Facing Cash Crunch, Retailer Jet.com Racing to Complete Funding Round
wsj.comI put in an order when Jet launched. No joke, from the best I can tell, they sent someone to a physical Walmart, where they purchased the product at full retail, for more than they charged me, packaged it up, and shipped it to me with free two-day delivery.
But they'll make it up on volume, right?
Smart people have said, "do things that don't scale." I guess Jet took that at face value.
I ordered a wireless router from Jet. They filled my order by ordering it on Newegg and having it shipped to me. If they don't have stock of something on their website, they'll buy it somewhere else rather than lose the sale.
Subsidized, out-of-stock products for everybody!
To do this for everything, indefinitely is obviously a problem. But to do this for a subset of products, even a very large subset, while building capabilities may be a good idea.
It lets them start winning customers by demonstrating their planned comprehensiveness, much earlier. Any entry to this retail space is going to require big risks, big capital, and a long climb. Amazon needs competitors. Succeed or fail, I applaud Jet for trying.
That's exactly what Marc Lore did to start his previous company: https://en.wikipedia.org/wiki/Diapers.com
diapers.com sounded like a silly pets.com kind of business - turns out amazon bought it together a few sibling companies like soap.com for $550m. so this guy seems like he could actually make it work.
Except it isn't actually working. Maybe they still have a little bit banked, but from the sounds of it, they have burned about $200M in about a year and a half. Nobody survives that kind of cash flow burn.
There are stories at Amazon from the old timers about the good old days when they would make shopping trips to B&N or Borders to buy books that they listed as in stock but never actually had in stock. When I first started working there, I felt like it was a cool story about how scrappy and hard working they were. In retrospect, I think it was more likely just a terrible waste of time and cash.
The company is burning cash like crazy, they totally threw their business plan (to only make money via membership fees) out the window within a few weeks of launching and now they've slashed their originally proposed valuation by 50% in what would seem like a desperate move to get some cash in to keep the fire burning.
All for what? To try and compete with the likes of Amazon and Wall-Mart on price and logistics!?!?! Call me pessimistic, but this looks like its going to end in an expensive train wreck.
When someone is losing money someone is making money. While business does not need to be zero sum, most of the time it is.
Jet.com doesn't seem to understand that Amazon can take losses in retail because they have margin from other sources--like AWS--as well as an overall ecosystem. And now, Amazon shows quarterly profits. They can go even deeper with discounts in retail.
Jet is just not going to win by simply undercutting Amazon as a pure retail play. They're just adding to the already exorbitant burn rate generated by their marketing team.
Unless there's something yet-to-be-publicized about their model, participants in this round are just adding their cash to the bonfire.
Excellent point. Amazon makes huge margins on AWS (despite the prices seeming rather low to many people). That's a giant recurring war chest of cold hard cash that they can and do use to fuel their other businesses.
If one is going to poke Amazon in the side it needs to be a niche play. Find a market where they aren't established (hard but not impossible) and then get acquired. Jet's current play of trying to beat Amazon at being Amazon is pure insanity.
I don't generally disagree with your comment, but I don't think Amazon had other sources in its earlier days (at least not AWS).
Amazon didn't have other sources, but they also didn't have a ton of competition or one "big guy" like Jet has with Amazon.
Exactly this. Jet.com is literally building a business model for the mid-to-late 90s, as if there is no one in the space.
They are throwing tons of cash at poaching Amazon's (et. al.) customers and largely competing on price. It's completely nuts.
Specifically, Amazon's marketplace subsidizes everything Amazon sells itself. That 15% cut for listing and checkout is a hell of a rentier model, and makes up for their losses in things like warehousing and shipping actual goods. If you want to compete with Amazon as a virtual big box, you're just doubling down on a model that doesn't even work for them.
Of course, maybe your plan is to be like Amazon, and lose money on that model to acquire customers, and then use the customer base to build a profitable marketplace.
I'm somewhat doubtful whether that can work, but its not entirely implausible as a strategy.
What does jet do, exactly? Going to jet.com seems to suggest that they sell laundry detergent and laptops...but this honestly just looks like every other "build yer own ecommerce" website that is just an amazon webstore.
