Taking a cue from the ancient wisdom that says the enemy of my enemy is my friend, Chinese eCommerce mega-player Alibaba was an investor in Jet.com’s $140 million funding round in February, which was led by Bain Capital, according to Forbes.
While an investment in an eCommerce platform by a different one is a bit surprising (you don’t see Pepsi investing in Coke) Alibaba’s investment here buys them something important – Amazon’s potential unhappiness, as Jet is widely considered an ambitious but serious challenge to Amazon’s virtual dominance of American eCommerce. Alibaba did launch its own direct competitor to Amazon in the U.S. – online marketplace 11 Main – in June of last year, but so far the site has yet to ignite.
Sources familiar with Alibaba’s investment strategy believe that this latest investment in Jet fits in with Alibaba’s investments in firms like Lyft and Shopprunner in the past as part of a general strategy where Alibaba gets a direct window to Silicon Valley trends. Investments also allow it to develop easier partnerships with U.S. startups.
All in all, Jet has taken in around a quarter of a billion dollars – a particularly impressive sum since Jet has not opened yet or sold so much as a single good. Still, it comes with a strong pedigree: founder Marc Lore’s business Diapers.com so roundly out-competed Amazon that the house that Bezos built eventually waved the white flag and bought them out.
However, as of their last nine figure investment round, Lore says Jet is done raising money for now.
“We’re using this money to invest in the value proposition to the customer,” he said earlier this year. “It’s more dollars to invest across the board from product to market to infrastructure and operations.”
Lore also walked back some comments he had made about needing at least $600 million in raised capital to go after Amazon properly.
“In order to build a really big business in eCommerce, you’re going to need a lot of capital, but there’s no set amount of money,” said Lore, according to Forbes. “If you think about it, Amazon early on in its existence raised $1 billion.”
Lore has said in the past that the premise his company is built on is basically letting the profit on goods sold go in favor of making their money on the $50 memberships that consumers pay to get access to its sellers. A Jet executive has also been cited as saying that the company’s goal is to have 1 million paying customers by the end of 2015, and 15 million customers within five years. Lore says the model he hopes to emulate is Costco.
“[Costco has] created a $60 billion (market cap) company with a little over 55 million members in the U.S.,” he said in February. “They have almost 3 percent operating margins, so they do about $100 billion in revenue and earn about $3 billion or so in operating profit. Our operating margins will be similar to 3 to 3.5 percent range.”