Procurement in the age of AI

Procurement professionals face challenges more daunting than ever. Recent years’ supply chain disruptions and rising costs, deeply familiar to consumers, have had an outsize impact on business buying. At the same time, procurement teams are under increasing pressure to supply their businesses while also contributing to business growth and profitability.

Deloitte’s 2023 Global Chief Procurement Officer Survey reveals that procurement teams are now being called upon to address a broader range of enterprise priorities. These range from driving operational efficiency (74% of respondents) and enhancing corporate social responsibility (72%) to improving margins via cost reduction (71%).

To meet these rising expectations, many procurement teams are turning to advanced analytics, AI, and machine learning (ML) to transform the way they make smart business buying decisions and create value for the organization.

New procurement capabilities unlocked by AI

AI and ML tools have long helped procurement teams automate mundane and manual procurement processes, allowing them to focus on more strategic initiatives. But recent advances in natural language processing (NLP), pattern recognition, cognitive analytics, and large language models (LLMs) are “opening up opportunities to make procurement more efficient and effective,” says Julie Scully, director of software development at Amazon Business.

The good news is procurement teams are already well-positioned to capitalize on these technological advances. Their access to rich data sources, ranging from contracts to invoices, enables AI/ML solutions that can illuminate the insights contained within this data. Acting on these insights unlocks new capabilities that can enhance decision-making and improve spending patterns across the organization.

Predicting supply chain disruptions. In an era of constant supply chain disruptions, procurement teams are often faced with inconsistent item availability, which can negatively impact employee and customer experience. Indeed, the Deloitte 2023 Global Chief Procurement Officer survey finds that only 25% of firms are able to identify supply disruptions promptly “to a large extent.”

AI tools can help address this issue by recognizing patterns that indicate an emerging supply shortage and automatically recommending two or three product alternatives to business buyers, thereby preventing supply disruptions. These predictive capabilities also empower procurement teams to establish buying policies that proactively account for items that are more likely to go out of stock.

Answering pressing questions quickly. Sifting through data to understand the cause of a supply chain disruption, product defect, or other risk is time-consuming for a procurement professional. LLM-powered chatbots can streamline these processes by understanding complex queries about orders and “putting together a nuanced answer,” says Scully. “AI can query a wide variety of sources to fully answer a question quickly and in a way that feels natural and understandable.” In addition to providing fast and accurate answers to pressing questions, AI promises to reduce the need to explain procurement issues eventually. Instead, it will proactively analyze orders, buying patterns, and the current situation to provide instant support.

Offering customized recommendations. As business buyers increasingly demand personalized experiences, procurement officers seek ways to customize their interactions with business procurement systems. Scully provides the example of an employee tasked with hosting a holiday party for 150 employees who needs help deciding what to order. An AI-based procurement tool posed that scenario, she says, could generate a proposed shopping cart, sifting through “millions and billions of data points to recommend and suggest items that the employee may not have even thought of.”

Better yet, she adds, “as we get into really large language models, AI/ML can help answer questions or help buy items you didn’t even know you needed by understanding your particular situation in a much more detailed way.”

Influencing compliance spend. Procurement professionals aim to balance employees’ freedom to purchase the items they need with minimal intervention. However, self-sufficiency should not come at the cost of proper spend management, productivity, and policy compliance. “There’s always a healthy tension between how a company ensures they have the right controls and oversight but also enables a federated spend model,” says Scully. Fortunately, she says, “AI can offer huge value” in alerting procurement teams to any “outliers” before any damage is done.

AI can also help ensure compliance by enforcing spending policies and expectations so that employees “can still confidently buy the right items,” says Scully. This capability can minimize the risk of overspending and also help with companies’ contractual obligations, such as fulfilling a spending commitment to a particular supplier. In the future, an AI-powered anomaly detection trigger might even be used to examine large datasets to identify non-compliant purchases.

Increasing spending visibility. AI and analytics tools can provide greater transparency into overall procurement spending by automatically analyzing data and unlocking timely analysis. These data-driven insights provide procurement officers a comprehensive view of where they’re allocating budget and areas where they might be able to cut costs.

But greater transparency into procurement spend can also empower organizations to respond to emerging business priorities, such as adopting more socially responsible purchasing practices. “Companies want to prioritize locally owned businesses or businesses that prioritize a lower carbon footprint,” says Scully. With greater visibility into their procurement patterns, organizations can direct business buyers to climate-friendly products or suppliers that help meet  their environmental, social, and governance goals.

Driving procurement productivity. Monitoring supplier performance, ensuring spend compliance, and identifying supply chain disruptions—these are all time-consuming activities that distract procurement professionals from more business-critical objectives. “If the procurement team is bogged down in day-to-day processes, they can’t be thinking about their overall strategic goals for the company, if they’re able to deliver them, and where they might want to provide optimizations,” says Scully. By automating labor-intensive processes such as spend analysis, product selection, and tracking down orders, advanced procurement tools can free procurement teams to focus on value-added activities.

Best practices for AI-powered procurement

For all the advantages of advanced analytics and AI/ML solutions, procurement teams must take steps to ensure the best use of these innovative tools. AI models are only as relevant as the training data they ingest. For this reason, Scully says, organizations need “to be aware that a model may sometimes have blind spots or not immediately recognize if the business is beginning a change in strategic focus.” As an organization’s priorities evolve, the model training data must keep pace to reflect new business goals and circumstances.

To get the most from its advanced technology tools, procurement teams should ensure that they support the company’s overall procurement goals and business strategy. These goals may range from working with a more diverse supplier base to purchasing more sustainable goods. Whatever the desired end, the procurement function must link its use of new AI-powered tools to achieving its business goals and regularly evaluate the results.

The new procurement capabilities unlocked by advanced analytics and AI/ML can help businesses rethink how procurement gets done. As generative AI and related technologies advance, sophisticated procurement use cases are likely to multiply, offering substantial financial and operational gains to procurement teams.

This content was produced by Insights, the custom content arm of MIT Technology Review. It was not written by MIT Technology Review’s editorial staff.

Learn how Amazon Business is leveraging AI/ML to offer procurement professionals more efficient processes, a greater understanding of smart business buying habits and, ultimately, reduced prices.

