ALEX GOLDMAN: From Gimlet, this is a Reply All. I'm Alex Goldman.
PJ VOGT: And I'm PJ Vogt.
ALEX: So, PJ, I have a story to tell you.
ALEX: This story begins with a person making a dubious online choice. Um, so you know those ads on Instagram that are for like really fancy, designer goods that are incredibly cheap?
ALEX: This is about a guy who gave into temptation and clicked on one of those ads. His name is David, and it was about a year ago. He was living in San Francisco, and he was on public transit.
DAVID: And it was probably in the evening, headed back home and I was on my phone and I was on Instagram and I was scrolling and I think I saw an ad. A limited offer of a free watch.
ALEX: Here, I have it on my computer let me show it to you.
PJ: Ooh nice. Free watch. And it's like a pretty nice looking, like modernist Black Watch and says, “Shop Folsom,” like the company. “Follow us at Folsom and get your free watch today.”
PJ: And then there's 7000 hashtags. Which is par for the course on Instagram.
ALEX: “Promo, promotion, giveaway, free, fashion stylist, fashion world, fashion photography, California, West Coast, Cali, S.F., San Francisco.” It goes on.
ALEX: So David sees ads like this on Instagram all the time. He is not a person who generally clicks on ads.
DAVID: Cause I’m usually much more savvy. You know I’m the kind of person who does research before deciding to add something, anything to my life.
ALEX: But he goes to the company website. The company is called Folsom & Co. and let me just bring up the website. Hold on.
ALEX/PJ: Folsom & Co.
ALEX: It looks pretty nice.
PJ: It does. It looks like the nice website that like any sort of new fashion startup would have. Like a pretty picture of a watch on a rock. And like all the fonts are the elegant fonts.
DAVID: And depending on your ad blocking it may or may not have little pop ups, notifications, telling you others around the world have purchased various things on this website.
ALEX: Lauren in New Orleans, United States just purchased a something-or-other. Malena in Buenos Aires just purchased the Carmen watch. So, okay—
DAVID: I feel bad for her.
PJ: That is the one thing that actually makes it look slightly scammy... like Nike's not like we just sold a pair of sneakers.
ALEX: Right. So the watch is called the Jones and it says, “Free, limited time offer.” It costs zero dollars. And it says–
PJ: Marked down from 80 bucks.
ALEX: Marked down from 80, and it says, “Hurry offer ends in 4 hours 21 minutes and 56 seconds.” And all of just this preyed on David’s desire not to miss out on something.
PJ: Like it did exactly what it's supposed to do. Like I'm watching the countdown and being stressed and like asking myself if I want a watch, despite the fact that I'm wearing a watch.
DAVID: I said, “Well it's free.” And then of course when I put it in the cart and proceeded it was something like ten bucks for the shipping. And I said, “Well…” And I probably hesitated. I can't remember exactly, but I hit buy.
ALEX: And then a couple of weeks later -- the watch ACTUALLY does show up at the house.
ALEX: But then he gets it out of the package.
DAVID: And I could tell right away just that the fit and finish was, was poor. You know the, you maybe tapped with your fingernail on the glass and it would just rattle, you know. It was made of metal of course, but it was probably the thinnest it could possibly be stamped out of. And you know it felt like if you had worn it you might get a rash in a couple hours.
JENNY: Yeah. So the watch is the most abominable object like I've ever held in my hands.
ALEX: That's a friend of David’s, her name is Jenny Odell. And David actually gave her the watch, which does not sound like a particularly nice thing to do, but it was because Jenny is an artist and she is obsessed with junk. Like did a residency at a garbage dump. So getting this watch was like like Christmas morning for her.
JENNY: I was definitely pretty excited about it, just because I could tell that, um it was a really, um, crappy object that probably had some sort of weird story behind it.
ALEX: At the time, she was working on an exhibit at a place called the Museum of Capitalism, where people can just bring in their junk, and she would try and learn as much as she possibly could about it.
ALEX: And there was something about this watch that she got really fixated on.
JENNY: The number one question I was hoping to answer is: Where was it made? Like an address.
ALEX: It’s like you wanted to see where the watch was born.
JENNY: Yeah, exactly. I wanted to know sort of its life story, but the most important part of that is like the beginning.
ALEX: So she goes on the Folsom & Co. website and starts trying to figure out everything she can about this business. She’s like reverse image searching pictures she finds on there, and there’s one picture in particular that’s fishy right away.
