Jet thinks it can offer lower prices than Amazon. That’s right, lower than the biggest online retailer, one so committed to lower prices that it scarcely makes a profit some quarters, and puts fledgling competitors out of business with aggressive price wars. Remember how Amazon Mom undercut Diapers.com before making Quidsi, the holding company, an offer they couldn’t refuse? Marc Lore does. He started Quidsi. And now he’s started Jet. What makes him think things will play out differently this time?
Software, of course, at least in part. The price-minimizing software behind Jet works to lower the cost of an order in ways that Lore thinks is hard to replicate by anyone else (he worked at Amazon for 2 years after Quidsi was bought). And the more you add to the cart the lower the prices go, a little bit like the Costco model rewards shoppers for buying in bulk.
In fact, Costo might have been a better comparison than Amazon at the time of Jet’s launch this summer, when a customer had to pay a $49 member fee to get access to Jet prices. That fee, however, has since been dropped ringing a few alarm bells about the viability of the model. But Lore remains upbeat, saying that the average order size exceeds plan to date.
Lore’s other secret weapon, he believes, is people. Jet provides many of the usual benefits of a tech start-up: free food, unlimited Red Bull, four months of paid parental leave, unlimited vacation and an ownership stake. It balances some of these perks with a strict no-negotiation pay package policy. Just as Costco claims far lower employee turnover and theft than other Big Box retailers due to its better pay and perks, so Jet is hoping for the same. Over time Jet hopes to make its culture a long-term competitive advantage.
Using surveys—the “Happiness Pulse”—to keep a close watch on how motivated and engaged employees are, including warehouse packers, Jet is tapping a rich body of research suggesting links between happiness and productivity. It can’t be a coincidence that Lore has made this part of his plan at a time when news of Amazon’s allegedly brutal workplace culture surfaced last year. His model requires flawless execution by people, not just software.
Lore is not alone in believing he can build a huge business. He raised $225 million, an extraordinary amount of venture capital even by today’s bubble-icious standards. But the bet is less on beating Amazon so much as taking advantage of the relentless growth of online shopping versus the mall (see American Giant profile). As big and as aggressive as Amazon is, online commerce still accounts for less than 10% of total commerce. The future market scales to trillions, and much of the American middle class driving this is more concerned about price than a 2 hour delivery window. This is a good thing for Jet, whose economics don’t work until the company sells a staggering $20 billion of merchandise annually. The sheer scale of the challenge makes Jet a challenger to watch in 2016.
Challenging ideas, something out of nothing, lover of progress. Mark Barden is a partner at eatbigfish and based in San Francisco.