A Mobile Milestone for Christmas 2023

American shoppers dialed up $5.3 billion in 2023 Black Friday smartphone purchases, accounting for 54% of online sales for the day after Thanksgiving, according to Adobe.

Globally, nearly 80% of all online sales occur on a mobile device, per Statista, mainly due to the Asia-Pacific region.

North America generally and the United States specifically have been slower to adopt mobile ecommerce, preferring the more expansive desktop experiences, but that will likely change in 2023 — at least for the Christmas shopping season.

Mobile to Pass Desktop

AI-generated image of Santa holding a smartphone.AI-generated image of Santa holding a smartphone.

Seemingly everyone will shop on smartphones this 2023 holiday.

Adobe, which tracks holiday ecommerce spending in the United States, “expects mobile to overtake desktop for the first time this holiday season, with more than half (51.2%) of spend online to take place on mobile.”

As evidence, U.S. Black Friday mobile sales grew about 10.4% year-over-year. On Thanksgiving Day, typically even better for mobile ecommerce, shoppers spent $3.3 billion from mobile devices, an increase of 14% compared to 2022.

Mobile Implications

The fact that U.S. shoppers increasingly use smartphones for purchases is not surprising. The surprise is that it took so long. Ecommerce and retail observers have predicted the rise of mobile ecommerce for more than a decade.

Thus it’s a good time to reflect on broader implications for all merchants.

Mobile apps. By some estimates, including data from Sensor Tower, a market intelligence firm, about one in five American adults has downloaded at least one of Amazon’s mobile apps.

Five years ago, Amazon said that 85% of its mobile shoppers used the app versus the website. Assuming the percentage is unchanged, we can see an immediate challenge for small and midsized online sellers.

Screenshots of side-by-side Amazon mobile website and appScreenshots of side-by-side Amazon mobile website and app

In 2018, many more Amazon mobile shoppers used the app than the website. Here are the home pages of both in 2023, with the website on the left.

As mobile accounts for a greater share of ecommerce sales (again, 51.2% this holiday season) and ecommerce becomes an increasing part of total retail sales (15.6% in Q3 2023), more shoppers could start a purchase journey on a mobile app — like Amazon’s — instead of a dedicated search engine.

SMBs might need to entice shoppers to download their mobile apps or ensure their items appear in the most popular marketplace apps, such as Amazon, via product listings or advertising.

Conversion rates. Despite generating more revenue, mobile devices have much lower conversion rates.

For example, on Thanksgiving Day 2023, desktop visits converted at 4.4%, while mobile shoppers converted at 2.3%, per Adobe. On Black Friday, those rates were 6.5% and 3.2%, respectively.

So why does it take about twice as much traffic on mobile to generate a sale? It’s likely the shopping experience or the context.

Closing that gap — and elevating return on ad spend — will be vital for merchants.

Average order value. Mobile purchases tend to include relatively fewer items than desktop, according to Adobe. In the lead-up to Black Friday 2023, Americans on average purchased between 2.6 and 2.9 items on smartphones and 3.2 and 3.9 on desktops.

Average order values likely follow a similar pattern. Hence boosting mobile AOVs will be a priority for merchants given the cost impacts on shipping, packaging, or even customer acquisition.

Mobile optimization. For years Google and other search engines have used mobile-first indexes. So optimizing a site for mobile rankings and conversions should be old hat.

To confirm, check your site’s percentage of traffic and conversions from mobile. Does either trail the industry?

A Mobile Christmas

If Thanksgiving Day and Black Friday trends continue, U.S. Christmas shopping in 2023 will reach a milestone. More than 50% of sales will come from smartphones. Next year the percentage will presumably be higher.

This Chinese map app wants to be a super app for everything outdoors

This story first appeared in China Report, MIT Technology Review’s newsletter about technology in China. Sign up to receive it in your inbox every Tuesday.

Thanksgiving is almost here. This year, when you get together with your family, may I suggest a fun little game that reinvents hide-and-seek for the digital age?

When I was in Hong Kong a few weeks ago, I went to a park with dozens of strangers to play the “cat-and-mouse game,” which combines old-fashioned hide-and-seek with modern technology. Instead of trying to guess where everyone was, we shared live locations with the group and monitored each other’s paths as the “cats” and “mice” tried to capture or avoid each other. A grassroots invention of the Chinese internet, the game became viral sometime earlier this year and now draws thousands of people every week. 

In a story yesterday, I wrote about how the game works and how it uses Amap, the Chinese map app owned by Alibaba. If you want to know more (and figure out if I won!), read my story here

Despite not being a sporty person, I did really enjoy the two cat-and-mouse games I participated in. The way they blend together digital experiences and real-life interactions felt natural and refreshing. 

They also changed how I view map apps. Even though I’ve had Google Maps and Apple Maps on my phone forever, I never thought of them as anything more than trip-planning tools; I certainly never thought of them as gaming apps or ways to bring people together IRL.

I’m not alone. Before one of the games started, the organizer was explaining the rules and the technical set-up, which requires people to join a group on Amap to share locations.

“There are groups in Amap now?” one participant asked.

“Every app has a group function nowadays,” another answered.

It was only a quip, but it also perfectly captured a weird characteristic, or maybe problem, of the Chinese app ecosystem: every app is trying to be something it isn’t.

Amap, for example, is one of the most widely used map and navigation apps in China today. But when I open it on my phone, I can see over 30 functions that you wouldn’t find on Western-equivalent apps.

Some of them still feel integral to the map experience, like recording when you last filled your car with gas, calling for roadside assistance, or comparing the prices of ride-hailing services. Others are pretty far removed: the app lets me check the purchase price of cars and contact a dealership, set up exercise goals and record my progress, and even—to my surprise—check out real estate listings. Just last week, Amap quietly added a new feature to its portfolio: you can hire a courier to do chores, like delivering a gift to the other side of the city.

Even though Amap had nothing to do with developing the cat-and-mouse game, it has tried to develop games in the past. (They didn’t catch on.) And now the company is riding the wave of cat-and-mouse popularity by adding new features to make the map more convenient for organizing a game; it also allows users to browse through the games being organized around the country every week. 

To me, this all feeds into Amap’s goal of becoming an aggregator of local information and services. And it certainly seems that Amap wants to be your app of choice whenever you need any service outside your home. In fact, back in 2019, the company declared it was changing from a navigation app to a “national platform for going out.” (Amap declined to make anyone available for an interview for my story.) 