JENNY: The building that was in the photo that sort of was implied to be their headquarters in San Francisco...
ALEX: So I’m looking at a image of it now. Um, it looks, it has a very sort of modern facade that’s softly like backlit. If it were a storefront it would be the storefront of a very boutiquey, fancy watch company.
JENNY: Totally. Yeah.
ALEX: But it is not.
JENNY: But it–it is not. It’s a ping pong social club owned by Susan Sarandon.
JENNY: I’ve never been, but, uh, it looks cool.
ALEX: And not only have they stolen a picture of Susan Sarandon’s ping pong club to use as their fake office, a lot of the text on the website also appears to have been stolen.
JENNY: I realized that the description was directly copied from sanfransisco.com, which has brief descriptions of their neighborhood. Um so that seemed a little bit odd to me.
ALEX: And as Jenny digs a little more, she realizes that the people who built Folsom and Co seem to have built another business that looks just as fake.
JENNY: SoFiCoastal. So, I go to SoFiCoastal and it's almost the exact same website, it just appears to be in Miami instead.
ALEX: So the SoFiCoastal website has a surfboard as the cover photo instead of just a picture of a watch, but other than that it’s pretty much the exact same website as Folsom & Co. And then, Jenny just starts finding this watch on tons of other very similar-looking websites.
PJ: So it's like basically they’re offering these lousy watches for sale, but it's just the company that they're pretending to be changes. They're like, "We're a hip, techy downtown San Francisco company. We're like a cool like coastal surfing watch company." But it's always the same thing.
ALEX: Right, so the Jones, which is the watch she got, uh is called “the Elite” on SoFiCoastal. And there's another company called Regent & Co., which again sounds exactly like Folsom & Co., which weirdly calls the watch "the Ron."
PJ: Huh. I think Folsom & Co. sounds like it's for the guy who wants to buy like an expensive ax for some reason, and then Regent & Co. feels like a guy who buys like those lapel things for your dress shirt for some–like, they're pitching to slightly different versions of upscale fanciness–
ALEX: Folsom & Co. shoppers chop wood.
ALEX: Regent & Co. shoppers wear blazers, not at work.
PJ: Yes. They're good at something. The people behind this are good at something.
ALEX: So Jenny does a reverse image search on the watch itself, and she learns all these websites, they’re all getting the watch from the same place—and the website is called AliExpress.
ALEX: Are you familiar with AliExpress?
PJ: I think so? But explain it anyway.
ALEX: It’s basically like the Chinese version of Amazon. Like it looks like Amazon, but it’s all Chinese products. And what is mind-blowing about it is just how cheap everything is. It’s very dollar store-ish.
And AliExpress has a listing for the watch, the one that is getting sold on all these different websites under all these different names. It is for sale on AliExpress for under six bucks.
ALEX: And Jenny made one last big discovery, which is that all these dodgy websites—Regent & Co, Folsom & Co, all of them—are being built using this same platform, this platform called Shopify.
PJ: I don’t know what Shopify is.
ALEX: Shopify is basically like wordpress for online stores, it just has a bunch of tools that make it really easy to set up a store online.
PJ: How big, if this thing is like very easy to do, and people are— like how big is this? Like how widespread is this scheme?
ALEX: That’s exactly what I wanted to know. And I actually found someone else who’s been looking into this. So, shortly after Jenny published her findings, Alexis Madrigal, who is a reporter from the Atlantic, fell for basically this same scheme.
He was on Instagram, saw a camel hair coat that he liked, it was very cheap, he ordered it, and then about four or five weeks later he got this black plastic bag in the mail.
ALEXIS: And when I pulled the actual like coat out, it was like so synthetic, like the material was like literally nothing that you could purchase in the United States of America that I have seen. It could be like refined into like gasoline or diesel or something. I would think I mean it was just the petroleum product and very clearly.
ALEX: So alexis starts digging, and he finds all of Jenny’s research. And then he makes a discover. He finds a how-to video which teaches you how to rip off people like him.
RORY: What is up everybody? In this video I’m going to be showing you guys step by step how to build and start your very own Shopify store.
ALEXIS: This kid named Rory Ganon on YouTube basically lays out, as a kind of primer, uh on YouTube, how this is actually done.
