This month's cover of Bloomberg Businessweek features Jet, an e-commerce startup that's raised $80 million in seed funding. CEO Marc Lore has some history in e-commerce, starting a company called Quidsi, which sold diapers and household items. The company was experiencing rapid growth, until Amazon took notice and cut their prices for diapers by a third. With Amazon's massive capital, it could afford to take a loss on the sales, but Quidsi couldn't. Lore sold the company to Amazon in 2010.
In the profile, Lore outlines Jet's business model, which resembles an online version of Costco, a subscription-based wholesaler. By charging customers $50/year, Jet aims to offer prices on items that are 10 to 15 percent lower than Amazon's. How? Essentially by cutting costs in shipping, processing, and packaging and passing those savings over to the customer, instead of absorbing it themselves to boost Jet's bottom line. Not only that, but Jet also matches you with retailers that are closer to you, which results in additional savings on products.
Interestingly, Jet also offers discounts for debit card transactions, which have "no transaction fees". Businessweek says that this will add another 1.5% in savings for customers. For merchants, processing online debit card transactions are the cheapest way of accepting a payment.
The question is -- can Jet beat Amazon? With all these cost-cutting measures, fraud is sure to be a big issue for the company. Since Jet is a subscription service, the company knows their customers extremely well, even better than Amazon. However, the onboarding process could be a potential fraud issue for Jet, as we've seen it is with Apple Pay -- with stolen identities and stolen credit/debit cards.
Jet has some work to do -- they'll need to convince customers to change their behavior and opt for having packages coming later than Amazon Prime in exhange for more discounts. But with Costco and Sam's Club accumulating over 100 million paying members, the market is certainly wide open for Jet.