Like...why would they be getting a $500M investment?
Say what you want about Jet in particular but there's a real market opportunity here. Nobody but Amazon has much of a business in the "everything store" category, and Amazon's prices have gotten high.
Compare almost anything there to the price at your local Wal-Mart, Target, etc. and there's a significant gap. Significant enough that you could buy it at retail prices, sell it at Amazon prices, ship it from UPS, and still break even.
If nothing else we need a solid competitor to keep them honest.
> If nothing else we need a solid competitor to keep them honest.
I completely agree which is why I've been trying to support Jet by buying "house supplies" through them instead of Amazon.
Maybe I'm full of FUD, but I just see a day in the not-too-distant-future where are only option is Amazon.
Looking at the economics, it seems like you're just making them burn cash faster.
I'm curious to see what items this applies to. I buy most things from Amazon, and when I comparison shop the prime shipping usually negates any price difference with other online retailers, and the price is very rarely beat by any in store prices where I live. Anecdotal to be sure, and I stick to items fulfilled by Amazon or direct from Amazon (mostly due to prime), but I see a lot of savings this way. And that doesn't include my time savings which has a measureable value top.
Actually most stores now do price matches to Amazon (including best buy and target among others), so there is no use for Amazon for me now. I used to go to best buy just to test the equipment before buying on Amazon, now I just show them the Amazon price on my phone and they match it. No shipping fee no waiting and cheaper. I think I'm going to have to try Jet.com now that Amazon is worthless
I guess you're one of the folks that would not pay a premium to simply not deal with ever having to set foot in a Best Buy. Returns? Gotta go to the store. Want a sightly different model (for instance the newer Canon Powershots are a downgrade) - wait for them to get stock. Plus the obnoxiousness of going to those stores.
It's great you like getting out, dealing with retail and advertisements. But I think you aren't representative.
Returns are WAY better at a big box store. Here's the Amazon return process.
1. Go to site, fill out a form to get a shipping label.
2. Print said form. That's pretty much all I use my printer for in 2015. I even upgraded to a wireless one so I don't have to plug my damn laptop into it every time I want to return something.
3. I probably threw away the Amazon box. Gotta dig up a suitable one from the pile of spares I have in the attic just for returning stuff to Amazon.
4. Print packing slip, insert in box.
5. Gotta bust out the old packing tape. You know that stuff always comes out of the little guides on the side no matter how careful you were, so you have to unstick it. Do so while seething in rage that nobody has yet invented packing tape that doesn't stick to itself. Maybe a ratcheting roll that can't reverse?
6. Shellack that damn label to the box with tape. I don't have shipping labels for my printer because what am I, FedEx? So I cover it in like 8 strips of tape.
7. Go to whichever shipping service Amazon sent it from because unless you ordered a tiny USB cord, it's too big to fit into their drop box. It could be USPS, FedEx, or UPS, all of which are located next to the Best Buy where I could have just dropped the damned thing off in way less time and without having to fight a roll of packing tape.
You can do a UPS pickup; they come to your door. You can leave the package in the mailroom at work for free. You can drop it off in a random UPS store by walking in, making eye contact with the clerk, then setting it down on the counter. It's a 3 minute process to rebox, particularly if you have a tape gun from the last time you moved (seriously, buy one of these!) http://www.amazon.com/Duck-Standard-Includes-54-Yard-669332/... (amazon link, natch :D)
or you can spend 40-60 minutes driving to best buy or some other store. Even if the drive is 10 minutes each way, that's how long it costs from the time I touch my car keys to the time I'm back in my house -- walk to the parking lot, drive, park, walk, counter, stand in line, reverse the process.
Judging by the size of offline vs online retail, he's very representative.
I would gladly pay 20% markup to not have to go into a brick and mortar store for pretty much all products I buy.
Most of the time when I try to price match at Best Buy or the like it turns out the model available on Amazon with the exact same specs and similar lower price point has one char changed on the SKU. It's become pretty common for there to be BB version, Target version, and Amazon version of all kinds of electronics.
That's usually only the case with large appliances or TVs or the like.
