We all know the story of David and Goliath — in fact everyone knows it so well it’s the go-to metaphor for any and all instances of a little guy, taking on a much bigger guy and winning. And it’s a good story for hopeful up-and-comers and underdogs everywhere. The odds may be grim, but a lucky shot from a skilled hand can take down a giant.
But even in the Bible — a book that describes amphibian downpours — that type of victory is more or less presented as a one-shot deal and the sort of thing one gets to accomplish once, if God is really on your side.
At the end the of the story, David goes home and becomes King; and that’s the last we ever hear of Goliath. The giant does not get up up, quintuple in size and strength and decide to purchase David’s entire kingdom — only to find David standing outside his cave looking for a rematch several years later. That didn’t happen, and even if it did biblical authors would not have included it.
Some things are simply too implausible — even for the Old Testament.
However, if we’ve learned anything in the several thousand intervening years between Davidic Age and the 21st century it is that with better technology almost anything is possible. Even such an epic rematch.
Building A Better Cart
Which leads to Jet.com, the current venture of Marc Lore, one of the few Davids to step into the ring against Amazon.com’s Goliath and emerge victorious on the other side. Lore founded Diapers.com in 2005 — and after trying valiantly for several years to beat the upstart eCommerce firm, Amazon was forced to admit defeat and acquired Quidsi (the parent company of Diapers.com) and acquihired the entire New Jersey-based team.
Now, Lore is going for his second shot with Jet, a general service marketplace that has garnered an awful lot of excitement. So much excitement, in fact, that before the site was even open for business, it had already snapped up $225 million in venture funding and was well on its way to pursuing further funds that could push the infant startup to a valuation of $3 billion by the end of 2015.
“People want to put money to work,” said Lore. “I get a call, and people say: ‘Hey, can we talk?’ Yeah, I’ll listen.”
Jet’s “secret sauce,” for the eCommerce war is the “smart-cart algorithm” which helps customers save by building a more efficient order — like picking an additional item from a suggested merchant who has a closer proximity to the shopper. On Jet, the more you buy, the more you save.
“On Jet we have created this back-end rules engine where retailers can preset rules about how they want to compete for business. We apply those rules in real time as consumers shop to steer them towards more economically efficient orders,” Lore explained in a recent interview.
Big carts, Jet’s theory goes, are really the best outcome for everyone. Retailers win because the site incentivises consumers to buy more at once, and Jet wins with more money and reduced shipping costs since orders are sent in bulk from one location, and consumers save money. And, because individual item prices are not fixed, but vary due to order size, Jet believes that it has de facto immunized itself against Amazon’s pricing algorithms that automatically lower Amazon’s prices to undercut online rivals.
Other services Jet brings to the mix are free returns within 30 days, 24/7 customer care, member savings with every item consumers add to their carts (plus additional savings when you purchase products designated as “Smart” items together — eligible toilet paper and paper towels, for instance) and discounts when they waive returns on products.
Jet membership is ~$50 a year – and Jet is willing to put its membership dollars (its main source of income) on the line; if customers don’t save at least that much within a year, Jet will refund their membership cost. Lore has noted in interviews, however, that he really doesn’t think this move is all that brave, as it is his expectation that the average consumer will likely save three times that amount over the course of a year.
“There are a whole host of companies beyond Amazon.com adding marketplaces to their website. I think this is the future: You will see more marketplaces where retailers are selling,” Lore noted. “The problem, and where the inefficiency lies, is that the prices when people sell products have no underlying relation to economics of the specific transaction.”
[bctt tweet=”Where the inefficiency lies, is that the prices have no underlying relation to economics of the specific transaction.””]
Early Signs Favorable
For all the hype and hyperbolic praise, there were plenty of concerns about whether or not Jet would really be able to take off (pardon the pun).
And the early launch didn’t exactly go as smoothly as imagined. Some retailers objected to finding themselves on the marketplace (mostly because they were never asked to sign up with Jet), and consumers were confused about the way prices were shown. Jet also had the ultimate chicken-and-egg scenario in spades since it really didn’t have all of its inventory (eggs) in place as the chickens (consumers) were putting them in their virtual carts. That forced Jet to purchase those goods at full face value from retailers, including, ironically enough, some coming from Amazon. That means that Jet often lost money on every sale.
This left some wondering if Jet was about to become the poster child for profligate VC funding habits that throw money at ideas without any clear idea about how those ideas will make money. Or Jet as the Pets.com or WebVan of this tech Internet generation.
The whole making money part of the business aside — which, with $235 million in the bank may not be Jet’s highest priority right this instant — consumers do seem to be getting the whole notion of what it means to “build a better cart.”
According to the latest report from ChannelAdvisor, a company that helps merchants sell their products on online marketplaces, Jet has managed to scale the rankings pretty quickly in its first month of existence.
According to the report, the average seller’s sales on Jet have already made it the fourth largest eCommerce marketplace out there, beating back the likes of Sears, Best Buy, Newegg, Tesco and Rakuten.
“It’s not out of the realm of possibility that in 2016 it will be our No. 3 marketplace, after Amazon and eBay. That would be remarkable,” David Spitz, CEO of ChannelAdvisor, wrote in a blog post about the results.
According to Spitz: “Our sellers have seen tens of thousands [of] unique consumers buying on Jet since its public launch and a 23 percent repeat buyer rate.”
These are not stolen users, ChannelAdvisor found, as the report didn’t see users buying less from Amazon or eBay to buy from Jet. They just started buying more in a new place.
Which begs the question – who then is Jet taking share from? Consumers still have a finite number of dollars to spend – if Amazon isn’t the big loser – at least not now – who is? Costco? Sam’s Club? Target? Walmart?
All TBD at the moment, but might portend some of its challenges ahead.
The Challenges Ahead
While early signs are good, the challenge ahead is to convert all that momentum out of the gate into longer-term strength. While jumping to the No. 4 spot on the U.S. eCommerce marketplace list in just 30 days is quite an accomplishment, we’re guessing that the Jet folks didn’t raise gazillions to build the business to be No. 4.
That’s pretty tough considering that the No. 1 and No. 2 spots are currently occupied by Amazon and eBay.
And, increasingly, the differentiator for all retailers boils down to logistics – having inventory available for consumers to buy AND GET immediately, or pretty close to it. There’s a reason Amazon says it is a logistics company versus an eCommerce company: the Amazon magic is getting packages to a consumer’s door in two days, one day or even an hour.
Jet doesn’t have that system today, isn’t trying to build it and the jury is still out as to whether or not it’s possible to really take on Amazon without it. At least where we are today with consumer expectations of immediate availability, immediate delivery and competitive prices.
Jet’s offer is simple to understand: the cheap stuff delivered in 2-5 days, delivered for free on orders costing $35 and up.
Seeing whether that will get the Jet experiment to reach a comfortable cruising altitude remains to be seen. And whether it can do that without stopping to refuel too many times along the way.