Amazon has become the “big dog” of e-commerce, establishing itself as the benchmark by which other companies measure themselves.
While many traditional retailers — as well as pure play e-commerce vendors — have taken the challenge, no company has emerged yet to challenge Amazon’s growth. But there might be one in the making that could fill those shoes in the not-too-distant future.
Out of the Diapers.com Ashes
E-commerce veteran Mark Lore — of Diapers.com fame — founded Jet.com in 2014. Diapers.com was one of several e-commerce sites that made up Quidsi, which Amazon acquired in 2010 following some intense competition — including an all out price war — between the two companies. This really highlights Amazon’s “take no prisoners” attitude in its quest to dominate e-commerce and retailing.
Quidsi still runs as a somewhat independent company, being one of the few companies acquired by Amazon that was not fully integrated. Two years after the acquisition, Lore and his cofounder, Vinit Bharara, unsurprisingly left Quidsi to pursue other opportunities.
At the time, Lore was intent on retiring to Northern California, but like any entrepreneur, couldn’t turn off the internal switch that sees challenges ripe for improvement in the existing market. Lore started looking at the low cost model of the warehouse clubs like Costco, Sam’s Club and BJ’s Wholesale and he thought about how that model would work online.
Founded in 2014, Jet.com operated in beta through the first half of 2015 until its launch on July 21, 2015. The goal was to charge low enough prices that the primary revenue driver for the company would be its $49 annual membership — similar to the warehouse clubs.
However, within months of the launch the company dropped its $49 membership fee. While Jet claimed it was due to the greater than expected consumer response, it was also suggested by the (Amazon CEO Jeff Bezos-owned) Washington Post that this was done due to slow customer growth.
While we’ll never know the precise details behind this, one thing we do know is that Jet has been extremely successful raising capital. In November of 2015 it raised a $500 million round led by Fidelity, which was on top of $225 million round in early 2015.
While this could be an example of irrational exuberance, it could also be seen as a strong belief in Jet’s pricing algorithm.
Stealing Amazon's Thunder
According to Lore, Jet’s advantage lies in its ability to dynamically price items as a group rather than individually, as well how it ships items.
For example, if your shopping cart contains five items and all of the items are at the same fulfillment center, that would slightly lower the cost of each item. And if that fulfillment center is near to a customer, that would also help optimize the customer’s order price.
Jet offers other options to potentially lower order prices, such as if a debit card is used and/or a customer waives the right to return an item. And for customers not in a hurry to get their order, shipping by the slowest possible manner would also lower their price.
While Jet has been in operation for less than a year, and its revenues aren’t known as it’s a privately held company, expectations are high that it could put a dent in Amazon’s growth.
Publicly Jet has said that it intends to reach $20 billion in revenues by 2020, which if that comes to pass would make it faster growing than Amazon in its first five or so years. Time will tell if that comes to pass. In the mean time, Jet is hoping to slow Amazon’s growth by being as good, if not better, at the low cost business model.