Yesterday Jet, a members only marketplace said to be a mix of the best of Amazon and Costco but has yet to launch, raised $140M led by Bain at (you might want to sit down) a valuation of nearly $600 million. This for a company that hasn’t launched, a marketplace that hasn’t sold a single product.
Yet Jet already has 350,000 members. In the last few months they’ve run a brilliant marketing campaign with perks and status given to members who get others to register and promote Jet. It’s raised the anticipation and the hype to fever pitch as they prepare to announce who the top 100,000 are. Those are the lucky few that get early access, free Jet membership and Jet stock. Like I said, it was a brilliant campaign, managed very well socially (I saw tweets like this one from at least 50 different people trying to be my referral.)
Going up against Costco and Amazon is a bold move. Jet has to have more than a brilliant marketing pre-launch campaign to register users, right?
Because retail is not an area I’m familiar with I thought I’d take a look at the numbers of Jet’s self-declared competitors, Costco and Amazon. Costco has 41.9 households and 6.9 million business memberships. That’s almost 49 million paying memberships of at least $55 per year each. Amazon, it is estimated, has 20 million paying Prime memberships at $99 per year. These are not paltry numbers. Costco has amazing prices that yes, its members pay to access, but a limited product range. That said, Costco tends to sell the “bestsellers,” items that will please the majority of its customers. Amazon, on the other hand, invented the “Long Tail” of retail and offers an almost infinite range of products with low prices occasionally with vendors competing to offer the lowest.
OK, back to Jet. Brilliant marketing campaign aside, the extreme valuation has to come from some added advantage. Exclusive partnerships? Undiscovered efficiencies? Locking in consumers? A technological leap? What is it?
Well, Jet itself doesn’t reveal much but this excellent post by Jason Del Ray at Re/code actually talked about Jet’s business and product strategy and mentioned five differentiators.
First is that prices will be on average five percent to six percent cheaper than anywhere online because Jet claims to give their commission from retailers to the customer. “Jet plans to make its profit solely from membership fees, not the products it sells.” This, as Re/code points out, is similar to Amazon’s source of discounts but Jet can offer a deeper discount than Amazon because Amazon also sells to non-members which means it still needs to make a profit from every product sold.
Second, and this is what I found most interesting from the product perspective, is that Jet can offer additional discounts based on different customer selections in the purchase process. Jet’s CEO Marc Lore explains: “we’re really just exposing the true underlying economics. And when we make that transparent to the consumer in discounts, we’re creating in effect more efficient orders.”
For example, paying with credit card vs debit, ordering multiple products at once, ordering from a nearby warehouse (I’ve always wondered why I’m charged the same to ship me something from Chicago and Chico) or waiving the right to return a product. This is where it will become interesting to see what motivates consumers and how this cost transparency can be translated into a lower price and where will consumers be willing to make trade-offs. Aside from shopping at different stores for their different pricing policies I don’t think that consumers have been given the ability to make these choices in the past. I certainly haven’t seen variable shipping costs before, aside from picking it up at a store for free. This will be interesting to follow.
The third-fifth differentiators are not as exciting from my perspective and range from better operations to strategic partnerships. But Re/code summed it up nicely: “it’s fun to a watch an entrepreneur take big chances.” I agree and I’ll be watching Jet along with the rest of the industry. Hype or no hype.