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I could go a whole week without touching a piece of physical currency once. Apple Pay at Starbucks, credit card at the bookstore, debit card at their favorite food truck, Venmo to split restaurants checks with friends, cash a check on an app, you name it and it can be done from a smartphone.

In today’s digital age, it’s easy to envision a day when grubby green dollars are a relic of a bygone era, like typewriters or pagers, but the evidence points in another direction.

There are two main reasons why the United States will keep printing the Benjamins for many years to come. The first is that most Americans still use cash as a secure way to complete transactions, especially for small payments. Secondly, many developing nations prefer to use American currency instead of their local currency.

In a 2015 study by the Federal Reserve Bank of San Francisco, credit card, debit card, and electronic payment methods were used in 58 percent of transactions. Credit cards accounted for 21 percent, debit cards for 27 percent and electronic for 11 percent of the year’s ways to pay among American consumers. In spite of widespread use of more modern payment methods, cash has maintained its status as the most used payment instrument at 32 percent of all transactions.

American transactions by payment type in 2012 and 2015. Over three years, cash use declined but remains the most used payment method.

While cash remains king for now, it’s popularity declined in the United States from 2012 to 2015 accompanied by in increase in the use of cards and electronic payments. Credit cards, in particular, increased use by 4 percentage points over the three-year period.

Despite declines in cash usage among Americans since 2012, the total Currency in Circulation Value has been rising every year since it was recorded and published by the U.S. Department of Printing and Engraving in 1995. Since then, the value of currency in circulation has increased over 300 percent to $1.38 trillion.

The total value of currency in circulation has grown significantly since 2008.

The U.S. Department of the Treasury decides how much physical currency should be in circulation each year by considering how much currency was destroyed in the past year and the projected demand for currency, in its various denominations, for the upcoming year.

It’s not just a response to inflation that is driving up the amount of dollars in existence. The rate of growth of currency in circulation far exceeded the rate of inflation between 1995 and 2015, as determined by the Consumer Price Index. Adjusted for inflation, the $148 billion in circulated cash in 1995 would be equivalent to $230.17 billion in 2015 dollars, just 16 percent of the actual value in 2015.

Although since 1916 inflation rates have been somewhat erratic, since 1995 inflation has remained relatively steady.

If the supply of cash is ever-increasing at a rate much higher than that of inflation, demand must also be increasing, otherwise inflation would rise because too many dollars would begin to chase too few goods. Between low inflation rates, since 1995 inflation has averaged around 2 percent each year, and a decrease in demand for cash among Americans moving toward credit and debit cards, there must be a missing piece.

To find the missing piece to the puzzle, travel to Cambodia where locals shuffle crisp one dollar bills from hand to hand at a bustling floating market, Zimbabwe where farmers collect U.S. dollars from customers at the market, or Argentina where middle class citizens buy cars with American cash.

This is called dollarization. It describes the use of a foreign currency in a nation either formally, to replace its national currency, or informally, where individuals use a foreign currency alongside their official national one.

Dollarization in countries like Cambodia, Zimbabwe, and Argentina has led to increased demand on an international scale for American currency. For Cambodians, Zimbabweans and Argentinians alike, the dollar was and remains a safe currency that is stable unlike their native monetary system which has struggled and or continues to struggle with hyperinflation and political instability.

Research conducted by the Federal Reserve has consistently shown that overseas demand for American currency has been strong and will continue grow in the coming years. While there is not way to know exactly how much currency is abroad, estimates in 2011 suggested that about 50 percent of all currency in circulation was held outside of the United States, about $500 billion.

Nations that adopt the dollar as their currency formally, and to a lesser degree those that use the dollar informally, also face some disadvantages in exchange for stability, favorable interest rates, and increased trade opportunities. One of the major drawbacks of formal dollarization is the complete lack of control over monetary policy. Dollarized nations with stagnating or shrinking economies are unable to lower interest rates which would encourage consumer spending, investment and create growth.

All of this begs the question: where exactly does the Treasury belong in foreign nations’ economies?

The Treasury Act of 1789, created by the First Federal Congress, established the U.S. Department of the Treasury to manage government revenue collected mainly through taxes. Since its inception, the role and scope of the U.S. Department of the Treasury has expanded and shifted significantly. A part of government that once served almost exclusively as the American public wealth manager now also has major roles in foreign economic policy and even an office specializing in terrorism and finance intelligence.

The United States Department of the Treasury Building in Washington D.C.

Today, it is part of the Treasury’s stated mission to promote “the conditions that enable economic growth and stability at home and abroad” giving a reason for the Department’s support of international economies. Furthermore, providing unstable nations with a stable currency comes at a relatively low cost for the United States while creating some degree of political and economic leverage over the dollarized nation.

In 2015, the cost of printing the year’s currency was $578 million, 0.0001 percent of the year’s federal budget. In exchange for providing dollars, the United States has the ability to strengthen its influence over the nation in question. Additionally, use of the U.S. Dollar abroad facilitates trade by avoiding exchange rates and risks associated with dealing in unstable currencies.

A potential downside to allowing American currency to be used overseas is risking deflation as international demand increases without increases in supply. Luckily for the Treasury, it has the power to print essentially unlimited quantities of dollars in order to maintain the stability of the currency.

There is also no beneficial alternative. If the Treasury only prints what is needed for domestic use, international demand will remain constant with an even smaller supply of currency resulting in an increase in the value of the currency itself. This appreciation might also affect the overall value of the dollar but to a much smaller degree.

Today, the vast majority of money exists virtually in a computer network. The CIA World Factbook estimates that there at $11.78 trillion in virtual and physical U.S. dollars worldwide. This means that physical currency is only 9 percent of all American money in existance. As such, fluctuations in the value of this small portion can only affect the overall value of the dollar by so much.

