Jet takes on Amazon in an e-commerce battle royale

 

If you’ve purchased anything on the Internet in the past two decades, it’s been impossible to avoid the juggernaut of e-commerce, Amazon.com, which celebrated its 20-year anniversary last week with a supercharged day of deals for its Prime members.

The push was seen as an effort to encourage more shoppers to sign up for a $99-a-year Prime membership, which allows for two-day free shipping and other perks, including streaming movies and music, plus access to its unlimited cloud storage.

A new site, Jet.com, which was officially launched on Tuesday, is seeking to outdo Amazon on prices and to recalibrate the way we shop online. Backed by several Boston investors, the company has raised $225 million and now has a $600 million private-market valuation.

Its chief executive and founder, Marc Lore, was behind Quidsi, the parent company of Diapers.com, which gained traction with parents for its subscription model — that is, until it was attacked by Amazon.

Lore and his team were tied up in a meeting with Amazon executives when the company announced the launch of its competing diaper service, Amazon Mom. Quidsi was ultimately acquired by the site for $450 million in 2010.

Lore’s current aim? To undercut all of Amazon’s prices, by using the Quidsi technique of bundling and a set of algorthims that emphasize cost-cutting measures to better serve customers.

Likening Amazon to Walmart, Jet pitches itself as a type of Costco — the membership-driven shopping club that has operated alongside the big- box behemoth for decades. The main difference, Jet says, is that it’s not about selling you vats of mayonnaise the size of a small house. Lore has said the plan is to generate all profits from the $49.99 annual membership fee, then use a series of smart Web-based tools to help cut prices further.

Say you want to buy toothpaste, a bathing suit, and a baseball bat. Jet’s online tools will find its nearest retail partner — it says it has a few thousand at launch — who can source all of those products at a single store or warehouse. Both the bundling and the proximity help to reduce shipping costs, Jet says, giving it an advantage over Amazon. Customers can choose to save further if they forgo returns or decide to pay with a debit card. As they make these decisions about their purchases, shoppers have the satisfaction of watching the prices chip away.

Jet’s goal is to target a different consumer, one who values cheap prices over urgency, said Elliott Rabinovich, a professor in supply-chain management at the WP Carey School of Business at Arizona State University.

“A lot of these products are bought on regular, routine basis — they’re not emergency purchases,” he said. And to get them at a lower initial cost — $50 versus $99 for Prime — might be what makes the difference, he said.

Of course, the deals have to actually be there to attract consumers.

On its first day of sales, Profitero, a Boston e-commerce analysis company, compared 16,028 matching products across seven categories on Jet, Amazon, and Walmart, and found that Jet’s products were priced an average of 9 percent lower than Amazon’s and 6 percent lower than Walmart’s. But they weren’t lower across the board, said Keith Anderson, the company’s vice president of strategy and insights.

“There was a percentage of products in every category,” Anderson said, particularly electronics and office supplies, “where Jet was more expensive.”

Jet has made headlines for its ruthless pursuit of low prices — the company is currently purchasing items from other retailers and re-selling them at a loss — all in the hopes of providing customers the full Jet experience.

“It’s not sustainable in the current form,” Anderson said. “But over time, they’re going to be forging more direct relationships with merchants and brand manufacturers. They are investing heavily in customer acquisition at the moment.”

And that investment comes, in part, from a pair of Boston venture firms that are bullish about the company.

Scott Friend is a managing director at Bain Capital Ventures, which has been the lead investor in the site, putting up more than $25 million over two rounds.

Before joining Bain, he was the founder of ProfitLogic, which used data and analytics to help companies optimize pricing. He said the missing link he saw in e-commerce over the past decade was the ability for retailers to use the same tools that online advertisers do to target customers: tapping into our shopping behavior and interests to help target lower prices.

“We need to make online shopping a sort of an online auction in reverse,” Friend said. “No one had thought of it, and no one had put the technology piece together, and if you’re able to do that, you’re able to take a lot of the inefficiencies out of the commerce system that ultimately consumers are paying for.”

Friend said the hype surrounding Jet, thanks to the huge valuation and fund-raising rounds, and the company’s freewheeling purchasing efforts don’t signal another dot-com bubble, but rather a reflection of the current market, and the fact that in order to fight Amazon in the space, Jet needs to move quickly.

Joel Cutler, a cofounder and managing partner at General Catalyst, another Jet funder, concurs.

“This is massive learning phase and today they’re making sure — and they’re always going to make sure — that their customers are leading them in the direction they should be going,” he said. “If it costs us a little bit of money, then that’s the cost of doing a startup. I’ll invest in that all day long.”

 

[“source – betaboston.com”]