Amazon’s under attack, from an already vanquished foe

12 Jan 2015

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Marc Lore, via Jet.com

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Obviously excited by being a thorn in Amazon’s side, Marc Lore is at it again, with Jet.com the latest online retail competitor on the market.

But first, some context. Back in the winter of 2010, Amazon’s ruthless approach to upstart competitor Quidsi – Lore’s previous company – saw a buyout of US$500m after a series of pricing projects from the former designed at ripping out the profitability of the latter.

Due to Lore and his co-founder Vinit Bharara’s reluctance to sell up to Jeff Bezos’ company in the months earlier, huge price reductions by Amazon across Quidsi’s main selling ranges saw the company – which specialised in selling diapers, amongst other products – struggle, before selling up amid a tough retailing environment at the time.

“I'm not sure which is more unpleasant – changing diapers, paying too much for them, or running out of them,” said Bezos at the time of the buyout.

“This acquisition brings together two companies who are committed to providing great prices and fast delivery to parents, making one of the chores of being a parent a little easier and less expensive.”

Jat packing a punch already

Lore joined forces, stayed for a couple of years and is now out on his own, planning his next attack – and he’s turning heads already. Despite not yet making a sale, Jet.com has so far received US$80 million from venture capital firms allegedly including NEA, Bain Capital Ventures, Western Technology Investment and Accel Partners.

“This idea is massive,” says Patrick Lee, a partner at Western Technology Investment, in Bloomberg. “If Marc is right on this one, it will be multiple times bigger than Quidsi ever was.”

Basically Jet.com is looking to undercut Amazon, the world’s largest online retailer, and it plans on doing this in a relatively simple way.

Customers pay US$50 to become members and Jet then partners with product sellers to get the cheapest price for your purchases. It does this by agreeing its own cut of the products' sale – similar to what Amazon and others do – and then passes it entirely over to its customers.

It then looks to cut costs further by batching orders together, ignoring the race for immediate delivery in favour of a more cost-friendly pricing plan on shipping – instead of averaging out the delivery costs of each product it sells, Jet will treat each transaction separately, looking to combine product shipments to make most economic sense.

Other areas such as modes of payment (credit card purchases costing more than debit card purchases, for example) and supplying email addresses provide further savings. Jet will make its money from membership fees alone, apparently.

Transparency, the way to go?

“Imagine having two things in your shopping cart like a bat and a ball. Now you search for a glove. If you just see the same price and all gloves are the same price, you’re not taking advantage of the fact that some gloves can ship together with the bat and ball in your basket and other gloves can’t. That needs to be reflected in the cost of the products you’re viewing,” explains Lore in a recent Forbes interview.

“We make transparent the payment costs. When you pay with a MasterCard or Visa or debit card, we make transparent the true costs that go into that. We make transparent the true cost it will take to return a product.”

The only warehousing by Jet will be for consumables, an area of e-commerce as yet not perfect. Every other element of its service will be about leveraging already existing environments, be they transport networks or storage facilities.

“It’s not like we’re smarter with the way we ship stuff,” said Lore to Re/Code. “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.”

Aiming to mirror Costco, a budget bulk buying retailer that competes with Walmart at the lower end of the price spectrum, Lore is confident ahead of his first sale.

“The Costco business model came to be 21 years after Walmart was founded and it worked. It didn’t crush Walmart or hurt Walmart. Coincidentally, it’s 21 years post Amazon. We’re doing to Amazon what Costco did to Walmart: Not beat them up, but just introduce a new way to save.”

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Gordon Hunt is a journalist at Siliconrepublic.com

editorial@siliconrepublic.com