RORY: So for this particular store we're gonna be making a men's watch store. So create your store, men’s watch shop.
ALEX: And in this video, Rory is using watches just as an example. Like he says that you can sell any products you want, and he explains how easy it is to set up using Shopify’s templates and theme.
RORY: So, the best theme that we have found is Brooklyn. So you would click on the Brooklyn theme.
ALEXIS: And it has tools built into it or that you can sort of add onto it that you let you suck in items from AliExpress—
RORY: Men's watches. And find products on AliExpress that we can start adding to our store. So, I like the look of this one. I’m going to add it to the import list.
ALEX: So all Rory has to do is press “import,” and it pulls in images of the item, a description of the item, he sets his own price, however much he wants to mark it up, and he's all done.
RORY: So, as we can see, our store is looking pretty well. Like, literally it took ten minutes.
ALEX: And so now, when you place an order at Rory's watch store, he just turns around and places an order at AliExpress and has the watch shipped directly to you.
RORY: So you only paid two dollars for this watch, but someone's just bought it for 40 dollars.
ALEXIS: It’s, obviously middlemen have always been around, but these people don’t handle the merchandise, they don’t do anything. They just built a front end for somebody else’s retail site.
ALEX: These guys are doing something that happens on the internet all the time. It’s called dropshipping. And lot of stuff that you buy even on a site like amazon is drop shipped. But when people talk about “dropshippers,” they’re talking about these less than reputable folks that work with AliExpress. And there are a lot them.
ALEXIS: The thing that I think really kinda blew my mind is there's this tool called Oberlo, and that's the thing that allows them to suck products directly in from the site AliExpress. And they claim that 85 million items have been processed through that system.
ALEX: Oh my god.
ALEX: So we’re talking like hundreds of thousands of websites where all people are doing is re-selling cheap goods from China as fancy goods.
PJ: I kinda like it.
ALEXIS: It's a kind of amazing business model, right? Because there's no up front investment, you carry no inventory. All you have to do is get people to see that stuff. This is really the essence of how digital commerce works, just minus caring about the product, knowing what the product is, taking on any risk yourself or any of the other things we associate with business, you know?
PJ: So a thing that, I— A thing that I do not know what to make of, is like... Like this definitely sounds scammy to me, but like on the other hand, what you're describing to me is just like, retail fashion. Like find out what seems to be trendy, find a product that caters to people's interest in that trend, use the power of advertising to locate those people and pitch to them, and then sell them a product. None of that sounds like, unless you think like capitalism is inherently a scam, it doesn't sound like a scam. And yet, there's like–there does seem to be something, an air of scamminess hanging over this. Do you know what I'm saying?
ALEX: Yeah, I know what you’re saying. And I thought the best people to ask would be the dropshippers themselves.
ALEX: After the break… we meet a bunch of dropshippers, who tell us their real secrets.
ALEX: Welcome back to the show.
So PJ, I talked to a bunch of dropshippers, and I basically asked them like, “Are you cool with what you do for money?” And most of them said to me like look, this is how everything works in retail. They buy something cheap, they mark it up, they sell it.
ALEX: But, as I was talking to them, I stumbled on something that I think is much more interesting.
As I dove into the world of dropshipping, it started to feel like all the customers getting suckered into spending like 10 dollars on a 6 dollar watch or whatever -- that money was not the point. They were just the visible part of a much bigger swindle.
PJ: So what’s the bigger swindle?
ALEX: Well, to to explain what I’m talking about, I’m going to introduce you to three different dropshippers.
The first one is is a person we will call Kevin — that’s not his real name. He’s like a dropshipping rockstar. He says that he’s super successful, and I asked him to explain he does it.
So, for example, he started a store online that caters to like goths and steampunk fans, and the first thing he does for like any store is he just tries to figure out what his target audience is into.
KEVIN: If I’ve done my research thoroughly, then I should have a pretty good idea of what type of slang people are saying, what kind of languaging they use. Like I try to name my products so like the product kind of speaks to them. For example, if I had like a black watch I wouldn’t just call it like a black watch, right? I’d call it like the, The Mechanic or something like that [ALEX: Woah!] and then someone in the steampunk niche might be like, “Oh this looks pretty cool. Rather than just black watch it’s now The Mechanic, right?