Definitely not a new thing. Electronic stores, furniture stores, etc have always had store specific SKUs so they never have to match price
There's no shipping if you have prime. So you're using sub-standard Amazon.
Here in Chicago I get everything within 48 hours of ordering, often less, and don't pay shipping fees. Some items are free same day shipping.
You must make wildly different hourly rates to think visiting a store and paying the same amount is cheaper than a few clicks on Amazon.
I have had Prime literally since the day it launched. It makes little difference really. People without Prime in my area generally get stuff in a couple days. And few orders are below the free shipping threshhold. I'd bet the vast majority of Amazon orders have free shipping and as a result, the cost is factored in.
Maybe I'm lucky (price-wise) to live in suburbia. Example from yesterday, I bought some bromine for my hot tub on Amazon (cheapest they had because it's all the same) then in Lowe's later the same day saw it for less than half the price. Didn't even know Lowe's sold it!
Amazon prices are really only competitive on things that have a high cost to shipping weight ratio. Buy anything that is bulky or low margin (most stuff in Wal-Mart outside of electronics is one of those) and it's considerably more.
Also, there are a large number of items, like a Nest Thermostat, that for one reason or another have the same price anywhere. Those I buy on Amazon as well.
> Say what you want about Jet in particular but there's a real market opportunity here. Nobody but Amazon has much of a business in the "everything store" category, and Amazon's prices have gotten high.
But, on the things I just spot checked, still the same or lower than Jet.com has for the same items.
> Compare almost anything there to the price at your local Wal-Mart, Target, etc. and there's a significant gap. Significant enough that you could buy it at retail prices, sell it at Amazon prices, ship it from UPS, and still break even.
IME, even recently, when I've checked Amazon prices online while standing in the stores, the gap usually went in the other direction.
Amazon doesn't want to compete on price. They want to compete on value.
No one wants to compete on price -- because that means you don't have market (pricing) power and will have margins squeezed.
Not knowing much about the company's internals, my guess is this will end badly.
Consider:
* Fidelity is supposedly leading the investment in Jet.com -- not exactly a leading VC or PE investor.
* The investment totals $500 million -- not exactly a small one-off deal that flies under the radar.
* Jet.com is on track to burn all that cash in a year or so -- not exactly a lot of runway.
--
Edit: added "or PE" to first bullet point in response to comment below.
When companies do rounds in that price range, it's often (maybe almost always) from PE or something other than VC. VC funds are usually not big enough for that. I wouldn't take that as a negative indicator.
Fidelity is not a leading PE firm either.
But they are a market maker probably positioning themselves to be the firm that takes them into an IPO
That's a very long term bet at this point.
I honestly want a list of Jet.com's newest investors so I can remember to never do business with them. This is the most obvious tire fire of an investment I've ever seen in my life (I missed seeing the late 90s dot-com bubble in person).
The brand is completely irrelevant, they only have sales because they're losing money on each unit, they're losing $50 million per month and plan to keep losing that much ... what exactly is supposed to be good about this model/company?
Many of the same things were said about Amazon back in the 90's. I was sure they were going to go down in flames when they moved from selling just books to selling everything...
Though to be honest, I don't think Jet is the next Amazon.
No, I remember Amazon well in its early days and it was nothing like Jet. Kozmo is a better comparison
Amazon was a pretty successful bookstore, and then they acquired CDNow and became a pretty successful music shop as well. They weren't selling things for crazy low prices, they were just convenient and had a huge catalog.
By the time they moved to selling everything, it seemed like a stable business.
> Amazon was a pretty successful bookstore, and then they acquired CDNow and became a pretty successful music shop as well. They weren't selling things for crazy low prices
Yes, they were. They built their customer base from day one on extremely deep discounts; that was always their big selling point.
https://www.crunchbase.com/organization/jet/investors
There's some pretty big guys in there.
Well, investing initially could just be risk-taking. Investing now seems like pure madness.
Whoever designed their color scheme was nuts. The hue of their purple is incredibly nauseating, at least to me.
When I first saw their site I had to check a few times to make sure it was actually the billion dollar startup I had heard so much about.
I find it to be a refreshing change from the numerous shades of blue everyone else uses.
