By David Dorf-Oracle on Apr 30, 2015
It used to be that I always assumed Amazon had the lowest price. Now I have to double-check before placing an order. Lately Amazon has been focused more on customer experience than price, offering lots of goodies for Prime customers and really fast shipping. Might that allow a new competitor to enter the market?
In the early days, Diapers.com sometimes had to buy diapers at Costco to ship to its subscription customers, sacrificing margin for share while the rest of infrastructure caught up. The company was based on supply chain efficiencies and a lower cost to acquire and retain customers. It worked so well that Amazon first fought them, then bought them.
So after spending two years with Amazon, Marc Lore is on his own again building a new kind of retailer. Jet.com is a cross between Costco and eBay with a huge focus on squeezing out every nickel of savings. Consumers pay a $50/year membership fee, which is the only income for Jet.com. Then Jet.com offers products from various retailers at deep discounts. Those discounts come from passing on sales commissions, using the most economical shipping, combining orders, and avoiding credit cards.
To be successful, Jet.com must have the world's most efficient supply chain. Perhaps more efficient than Amazon and Walmart. The lynchpin will be an intelligent order management system that can efficiently source, combine, and ship products at the lowest cost. Then there will also need to be lots of creative deals with merchants to lower prices in exchange for waiving the right to return merchandise, sharing customer data, or establishing subscriptions.
Of course this business plan requires massive scale, so the trick will be staying in business long enough to establish a large and loyal customer base. Jet.com has already raised $220M before the website is even live, every penny of which is required for infrastructure and marketing. But I just don't think Amazon and Walmart will stand by idly. I think a major online price war is on the horizon, and consumers will be the big beneficiaries.