What’s happening with Amap is a good example of how Chinese apps have always been obsessed with becoming super-apps. Wallet apps want to become social networks; social networks want to be personal loan providers; and food delivery apps are showing you TikTok videos and livestreams. Map apps are primed for such ambitions: almost every phone has a map app installed, and the scale of traffic any such app gets every day is invaluable to pushing users toward more and more services offered by the developer, in this case Alibaba.

Maybe it’s the quest for infinite scaling up that is original sin of Silicon Valley, or maybe it’s because there are successful examples in Asia, particularly WeChat and Alipay, for everyone to look to. The app ecosystem in China is often guided by this monopolistic notion that every app, no matter how niche it is, can and should become a platform for other barely related services. The result is that every app becomes a dense pile of trivial functions, most of which end up as nothing but a waste of storage space. Sometimes they even distract or obstruct users from doing what they originally intended to do with the app.

The dream of the super-app isn’t unique to China; Elon Musk is still supposedly working on transforming X into the all-in-one app for the West. But Chinese tech companies are already much further ahead. Unfortunately, their success has also revealed the risks that come with the super app—like the tight control they can have on freedom of speech, which I wrote about last year.

All this said, viral trends come and go. Even though I’ve enjoyed the games I played, I’m sure the popularity of cat-and-mouse will wind down after a while. I mean, how many people are still playing Pokémon Go? But the trend does serve as a good example of how a map app can actually be useful for something completely different from its initial purpose. 

Is that enough for Amap to really become the next super-app? I don’t think so. I’ll still prefer to get my apartment listings and step counts somewhere else—sorry.

What do you think of the Chinese tech companies’ perpetual pursuit of building super-apps? Let me know your thoughts at zeyi@technologyreview.com.

Catch up with China

1. China says it will step up its efforts to stop fentanyl chemicals from flowing to overseas labs. (Washington Post $)

2. Following the Biden-Xi meeting last week, Chinese state media has started taking a much friendlier tone toward the US, which has rarely happened in the last few years. (Associated Press)

3. Applied Materials, the largest US semiconductor equipment maker, is being investigated by the US Department of Justice for potentially selling products to Chinese chipmaker TSMC without export licenses. (Reuters $)

4. China has been “the world’s factory” for decades, but new e-commerce platforms like Shein and Temu are trying to change how the world shops. (Rest of World)

5. Xiaomi, one of the top Chinese smartphone brands, finally showed what its first electric-vehicle model looks like. (Mashable)

6. Tencent says it’s not affected by the US chips restrictions because it has stockpiled Nvidia chips “for at least a couple more generations.” (Reuters $)

Lost in translation

For Chinese EV owners, the early bird doesn’t always catch the worm. On November 8, over 300 owners of the XPeng P7, a Chinese EV model released in 2020, wrote a joint complaint letter to the company. Even though they paid extra to get the highest software upgrade when they purchased their cars, they were told to pay even more when the company released its latest software update this year. 

According to the Chinese publication Powerhouse, the development cycle of a new EV model is only three years, while a gas car model takes five years. This accelerated pace, which more closely mirrors that of the tech gadget industry, means first-generation EVs can quickly become outdated. The constant upgrades in chip technology, battery capabilities, and self-driving features mean it’s harder to make sure upgrades are compatible with existing models across generations. Chinese brands like XPeng, LiAuto, Jike, and Aito have all faced controversies over issues like the discontinuation of features within two years of launch and the introduction of second-generation features that lack support for first-generation models.

One more thing

Not everyone can be elected to the National People’s Congress, but a political education center in Hangzhou built a “People’s Congress Metaverse” for the public to experience in virtual reality what it’s like to join a meeting. Amazing things are happening in the metaverse! Take notes, Zuckerberg.

Why Hong Kong is still bullish on crypto

This story first appeared in China Report, MIT Technology Review’s newsletter about technology in China. Sign up to receive it in your inbox every Tuesday.

We were far from the courtroom where Sam Bankman-Fried was found guilty on seven criminal charges, but everyone still wanted to talk about him. That said, I have a feeling the conversations I heard last week were pretty different from the ones in the US.

The day after his conviction, I was at Hong Kong FinTech Week 2023, a new annual conference hosted by the local government. Unlike people in the US, where the SBF trial is just one more episode in the prolonged crypto winter, those in Hong Kong were feeling much more optimistic about all things Web3. 

The city’s top official, Chief Executive John Lee, was there to discuss how the city could reinvent itself as a technology hub and capitalize on the big bets it has made over the past year on blockchain and cryptocurrencies. Yat Siu, founder of Animoca Brands, a homegrown Web3 startup that was clearly the star of the two-day event, told the audience on Friday, “This is the closing of a dark chapter of the industry … now we can start moving forward.”

I attended panel after panel where people discussed the future of tokenized assets, central-bank digital currencies, and even NFTs—beaming with hopes that’d be hard to find in the US. It felt as if I’d jumped into a time machine; the executives of international crypto heavyweights like Crypto.com and Bored Ape Yacht Club attended the conference in person, while the CEO of Coinbase videoed in for a fireside chat. (I have to say I’m glad I didn’t go to the BAYC party, a side event happening at the same time, which apparently left many attendees with “severe eye burn.” Ouch.)

For these execs, Hong Kong is a rare place where the government is welcoming them. Following major crypto failures last year like the collapse of FTX and Terra, and reports about the worthlessness of NFTs, many governments and observers have grown wary of the industry. But for Hong Kong, this new digital frontier seems like an opportunity to rewire its economy. 

The city used to punch above its weight in finance and trade, but its importance in these sectors has been falling. And as tech industries have powered exponential growth in places like Shenzhen (which is right across the border in mainland China), Hong Kong has missed out on much of that boom. Crypto, though, could offer a relatively easy pivot.

During the FinTech Week last year, the local government released its own NFTs and a tokenized bond. Since then, leaders of global Web3 projects have visited Hong Kong and explored investing there, says Gary Liu, founder of two Hong Kong–based Web3 startups, Terminal3 and Artifacts Lab. “While everyone else is in a bear market, Hong Kong is rising up,” he says.