So, providing currency to the world comes at relatively low cost to the United States and provides some political benefits but dollarization doesn’t entirely explain the increased production of $100 bills.

Currency production by the United States Department of Printing and Engraving separated by denomination. Production has increased overall, however, larger denominations have grown at a higher rate.

Hundred dollar bills in particular have become a larger proportion of the Treasury’s annual currency order. From 2010 to 2015, the amount of $100 bills ordered by the Treasury increased 34 percent from 7 billion to 10.8 billion notes. In the five previous years, from 2005 to 2010, $100 bill orders increased by only 18 percent.

Yes, some people have converted their life savings into dollars and are hiding them in their mattresses as a safeguard against the instability of their own currencies. However, logically, most people who are doing this are in developing nations and won’t have vast amounts of savings to convert into dollars and stash away.

A study conducted by Peter Sands, a Professor at Harvard, suggests that a significant amount of American currency, particularly $100 bills, is preferred by and thus facilitating international crime. The study estimates that global crime finance amounts to over $2 trillion U.S. Dollars per year. Sands argues that most of the illegal transactions that combine to make this astronomical figure use cash due to its anonymity, lack of record, and ease of transportation. Given the large sums of money exchanging hands, large denominations of stable currencies issued in mass quantities are the preferred form of payment.

From this point of view, the Treasury can be seen as an organization that is unintentionally aiding international criminals. Upon further scrutiny, however, the Department can’t really be held accountable for how people use its bills. The Treasury would face opposition to decreasing the discretion and portability of cash because those same characteristics make it attractive for law-abiding citizens.

Perhaps the best it can do is limit the supply of large denominations as proposed by both Sands and former Secretary of the Treasury Lawrence H. Summers in order to limit its facilitation of crime.

Troubled Waters

It’s 2007 and The Big Three automakers, Chrysler, General Motors and Ford, all found themselves in big trouble. They were on the verge of collapse, with wage bills spiraling out of control and foreign competition continuing to undercut their former domestic supremacy. GM’s profits were down 90% in the first quarter compared to the previous year, and the automakers looked for any means by which they could save themselves amidst the falling debris of debt, rising gas prices and cars no one wanted to buy anymore.

Most economists argue that globalization is a net positive for economic growth, benefits consumers in a number of ways and should be encouraged. It creates a more competitive environment that in theory increases not only the quality of products available to the average consumer while also decreasing their cost. The American auto market shows us a very clear example of how it works.  The Japanese and Korean automakers entered the US market and essentially took the Detroit giants out at their knees. Companies like Honda and Toyota created cheaper, more efficient and longer lasting cars than their competition and won larges swathes of the market.

In response, American automakers cut costs fast and furiously. For example, in the mid-2000’s Ford downsized significant parts of the company by closing plants in order to reduce excess production and they liquidated thousands of salaried positions. According to it’s 2005 earnings statement, Ford planned to close 14 manufacturing plants by 2012, leaving some 25,000 to 30,000 workers jobless. They did this because they did not have a demand for the vehicles at level needed to operate the facilities at full capacity. In fact, they operated at a mere 75% of capacity as of that earnings release. These initiatives were a direct result of automotive sector of the company losing almost $3.895 billion in 2005.  Eventually, Ford cut over 40,000 jobs between 2005 and 2008.

Ford’s 2005 earnings report shows trend of shrinking market share

This poses a major drawback, for some, of globalization and how it effects workers; it depresses wages. This happens because workers are now faced with a market place flooded with cheaper competition. Logically, that should for the wages for American auto workers to decrease in order to compete with the foreign workers. But in this instance, the wages of the American auto worker have not shrunk to match the other entrants in the field. Author Edward McClelland points out in a Washington Post column that, “because it provides pensions and benefits that GM’s labor costs average $58 an hour, compared with $48 for Toyota and $38 for Volkswagen.” So the Big Three cut jobs, shut down factories and continued to move production into cheaper wage countries like Mexico. These moves cut union membership from 1.5 million in 1979 to 400,000 members as of 2015.

The Big Three and the weakened unions had to confront the wage issue in order to find a workable path moving forward. Faced with the loss of jobs due to reductions and outsourcing, the unions agreed to system in which hourly employees hired before 2007 would have the designation of tier one or “Traditional” employees and their wages would remain frozen, but not cut. Whereas, all new hires from 2007 onward would be deemed tier two employees, and their pay would be capped permanently, with no hope of ever matching the rates of tier-one employees. Basically, they imposed a wage ceiling of $19 an hour on newer hires, no matter how long they worked there, while the longer tenured employees could make up to $28 an hour. The move was justified as a means to save thousands of factory jobs in the U.S. A move that has been since in other companies such as Kroger’s supermarket chain and United Parcel Service. Many point to Ronald Reagan’s use of tiered wages against government employees at USPS in 1984, as the first instance of its use in the US. Now the automakers were betting on its efficacy as well.

The Bailout

Initially, the plan did not make a major impact. We know an enormous number of factors played into the demise of the Big Three. After all, if you look at the Ford’s stock over the past 15 years, we see a massive downward trend from 2000, far before the financial collapse, until it scraped the bottom of the barrel in 2008. Foreign competition battered the Big Three, and drastically reduced not only their market share. For a number of years, the Americans could still bank on consistent sales volume to maintain, but after the recession demand dried up producing the crippling blow. Now higher labor costs became an even more significant point of contention in explaining why they couldn’t keep up. Soon Chrysler and GM teetered on insolvency. Ford hung in, but could’ve easily tumbled as well.

