In late 2014, Lore announced that he would be launching a new venture, Jet.com. The premise behind the new e-commerce site was that by charging an annual membership fee of $50, it could set lower prices, by not taking any commission on products. It would also save customers money by lowering their total costs on their shopping cart, if all of their products came from one fulfillment center, or they bought more than $35 worth of products. The company quickly gained traction in the investment world, and according to Bloomberg Business, raised $220 million, before registering a single customer.
This initial plan has suffered some major setbacks. According to Bloomberg Business, many customers were unsatisfied with the trial efforts, complaining of glitches within the site. Furthermore, after launching to the public in July, Jet.com has missed expectations, and Jet.com dropped the annual $50 fee, the company’s only real source of revenue.
These setbacks, are real and show why Jet.com will not be able to create a real challenge to Amazon’s thriving business model. Amazon is huge and not focused on making short-term profits. With a market capitalization of $271.8 billion, and the patience and resources that most companies can only imagine, Amazon has no reason to be fearful of Jet.com. For example, Amazon Web Service (AWS) provides cloud computing to almost all U.S. startups. According to Quartz, it generates $6 billion, a year in revenue. This means that Amazon has a large source of constant revenue (regardless of the fluctuation from online retail sales). Amazon can afford to cut its prices if it ever felt threatened by Jet.com. This is a proven tactic, essentially what it did with Quidsi. Both companies cut pricing on retail items, to extraordinarily low levels. Business Insider, in a 2010 article, showed that Amazon was able to reduce its prices significantly more. Eventually, Quidsi was forced to sell to Amazon because it could not compete.
Another reason Amazon can defeat Jet.com is that consumers are happy with all Amazon has to offer. Amazon, has a large streaming service, music services and fast shipping (free two-day shipping for prime subscribers). Furthermore, Amazon has an extremely large selection of products stored in its warehouses, whereas beta testers for Jet.com complained about its lack of selection.
Additionally, Amazon already has a loyal customer base and a developed product. If someone is already paying for an Amazon Prime subscription, they may be unlikely to give it up for slightly cheaper Jet.com products. Part of the reason Diapers.com was so successful was because it focused on offering just one thing, baby products. Competing with a behemoth like Amazon, in one discreet product area wasn’t so daunting, because there is a finite amount of baby products. However, it will take years before Jet.com can ever build a selection close to Amazon. Furthermore, Amazon’s third party market place, where independent vendors can sell items , provides for goods that Amazon doesn’t provide, which gives it another advantage over Jet.com.
Jet.com is focusing on a niche of consumers, who would rather pay less and wait longer, in order to receive a product. But this niche may not exist. However, over the past couple of years, Amazon has dominated the discount store, Walmart. Amazon has come to overtake Walmart as people are willing to pay a premium for what Amazon has to offer. According to Time Magazine, Amazon’s revenue per employee is triple Walmart’s. While, Walmart, still has higher revenue, it lags behind in market capitalization, where it is valued at $197.1 billion, as opposed to Amazon’s valuation of $271.8 billion. If a large, established store like Walmart is struggling to compete with Amazon, imagine the issues a small startup will have. Based on the Walmart example, Jet.com will be unable to present real competition to Amazon.
However, despite its inability to compete with Amazon, Jet.com can still be a success. According to USA Today, Jet.com has raised $770 million with a valuation of $1.50 billion. This is obviously a lot of money for a young startup, and will provide the company time to figure out where, their client base is and how to target them. In fact, on Cyber Monday, Jet.com announced $2.7 million in sales, a company record according to internet Retailer. While this may seem like a small number compared to Amazon, it demonstrates that Jet.com’s funding will allow its research team to target the right consumers and eventually grow.
Jet.com is a really interesting concept, yet it will not be able to compete with Amazon, because it doesn’t provide enough value for consumers, and has entered a marketplace too large for a startup. However, even if Jet.com may be unable to become the dominant e-commerce player, it still can be a profitable venture. The large amounts of money it has raised will allow it to develop and target the right group of consumers. Likely, there will be a period of slow growth, while the company works out its kinks, but eventually it may become a profitable business that can provide a small alternative to the dominant e-commerce site.