What arguably matters most to these international crypto players is that Hong Kong has been busy creating a framework allowing them to legally provide services there. In May, Hong Kong introduced a licensing regime for retail crypto exchanges, and two companies have already been approved to operate. At the conference last week, speakers kept bringing up the prospect that Hong Kong would soon issue more legislation on stablecoins—which will be an important bridge between fiat money and cryptocurrencies, and provide a foundation for many Web3 services.

Compared with other governments, Hong Kong has been moving faster in crypto legislation while being consistently more friendly. It is not the first government to try crafting crypto regulation; Europe started exploring its Markets in Crypto Assets Regulation in 2020, and Singapore and Japan also started years ago. But Hong Kong has made significant progress in catching up in just the last year, says Linda Jeng, the head of global Web3 strategy at the DC-based industry group Crypto Council for Innovation. 

“I anticipate Hong Kong to probably be finished with putting in place all the legal regulatory framework way ahead of Europe,” she told me at the conference. “It can literally leapfrog Europe.” That could entice more Web3 companies and investors to set up shop in the city. 

But as with anything in this space, moving this fast is a high-risk bet. Crypto may turn out to be less transformative than initially promised, and there’s also the chance of inadvertently enabling more scams and traps. Just in September, the local crypto scene was shaken by the collapse of JPEX, a crypto exchange that defrauded investors of $192 million worth of assets in Hong Kong

But so far, the city’s government seems undeterred. In a keynote speech, Christopher Hui, Hong Kong’s secretary for financial services and the treasury, said: “We have been asked many times whether JPEX will affect our determination to grow Web3, the answer is a clear no.” 

Beijing’s attitude toward crypto will be another big risk factor. While the central government has famously banned cryptocurrencies, it seems to have given Hong Kong implicit consent for its tech experiments. It may hope to use the city as a sandbox to determine what China itself should do with Web3. Yet there’s no guarantee Beijing won’t change its mind and stop Hong Kong’s exploration. To me, that, not SBF, was the elephant in the room last week.

Do you think Hong Kong made the right decision to welcome crypto and Web3? Let me know your thoughts at zeyi@technologyreview.com.

Catch up with China

1. While we are talking about Hong Kong: 

  • Tens of thousands of residents emigrated after the crackdown on pro-democracy activism, but the local government is inviting people from mainland China to move there and fill the gap in the workforce. (Associated Press)
  • A student from Hong Kong, who returned from Japan to renew her ID document, was arrested and sentenced to two months in jail for posting “seditious” content online while abroad. (Hong Kong Free Press)

2. Chinese social media platforms now require all users with over 500,000 followers to display their real names online. (South China Morning Post $)

3. Government officials from China, the US, and Europe agreed to work together on AI governance at the UK’s AI Safety Summit last week. (Reuters $)

4. For the first time in more than 40 years, the US is using its own money to send weapons to Taiwan. (BBC)

5. China’s richest billionaire built his business empire by bottling pristine water. Its environmental footprint is worrisome. (Bloomberg $)

Lost in translation

In June, a group of Chinese women started running a social experiment. They used AI tools to generate photos of four female characters: a sexy rich woman, a sassy sister, a girl next door, and an underage girl named Xiao Yu. They created profiles for these four characters on Chinese dating apps to see whether and how they would be harrassed. To their surprise, Xiao Yu, who clearly presented herself as a 16-year-old girl, received the most harassment. When they lowered Xiao Yu’s fictional age to 14, the harassment only intensified, accounting for half of all messages. Men asked her for suggestive pictures, sent unsolicited nudes, and even offered to be her “guardian” against abuse before asking whether she’d be interested in some role-playing. 

The experiment shines light on the extent of online child abuse in the country, according to the Chinese publication White Night Studio. The problem is particularly acute for children who stay in their rural hometowns while their parents leave to work in the cities. One sex-ed advocate who conducted a field study in rural southwest China this year found that nearly 80% of children there have been exposed to online abuse. 

One more thing

An upcoming video game called “The Exit 8” puts the player in one of the worst situations I can imagine: trapped in a Japanese metro station, trying to find an exit from a series of infinite turns and diverging paths. The game’s intended play time is 15 to 30 minutes, the developer says. That seems wildly optimistic given real-life Tokyo mega subway stations.

Swing Dancing Business Booms

Ryan Hunter Masters is a Colorado-based musician who loves to dance. In 2015 he launched Show Her Off to teach swing dancing online. The business sells video courses — streaming and DVD — to booming success.

I first interviewed Hunter Masters for the podcast in 2019. In this second conversation, we addressed the origins of Show Her Off, customer acquisition channels, and his internal litmus test for starting any new company.

The entire audio of our conversation is embedded below. The transcript is edited for length and clarity.

Eric Bandholz: Give us a recap of what you do.

Ryan Hunter Masters: I have a company called Show Her Off. I sell video courses that teach couples how to dance. I won’t turn you into a professional dancer or get you on Dancing with the Stars, but I will teach you in less than 60 minutes how to dance with your partner and have her smiling and laughing. More importantly, couples feel closer and more connected compared to spending time looking at screens or watching Netflix and not engaging.

I teach entry-level social swing dancing. Many couples use it for their first dance. We have hip-hop, pop, classic rock, and country. You can dance to any music genre with this style, which is why it’s so popular and accessible.

Many couples who’ve never danced will start with this program. Some catch the dance fever, the dance bug, and they’re like, oh, wow, this is a lot of fun. Some take it to a local studio and learn professional dancing one-on-one with an instructor. The goal of what I teach is to have fun and give couples the confidence to step out on the dance floor and look good.

I do things that excite me. I love to learn and try new adventures. That’s how I got into this business. I ran a marketing firm managing Facebook and Google ads campaigns. I moved to Colorado, learned swing dance, and thought, “Gosh, this is so fun.” I already had the infrastructure to make videos because I had a fitness YouTube channel called Sparta Strength. I realized I could make videos teaching folks to dance. No business intention. It was purely organic and fun.

Someone told me I should throw the YouTube videos onto Instagram. Those posts got a lot of response and engagement. I made more and then decided to do a full-on shoot. I hired a videographer and a photographer, gathered friends, and found a romantic background for a cinematic shoot in the mountains of Colorado. That content did well. Show Her Off is a romance brand. I look for romantic cinematic landscapes in the background to add that extra emotion.