ALEX: I mean, This doesn’t sound like rocket science, but according to Kevin, being good at dropshipping is just being really good at doing this — finding a cheap good product, finding a market for it before anybody else does. And for someone like Kevin, the goal is to become so good at this that you make it into the elite dropshippers, the ones who are all over YouTube bragging about how rich they've gotten.
EXPERT 2: We finally broke the million dollar mark [AIR HORN].
EXPERT 3: So for a while, a lot of you guys have been wanting to see my car collection.
ALEX: This is a guy who is bragging about his BMWs.
EXPERT 3: So today, I’m just going to show you guys the cars, talk a little bit about what it took to get them.
EXPERT 4: What is going on everyone, coming to you here from the hollywood hills.
ALEX: This is like an entrepreneur party.
EXPERT 4 BACKGROUND: Holy Crap.
ALEX: And a lot of these drop shipping high rollers also teach classes on how to drop ship. Some are online, but the top of the line is this drop seminar in Bali, where you go to a dropshipping retreat that costs 5,000 dollars.
PJ: 5,000 dollars? Oh man okay.
ALEX: And according to Kevin, $5,000 is like really just the beginning if you learn want to make a lot of money.
KEVIN: I’ve been to higher level masterminds, I’ve been to events, I’ve taken courses, I’ve gotten one-on-one coaching. I’ve paid over 50,000 dollars in the last year.
ALEX: Wow you paid 50,000 dollars to, for, for seminars on how to learn this.
KEVIN: Yeah it’s been over that, it’s been over that amount… so.
PJ: That’s a staggering amount of money to spend on drop shipping courses..
ALEX: Yeah but he says that it was a great investment because according to him in the past year he’s made something like a million dollars one year dropshipping.
And he says that since he’s made all that money, people started coming to him asking for advice on how to do it themselves. So, almost as an act of generosity he created his own Drop Shipping curriculum.
KEVIN: What’s happening you guys, today I wanna talk to you about a simple upsell strategy. Let’s hop right into it here, this is...
ALEX: The videos are free, but if you want the real good stuff, you can join his private online community.
Kevin: So there’s gonna be a private slack community, we’re gonna have two monthly live trainings and you know a few other bonuses and stuff like that for 50 dollars a month.
PJ: Okay, can I just point out that generally speaking in the entire history of the world when people figure out easily ways to make money they did not turn around and tell everyone else how to do it. Like the top trader at Goldman Sachs doesn’t like, doesn’t like have a YouTube channel that’s like hey here’s what stock to pick this morning. Like it just seems possible that Kevin would benefit from at minimum exaggerating how much money he’s making online.
ALEX: Yes, it does seem totally possible... So I didn’t want to just take Kevin’s word that these courses were really helping people, so the next person that I talked to is this guy named Youssef who gave me a completely different picture of what’s going on. Youssef is this kid in his 20’s, he lives in Virginia, and when he was in college he got totally hooked on drop shipping.
YOUSSEF: I was someone that took the advice from these quote unquote entrepreneurs. And it was that advice that actually led me to dropping out of school before I had any success and I ended up sleeping on a couch.
ALEX: Sounds like things were pretty rough for a while.
YOUSSEF: Oh yeah. I was making maybe like sprinkles so maybe like 200 dollars a month here, and then maybe nothing the next month and maybe 300 there.
ALEX: Youssef was running into all of these problems that the videos totally didn’t prepare him for. And he said that it’s like that for a lot of young people like him.
YOUSSEF: Think about it. Think about how many 19-year-olds watch dropshipping videos on YouTube they’re like, “Oh sweet let me set that up.” He copy and pastes some flannels from AliExpress and then boom they now technically have a store in business. But when things take thirty, forty days, fifty days to arrive he’s getting tons of chargebacks from PayPal, from credit card companies, from the banks. It’s a huge pain in the ass.
ALEX: Youssef said that he had to deal with angry customers all the time, people who wanted to return items. And these Chinese warehouses weren’t great about taking returns so a lot of times he’d have to eat the cost of the refund. And even then just maintaining his sites took a ton of work. He constantly had to switch out his inventory. He was paying for ads on Instagram and Facebook. After a while it started to feel like these videos that showed people making easy money from dropshipping were just taunting him.
YOUSSEF: Think about how many people would love to make full time income with an online business, literally I think every human who you ask would want that. So if you think it’s not going to be competitive then you are unfortunately mistaken. And I think all the other channels are like, “Oh you just need to, you need to work hard and it’s going to work itself out. If you buy my course, of course.”
