Welcome to our three part series where we will provide an exclusive look inside the exciting new marketplace Jet. Jet has a lot of innovative new ideas and in order to cover them is going to take a three part series:
Welcome to Part 1 – Background on Jet. In this post we’ll look at these topics to learn more about what Jet is all about:
- What are the key attributes of a marketplace that make it unique? Introducing the SVCC Framework
- The Jet team
- Jet’s funding
- The problem with current marketplaces…
- Jet’s vision
- Jet’s business model
- Jet and the SVCC framework
What are the key attributes of a marketplace that make it unique? The SVCC Framework
At ChannelAdvisor we work with over 40 marketplaces and over the years have developed a framework for understanding their attributes and what they offer buyers. We look across four key strategic attributes:
- Selection – Does the marketplace focus on broad selection (eBay and Amazon) or narrow (BestBuy with electronics, Staples with business products) .
- Value – Does the marketplace drive to have the lowest prices or is it more focused on service vs. value?
- Convenience – How easy to use is the marketplace to use? How well does it work on mobile? Does it save you time or do you have to spend more time finding a great value?
- Confidence -How reliable is the marketplace? Do you trust the merchants? Does the marketplace stand behind you?
This graphic illustrates how marketplaces that excel at SVCC are generally aligned with changing buyer demands:
With this SVCC framework in mind, let’s look at what Jet is up to in more detail.
The Jet Team
Marc Lore (pictured above) is the CEO of Jet. Before Jet, Marc founded Quidsi
in 2005 and sold it to Amazon in 2011 for a reported
$545m. If Quidsi doesn’t ring a bell, it’s the parent-brand behind Diapers.com, YoYo.com, Soap.com, BeautyBar.com, Wag.com, Casa.com, VineMarket.com, AfterSchool.com and Look.com. Here are all their current brands;
After you sell your business for $545m, why would you want to start another business? What if you learned so much about e-commerce in your tenure at Quidsi and the acquirer, Amazon, that you discovered a problem that nobody else was trying to solve? What if solving this problem could create a marketplace bigger than Amazon and eBay? That’s something to get excited about and that’s why we’re excited @ChannelAdvisor about Jet.
Jet’s funding – $220m and rising!
Apparently we’re not the only ones excited about the opportunity that Jet is going after. In a very short time, Jet has made some big announcements about their venture capital funding:
- July 2014 – Jet raised $55m from NEA, Accel Partners, Bain Capital Ventures and MentorTech Ventures.
- September 2014 – Jet raised An additional $25m for a total of $80m from the same investors
- February 2015 -Jet raised an additional $140 (total is $220m). New investors in this round include: Google Ventures, General Catalyst Partners, Norwest Venture Partners , Thrive Capital, Temasek, Coatue Management, Goldman Sachs Group Inc. and Silicon Valley Bank
I’ve been in the e-commerce game for quite a while and can count on one hand the number of companies that have generated this much excitement and raised this much capital. The number that have done it before even launching is essentially 1 – Jet.com.
So what’s the deal? Why are people so excited about this new ‘Jet thing’ that hasn’t even launched?
We’ve been working with the team @Jet for a while (and worked with Marc @Quidsi) and we’re excited to reveal exclusive details about what they are up to and **most importantly** why merchants should be VERY excited about this.
Before we dig into it though, it’s important to understand the problem that Jet is solving.
The Problem with current marketplaces – the Merchant experience
99%+ of the readers of this blog are merchants (aka sellers, online retailers, etc.) and you have all been living with this problem for years as you sell on eBay, the Amazon marketplace or any of the other ~100 marketplaces that exist. The problem is they tend to focus on the buyer experience at the expense of the merchant experience. But as merchants, we understand that e-commerce is a two sided coin. Many times if you improve the merchant experience, you can also improve the buyer experience. These two sides of the coin are different, but intimately tied together.
The best example of this problem that Marc gives that really hit home for me is pretty simple. This graphic illustrates a merchant challenge that you face selling on any marketplace.
In this example, there are two sellers of this item, one on the West Coast and one on the East Coast. The seller on the West coast prices their widget at $70 with free shipping, and they are the lowest price, so they get the orders for this item. Because of this ‘winner takes all’ model, the merchant has to price that $70 so that they lose money on long-distance orders (probably from Midwest out to East Coast) and make money on closer orders. Therefore this model introduces an inefficiency in pricing. Wouldn’t it be better to price it:
- West Coast: $65
- Midwest: $69
- East Coast: $75
Conversely, the seller in NJ could price the item:
- East Coast: $65
- Midwest: $69
- West Coast: $75
Now let’s throw a third seller in here based out of Indianapolis (Midwest):
- Midwest: $65
- East Coast: $69
- West Coast: $69
At a marketplace like eBay or Amazon where the buyer is focused on the lowest price, all the orders will go to the West coast seller. But buyers in the Midwest and East Coast could actually get the item cheaper if sellers could be much more granular with their offers (based on product and buyer location).
Wouldn’t it be the best overall buyer experience if a marketplace wasn’t winner take all?
What if you had a smart engine that let merchants control a much more granular level of shipping? Since you know the location of the buyer, what if you automatically in real time figured out the optimal product based on this more granular view of what the seller can offer? You would essentially take a key inefficiency out of the system. If you could do this at scale (multiple offers for all products) then sellers would make more margin. Buyers would save money. Both sides of the coin would be working in unison to make for a better merchant AND buyer experience.