The business wasn’t making any money for a couple of years. But it was fun. Folks liked it, and I was having a good time. My marketing agency paid the bills. We eventually turned a corner. The business started to blow up. On the side, I’ve been exploring making music and singing.

Bandholz: You seem to follow your passion.

Hunter Masters: My litmus test is, “Would I do this for free because it’s so fun?” Sometimes, you don’t know until you start doing it.

That’s something that traps many entrepreneurs who are starting. They don’t know how an idea will make money. There are so many options, but an alternative way to think about it is there’s something you can do or are willing to do for free because it’s fun. Can you build an engaged audience of 10,000 to 20,000? Somewhere in there, as long as you’re paying attention and listening, there will be an opportunity to make money. You have followers who like you and your products or services. You can solve a problem for them and provide value.

Bandholz: How is the online course set up?

Hunter Masters: We have an online date night program. It began as an in-person romance tour where my friends and I would go around the country to wedding venues. We’d sell tickets, couples would come, and we’d teach three dance moves they could mix and match. I would have a photographer on-site with a lovely backdrop for the couples to get their own selfie photo, and we’d pose them in a dance photo so they had something to remember by, and then we’d have open dancing for the rest of the night.

We always sold those events out. A couple from California traveled to an event outside of Dallas. Our tickets were $35, so they spent 10 times that to get there. Another couple drove eight hours. I realized if folks are investing this kind of time to attend, maybe I could turn it into something else. That’s when I decided to offer digital instruction.

Bandholz: What are your busiest times of the year?

Hunter Masters: The week before Valentine’s and the week before Christmas we have a 400% increase in business. It’s a huge surge in customer support, ad management, and paid traffic. During those periods, I’m up at 7:00 a.m. and go to bed at midnight; for the most part, I’m on the computer all day. I call it my day trading hours.

For the busy weeks, I use a bid cap strategy for Facebook ads. It’s very technical, but it’s basically manual bidding inside Facebook. I bid way more than I would pay, and that pushes out other advertisers. I know from tracking my historical data this is the time I can do that.

It’s still a gamble. I stand all day and refresh analytics, monitor Facebook ads, check Stripe, and ensure everything’s trending up. If an ad starts to drop, I’ll immediately pull it down. Experienced advertisers advise bidding one and a half times your cost per acquisition. If your CPA is $100, bid $150. I might do three, four, five times my CPA. I’ll start with $500 to get it rolling.

Bandholz: Where can listeners buy your program?

Hunter Masters: Go to ShowHerOff.com. We are on Instagram, YouTube, and Facebook. Check out my music at Hunter Masters on Spotify.

How a tiny Pacific Island became the global capital of cybercrime

Tokelau, a necklace of three isolated atolls strung out across the Pacific, is so remote that it was the last place on Earth to be connected to the telephone—only in 1997. 

Just three years later, the islands received a fax with an unlikely business proposal that would change everything.

It was from an early internet entrepreneur from Amsterdam, named Joost Zuurbier. He wanted to manage Tokelau’s country-code top-level domain, or ccTLD—the short string of characters that is tacked onto the end of a URL. 

Up until that moment, Tokelau, formally a territory of New Zealand, didn’t even know it had been assigned a ccTLD. “We discovered the .tk,” remembered Aukusitino Vitale, who at the time was general manager of Teletok, Tokelau’s sole telecom operator. 

Zuurbier said “that he would pay Tokelau a certain amount of money and that Tokelau would allow the domain for his use,” remembers Vitale. It was all a bit of a surprise—but striking a deal with Zuurbier felt like a win-win for Tokelau, which lacked the resources to run its own domain. In the model pioneered by Zuurbier and his company, now named Freenom, users could register a free domain name for a year, in exchange for having advertisements hosted on their websites. If they wanted to get rid of ads, or to keep their website active in the long term, they could pay a fee.

In the succeeding years, tiny Tokelau became an unlikely internet giant—but not in the way it may have hoped. Until recently, its .tk domain had more users than any other country’s: a staggering 25 million. But there has been and still is only one website actually from Tokelau that is registered with the domain: the page for Teletok. Nearly all the others that have used .tk  have been spammers, phishers, and cybercriminals. 

Everyone online has come across a .tk––even if they didn’t realize it. Because .tk addresses were offered for free, unlike most others, Tokelau quickly became the unwitting host to the dark underworld by providing a never-ending supply of domain names that could be weaponized against internet users. Scammers began using .tk websites to do everything from harvesting passwords and payment information to displaying pop-up ads or delivering malware. 

a proliferation of .Tk emails with faces crying exclamation point tears

CHRISSIE ABBOTT

Many experts say that this was inevitable. “The model of giving out free domains just doesn’t work,” says John Levine, a leading expert on cybercrime. “Criminals will take the free ones, throw it away, and take more free ones.” 

Tokelau, which for years was at best only vaguely aware of what was going on with .tk, has ended up tarnished. In tech-savvy circles, many painted Tokelauans with the same brush as their domain’s users or suggested that they were earning handsomely from the .tk disaster. It is hard to quantify the long-term damage to Tokelau, but reputations have an outsize effect for tiny island nations, where even a few thousand dollars’ worth of investment can go far. Now the territory is desperately trying to shake its reputation as the global capital of spam and to finally clean up .tk. Its international standing, and even its sovereignty, may depend on it. 

Meeting modernity

To understand how we got here, you have to go back to the chaotic early years of the internet. In the late ’90s, Tokelau became the second-smallest place to be assigned a domain by the Internet Corporation for Assigned Names and Numbers, or ICANN, a group tasked with maintaining the global internet. 

These domains are the address books that make the internet navigable to its users. While you can create a website without registering a domain name for it, it would be like building a house without an easily findable postal address. Many domains are familiar. The UK has .uk, France .fr, and New Zealand .nz. There are also domains that are not tied to specific countries, such as .com and .net. 

Most countries’ domains are run by low-profile foundations, government agencies, or domestic telecom companies, which usually charge a few dollars to register a domain name. They usually also require some information about who is registering and keep tabs to prevent abuse. 

But Tokelau, with just 1,400 inhabitants, had a problem: it simply didn’t have the money or know-how to run its own domain, explains Tealofi Enosa, who was the head of Teletok for a decade before stepping down in July 2023. “It would not be easy for Tokelau to try and manage or build the local infrastructure,” Enosa says. “The best arrangement is for someone else from outside to manage it, trade it, and bring in money from it.”

