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Facing Cash Crunch, Retailer Jet.com Racing to Complete Funding Round
- unclebucknasty 11y agoJet.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.
- jaredsohn 11y agoI don't generally disagree with your comment, but I don't think Amazon had other sources in its earlier days (at least not AWS).
- wspeirs 11y agoAmazon didn't have other sources, but they also didn't have a ton of competition or one "big guy" like Jet has with Amazon.
- unclebucknasty 11y agoExactly 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.
- swingbridge 11y agoExcellent 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.
- HillRat 11y agoSpecifically, 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.
- dragonwriter 11y agoOf 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.
- invalidfunction 11y agoJet 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
- ckurose 11y agoArg paywall! Clicking through from this link goes under it to full story: http://www.techmeme.com/151104/p16#a151104p16 http://www.techmeme.com/151104/p16#a151104p16
- ckurose 11y agoAlso, where are they spending this much on marketing, they've got almost no marketing presence imo?
- deleted 11y ago[deleted]
- clientbiller 11y agoThey spend over $100k a month just on paid advertising.
- dangrossman 11y agoPer the article, their advertising budget is $300 million for the first year, and they spent $25 million on marketing last month.
- deleted 11y ago[deleted]
- mason55 11y agoAt least in NYC the ads are everywhere and have been for almost six months
- baddox 11y agoI've seen several buses in San Francisco completely decked out in Jet purple.
- burger_moon 11y agoWithout any paywall - http://pastebin.com/17fwFaut http://pastebin.com/17fwFaut
- mkorfmann 11y ago<3
- powera 11y agoI 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?
- bramgg 11y agohttps://www.crunchbase.com/organization/jet/investors https://www.crunchbase.com/organization/jet/investors There's some pretty big guys in there.
- powera 11y agoWell, investing initially could just be risk-taking. Investing now seems like pure madness.
- brk 11y agoMany 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.
- sixQuarks 11y agoNo, I remember Amazon well in its early days and it was nothing like Jet. Kozmo is a better comparison
- TillE 11y agoAmazon 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.
- brianmcconnell 11y agoI had never heard of them until now. I don't think this is going to have a happy ending.
- deleted 11y ago[deleted]
- dewitt 11y agoI 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.
- dangrossman 11y agoI 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.
- jsprogrammer 11y agoSubsidized, out-of-stock products for everybody!
- bsdpython 11y agoThat's exactly what Marc Lore did to start his previous company: https://en.wikipedia.org/wiki/Diapers.com https://en.wikipedia.org/wiki/Diapers.com
- princeb 11y agodiapers.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.
- saosebastiao 11y agoExcept 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.
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- bhouston 11y agoJet.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.
- TeMPOraL 11y agoProbably jet fuel fumes.
- acchow 11y agoI wonder how they intend to hit profitability by 2020 given how razor thin Amazon's margins are, even while benefitting from economies of scale.
- exclusiv 11y agoI 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.
- lhnz 11y agoEarlier 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.
- c-slice 11y agoWhoever designed their color scheme was nuts. The hue of their purple is incredibly nauseating, at least to me.
- cs702 11y agoNot 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.
- mattmaroon 11y agoWhen 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.
- mattmaroon 11y agoSay 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.
- dikaiosune 11y agoI'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.
- dayaz36 11y agoActually 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
- MichaelGG 11y agoI 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.
- ericcholis 11y agoAs 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
- blhack 11y agoWhat 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?
- code4tee 11y agoThe 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.
- danieltillett 11y agoWhen someone is losing money someone is making money. While business does not need to be zero sum, most of the time it is.
- swingbridge 11y agoOh 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.
- hluska 11y agoGood wordplay!! :)
- mrdrozdov 11y agoIs Jet doing anything exciting on the Software Engineering side of things?
- giaour 11y agoI believe their main language is F#.
- icebraining 11y agoApparently, 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-more-with-rachel-reese http://hanselminutes.com/494/jetcom-scales-with-azure-f-and-...
- fraserharris 11y agoJet.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.
- krishnakv 11y agoThe first I heard about jet.com was through this hanselminutes podcast - http://hanselminutes.com/494/jetcom-scales-with-azure-f-and-more-with-rachel-reese 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...
- bondibox 11y agoA 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.