That’s just one example. When you think about it – think about all those merchant-facing features you wished your marketplace had that you as a merchant could leverage to both increase your sales/margin and buyer satisfaction/savings:
- What if the merchant could discount for a larger basket?
- What if the merchant could discount if the buyer opts-out of returns?
- What if the merchant could pay (discount more) if the buyer opts-in to regular emails?
- What if the merchant could target a certain demographic or repeat buyer or ?
- What if the merchant could incent in-store pickup?
- What if the merchant could give a discount for using ACH vs. credit card?
- As a merchant you have assortments with very different margin profiles. What if you could customize what you are willing to pay the marketplace? Low margin cameras – 8%. High margin accessories – 25%.
Jet’s vision is pretty simple once you think about this problem that all marketplaces have: Jet is building a marketplace that simultaneously addresses all of these merchant needs and in doing so they will create a better buyer experience. When you do the math, on average, Jet should be able to save buyers > 10% compared to other marketplaces because of efficiencies in the system and a different business model.
Jet’s consumer value proposition is summarized in three words:
- Quality – By working with trusted brands and retailers and backing them up with a Jet satisfaction guarantee, this is a no-risk value proposition for the consumer.
- Transparency – By solving the problems that exist with existing marketplaces, Jet will unlock value for the buyer and merchant and thus reduce unnecessary costs in the existing systems.
- Experience – Jet is making a substantial investment in the consumer experience. From search to buying to delivery and customer service, their goal is nothing short of exceptional customer experience.
The end result: Jet’s vision is to create a fly-wheel effect by making their customers (members) happy and engaged because they are realizing savings that come from the value created when inefficiencies are taken out of the system.
Jet’s Business model
I know what you’re thinking – this sounds too good to be true, how can Jet possibly make money?
The Jet business model is pretty simple. Jet plans on making their revenue from a $50/yr subscription paid for by members. Like a warehouse club model (Costco, BJ’s, Sams) that will be the primary driver. Also like a wholesale club model, Jet plans on passing a lot of savings to the member.
The merchant model is similar to what you would find at an eBay or Amazon marketplace – you pay a commission for sales based on category. BUT there are two important differences:
- A merchant can choose a variable commission based on your own rules (see example below) for shipping, email opt-in, returns and more.
- Jet takes the commission and instead of pocketing it as profit as other marketplaces do, it returns it to the consumer in the form of Jet savings and behavior based incentives (more on this later).
This example shows the notional merchant dashboard where the merchant can setup rules (shipping in this example) for the variable commission they are willing to pay (or not pay) based on zones.
In this example, to incentivize orders close by (Zone 1-3) the merchant pays additional commission. Conversely to dis-incent long-distance orders, the merchant lowers the commission for Zones 6-8.
Here’s what this looks like to the buyer:
How does Jet stack up against our SVCC Marketplace framework?
Now that we’ve revealed some of Jet’s secret sauce, let’s evaluate what Jet is building against our SVCC framework introduced earlier:
- Selection – While Jet hasn’t launched yet, it is tough to measure selection. To put this in perspective, Amazon has 288m products. 2.8m are 1P (Where Amazon is the retailer), 29m are 3P+FBA and 256m items are in the long-tail. If Jet were able to get 2.8m+29m=32m items that would compare to what is ‘Prime eligible’ today. If you take out the media categories (books, music, videos, video games and apps) then that number goes down by more than half. So let’s call it 12m items for Jet to be at selection parity with Amazon.
- Value – This is definitely Jet’s upper hand. By passing along the savings from taking inefficiencies out of the equation, Jet says they will have prices that are 10-15% lower than anywhere else on the internet. That’s a unique and strong value proposition – especially to that part of the market that is value driven.
- Convenience – As you will see in the next post, the Jet user experience is very strong. The whole user journey from finding, browsing, researching, buying/paying and shipping is pretty seamless. Jet doesn’t have hundreds of owned and operated warehouses, so it’s not likely that you’ll receive every product in 2 days like you do with Amazon Prime, but the items I’ve ordered came in 3-4 days which was fine given the savings. Within convenience, one huge plus that Jet has a unique opportunity to solve that no other marketplace or Google has been able to solve is in-store pickup – what I like to call BOPUS – Buy Online PickUp in Store (some call it click and collect). eBay and Google have tried driving BOPUS, but so far have had little success with it. If Jet can solve that and give buyers not only great savings online, but with same day pick up in a store, that’s a convenience factor that even Amazon can’t solve. Today hundreds of retailers offer BOPUS, but there’s no way to search across stores for what you are looking for. Therefore you are relegated to going to Target, entering your Zip, then Walmart, then Staples, then Kohl’s, then … By partnering with large retailers to drive members to BOPUS, Jet could have a significant advantage over eBay, Amazon and Google.
- Confidence – As you’ll see in the Jet user experience in the next post, shopping on Jet is a bit different than any other site because the merchant you are buying from is not revealed until the end of the process. With eBay and Amazon, the merchant/seller is revealed much earlier in the process. That being said, Jet has very clear messaging that they are going to stand behind the transaction 100%. This feels stronger than eBay’s messaging and at parity with Amazon’s to put it in perspective.
When I run Jet through the SVCC framework, the biggest open question for Jet is selection.
Can Jet draw enough merchants to get 12-15m items on the site?
Up next: Inside the Jet member experience
Now that we’ve done a deep dive into Jet’s background, vision, business model and the problem they are solving, in part 2
, we look at how this all comes together in the buyer (member) experience and how it is similar and different to existing e-commerce experiences.
This blog post was written by Scot Wingo, CEO, ChannelAdvisor.
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