This is precisely what Zuurbier, the businessman from Amsterdam, wanted to do. 

Zuurbier had come across Tokelau while chasing the internet’s next big idea. He was convinced that just as people had adopted free email addresses by the millions, the natural next step was for them to have their own free websites. Zuurbier intended to put advertisements on those sites, which could be removed for a small fee. All he needed to turn this billion-dollar idea into reality was a place with a ccTLD that had not yet found a registrar. 

Tokelau—the last corner of the British Empire to be informed about the outbreak of World War I, where regular shortwave radio wasn’t available until the ’70s and most people were yet to even see a website—was the perfect partner. 

Representatives from Tokelau and Zuurbier met in Hawaii in 2001 and put pen to paper on a deal. Quickly, .tk domain names began to pop up as people took advantage of the opportunity to create websites for free. He still had to convince ICANN, which oversees the domain name system, that Tokelau couldn’t host its own servers—one of the criteria for ccTLDs. But Tokelau—which switched off its power at midnight—would still need a reliable internet connection to keep in touch. In 2003 Zuurbier took a grueling 36-hour boat ride from Samoa to Tokelau to install internet routers that he had bought for $50 on eBay. 

Gone was the unreliable dial-up. Tokelau had met modernity. “He provided all the equipment, got all the three atolls connected up, and then he also provided some funding which I used to share with the community,” says Vitale, who established internet cafés that could be used for free by anybody from Tokelau’s four hamlets. 

For the first time, thousands of Tokelauans in New Zealand were able to easily connect with home. “What was important for Tokelau was that we were getting some money that could help the villages,” says Vitale.  Many of the initial sign-ups on .tk were completely innocuous individuals wanting to blog about thoughts and holidays, as well as gaming communities and small businesses. 

Zuurbier sent Teletok regular reports about .tk’s growth, and they indicated that the free-domain model was working better than anybody expected. Tiny Tokelau, which was being paid a small cut of the profits Zuurbier was making, was going global. 

“We were hearing how successful .tk was. We were bigger than China,” says Vitale. “We were surprised, but we didn’t know what it meant for Tokelau. What was more meaningful at the time was that we were getting money to help the villages. We didn’t know about the other side of it then.” 

As the decade wore on, however, it looked to Vitale as if things were beginning to blow off course. “We went in blind,” he says. “We didn’t know how popular it would be.”

Things fall apart

It took until the late 2000s for Vitale to realize that something had gone badly wrong. After problems first arose, Zuurbier invited ministers and advisors from Tokelau to the Netherlands, paid for their flights, and explained the business’s nuts and bolts in an effort to reassure them. They went to watch Samoa play at the Rugby World Cup in France. 

“He [Zuurbier] appeared to be a really nice person,” Vitale remembers. “There was all this nice stuff that felt homely, warm fuzzies.” .Tk had hit the milestone of 1 million domain users. 

But soon after this trip, he says, Zuurbier started falling behind on scheduled payments to Tokelau worth hundreds of thousands of dollars. (MIT Technology Review requested an interview with Zuurbier. He initially accepted but subsequently did not answer the phone or respond to messages.)

Meanwhile, Vitale had begun receiving complaints from concerned members of the “internet community.” He and his peers started to become aware that criminals and other questionable figures had cottoned onto the benefits that registering free domains could bring—providing an almost unlimited supply of websites that could be registered with virtual anonymity. 

“It was obvious from the start that this was not going to turn out well,” says Levine, coauthor of The Internet for Dummies. “The only people who want those domains are crooks.” 

Levine says that .tk had started attracting unsavory characters almost immediately. “The cost of the domain name is tiny compared to everything else that you need to do [to set up a website], so unless you’re doing something weird that actually needs lots of domains—which usually means criminals—then the actual value in free domains is insignificant,”  he says.

What started as techies complaining to Vitale about spamming, malware, and phishing on .tk domains soon turned into more worrisome complaints from the New Zealand administrator tasked with overseeing Tokelau, asking him whether he was aware of who .tk’s users were. Allegations surfaced that .tk websites were being used for pornography. Researchers had found jihadists and the Ku Klux Klan registering .tk websites to promote extremism. Chinese state-backed hackers had been found using .tk websites for espionage campaigns. 

“Satanic stuff” is how Vitale describes it: “There were some activities that were not really aligned with our culture and our Christianity, so that didn’t work very well for Tokelau.” With Zuurbier not replying to worried emails, Vitale moved to unplug him. He opened negotiations with Internet NZ, the registry that runs New Zealand’s squeaky-clean domain, about how Tokelau might be able to wiggle out of its arrangement. He didn’t manage to get an answer before he moved on from Teletok. 

His successor, Enosa, tried to set the relationship on a new footing and signed new deals with Zuurbier on the understanding that he would clean up .tk. However, that never happened. One of Enosa’s final acts as general manager at Teletok, in the summer of 2023, was to reopen negotiations with Internet NZ about how Tokelau might be able to extricate itself from the deal once and for all. 

Meanwhile, most of Tokelau’s residents weren’t even aware of what was happening. Elena Pasilio, a journalist, saw firsthand how much this was hurting her home. When she was studying in New Zealand a few years ago, people—knowing that she was Tokelauan—started to tag her on social media posts complaining about .tk. 

At first, she felt confused; it took time before she even realized that .tk meant Tokelau. “I was really surprised by how many users it had, but then I realized that a lot of people were using .tk to make dodgy websites, and then I felt embarrassed. I was embarrassed because it had our name on it,” Pasilio explains. “It has got our name tangled up there with crimes that people here would not even begin to understand.” 

There is a sense from both Vitale and Enosa that Zuurbier cared little as Tokelau’s reputation was dragged through the mud. “I would argue with Joost,” Enosa says, adding that he would remind him he was the custodian for a legal asset that belonged to Tokelau alone. According to Enosa, he would shoot back: “I built this infrastructure from my own pocket. I spent millions of dollars building it. Do you think that was easy? Do you think that Tokelau can build this kind of infrastructure itself?” 

“I said: ‘Okay. Understood,’” Enosa recalls. “I understood how a white man looks at it. You know? This is how white men look at things. I understand that.” 

Digital colonialism 

What has happened to Tokelau is not unique. The domains of small islands across the Pacific are cited in numerous stories either celebrating dumb luck or complaining of massive abuse. 