Ford Stock Price 2000-2010 Source: Google Finance

In late 2009, both Chrysler and GM filed for chapter 363 bankruptcy. In response, despite some calls to allow the companies to fail, the Obama administration intervened to prevent an, “Industrial Lehman Brothers Effect.” By utilizing TARP, the Troubled Asset Relief Program instituted under President Bush in 2008, the government dispersed $49.5 billion to GM, $17.17 billion to Ally Financial, the former financial arm of General Motors, and $11.96 billion to Chrysler in various loans, bankruptcy payments and share purchases. As a result of this agreement, Chrysler went under the dominion of Fiat, and the two companies merged to become Fiat Chrysler Automobiles US.

Ford, after initially taking part in conversations about a bailout, decided to walk away from the negotiations. It drew on lines of credit that they established in 2006 by mortgaging assets ad setting up long-term borrowing plans for the credit crisis in 2008. This allowed the company to infuse itself with life preserving liquidity to weather the storm of contraction in 2009 and 2010 which included; shrinking sales numbers and, consequently, shrinking production output.

These actions undoubtedly saved a number of jobs, and allowed the American auto industry to continue to exist as we know it. The Center for Automotive Research released a report on the topic in 2013, “Our results show the U.S. government saved or avoided the loss of $105.3 billion in transfer payments and the loss of personal and social insurance tax collections—or 768 percent of the net investment.” The report continues, “Additionally, 2.6 million jobs were saved in the U.S. economy in 2009 alone and $284.4 billion in personal income saved over 2009-2010.” But what did a lot of these “saved” jobs pay? A fair number of them didn’t pay what they used to, and that was the intention. But the results are difficult to argue against. Ford added more than 17,000 hourly jobs in the last five years through in-sourcing, and brought back production of certain pickup truck models from Mexico. Meanwhile FCA brought in around 15,000 new workers since their bankruptcy 2009.

Removing the Limiter

The US government attached a number of stringent restructuring requirements to the bailouts of Chrysler and GM. Initially, the tiered wage plan, as agreed to in the labor negotiations of 2007, prevented the Big Three from having any more than 20% of their work-force constituted by tier-two employees. After GM and FCA filed for chapter 363 bankruptcy in 2009, Obama lifted that restriction. The cap was supposed to be reinstituted during labor negotiations in 2011, when the companies became profitable again, but that did not happen and the tiered wage agreement continued. According to the New Labor Forum, FCA’s workforce consisted of up to 45% tier-two employees before the most recent collective bargaining sessions in 2015, while Ford’s number sat at 29% and GM at 20%. As a consequence of having the most tier two workers, FCA saw the greatest benefits to this plan. It saw wages drop to an average of $48 dollars an hour, according to the Center for Automotive Research, as compared to Ford whose costs rested at $57 an hour.

But Ford still pointed to the new agreement as a key factor in their regaining international competitiveness. From its 2011 earnings report, “In 2011 we signed a four-year agreement with the United Auto Workers that will help us improve our global competitiveness. As a result, we will be investing $16 billion in the U.S. and adding new jobs at our U.S. manufacturing facilities.” They also reported an increase of pre-tax operating profit for their North American operations to $6.2 billion. A massive change from the losses they faced back in 2005. Obviously, many factors play into that resurgence, but wage cost reductions were a major talking point for all of American auto makers.

Source: Ford’s 2011 end of year earnings report

The Downside of Tiered Wages

While the new wage structures helped retain many jobs, and played a role in the revitalization of auto industry in the US, sometimes things resonate on a deeper level than just spreadsheets. The wage gaps between employees, with no possibility of ever closing, caused a lot of discontent amongst the workforce. A fact acknowledged on both sides of the negotiations. Imagine getting a job and working alongside people doing the same job, and yet you will never receive the same pay. Many of these workers had close relationships with one another as well, which only made the disparity more difficult to bear for some.

In an excellent article for The Nation about the growing trend of tiered wages in the US, Louis Uchitelle talks about a father and son, Gary and Karl Hoeltge, who both work on a GM assembly line in St. Louis. Karl feels disillusioned with the work and has his sights set elsewhere, in part because, “I’ll never catch up to my father’s pay—not if the union allows the present setup to continue.” Uchitelle describes how father and son must refrain from discussing the issue at the dinner table so they don’t upset the rest of the family. The divisiveness of wage tiers seeping into home life is important to note, because one can imagine how those same feelings must render themselves in the workplace.

The Hoeltge’s paint just one example of the discontent that many autoworkers felt in regards to the tiered wage system. Trey Durant, a 20-year factory employee for Chrysler, has strong feelings on the issue, “Working in the same facility, side by side with someone who has a different wage than you was a bad idea, even though I know why they had to do it when times were tough,” He says. “I want my brothers and sisters to be at full wage also.” And even FCA CEO Sergio Marchionne, whose company benefited the most from this arrangement, called the system unsustainable and pushed for it to end.

The UAW worried that the increasing number of tier two employees at the factories would more firmly entrench the system. Whether they worried about younger workers making ends meet as Trey Durant says or worried about being forced out for cheaper labor themselves is anyone’s guess. What we do know is that the unions made ending the two tier system a key point in labor negotiations with the Big Three in 2015. Ultimately, they reached an agreement that instituted a new eight-year track for new hires to eventually reach the same wage rate as tier one employees. So the controversial wage tiers are no more.

