If you can’t beat ’em, buy ’em; that was the attitude Amazon was eventually forced to adopt toward Diapers.com and its parent company Quidsi. Amazon bought out the company for $550 million in 2010 after all attempts at competing with the online children’s products (and soap) marketplaces failed. Quidsi founder Marc Lore stayed on at Amazon until 2013, when he left to pursue a new venture.
Jet.com is that new venture, and Lore has returned to compete with Amazon again. He brings with him $80 million in VC funding and debt, a track record of success against the U.S.’s largest e-commerce marketplace and a vision: winning the war on e-commerce by competing on price instead of convenience.
“It’s about saving money. That’s a much bigger opportunity than sites that are focused on convenience like two-day delivery, ” Mr. Lore said in an interview Wednesday.
Jet’s marketplace will be structurally similar to eBay’s, but with a membership fee like BJ’s or Costco. That fee will be $49 annually and clocks in at half the price of Amazon’s Prime membership, albeit without some of the other benefits that Amazon offers like free two day shipping and video streaming services. Sony, Tiger Direct and Sears are some of the early merchant clients of Jet, which, according to people familiar with the matter, said it plans to undercut rivals by using the commission it collects from merchants to lower prices. The company has told potential merchants that its prices will be 10 percent lower on average than in other online sellers.
Jet faces some challenges. It competes with Amazon’s market saturations and well known name. Because it derives 100 percent of its revenue stream from membership fees, it is critical the service secure consumers – tricky, since it is also trying to secure merchants. Currently, Jet is giving away membership for those who sign on with the service early and persuade others to do so. They have also invested in give-aways that would award customers 1 or 5 year free membership.
Operationally, Jet has also made the unorthodox and potentially risky decision to allow merchants to propose lower prices for their goods based on their estimated shipping costs, as well as the total size of an order, according to people briefed on the plan. As a result, items warehoused near a shopper may be cheaper than those located far away. This ties into the fact that apart from certain goods, primarily consumables like diapers and toilet paper, merchants are responsible for shipping goods directly to customers; Jet will not be warehousing them as Amazon does.
Currently Lore has some bold predictions for his newest e-commerce venture. The N.J. based company currently has 100 employees in Hoboken. Lore hopes to see that number double by year’s end. He’ll need that bigger workforce if he is to deliver on his biggest promise: he expects to see his company clearing $5 billion in sales by 2020.