An ambitious Jet.com is a dangerous Jet.com

I have been thinking about Jet.com ever since returning from my 3 week US trip. Clearly they are a top of the hype list before any sale of merchandise has occurred. Marc Lore is an operator with a very successful past and someone that is clearly deeply in touch with ecommerce. Is jet.com a dot.com bust in the making or a potential game changer that will effect change in the ecommerce landscape?

Jet.com is an ambitious concept that is aiming at a part of the ecommerce landscape that has no clear market leader. It is not a marketplace – it is subscription based membership driven ecommerce business. The digital version of Sam’s Club / Costco that has a lot of technology under the hood to drive sales for merchants. It has been designed to disrupt these 2 large wholesale shopping clubs without the need for volume sales.

In comparison to the 2 existing shopping clubs:

  1. The only advantage that the retailers have is physical retail stores.
  2. Jet.com is designed in a much more customer friendly manner and once open I am expecting it to be one of the top ecommerce websites in the US.
  3. The digital shopping clubs are under pressure – Costco has placed significant resources behind the Tmall version of their store. Sam’s Club contains to be a problem for Walmart’s balance sheet.

I have noticed a few things regarding Jet.com that I would like to mention:

Jet.com has followed a playbook in terms of their launch. The Jet Insiders concept to provide a customer with share options to help new sign ups was a bit of a stunt. However, the company leverages the personal networks of their users whom have either only seen the business in a limited manner or not at all. Word of mouth is the most powerful marketing for any company as it costs nothing. They only paid for sending members emails to remind them of their ranking but in the end ensured that 350 000 signed up for their business.

Marc Lore has been very complimentary about Amazon. He has dodged and ducked away from many questions over whether his new startup is to go against his previous employer.  (I think the truth is that in the 5th year of existence Jet.com wants to be a direct competitor to Amazon.) The simple fact is that Lore cannot afford to antagonize Amazon too much as they will be somewhat dependent on the company fulfilling orders from Jet.com partners.

Lore is in a group of select ecommerce entrepreneurs – someone who has battled Amazon.com, forced Bezos to open up the checque book and purchase this business. What is interesting is that Lore is like Matt Rutledge in the sense that he worked for Amazon as part of the acquisition and then when his earn outs occurred, he left Amazon to get back in the game. This is something that not many people have picked up – an increase in the number of start-up founders whom leaves Amazon post acquisition and then gets back into the ecosystem with similar type of businesses that were acquired.

Lore is someone whom I respect as you need a certain level of foresight to build a $550 million ecommerce company. Lore is also a visionary as he was one of the ecommerce CEO’s to leverage robotics in the shipping process at Quidsi. I believe that Lore inadvertently ensured that Amazon had to acquire Kiva systems to ensure the same level of service. It takes amount of vision and risk to be willing to do something like that as if it fails it is a disaster. This is in my opinion one of the reasons why investors are willing to invest in Jet. The investors are betting on Lore being able to recreate a Quidsi like return.

The reality

Jet.com in my opinion is very ambitious. It wants to generate revenue by a yearly cost for access and then pass on the profit making parts of the business to customers. This is a step deeper than razer thin margins. Jet will only survive if 2 situations occur: They have to create a need for this business and thus a network effect will occur. The business is US focused only which makes this a challenge that will be challenged with advertising and investment. The other option is that they will need to raise a lot of capital. I am thinking in the same line as what Flipkart did in India, at least a billion dollars.

The Jet.com business is at the moment a complete unknown which makes the signing up of marketplace partners a challenge. If you look at the shopping clubs like Costco – they don’t show listings of multiple retailers on product pages and I am guessing Jet.com will do the same. Not showing the branding of merchants on the Jet platform except while in check out for customers basically puts the merchants at the mercy of algorithms and merchant scorecards.

Re/code has a bit more detail on how they will manage their partners with regards to fulfillment.

A huge bet. But Jet is just handling warehousing and order fulfillment for consumable goods. For all the other products, Jet is essentially leaving the order fulfillment and shipping part of the shopping experience in the hands of other retailers. Isn’t that risky? I think you’ve hit on the key core issue. It’s actually one we were talking about yesterday. And here’s how I wrap my mind around that risk. Yes, it exists. But there are two important things about why Jet has a good shot at overcoming that [if] they’re actually not controlling delivery from the merchant to the customer. First, other than those of us on the coasts willing to pay a premium for two-day shipping with Amazon Prime, people in general like to save money. A big part of the U.S. will be excited about shopping with Jet because it means always having the lowest possible prices. That may surmount any reality that it’s still the same box coming from the same merchant they would have bought from anyway, but now they’ll be saving 10 percent. Number two: If you think about the shopping experience, from what you decide to buy, to placing an order, to what payment method to use, to perhaps dealing with customer service, there are about 10 steps in total. In the 10 steps in the shopping mission, only one of the 10 is UPS or FedEx bringing it to the door. The other nine things are where Jet interactions are going to dominate. There’s the experience the consumer is going to have on the tablet and mobile and desktop with Jet, and the follow-up, and the feeling of savings that’s going to overwhelm the experience. Marc is the first tell you, it’s a matter of nines and 10s. Every consumer rating needs to be a nine or 10 going forward.

I believe strongly that Lore spent this final months at Amazon looking at processes that could be improved. Jet.com is clearly looking at going after Amazon’s perceived weaknesses. A retailer friendly platform, merchants being able to communicate and collect email addresses are all things Amazon is supposedly failing at.

Jet is a fair marketplace that removes inefficiency and cost resulting in the best value for shoppers with improved margins and greater control over order profitability for retailers.

The innovations

The one angle that Jet.com has that I think is incredibly fascinating is the usage of location of the customer and the retailer to deliver products faster. Location is hard in ecommerce and placing a very large part of the value creation in a hard feature is a sign to me that Lore has complete confidence in technology. The fact that the Jet.com concept is left field will also ensure that there is a defensible against other startups that are considering competing with Jet.com.

The smart cart and Jet Anywhere are both ways in which Jet.com remains focused on their customers. The smart cart is to leverage the data from merchants with regards to pricing and location and will in my opinion be a digital version of an up sell seen in retail. The Jet Anywhere program I think will be retailers that Lore has identified that are getting hard hit by Amazon. I would not be surprised if these were categories in which eCommerce has battled Ala fashion, homeware etc.

“Instead, Jet has created an affiliate program, called Jet Anywhere, that will reward Jet members when they shop on retailer sites that are part of the program.”

The launch pressure

The Jet team is going to have to ensure that their public launch is a success. Bad user experiences (features on the website not working etc) and any negative customer issues will lead to press or word or mouth that will negatively effect the business. The fact that the press has been covering the business while still being in an alpha stage is interesting. It is clear to me that the blue print for this business has been carefully thought out.

I believe that by the festive season of this year we will have an idea as to what the future holds for Jet.com. When big risks are taken, there are big results or spectacular failures. As an ecommerce executive I am going to keep an eye on Jet.com as I am looking forward to browsing their website later in the year.