Conclusion

Ford utilized the advantages of tiered wages when in-sourcing jobs back from Mexican plants, but now they have to rethink their strategies.  “The business case for in-sourcing is more challenged with today’s agreement versus the prior agreement,” said Joe Hinrichs, Ford’s President of the Americas to Automotive news. “…there will be business choices over time that will have to be looked at, given the new cost structure that we have.” These wage structures made it economically beneficial for the big Three to keep jobs in the US, and now that they’re gone it will be interesting to see what actions they take next to try and keep earnings high. The bail-out and tiered wages certainly helped punch up the economic recovery, but how will these companies choose to compete with foreign competition going forward?

For the worker, the ever evolving market place, in the end, is the primary difficulty they have to face. Tiered wages may have cause unrest amongst the employees, but ultimately they allowed many people to attain jobs they otherwise would not have. Faced with the looming threats of increased automation and further outsourcing to Mexico it appears many of these workers have picked a losing fight.

“Please don’t send gifts to me anymore! Why not buy some snacks if you have extra money?” said Fu Yuanhui, a Chinese Olympic swimmer, after seeing the barrage of virtual gifts such as yachts and sports cars being sent to her via cyber space. Fu, who became famous for her lovely facial expressions and the buzz she generated from her “mysterious power” during the Rio Olympic Games, was live-streaming herself interacting with her fans on a platform called Sina Weibo, the Chinese version of Twitter. More than 10 million people watched this live show and many of them contributed in filling up Fu’s mobile phone screen with virtual gifts.

Though seemingly useless, virtual gifts have more value than is initially apparent. The virtual yachts, sports cars and diamonds are not real ones, but they are paid for with real money by fans, which the live-streamer is then able to cash out proportionally. The prices of gifts range from several cents to thousands of dollars on Inke, a one-year-old live-streaming mobile app that has occupied the No. 1 spot on China’s app store multiple times in the past few months.

Believe it or not, at any given hour, millions of Chinese are live-streaming on their smartphones. Not only celebrities, but netizens from all walks of life are joining the army of live-streamers to showcase themselves performing all kinds of activities. “You can live-stream whatever you want,” said Ge Wang, a student live-streamer studying Communication Management at the University of Southern California. Her graduation capstone project is about how to be an Internet celebrity. Before she started live-streaming this summer, she had already several short videos online. “My friends told me that if I want to get famous, live-streaming would be a good way,” Ge explained.

Welcome to China’s new national reality show industry! Live-streaming is gaining huge popularity among youngsters who are willing to show their personal lives online for fun or fame. Accordingly, the past year witnessed hundreds of new live-streaming social accounts, especially on apps such as Inke and Huajiao, spring up in the country as millions of young internet users became engaged in this activity. No wonder 2016 has been called the national live-streaming year of China.

While China did not invent live video-streaming, it has taken these reality shows to a completely new level. “Dozens of Chinese live-streaming apps almost copy exactly the same format as Twitter’s Periscope and Younow,” Ge explained. Live-streaming is a growing mobile-video market that is hungry for content reflecting young people’s tastes and lifestyles.

Platforms, Live-streamers and Content

Live-streaming has been around in the U.S. for years on social media platforms such as Facebook Live, Flipagram, Instagram Stories, Snapchat, Twitch, Periscope and YouNow, but it is not a mainstream activity in the States. However, China is turning it to a national fever.

Video game live-streaming is the most common type of content initially, which is the same case for both China and America. Live-streamed video-gaming targets hard-core gamers and the shows are usually hosted by professionals. For example, Douyu, a competitive live-streaming platform, which is operated by Wuhan Douyu Internet Technology with investments by Tencent Holdings and Sequoia Capital China, debuted as a live video website for gamers in 2014, but then moved to lifestyle live-streaming last year. It is now claiming 600,000 users who have streamed at least once and 120 million active monthly users.

Lifestyle live-streaming then prospered. A lifestyle live-streaming bellwether is Inke mentioned above, which says over 50 million users have downloaded its app since its establishment. Moreover, China’s biggest social media platform Sina Weibo launched its live-streaming platform in May. Since then, Weibo celebrities and influencers have brought a number of live-streaming shows for fans, for fun and even for charity. Video streaming site iQIYI also launched its live-streaming app Qixiu in the following July.

“Everyone can be a live-streamer,” said Ge, “no matter if you are a celebrity, an entrepreneur or ordinary person.” That’s the truth. Approximately 46 percent of China’s internet population used a live-streaming app in June 2016, according to Hua Chuang Securities.

With popularity largely driven by celebrities and key opinion leaders, live-streaming can be especially useful when famous brand ambassadors serve as hosts to the online events. Alibaba’s Tmall seizes this business opportunity as usual. A total of 49 percent of beauty brands have live streamed on Tmall between April and October 2016, The e-commerce giant, Taobao, follows with 35 percent of beauty brands having live-streamed on the site, according to Jing Daily. This September, prominent make-up brand Guerlain partnered with Yangyang, a Chinese celebrity via Tmall Live. The live-streaming show garnered 2.43 million views, 4.55 million likes and most importantly, more than 10,000 of lipsticks sales.

(Guerlain’s partnership with Yangyang)

Papi Jiang, a Chinese cyber celebrity, drew 20 million viewers for her first live-streaming show in July 2016. During her 90-minute unscripted live-streaming show, which was available on eight leading live-streaming platforms in China, including Youku, Meipai and Douyu, Papi Jiang told jokes and shared with her fans details of her daily life and romances. According to the New York Times, there were more than 74 million views in one day, which exceeded what Taylor Swift’s latest music video, “New Romantics,” received on YouTube in four months.

(Papi Jiang’s first live-streaming show)

Renowned entrepreneurs also seek to take advantage of the platforms to boost their brands among young consumers. Wang Jianlin, the chairman of Dalian Wanda Group and China’s richest man, once live broadcasted himself visiting a company theme park and playing cards on his private jet.