Tuvalu has managed to turn .tv into approximately 10% of its annual GDP. Micronesia’s .fm has been pushed heavily at radio stations and podcasters. Tonga’s .to has been favored by torrent and illegal streaming websites. Anguilla, in the Caribbean, is heavily marketing its .ai at technology startups. 

But these success stories seem to be the exception. In 2016, the Anti-Phishing Working Group found that alongside .tk and .com, the Australian Cocos Islands (.cc) and Palau (.pw) together represented 75% of all malicious domain registrations. They had been flooded by phishers attacking Chinese financial institutions. The Cocos Islands made headlines in Australia when websites allegedly hosting child sexual abuse images were recently found on its domain. 

Those domains whose names—by linguistic luck—seemed to mean something tended to attract better managers. Sharks seem to have circled around those that did not, or had a market that was less clear. 

While the abuse of Pacific Islands’ domains has waxed and waned over the years, the islands’ tiny size means that even small associations with crime can have damaging consequences. 

“There is a problem in Polynesia,” says Pär Brumark, a Swede who represents the Pacific island of Niue abroad. “You had these internet cowboys running around taking domains everywhere.”

Niue lost control over the domain .nu after it was “stolen” by an American in the late 1990s, Brumark says. Its management was given to the Swedish Internet Foundation—which manages Sweden’s native .se—in a “shady deal” in 2013, he claims. .Nu has been wildly popular in Sweden, as it translates directly to “now.” Niue, which is also linked to New Zealand, is now fighting a David-versus-Goliath battle in the Swedish courts. It is seeking as much as $20 million in lost revenue—almost one year’s worth of Niue’s annual GDP. 

“Digital colonialism,” claims Brumark. “They exploit resources from another country without giving anything back. They have never spoken to the government. They have no permissions. They exploit. Colonialism to me is if you take resources from a country that you do not have the permission to take.” 

But now there may finally be some accountability—at least in the case of Zuurbier. 

In December 2022, courts in the Netherlands found in favor of an investor suing Freenom, the company that managed .tk and four other domains—those of Gabon, Equatorial Guinea, the Central African Republic, and Mali—that were subsequently added to the model it pioneered. The courts found that Freenom had fallen foul of various reporting rules and appointed a supervisory director.

And in March of this year, Meta, which owns Facebook, Instagram, and WhatsApp, also sued Freenom for damages, claiming that sites hosted on .tk and the four African domains were engaging in cybersquatting, phishing, and trademark infringement. Meta provided examples of websites that appeared to be registered at .tk with the express purpose of deceiving users, such as faceb00k.tk, whatsaap.tk, Instaqram.tk. 

In an interview with the Dutch newspaper NRC, Zuurbier denied Meta’s allegations about the “proliferation of cybercrime.” But the Cybercrime Information Center recently reported that “in past years Freenom domains were used for 14% of all phishing attacks worldwide, and Freenom was responsible for 60% of the phishing domains reported in all the ccTLDs in November 2022.” Zuurbier says that Freenom distributed to over 90 trusted organizations, including Meta, an API that allowed them to take down offending sites and that Meta itself failed to continue using it. But many in the tech industry resent what they see as Freenom shifting the cost of policing its domains onto others. 

As of January 2023, it is no longer possible to register a .tk domain. All four African countries—many thousands of times larger than Tokelau—have broken ties with Freenom. Tokelau, which did not seem aware that there were other countries in the same boat, is still trying to figure out what to do next. 

It now looks as if Freenom is essentially finished as a company. But Enosa doesn’t believe that’ll stop Zuurbier from pursuing more shady schemes. “Joost always wins,” he says. 

Shifting tactics

Without access to the unlimited pool of free domain names that were available through .tk and the four other Freenom ccTLDs, many cybercrime groups that relied on them are being forced to adapt. Certain scattergun approaches to spamming and phishing are likely to go out of fashion. “Spammers are fairly rational,” explains Levine, the spam expert. “If the spam is cheap and the domains are free, they can afford to send out a lot of spam even though the likelihood of response is lower. If they actually have to pay for the domains, then they are likely to make it a lot more targeted.” 

“Bad things online require a domain name at some point,” says Carel Bitter, head of data at the Spamhaus Project, which tracks malicious activities online. “You need people to go somewhere to fill in their account details. If you can’t get domains for free, you will have to get them somewhere else.” Analysts have noted upticks in malicious use of cheap “new” generic TLDs such as .xyz, .top, and .live, whose reputations have been wrecked by dodgy dealers. 

While other domains may only cost $1, a drop in the ocean for the largest gangs, the fact that they now need to be purchased may limit the damage, says Bitter: “Any cybercrime business that relies on domain names will have some sort of natural limit that determines how much they can spend on domain names.” Others, though, may seek to compromise existing websites with low security. 

It is likely that “basement” operations—so-called “ankle-biters”—will feel the biggest pinch. “What is possible is that the guys that are just doing it as a dabble won’t want to put the money up, but the professionals are not going away,” says Dave Piscitello, director of research activity at the Cybercrime Information Center. “They will go elsewhere. If you are staging a revolution and the cost of a Kalashnikov goes from $150 to $250, you aren’t going to say ‘Forget it.’ It is the business.” 

An existential issue 

The media sometimes reports that Tokelau makes millions from the use of .tk. Zuurbier himself claims on his LinkedIn that his relationship with Tokelau adds over 10% to the atolls’ GDP. 

“Bullshit,” says Enosa when asked. “That’s a lie.” 

Enosa claims that .tk provided a “very small” proportion of Teletok’s income: “It doesn’t give us good money. .Tk was nothing to my revenue.” 

While the arrival of the internet on Tokelau promised to zip information across the Pacific instantaneously, the islands have remained isolated. Even while I was reporting this story, it took weeks to get in touch with Pasilio and other sources there. Interviews were repeatedly delayed because of the price of data packages. Internet in Tokelau is among the most expensive in the world, and NZ$100 (US$60) worth of data can sometimes last only 24 hours at a time. Phone calls to Tokelau from Europe did not connect. 

“I feel sorry for our Tokelau,” Pasilio says. “We have been taken advantage of. I think people would be shocked if they knew what had been going on with .Tk.” 