Oh man. You'd have to be seriously high on jet fumes to throw more money into the this sinkhole. I don't see this playing out well.
Good wordplay!! :)
Jet is starting to look like yet-another-startup run by a rich guy who thinks throwing exhorbent amounts of money at a problem solves everything
The first I heard about jet.com was through this hanselminutes podcast - http://hanselminutes.com/494/jetcom-scales-with-azure-f-and-....
Their tech stack looks interesting and despite the anecdotes from this thread and the fact that I haven't ordered anything from them yet (I am outside the U.S), I am inclined to give them the benefit of the doubt.
The Amazon monopoly needs some competition and better it come from a company that's innovating with a better tech stack. I am confused about why they decided to get off a membership model, though...
Jet.com's strategy is to get large enough that the brands have to list on their site (like they do an all major marketplaces). Many of the larger brands are currently sitting on the sidelines "seeing how it goes". You can think of their current strategy as "buying one side of a two sided marketplace". This may or may not work, but calling the strategy stupid just demonstrates a lack of familiarity with ecommerce marketpaces.
If Jet.com's strategy does work then its cemented itself as a multi-billion $ marketplace. In an era of near-zero % interest rates, funds are willing to take that risk for the potential return.
Earlier this year the CEO said “I don’t have any more plans to raise more capital.” And at the time there he downplayed the size of the investment given that it was before the product was released. Back then it was implied that it would help ensure that they'd not have to raise money for quite a while.
I wonder what happened to that plan.
A couple points that have been missed in the comments. #1 Amazon is just now starting to turn a profit. That's 20 years of losses. #2 Amazon seller's fees are huge, especially for items less than $10. I can sell Samsung 18650 batteries in my online store for less than Samsung sells the same battery for on Amazon. Customer demand is only one side of the coin, there is also vendor demand to consider.
As somebody who works in ecommerce, I don't see the upside for a merchant to list there. The omnichannel solutions pushed pretty hard to onboard merchants to it.
Maybe somebody could persuade me
Also, where are they spending this much on marketing, they've got almost no marketing presence imo?
At least in NYC the ads are everywhere and have been for almost six months
I've seen several buses in San Francisco completely decked out in Jet purple.
They spend over $100k a month just on paid advertising.
Per the article, their advertising budget is $300 million for the first year, and they spent $25 million on marketing last month.
I had never heard of them until now. I don't think this is going to have a happy ending.
Is Jet doing anything exciting on the Software Engineering side of things?
Apparently, they have a pretty large stream of real-time price updates, powered by F# on Azure. Hanselminutes had an episode with (one of?) their senior software engineers recently[1]. According to the podcast, they're calculating prices based on a lot of factors, then sending them so fast to Google (Shopping, I suppose?) that Google's API was the bottleneck.
[1] http://hanselminutes.com/494/jetcom-scales-with-azure-f-and-...
I believe their main language is F#.
Jet.com is going to flame out so quickly, and fairly predictably as well to a lot of outsiders. I wonder what the Jet.com investors were smoking, must have been some good stuff.
I agree, but until then check them out. I just got a great deal on a new router. They are the cheapest in many categories and shipping was pretty quick too.
The only thing that could make sense is to lose money on a sale but acquire email and purchase data to resell. Or it could include building a big retargeting ad network for new product launches from CPG and electronics manufacturers. That's what I would do if I could blow money in the ecommerce space.
They could sell data to Facebook if they wanted to in order to improve their purchase based targeting. I'm sure Twitter would love to have purchase info on their users too to make them more relevant as an ad network.
Traditionally manufacturers know very little about most their customers because retailers keep that tight.
So they run coupons, rebates, other incentives and purchase data from cc processors among other things.
So an Amazon that cooperates more with manufacturers and other ad networks could be a decent play.
I wonder how they intend to hit profitability by 2020 given how razor thin Amazon's margins are, even while benefitting from economies of scale.
Probably jet fuel fumes.
Arg paywall! Clicking through from this link goes under it to full story: http://www.techmeme.com/151104/p16#a151104p16
It's the WSJ. Paste URL into google. Click link. Presto!
this means you are allow Google to datamine every click
you should be running an add-on to scrape all tracking off Google