(Wang Jianlin’s first live-streaming show)

“I don’t think Chinese live-streaming has good content,” Ge complained. Ge indicated that current live streaming fever is lacking qualified production. A lot of people are live-streaming their lives all day from squeezing in the metro to eating a bowl of ramen. Moreover, Chinese live streaming apps breed soft porn in a society where such content is tightly controlled. Understandably, Americans don’t need Periscope to watch pretty young women, but Chinese need live streaming platforms to help satisfy their sexual cravings.

(A pretty young woman live streams herself.)

Where is the money going?

It is not uncommon to read such an eye-catching title as “China’s Internet ‘Stream Queens’ Are Being Showered With Cash” if you search for live-streaming related content via Google. Is live-streaming that profitable?

“I made 20 yuan ($3) to 30 yuan ($6) every live-streaming show that lasted for an hour,” said Ge. Ge admitted that she was new to live streaming but professional live streamers are able to earn as much as one million yuan ($0.2 million) in a month. Someone even quits his or her full-time job to pursue a live-streaming career because it pays so much more.

How does live-streaming monetize? Through the collaboration of the app, the live streamer and the viewer.

Admittedly, live-streaming is well known for its interaction. However, many Chinese live-streaming apps have integrated an original tipping feature that motivates people to stream more and generate profit for the apps. Other than leaving comments, viewers can also interact with the hosts by buying them virtual gifts, such as flowers, toys and cars through the streaming platforms. Not only the apps are making a profit, the streamers can also trade the token value of the presents for cash.

For example, one yuan (20 cents) on Inke can buy 10 tokens, which users can in turn use to purchase virtual presents, such as a bunch of cherry flowers (one token), a hug (five tokens), a fleet of virtual Ferraris (3,000 tokens each) or a yacht (13,140 tokens). In other words, if you want to tip your favorable host with a yacht, you have to spend 1314 yuan ($190) for Inke’s tokens. Moreover, Live streamers and Inke split the income from token sales. Different companies set different rules for splitting the income. Inke gets 70 percent of the revenue while Douyu says it splits token income with streamers halfway.

Through digital tipping, live-streamers are incented to live stream more frequently. “If you want to build your loyal fans group, you have to post regularly say every Monday evening at 8 pm,” Ge stressed.

Besides live-streamers and live-streaming apps, adding to the monetization of streams are also e-commerce and games sales. E-commerce platforms such as Alibaba also share a huge slice of the profit in this market as viewers might be tempted to buy the same clothes their hosts wear and gamers are more likely to play the games that the host recommends during live-streaming.

Live-streaming directly gives rise to new forms of advertising for different brands. Brands start to advertise on the apps and users pay to watch their favorite personal reality shows.

Investors are thinking highly of this flourishing live-streaming market as it is generating a huge amount of capital. Investment funds and tech giants, including Baidu, Alibaba and Tencent, have invested heavily in the fast-growing industry. According to Hua Chuang Securities, the live-streaming market reached 12 billion yuan ($1.8 billion) last year. It is estimated to grow to 106 billion yuan ($16 billion) by 2020. Credit Suisse stated in its September research report that it believes the Chinese personal live streaming market will be $5 billion next year — already just $2 billion less than China’s movie box office total ($7 billion) and half the size of its mobile gaming market. In addition, 108 out of 116 live-streaming apps have successfully secured financing.

Furthermore, investors are swooping in. Inke, which now has more than 2 million users, raised 68 million yuan ($10.3 million) in January from Beijing-based web game developer Kunlun Tech. In March 2016, Douyu raised $100 million in a round led by Chinese web giant Tencent Holdings. Enlight Media, a Shenzhen-listed entertainment company chaired by billionaire Wang Changtian, invested 131 million yuan ($20 million) for a controlling stake in live-streaming platform Guagua this May.

Where is the future? Tighter government supervision and better content

Earlier this year, some of the most viral content on these live streaming apps reflected pornography such as topless women in front of the camera and suggested erotic behavior. Those streams were deleted quickly. However, the Ministry of Culture, the national anti-pornography office and other regulators have investigated 19 live-streaming platforms for potentially criminal, pornographic or violent content, according to state media reports. Almost all bigger Chinese streaming apps were named or fined, including Inke and Douyu.

In front of the grey areas that exist on the streaming apps, government is trying to tighten its supervision and the sites are also trying to rein in what users post. Nonetheless, pornographic content is more lucrative as users are more willing to pay the live streamers.

Another future challenge is a tension between the quantity of the production and the quality of the production. Although the streaming industry provides a steady supply of content, the market has a low entry barrier. During the interview with Ge, she mentioned that live-streaming is a good way to pass time as a lot of people can live-stream for a whole day. “Maybe it’s ridiculous but I think people are live-streaming because they get bored,” Ge answered with laughter. One of the most astounding statistics of the live-streaming trend in China is that the most active hours are between 10pm and 4am, with peak usage at midnight. Live-streaming may be an answer to loneliness. Moreover, to drive more short-term profit, live-streaming apps are likely to hire beautiful female hosts to attract users and drive sales of virtual gifts.

China’s web has become increasingly mobile-driven, with more than 92 percent of the country’s 710 million internet users now accessing the web via their mobile phones, according to a report published this month by the official China Internet Network Information Center. Undoubtedly, live streaming dramatically changes and broadens people’s social life as everyone is under the spotlight. Everyone can watch each other.

When asked about her future plans to build her brand, Ge said she gave up starting with live-streaming to get fame. She plans to continue and prioritize making funny short videos regularly to increase her viewership and build her loyal fans group, just like how Papi Jiang accumulated her fans before. She highlighted that only short-form videos are considered good content now. Ge has already gained more than 30,000 views for one of her short videos uploaded to YouTube. “If you want to build your brand, live-streaming might not be a good way as no one will pay attention to you until you become someone,” said Ge.

