Jet.com Business Model – Unicorn Economy Analysis
Jet.com is an American e-commerce company by a Legend.
You heard me right – The founder Marc Lore is a Legend, having sold two of his companies already to Amazon.com at the peak of their valuations. His third company, also an e-comm money guzller was acquired by WalMart for a Whopping 3.3 Billion USD.
It is headquartered in New Jersey.
The company was co-founded by entrepreneur Marc Lore, Mike Hanrahan and Nate Faust.
Jet.com has raised a total of $820 million and that too without a dime in profits, more over just within two years of starting up and under twelve months of launch. Investors include Google Ventures, Goldman Sachs, Bain Capital, Accel Partners, Alibaba Group, NEA and Fidelity.
Jet.com Business Model
No wonder Pivoting is a Red-Hot Word these days in the startup Fraternity.
All Thanks to People Like Jet.com, which despite being funded so hugely still make mistakes of over-estimating their revenue 😀 .
Revenue Model of Jet.com
Jet.com was started right after Marc was frustrated with his experience at Amazon, after he sold Quidsi Inc, which used to operate Diapers.com and Soap.com, to Amazon Inc.
These continue to operate as standalone entities, but Marc did not like the culture of work at Amazon and thus moved out – I read this somewhere that his company Quidsi was butchered in a Price war with Amazon which he later lost and Amazon Guzzled this – But I feel it is the other way Round, Ultimately some one sticking their own Company to a Larger Company is always the Smartest in the room. [Exactly like Dollar Shave Club was stuck to Unilever]
Jet.com Membership Fee
Jet.com Business Model was started as a Subscription Model of E-Commerce for B-2-C consumers who want to buy discounted products and save money should be ready to order things in bulk and wait for an elongated period of time for the delivery unlike Amazon’s next day or stipulated timed delivery.
Business Model of Jet.com was revolving on the fact that they can make Billions of a meager 50$ Subscription Fee [Annual Renewal]. This Jet.com Membership Fee was supposed to be their ONLY SOURCE OF REVENUE.
Founder Marc cites that “We do not make a Dime of Selling Products”. The products are sold at Break Even Prices [covering storing, shipping etc]. This Jet.com Business Model was similar to Costco and Sam’s Club where you pay money to enter into the store – as a subscription – and avail the discounted priced goods. It was thought to persuade people to pay the subscription fee by advertising and ensuring the prices to be 10% to 15% lower compared to those of their competitors.
Within the first three months of Launch and getting a fantastic response for the membership fee, they dropped the plan. They went head to head in selling things at discount and making money out of wholesale buying of goods.
How does Jet.com Make Money
Well they don’t…
They moved from the Jet.com Membership Fee model because it was thought that people are beating the system and paying only once and shopping for the whole season at once.
The crux of Jet.com Business Model was to make people pay every time they shop, sadly the consumer again found a way to beat around the bush and shop one time.
Marc cited that the need is to ensure broader width of goods available on the platform because many brands are wanting to be on the platform.
Jet.com Smart Cart Algorithmic Pricing
This is referring to Jet’s “Smart Cart” dynamic-pricing model, which ensures that shoppers cart value is always discounted when ever
- They combine multiple products and orders into a single shipment [Saving on Cost of Delivery to Jet].
- They waive the return and refund on the entire order [No reverse pick up charges and no lost payment gateway charges].
- or They used debit cards instead of credit cards [Lesser TDR on Payment Gateway Transactions, Read More here]
- Thus the cart started about 8% cheaper [which Jet promised at the start] than could be found anywhere else [He is referring to Amazon, isn’t he?], and the Smart Cart savings or the Algorithmic Pricing would slice off additional 4% or 5%. Thus it’s about 12%-15% cheaper than the competition.
In this Jet.com business model the price of the good is always controlled by Jet.com – which ensures higher revenue and profitability for Jet.
Jet.com Business Model Flaws
Firstly, I think this model is flawed and secondly, I think it was just a gimmick to Bully the big guys to buy this one out as well [which eventually happened].
Consumers will always take advantage of the three-month free membership trial and enjoy the discounts while they last.
And once the trial is over – They switch back to their earlier provider of the services. I read on HBR that some one from Wall Street Journal purchased 22 items from Jet.com. Jet didn’t stock 12 out of the 22 items — so it had to order the products directly from big box retailers. The buyer paid $275.55 for the products, but Jet in turn paid rivals $518.46.
Why did then Famous Investors write Fat Cheques to Jet.com on its Flawed Business Model. Their only hope is to bully Big Daddy Amazon [Just like they did in Quidsi – hahahah]. If Jet eats up sales of Amazon or Wal Mart too much, it may make sense for either of the retailers to buy the startup instead of taking the market cap hit. Similar to what they are doing with Ola and FlipKart.
Why does Wal Mart Need Jet.com
Jet.com Business Model is so AWESOME that some one like Wal Mart will spare 3 Billion USD in Cash and 300 Million USD in Stocks? No it isn’t..
Then why God why…
Well one thing you guys might not know is – Wal Mart is as dumb as Our Pappu when it comes to Online Business.
Well not dumb per se – but an old hand in the system having to establish an online channel will take up too much of the time for them.
What to do with so much cash lying around – Let’s go shopping isn’t it?
Walmart acquired the e-commerce start-up in which Jet.com Business Model is expected to help the world’s largest retailer become a bang on competitor to online shopping destination – Amazon.com!
Interesting isn’t it?
Disclaimer : All Views Analysis Mine, Read full Disclaimer here please.