ALEX: Eventually Youssef got to a point where he wasn’t sleeping on a couch any more. He was actually making sales. But it wasn’t like drop shipping was easy money, it was actually more just like a hard job.
And the more that I talked to people in the dropshipping world, the more I felt like Youssef was actually one of the lucky ones.
Like I went through the dropship Subreddit and it’s like a sort of like 70/30 split between people saying like, “I’m ready to quit this” or “my store is failing” or “is dropshipping dead.” And then dropshipping gurus telling them they just have to work hard.
PJ: Oh that’s so depressing.
ALEX: It is depressing. I talked to one of those people who are really struggling, her name’s Leah. She’s in her forties and lives in Berlin. She’s less tech-savvy than Youseff and she’s had a terrible time with dropshipping. She’s barely had any sales at all.
LEAH: I’ve done two sales so far since I started the shopify shop.
ALEX: And how long ago was that?
LEAH: That was last year actually. Last year around March, April.
ALEX: Oh my god that’s so little.
LEAH: Yeah. That’s nothing. That’s nothing, not little. I’ve been doing everything. I even got a Shopify consultant do the shop thing that maybe I should change this and that. I did that, all the changes.
ALEX: So at this point, have you paid more than you actually earned?
LEAH: Yes, I think that I’ve spent more than 3,000 already. So yeah.
ALEX: Oh my god, that’s so much.
LEAH: It’s a lot.
ALEX: Talking to Leah, I felt really bad. She had spent so much money on this Shopify store, and she told me that she could quit any time she wanted, but she had already sunk so much money into it that she was convinced it could all turn around if she just spent a little more. And that’s what all the videos were telling her to do.
ALEX: I’m curious, like, do you believe everyone else who says that they’re successful?
LEAH: That’s- that’s still my question, because I would really love to know and to understand what they do, how they do it, what is it that I’m not doing.
ALEX: Do you think they might just be exaggerating?
LEAH: Yeah. I have no idea. I look at them and I just ask myself how do they do it?
ALEX: After talking to a bunch of dropshippers, I still can’t tell if anyone is making a full time salary off of dropshipping alone. The only thing that’s clear to me is that like the big money in dropshipping seems to be in teaching people that there’s big money in dropshipping.
PJ: Right. I guess the one person we know who is actually making money doing dropshipping is Youssef.
ALEX: Well, there’s one thing I left out about Youssef. These days, he’s not just making money through dropshipping. He been selling something else online too.
YOUSSEF: What’s popping people? In this video, we’re going to go over the top five niches for 2018,
ALEX: For 200 bucks you can get access to Youssef’s Diamond eCommerce course, he says that unlike all the garbage out there, his classes teach you what it really takes to become a successful dropshipper.
YOUSSEF: My first month of selling my course it did 28,000 dollars. And unlike dropshipping, there’s no orders to fulfill, there’s no customer complaints, there’s no people yelling at me in German. Nothing.
YOUSSEF: I’m gonna show you every step of the way I’m gonna show you how to build the Instagram, how I market on Instagram, I’m gonna show you like how I build my Facebook I’m gonna show you how I do my twitter marketing, I’m gonna show you…
ALEX: Special thanks this week to Alexis Madrigal. We found this story through his reporting in the Atlantic, and we put a link to his story in our show notes.
ALEX: Reply All is hosted by, PJ Vogt, and me Alex Goldman. Our show is produced by Sruthi Pinnamaneni, Phia Bennin, Damiano Marchetti, and Kaitlin Roberts. More production help this week from Khrista Rypl and Elizabeth Kulas. Our editor is Tim Howard and Sara Sarasohn. Fact checking by Michelle Harris. Our intern is Devon Guinn. We were mixed by Rick Kwan and Our theme song is by the mysterious Breakmaster Cylinder. Additional music this week from Bobby Lord. Special thanks to Ashley Wilson. Matt Lieber is listening to the radio and hearing that song you’ve heard sampled a million times but never knew the name of. Reply All is looking for a summer intern. If you’re interested you can apply at gimletmedia.com/careers and we will also put a link to the listing in our show notes. You can visit our website at replyall.diamonds, and you can find more episodes of the show on Spotify, Apple Podcasts, or wherever you listen. Thanks for listening, we’ll see you in a couple weeks.