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Sources:

http://www.wsj.com/articles/live-streaming-apps-flourish-in-china-1462995001

http://www.forbes.com/sites/ywang/2016/06/02/in-china-millions-are-broadcasting-their-personal-lives-online-including-the-countrys-richest-man/#63a0a0e57cb4

http://www.cnn.com/videos/world/2016/08/15/china-live-streaming-matt-rivers-pkg.cnn

http://a16z.com/2016/09/27/livestreaming-trend-china/

http://www.economist.com/news/china/21707070-authorities-wish-they-wouldnt-chinas-netizens-love-sharing-live-video-themselves

http://www.voanews.com/a/china-live-streaming-apps-surging-in-popularity/3356667.html

https://www.techinasia.com/weibo-live-streaming-china

https://www.bloomberg.com/news/articles/2016-11-01/chinese-live-streaming-apps-employing-censorship-against-rivals

Live-streaming in China

http://www.bbc.com/news/world-asia-china-37127904

https://www.bloomberg.com/news/articles/2016-07-04/millions-of-chinese-stream-reality-shows-starring-themselves

Airbnb and its hosts are broadening their business. During the company’s annual conference in November, Airbnb’s CEO Brian Chesky announced “experience” and “places” will be the two new features joining “homes” on its app. Besides booking a spare room rental, travelers can now use Airbnb to reserve tours and activities.

These two new features are design to help travelers to make more in-depth planning and to have a fuller travel experience. The launch marks Airbnb’s start of transitioning from a home rental site to an integrated travel-planning platform.

“Places” are the travel guides curated by local hosts or experienced traveller. They are essentially lists of places to go. Hidden artistic corners, must-try restaurants, unlikely music venues, etc. Travelers do not have to pay to read these recommendations. This feature has potential to help Airbnb attract more travelers to view its content. Most travelers like to look for places to go before they take off. Some ask on Facebook, some turn to TripAdvisor. But this new “places” feature offers organized personal recommendations that people can eyebrow base on their own preference.

Some curators may recommend places or activities that they have special access to, and that leads into the “experience” feature. “Experience” allow travelers to purchase travel packages on Airbnb. Currently, about 500 activities are available on Airbnb’s app. They are generally more personal and sometimes more creative than the tours from travel agency. For example, travelers can connect to a film producer who can put up a set for them to try out acting. Or they might stay with ranch owner for a few days to ride horses and harvest fruit. Most of these experience packages have activities on multiple days, cost anywhere from $200 to $1000 and provide amenities such as food, drink and tickets. Like home rental, the experience service providers are also individual hosts; Airbnb remains a platform for people to share and meet.

The expansion didn’t come from sudden. Airbnb has been planning and testing on this launching since a while ago. A “journey” feature was tested in the bay area last year, which encourages hosts to plan a whole trip for travelers. In August this year, an app called Airbnb Trip was available briefly on Google Play Store. Similar to “experience”, Airbnb Trip allowed users to reserve activities in their destination, such as booking a restaurant or connecting with a tour guide. In September, Airbnb acquired a travel site called Trip4Real, which also emphasize on unique local experience. The fact that Airbnb raised $850 million in capital this August at its $30 billion valuation also signals a big move.

It is quite an ambitious transition for a company that has only be in the competitive market for a few years. But Airbnb isn’t afraid of trying, because it has the strongest supporters. The annual conference held three days in Los Angeles’s Orpheum Theatre. Although the admission was between $275 and $345 — and Airbnb does not pay for that fee, over 7000 excited hosts from all over the world still rushed to L.A. Many applied to be hosts of “experience”, but the company decided it was going to be more selective at the beginning. Depending on the market needs, there should be more “experience” hosts joining the party.

Hosts are supportive of Airbnb’s new attempt because they are benefited by Airbnb’s operation. Chinese e-commerce giant Alibaba created Taobao and became the most popular online trading site; one of its keys to success is that it provided individuals the opportunity to become business owner. Similarly, Airbnb offers a chance for individual homeowner to become a host. As of July 2016, listings on Airbnb has exceeded 2.3 million. Some people even make enough that they decide to run b&b full time. Gabrielle Catania for example, owns a house in Oregon that has four guest rooms. Her place is always reserved as she keeps getting fantastic complement on the breakfast she made. Gabrielle spends at least an hour preparing breakfast for her guests. Apple rose is her favorite desert to serve. She enjoys being an Airbnb host, because it gives her a chance to meet guests from different background while making enough money.

Airbnb’s influence over the hospitality industry has been rising drastically since 2013. According to Forbes, Airbnb over 100 million travelers have used Airbnb’s home rental service. The average number of nightly stays is about 500,000. And the valuation of the company has exceeded hotel giant Hilton; about five times of Hyatt.

It succeeded for a reason; Airbnb came in at a perfect timing with extensive understanding of the market and consumers. There are always people with extra space in their homes; many even have extra houses. While renting in long term can be troublesome, many welcoming homeowners are willing to rent short term to travelers. There is supply, and there is demand. Internet has encouraged a culture of sharing. Travelers nowadays are often not satisfied with traditional hotel experience. They want a sense of excitement and belonging for their journey. More importantly, they are usually on different budgets. This is when Airbnb kicks in. It partners with homeowners to offers unique accommodations that feel like home at various prices. Travelers can choose to pay $40 a day to live in a tiny tidy single room in Monterey Park, or they can reserve a beautifully designed luxury villa in Malibu that costs $1500 a night. The prices are very flexible, because the market demand is generally high, and it isn’t too difficult to enter the competition and become a host. So even on a relatively low budget, travelers can still compare and choose from different home styles. They like to be able to choose, so they keep coming back.