Even many Tokelau elders had not fully understood the problem, at least until recently. 

There are other, arguably more existential problems the islands need to deal with, including climate change, emigration, and the atolls’ future relationship with New Zealand. “Our islands are already shrinking as it is, with the sea levels rising,” says Pasilio. She says her father tells her about reefs and sand banks that have sunk beneath the Pacific. “They would rather worry about things that they can see physically and that they know more about, rather than fighting back on this .Tk thing,” she says.

But the issue of the abused .tk domain was recently raised in the General Fono, or Parliament, indicating that the issue had finally broken out of its technical niche and into the wider public. 

Those existential issues facing the islands are not wholly unrelated to .tk. Questions over the future of the domain have arisen at the same time that a debate over Tokelau’s political future has been revived. 

Tokelau is classified by the United Nations as a “non-self-governing territory” under the oversight of the Special Committee on Decolonization. In 2006 and 2007, referenda on whether Tokelau would enter “free association” with New Zealand—a possible stepping stone toward eventual independence—was approved, but not enough of Tokelau’s population voted to meet the turnout threshold. In May 2022, it was decided that another referendum on Tokelau’s future would be held ahead of the centenary of New Zealand rule in 2025.

Repairing Tokelau’s devastated international reputation by cleaning up .tk will be a necessity if the atolls are to make any serious bid for sovereignty. Vitale is now the general manager of Tokelau’s government and wants to see its internet domain make a triumphant return to make it clear that the islands are turning a new page. 

“We are building nationhood here,” he explains. “We are on a pathway toward self-determination. We want to use the .tk as a catalyst to promote our nationhood and be proud of it—our domain name and our identity among the internet community.” 

All of Tokelau’s email and website addresses are currently hosted on New Zealand’s .nz. “What does that mean to people? It means that we are in New Zealand,” says Vitale with a sigh. “We should be selling ourselves as being in Tokelau, because .tk is the domain—the identity—for Tokelau.” 

“When you have people coming to knock on your door with attractive packages,” he adds, “you see it as an opportunity you hook onto—not realizing what the consequences will be further down the road.” 

Correction: This story has been updated post-publication as the previous version incorrectly stated that Antigua was the Carribean island with the .ai domain. It is in fact Anguilla. Our apologies.

New Beginnings for Beardbrand

The last time I discussed my company in an episode was in July. Things were close to their worst. We had furloughed our team for a month. But now, thankfully, the team is back to full-time. Our current strategy is focusing on Facebook as an acquisition channel. We switched our Facebook marketing approach from multi-phase testing to bid caps, something I learned from Andrew Faris.

We made the change at the beginning of October, and we’re seeing our cost per acquisition fall in line with our expectations for profitable growth. The downside is we’re getting only a few conversions daily due to the negligible budget. We’re still trying to figure out bid caps and how to create content that scales on Facebook.

New Channels

I’ve learned we constantly need to try new tactics from a tiny percentage, but not at the rate of putting our business at risk. Paul with BK Beauty was on the show a couple of weeks ago. His company continues to blow up — TikTok Shop has been a significant player in their successes. We’ve been trying to get our TikTok Shop up and running, but thus far TikTok Shop has been the buggiest software I’ve used.

Beardbrand launched on Amazon in January of this year with the hope of replacing the volume we were doing on Target. Amazon ramped up within the first three months. We stayed at that mark for the next six or seven months. We’ve had some growing pains with Amazon shipping the wrong products and a few review issues. It’s been a challenging platform. Nevertheless, as of a couple of days ago, it looks like we’re approaching a seven-figure annual run rate on Amazon, which is halfway to our goal.

Inventory

In July we had just hemorrhaged a ton of cash. Fortunately, we’ve seen our cash flow even out, and we’re in a better position. I’m not losing sleep anymore. We’re not throwing a lot of money back into savings, but I don’t want to significantly scale back the business from where it is now. I want to stay lean. That means ordering smaller inventory amounts than I would typically feel comfortable with and being okay with selling out to ensure that all my cash is not tied up in inventory that might not move.

One of our strategies is to be heavy on cash and light on inventory. There is the risk that we won’t make any money if we don’t have any products to sell. But if we’ve got all our capital tied into inventory that’s not moving, that’s not good either. It’s nice to have the flexibility to allocate resources to opportunities that may significantly impact us. We won’t go out of stock on our top-selling products. But we will delay ordering slow-moving items into the holiday season and focus on your best sellers. As this recession moves behind us, we hope to have a fuller inventory again.

Incentives

I’ve always wanted to build Beardbrand without incentivizing through discounts and promotions. However, being inflexible with discounts did not allow us to grow as we wanted, so we’re exploring offering discounts to new customers and subscribers. As a result, we have seen nearly a doubling of our subscriber list and some success driving up our average order value, too. We did that by raising our prices and launching a bundling program. We compared the bundling offer to a percentage-off tiered bundling system where you spend more and get a bigger discount. The free items drew more action from our customers.

The downside of the bundling program and the higher price point is that our conversion rate has decreased. Overall, our net revenue is down. However, we are not hemorrhaging cash anymore. With a higher order price, we’re doing fewer orders, so we’re putting less of a burden on our team, and we have fewer customer service tickets to fulfill. If you’re planning to build a business that you want to run and operate for years, think about developing a pricing and service structure for the customers at a higher price point.

As we approach Cyber Monday and Black Friday, we historically have an ongoing promotion called Decembeard. It’s a daily giveaway. Customers enter by placing an order, and depending on the order number, one out of 10 buyers will win a $25 gift card. We’re doing it for the first 10 days. When we go to the 10th of the month, we raise that to a $250 gift card, where one out of 100 will win.

Perspective

Beardbrand is now at a breakeven profit-wise. That’s not what I expected after 11 years, but I’ve come to terms with the fact that this is essentially a new business. I have to look at Beardbrand from a startup perspective. What worked for us when we launched in 2012 is entirely different than now.

I have to remind myself that being in the arena is the goal and to focus on the wins. The benefits of a win, such as a higher AOV, will compound for the business. If you’re struggling now and things seem hopeless. I’m right there with you. It is not fun or confidence-inspiring. But fight forward. Find opportunities and make your business what you want it to be.

To check out how we’re incentivizing this holiday season on our website, visit Beardbrand.com. Feel free to follow my Twitter for updates.