Launched in a risky move to challenge online shopping juggernauts Amazon and Walmart, Jet.com made the incredible jump to a $3 billion valuation in just one year and is now being acquired by one of its largest competitors—Walmart—in one of the biggest e-commerce moves ever.
Jet’s Early Days
Jet.com launched in July 2015 and was originally meant to challenge online shopping giants like Amazon and Walmart. It quickly raised more than $800 million in financing from major investors, largely due to co-founder Marc Lore’s impressive track record with other e-commerce sites. The business model went through a few iterations in the first months, starting as a service that took orders from customers for items competitors didn’t carry and acted as a facilitator to get these items. The site also started with a $50 membership fee, which was eliminated after a few months. Jet.com’s original main source of revenue was membership fees because its prices were so discounted that they wasn’t earning the company much money, but after dropping the fees, the company modified its discount percentage and found that a lower discount of 4%-5% was still a big incentive to customers that also led to more profits.
Future of Jet
It may come as a surprise to some that Walmart and Jet would agree to the deal, worth $3.3 billion in cash and stocks, because Jet is relatively new and has a lot of room for growth. While Jet has seen great success in its short life, it hasn’t yet reached the potential it believes it has. Jet has three warehouses and relationships with more than 2,000 vendors that sell on its site, but an acquisition by Walmart could allow Jet to tap into Walmart’s vendor relationships to purchase items at even lower prices for a great profit margin.
According to the finalized deal, Jet co-founder and CEO Marc Lore will stay in his position and take over as the head of Walmart’s U.S. e-commerce division to lead both Walmart.com and Jet.com. Lore is incredibly experienced in the e-commerce world—before Jet, he cofounded Diapers.com, which he eventually sold to Amazon for $550 million.
Future of Walmart
Walmart is currently the second-largest U.S. e-commerce retailer, but it hopes acquiring Jet will allow it to better challenge top dog Amazon. Considering the size of the retail giant, Walmart’s e-commerce efforts have historically been less than stellar. Its e-commerce annual revenue is around $14 billion, while Amazon’s stands at $99 billion, and Walmart’s e-commerce growth has been slowing for the past year. This isn’t the first e-commerce-related acquisition for Walmart, though it certainly is the biggest—in the past few years, Walmart’s innovation center has acquired multiple data start-ups, app services, and site performance leaders to boost its online presence.
Using Jet’s innovative e-commerce technology, Walmart hopes to buoy its current system and grow its resources to sustain its e-commerce platform. One of Jet’s best features is its ability to identify orders to be routed to the appropriate vendors in real time, which allows for lower costs and deeper discounts on bulk orders. Jet also has a sophisticated pricing algorithm that lowers prices based on a variety of factors, including order size and how close a customer is to a warehouse. With Jet, customers save more money by adding more items to their carts. It makes sense that Walmart would want to tap into some of this technology to refresh its current online efforts.
Can Walmart Catch Amazon?
Acquiring Jet will no doubt help Walmart’s e-commerce efforts to some degree, if nothing more than just taking out a competitor, but days of realistically trying to catch Amazon seem long gone. Amazon accounts for half of all global e-commerce growth, and although Walmart recently introduced a subscription-based two-day shipping program to rival Amazon’s popular Prime program, it is likely too little too late.
There’s also the risk involved with acquiring Jet, especially at such a steep price tag, as Jet is still relatively new and largely unproven. As a relatively small fish in the online retail world, Jet spends approximately $20 million a month just on advertising. However, Walmart seems confident that the fast-growing company can continue to make waves and help Walmart become a bigger player in the e-commerce world.
Walmart’s acquisition of Jet could mark a change in the e-commerce space. In an ever-changing world, larger retailers need to stay fresh with their technology and approaches, and this deal shows Walmart doing just that. We’ll have to wait and see how this new powerhouse faces up against Amazon and if other e-commerce sites will try to follow in Walmart’s footsteps.