The home rental is already making great success. But Airbnb still decides to expand its business, because finding a place to “live” is just the start of a great journey. They are aware of this long before they launch these new features. For a long time, Airbnb has been using slogan “Live there, even if it’s just for a night,” to encourage travelers to value their “living experience.”

But there might be other reasons why Airbnb is expanding to promote travel experience. As a platform, sometimes it is hard for Airbnb to background check every host. Many authorities are worried about some of the listings fall foul of laws, so they try to make policy to implement stricter regulations. The state of New York passed law in October to curtail Airbnb and other short term rentals. To ease the worry, Airbnb has been “compromising” by being transparent to the public and releasing users data. Although the enforcement has been postponed, the future of short term home rental in New York cannot be guaranteed. Airbnb needs an alternative, a new area of business to support its operation if any unpredictable happens.

While Airbnb is making a reasonable business expansion, there might be other problems to consider. Airbnb’s selling point is that its activities are provided by local experts, but many local travel agencies have already been in the business for a long time and know the area very well. Although localization is always on the top of Airbnb’s mind, it cannot guarantee its experience packages to be better than what travel agencies offer. Some hotels may find it hard  to keep up with Airbnb because they have established environment, but travel agencies can easily adjust their travel plans and make them more exciting to compete with Airbnb and its proud hosts. At the same time, these local agencies have better relationship and understanding to the government.

Airbnb also needs to be smart on communicating with its hosts if it wants to remain outstanding in the competitive local market. Afterall, Airbnb relies on the hosts to provide great experiences to the customers. It does not interact with the travelers directly. So how can I insure the uniqueness and quality of the service? In a long term, that can be a challenge.

Reference:

https://www.theguardian.com/travel/2014/jul/08/airbnb-legal-troubles-what-are-the-issues

http://www.wsj.com/articles/the-enforcement-of-airbnb-law-postponed-again-1478305423

Airbnb releases first transparency report on government requests for user data

http://www.forbes.com/sites/briansolomon/2016/07/13/airbnb-confronts-racism-as-it-hits-100-million-guest-arrivals/#4fab57e41c3c

https://skift.com/2016/07/11/airbnb-now-has-100-million-users-and-more-grown-up-problems/

These days, it seems that everyone from factory workers to United States president-elect Donald Trump cannot help but reminisce about the ever-vague “good old days.” Many say these were simpler, more predictable times, and it was easy to repeatedly use the same strategy to find success. This is no longer the case, and people and industries as a whole have had to shift their mindsets and continuously innovate in order to stay afloat. This is perhaps most evident in the toy industry and Toys “R” Us specifically as both have been through a roller coaster of progress throughout the last few decades as technology has gotten better and toy preferences have changed.

The modern toy industry was born at the end of World War II. The Great Depression and the World Wars did not leave people with much spending money, but the return of prosperity and the introduction of television and plastic propelled modern American consumption. This was perfect timing for Toys R Us founder Charles Lazarus, who believed that “toys are a great kind of thing to sell, because they don’t last that long.” Lazarus’ strategy was to offer name-brand merchandise at less than list price, and toy manufacturers were willing to compromise because Toys R Us was one of the only retailers that offered year-round sales. Traditionally, toy stores did 70% of its sales during the 6 weeks leading up to Christmas. This meant that the carefully selected stocks of toys were cut dramatically from January to August, which made the toy year short and unsustainable. Toys R Us was unique in that its stocks were maintained throughout the year with toys from manufacturers’ entire catalogues.

Toys R Us stores revolutionized the toy industry. Whereas toy stores used to be small with much of their merchandise stashed in the back room, Toys R Us introduced the warehouse shopping experience. Toy packaging design was now centered on how it would look on the shelf, and from 1975 to 1985, annual revenues at Toys R Us grew from just over $200 million to over $2 billion. The emphasis on the shopping experience worked, and it brought in great success for that time.

Ironically, the toy’s short lifecycle that attracted Lazarus in the first place needed to be adjusted in order for the industry to have consistent sales. Toys that only get played with once or twice is a waste of money in the parents’ eyes, so for a line to stay popular over time, children must want to continue playing with it. The emphasis on sustainable toy lines also keeps prices down by allowing manufacturers more time to get their return on investment while keeping quality up. Children only return to a toy if it has a deeper meaning than just being a plastic object. This could be in the form of a story that is supplemented by a television short or a movie. In the 1980s, the Cabbage Patch dolls and the Transformers took exactly this route, which allowed children to better relate to their toys. Unfortunately, the 90s brought the Internet and technology that offered instant gratification, and static toys no longer held the same appeal.

Instead of producing a toy and creating a story to go with it, toymakers began seeing the benefit of making the two a more streamlined experience through videogames or interactive toys. Videogames tell the story over time, and children can play by themselves in a way that keeps them engaged. In the early 90s, toy spending peaked for four-year-olds, but by the end of the decade, the peak for spending was for three-year-olds. Children were simply outgrowing their toys earlier and finding more interest in electronic games at a younger age.

This shift forced Toys R Us to revamp their stores, and in 1998, it greatly expanded its electronic section. While this was new for Toys R Us, its competition already offered that and more. Wal-Mart, Target, and other discount stores put pressure on Toys R Us as they captured more and more of the toy business. In the mid-90s, Toys R Us held 20% of the market, and Wal-Mart and Target were insignificant. By 2004, Wal-Mart had 20% of the market, Target had 18%, and Toys R Us was down to 17%.

