Jet
Everyone loves a David and Goliath story, and the tale of entrepreneur Marc Lore versus Amazon certainly looked like one back in 2009. As founder of Quidsi, the e-commerce company behind sites like Soap.com and Diapers.com, Lore had built one of the fastest growing startups in the country by daring to take on the giant of e-commerce that is Amazon. That is, until Amazon undercut Quidsi’s prices, leading to the eventual sale of Quidsi to Amazon in 2010.
Now, Lore is aiming his slingshot at Amazon once more. He has a new e-commerce company, Jet.com, and last week, it announced a $140 million funding round, after securing $80 million in funding last year.
Marc Lore. Jet
That Lore is targeting his former employer all over again is a story too juicy to ignore. And yet, while Jet.com is undoubtedly taking a swipe at Amazon’s audience, there’s another equally important David-and-Goliath battle driving the startup: the ongoing fight between local merchants and their giant competitors in the age of e-commerce.
Online, small merchants have traditionally struggled to keep up with the low prices of larger companies, because they don’t have the sales volumes to negotiate lower shipping prices or the national presence to make shipping cross country economically practical. And so, they either opt against selling online, take a financial hit on their online sales, or keep their prices comparatively high and risk losing customers to cheaper competition.
With Jet.com, Lore is hoping to level the playing field by letting small merchants hack their own supply chains. For starters, Jet doesn’t make money on the products it sells, so it has no incentive to force merchants into lowering their prices to increase sales, like other third-party marketplaces do.
Jet’s prices are already around 10 percent lower than they would be on any other site, at no cost to the seller.
Instead, it makes money by charging customers a $50 monthly membership fee, and rather than pocketing the commission fees it earns from sales, Jet passes that money on to customers in the form of savings. That means Jet’s prices are already around 10 percent lower than they would be on any other site, at no cost to the seller.
What really sweetens the deal for merchants, though, is that they can customize their own prices of any given item based on a variety of factors. For instance, they can opt to offer shoppers lower prices based on their proximity to the business or if shoppers waive the right to return an item. They can offer discounts when shoppers buy more than one item from them or elect a slower ship speed. All of these options serve merchants, by cutting down on supply chain costs.
“If you have a small retailer in a certain location, their cost to deliver within a 10-mile radius will be much lower than the national retailer, so the little retailer could win in their area,” Lore says. “That’s not insignificant. They may already be catering to the households who drive to the store, but they’re not winning the business of those who go online.”
Calculations, Calculations
For consumers, the process looks seamless. The more items you load in your cart, the cheaper other items from that retailer get. Waive returns at checkout, and more money melts away from the total. During a demo of the product, my savings on a Sonos wireless receiver and speaker came out to $160 compared to the lowest online price, to say nothing of the time I would have saved scouring the internet for the lowest price.
Screenshot: Jet
But giving merchants so much power means Jet had to be built in a fundamentally different way than most other e-commerce sites. According to Lore, the technology powering Jet looks a lot more like a real-time financial trading system.
“Every product we look at, we’ve repriced relative to what’s in your basket, looking at all the pools of inventory, applying all the rules retailers have set,” Lore says. “There could be hundreds of retailers who set rules, and you have to go through all of them to find out what the cheapest is and what the difference is. That’s a lot of calculations.”
And so, part of the thinking behind locating Jet’s headquarters in Hoboken, New Jersey is its proximity to Wall Street and the trove of financial tech talent there. “The technology has been super super hard,” Lore says. “It’s about getting it to the point where it can run these calculations at the speed we need it to run.”
Knocking It Down
This is one reason why Lore believes it would take years for his larger competitors, including Amazon, to build a copycat product. The infrastructure, he says, is just too different. “It’s like if you have a house made of wood, and someone says this is flimsy, we need a brick house,” Lore says. “You’d have to knock it down. You can’t just add bricks.”
Of course, for a company of Amazon’s size, no amount of price gouging is ever out of the question. And yet, some of Jet’s small retailers say there are other advantages to being on the platform that would likely be much tougher for Amazon to mimic. Unlike Amazon, for instance, Jet doesn’t compete with any of its merchants on product lines, and it allows merchants to market directly to their customers via email and other methods.
For Vicki Levine, CEO of the online haircare company, Folica, the ability to acquire new customers and communicate directly with them through Jet was a major selling point. “It’s about having the ability to get the direct relationship with the consumer, but still be able to sell through a third party,” she says. “Normally, it’s fairly one-sided. Jet’s really taking a two-sided approach.”
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