Back in early 2015, an internet entrepreneur, Mark Lore, flush with $550MM in cash from the sale of his company Quidsi (aka Diapers.com) to Amazon.com, decided to take his proceeds, bundle them with additional startup funding, and create a new company, Jet.com, to wage a full-on assault against Amazon. He’s hoping to unseat Amazon as the dominant player in American commerce, with goals of $20 billion sales by 2020. Our take: Jet.com is dreaming big but doesn’t have the legs to get the job done…
The whole idea behind Jet.com isn’t that different from Airbnb or Uber. Basically, sell a product you don’t own, using contractors you don’t employ. It’s been a pathway to riches for a number of companies, so why not try it for e-commerce? Well, the answer is simple: when your product is products, it’s helpful if you’re the one selling them. Jet.com is trying to take the drop shipping model to the extreme by using established second-tier vendors to ship products for them. These aren’t middleman distributors, they are full-on stores that are struggling hard to sell anything in the face of Amazon’s new-found dominance as the nation’s largest retailer.
Many of these companies are named directly on Jet.com’s site, including such grey market vendors as Limited Goods and OutletPC, but one is simply referred to as “Trusted Jet Partner.” Who could that be, you might ask? Well, if you know anything about the PC industry, there’s one particular online store that might come to mind. Until recently, it was the go-to site for all things PC-related: Newegg. And sure enough, Jet.com’s “Trusted Partner” for a huge proportion of its shipments is none other than Newegg.com. How do we know? Well, we went ahead and ordered a product from Jet.com that we knew almost nobody carried but Newegg, and here’s the invoice we received:
Why, you might ask, would Newegg ever agree to work with a startup that offers nothing close to the service and product information that Newegg itself provides? Again, there’s a simple answer. Newegg is losing the war against Amazon, and it knows its days are numbered.
Alas, we don’t think Jet.com is Newegg’s knight in shining armor. Jet.com’s only claim to fame is the “lowest prices,” but based on what we’ve seen, it actually rarely has the lowest prices, and has only been able to drum up substantial sales through the use of huge discount coupons, courtesy of a big cash infusion from Chinese internet giant, Alibaba. Now, you’re probably asking: why in the heck would Alibaba care about Jet.com? Again, there’s a behind-the-scenes answer to that question: access to American retailers that Jet.com is partnered with.
Unless Jet.com can actually provide lower prices all the time, not just through one-time coupons, it’s going to have a very hard time convincing shoppers to cough up a $50 membership fee for the privilege of doing business with its market-strained partners, and Alibaba and other investors might not see the huge return on investment that the company is promising. Because Jet.com has no control over the merchandise it sells, it can’t guarantee the quality of the product consumers receive.
And that’s a big problem. Mr. Lore likes to compare Jet.com to Costco, but the big difference is that Costco is a brick-and-mortar store that allows shoppers to walk in, see the product, and actually carry it out with them. Jet.com is nothing like Costco, nor is it anything like Amazon. As we said earlier, it’s a whole lot more like Uber, and Uber worked because the taxi industry at it existed pre-Uber stunk, and everyone knew it. Amazon doesn’t stink, so we’re betting that Jet.com is going to bleed a lot of money before it comes to the eventual realization that its business model is more of a quirky novelty than a vision of the future.