In the 90s, many moms including Kathy Klatman used to regularly shop at Toys R Us, buying dolls and play sets from the toy giant. By the mid-2000s, all of the toys she bought fell into two categories: the more expensive toys, such as American Girl Dolls, were bought through catalog, and the cheap toys, like Matchbox cars, were purchased during her weekly shopping trips to Target. Unfortunately, this did not leave much space for Toys R Us. Klatman says that her kids “already have so many things to play with that [she has] a tendency to look for quality and whether they will play with it for a long time.” When the kids need to be pacified with a simple toy, she can easily pick them up at Target cheaper than she could at Toys R Us.

This was a troubled time for Toys R Us; however, the retailer came up with a plan to stay competitive. In 2000, Amazon and Toys R Us signed a ten-year agreement in which Amazon would devote part of its website to products chosen specifically by Toys R Us. This allowed Toys R Us to select the most popular products and get them to customers more easily. This alliance was widely applauded as a seamless connection between traditional brick-and-mortar stores and new-age Internet companies, but it eventually became entangled in allegations that both sides were not doing as they promised. Toys R Us accused Amazon of allowing other companies to sell toys through their website, and Amazon claimed that Toys R Us was not maintaining a high quality selection of toys. The biggest problem was that online toy sales just were not at the level that both parties anticipated, so they were not making the profits they hoped. By 2004, lawsuits from both sides effectively ended their contract, and Toys R Us was left on its own again.

Toys R Us was at a crossroads. It seemed on the verge of collapse as its market share decreased and the falling out with Amazon worsened. Toys R Us had actually given up rights to its own website in its partnership, so there was not much hope for a quick rebound in online sales. However, Toys R Us was more motivated than ever to take back their place at the top of the toy industry, and they did so by acquiring three pertinent brands: FAO Schwartz, eToys.com, and KB Toys. As much as Toys R Us suffered during this period, its smaller rivals were on the verge of bankruptcy, which meant that Toys R Us could acquire them at a relatively low cost. The acquisitions allowed Toys R Us access to the companies’ established websites, trademarks, and some of their stores. All three of these companies already had well-known brand names, which gave Toys R Us the opportunity to sell a wider variety of products.

To give a greater push during the holidays, Toys R Us began opening temporary pop-up stores that were smaller but require less staff and stock. They were located in malls and shopping centers that could not hold the traditionally massive warehouses of Toys R Us. The widespread and obvious presence of the retailer garnered high sales and happy customers. This was so successful that the company ended up keeping a third of its locations after the holidays in 2010.

Toys R Us also benefitted as the industry as a whole made its comeback. From 2014 to 2015, annual toy sales rose over 6% to $19.9 billion, which was the largest increase in ten years. Popular Hollywood films fueled the popularity of collectibles, which boosted sales like it had in the 80s and 90s. This not only appealed to children, but it also helped toy manufacturers capture the preteen and adult crowds with paraphernalia from movies like Star Wars. Even Frozen, a movie targeted for children, was able to become a top toy brand with $531 million in sales in 2014.

There were also huge developments in technology, which gave toys the ability to interact with children in a more animated and stimulating way. Toys are able to interpret speech and react in the appropriate way using chip technology, which has become cheaper and more powerful. Dolls can have conversations with users and toy cars can be controlled by smartphones. The new Barbie Dreamhouse by Mattel is voice activated, and the music, appliances, and even the elevator can be controlled by simple commands. In this modern era of touch screens and applications, toy manufacturers have to put in extra effort to make sure that physical toys can compete with the seemingly limitless iPads and smartphones.

As for its competition, Toys R Us can be proud to report strong sales, especially during the holiday season. Sales went up 3.7% in the holiday season of 2015 compared to that of 2014 for stores open at least a year. The demand was high for toys, learning products, and seasonal goods, and low for electronics, video game consoles, and videogames. The advantage that Toys R Us has over Wal-Mart and Amazon is that Toys R Us is in the toy business for the entire year, whereas its competition only pushes toy sales during the end of the year. Vendors know this, and they can give Toys R Us more favorable margins.

Toys R Us also has had great success internationally, especially in Canada and Japan. Sales went up 13% in Canada in 2015, and Toys R Us became the largest retailer of children’s products in Japan. The retailer used partnerships to cater to the Japanese market specifically, and there was a strong cultural fit. Japanese families often allow children to choose their own gifts, so the store layout and experience was well-matched with their culture.

Looking to the future, Toys R Us CEO Dave Brandon wants to revamp its stores by turning them into an experiential destination. By creating an interactive space, he hopes that children will begin dragging their parents down to the stores to play at Toys R Us on weekends. Children already love the store, and by giving it this new dimension, they will want to continue going back. The company is now testing sound effects and colorful lights, and they are unboxing more toys in play areas. They are also hosting events including card trading and birthday parties.

Toys R Us is already moving towards their goals, and by mid-2017, the company projects 14% inventory growth. This will make their inventories at the highest amount in almost a decade, and it is proof that they are serious about putting money back into operations. Toys R Us seems to be moving in the right direction, and now it is a waiting game whether the company will go for an initial public offering. The retailer needs to have a successful 2016 holiday period in order to lay the groundwork for a potential second run at an IPO. Toys R Us was a public company until 2005, when it was taken private by investors for $6.6 billion. With strong sales and measureable improvements, 2017 may be the right time for private equity backers to strike. The toy industry will continue to be volatile as technology changes and competition gets tighter; however, Toys R Us has been in the game for quite a while now, and it has gained knowledge and experienced that will help it navigate the whirlwind of its market. Toymakers have every reason to root for Toys R Us, and hopefully, the children of today and the future will make Toys R Us great again.