollar paid to users was related to engagement, not sales. Still, it’s pretty clear that the platform is filled with overwhelmingly positive reviews. When the head massager, spatula and tablecloth are described as “life changing”, the phrase begins to lose any meaning it had left. And while the app has broad goals—categories now include groceries and pets—it has a strong bias toward products that fit particularly well into this attention-seeking format.

This is the crux of my misgivings about social commerce. I feel like users buy products not because they necessarily wanted or needed them, but because they knew they could be sold quickly and easily based on referrals. It’s great for low-margin snacks, but maybe not optimal for potentially more lucrative categories.

Another challenge will be in logistics. Brands mostly handle the shipping themselves, although Flip has (so far) two warehouses of its own for faster shipping of the most popular products. For this column and because I like pasta, I ordered a set of four pasta bowls from Flip. It took eight days to arrive. No lifetime, but no Amazon Prime — which the Flip ends up resisting. Agha claims that deliveries are speeding up.

The question is how much venture capital is available for the challenge. Flip has nothing but pocket money — $94.7 million raised at a $500 million valuation, according to Pitchbook. Agha said he will raise a much bigger round, which he said will be much higher – which I don’t suspect is due to virality. But as The Information pointed out, potential investors may worry that Flip is destined to go the way of the fast delivery app, which quickly lost customers when the generous discounts ended.

This also applies to brands. I got in touch with Chris Meade, the founder of Crossnet, a small sporting goods company. One of its newer products, the $59.99 “Elite” Pickle Ball Paddle, has been a hit at Flip — so much so that “we’re taking paddles that were in stock on Amazon and shipping them back to our warehouse. Turn customers.” Meade said the cost of the Flip business was more affordable when Amazon’s commissions, logistics fees and warehousing were factored in. But he’s wary of removing excess inventory: “I’d be very curious to see what percentage of customers paid with their own money.”

In years past, I’d say the Flip was ripe for the taking. But such is the current look at big tech deals, it seems likely that the app will have to fend for itself. A tough question, especially when you consider the caliber of the competition. And besides, we really don’t know yet if Western consumers will accept being hard-sold by their friends.