Why Jet.com’s Strategy is Flawed


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Why Jet will fail

I applaud the efforts of Jet.com and its willingness to innovate in the retail space. Marc Lore, Jet’s CEO, is a very talented individual who successfully launched Soap.com and Diapers.com to sell them to Amazon for a very sizable sum.

Yesterday Jet sent me an email announcing membership will be free for everyone. As a consumer it is a welcome move, but memberships are the core of the Jet revenue and profits model. Why would they stop selling them unless customers are not buying it?

Shopping Experience

My experience with Jet started many months ago as an Insider. As someone who is interested in business strategy and ecommerce (and yes, in saving money too) I signed up and shopped around Jet.com a couple times. So far, I am not impressed:

  • Most products I have checked on Jet have been more expensive than other retailers.
  • Not enough product selection. Today I purchased a 100” wall-mount projection screen. Jet had 4 options, Amazon listed 2,523 products. I looked for the Nikon 3200 camera body, Jet only sells the bundle.
  • Limited product information. No product reviews, limited product information, incorrect pictures in some cases.
  • No cross-selling. No product suggestions

Overall, I found the shopping experience at Jet to be inferior to even some of the most basic online stores. The site is targeted at customers who already know exactly what they want to buy, and mainly at low-priced everyday items. Their own ’most popular’ product categories include soap and paper towels. Seems to be the product categories Mr. Lore knows best.

How is Jet doing?

Here is the information I have found and what I was able to infer about Jet’s success to date:

  • Compete.com estimates just under 4 million unique visitors for August, the latest data available
  • Google shows fairly flat interest in the past month, not a progressive increase as you would like to see when growing a startup
  • Alexa shows the site ranking at #435 in the US based on Jet’s traffic
    • VistaPrint.com, who probably has a similar average order value, is 22 spots ahead #403. The company generates $1.5B in revenue, but their model is optimized for repeat purchases.
    • DicksSportingGoods.com is close at #485 with $311 million in online sales per quarter
    • Even Kmart is ahead of Jet at #422
  • In a recent interview, the company stated they are ‘approaching 20,000 daily orders’. Let’s say they have 17,000 at an average order size of $45. That would be $765K per day, or $280M per year.
  • A Techcrunch article states they did $20 million in sales in September, Which would put them at $240 per year
  • The company is still buying customers
  • Jet is buying adwords keywords for low-priced items such as Soap, Wesson oil, Toilet paper and Foam Cup
  • The company offers $10 On First Order of $35. They are surely losing money on the first sale. At 5% margin, which is generous, the company would have to sell $200 per average customer to make up for the $10 they are giving away.

Observations on Jet.com’s business

Going from zero to $280 Million in a couple of months is an impressive feat, but it is not necessarily a success for a startup with $200M investment and does not create a challenger to Amazon.com.

More importantly, is this sustainable or a result of initial interest and curiosity? What happens after the site is not a novelty, the newsworthiness of the site dies down and the $10 coupons are not available anymore?

Another key factor is the retailer relationships. Will they continue to see value from Jet or will they stop doing business with them? One of my only purchases on Jet was a gift, which I found on Jet at a lower price than other retailers including Macy’s. The item was drop-shipped for Jet by Macy’s as indicated by the shipping label.The price was lower on Jet and I did not pay for shipping. Who is eating the difference in price?

This means one of two things: One, Macys is offering Jet a lower price than it offers customers, which is not very smart, in this case Macys left money on the table because I was going to buy from them direct instead of buying from Jet. The second option is Jet is subsidizing the cost, which was a very common practice in the dot com days (remember Pets.com?) and is clearly not sustainable.

Path to Profitability

Jet stated many times the $50 membership was going to be their main source of income. Mr. Lore’s was quoted as saying “the bottom line is, we’re basically not making a dime on any of the transactions” as the explanation on how they would make money.

The company has stated it needs to get to $20 in revenue by 2020 to become profitable. 2020 is a long time away. The plan states 15 million paying customers, which would pay $750 million in membership dues at $50 each and would buy $1300 per year on average.

Now that membership is free they will have to find another source to generate three quarters of a billion dollars, or 3.75% additional margin on $20 billion in sales – but that’s just to break even, not to generate significant profits.

Growing from around $250 million to $20 billion is a huge challenge. Especially with an unproven model that is immature and still changing. Jet’s stated competitive advantage is to offer lower prices, but their model does not allow them to acquire goods at lower costs than WalMart, Target or Amazon.

How can Jet make 3.75% margin while offering customers 4% to 17% lower costs than retailers, plus free shipping and free returns? Anyone who understands the margins in retail knows consistent 4% margins are a fantasy in such a competitive market.

One thing we know for sure is Jeff Bezos is not sitting and waiting, he is fiercely competitive and has demonstrated he is OK with subsidizing prices for a long time to win in a particular market and to crush the competition. One only has to read about how it pressured Lore’s own Diapers.com.

Jet’s Biggest Problem

The biggest challenge for Jet to solve is not the bad shopping experience, it can be solved with money and technology. It is not the lack of margins, as other retailer have figured how to succeed in low-margin online retail. Their biggest problem is not cash flow, as they seem to have plenty of money – for now.

No, their biggest problem is that Jet has failed to own a place in customer’s minds. Let me explain. The Job to Be Done philosophy makes us look at products, services (and websites) as being hired by consumers to do a job.

The best example is Geico. Their latest ad campaign wants to make Geico your obvious choice when you have a particular need: “…When you are a Shark, you attack, that’s what you do, when you want to save 15% on car insurance, you switch to GEICO, that’s what you do.”

When you want electronics you go to BestBuy.com, that’s what you do. When you want pizza you go to Domino’s, that’s what you do. When you want coffee you go to Starbucks, that’s what you do. It is the essential idea every brand needs to capture. When you want to search the web, you go to Google, that’s what you do. For online stores, they need to own a specific buyer intent.

What is Jet’s job to be done? They don’t have one.

Amazon started with one category. Books. They owned the customer intent of buying books online. Maybe even for buying books. I go to Barnes and Noble when I want to browse books. Amazon added categories slowly, one at a time. Only when they had secured a strong position in customer’s mind.

Jet’s efforts right now are aimed at competing with WalMart, Amazon, every SuperMarket and pharmacy store for the intent of buying…soap and paper towels? That is a low cost, low margin category, one where Jet will have a huge challenge to own, and one where $20 billion in sales and 4% margins are going to result impossible.

My Prediction

I wish Jet the best. I am sure they employ lots of very nice people. From my vantage point, however, my prediction is not very positive:

There is a 80% chance Jet will cease to exist in 24 months for a fraction of the $200M+ investors have put in, or will be absorbed by a larger company mainly for its customer base and some of its core technology .

And there is a 20% chance Jet will evolve its business model (it’s doing it already) and will find success with a different formula. They might build a niche around a category, most likely not reaching $20B in sales in 2020.

What do you think?

Gerardo Dada
Marketing Strategist, Technology Marketer, Entrepreneur, Photographer, Foodie and family guy. I have been lucky to be at the heart of the Web, Social, Mobile and Cloud revolutions working for companies like Microsoft, Rackspace, Motorola and BazaarVoice. Today I work as VP of Product Marketing and Strategy for SolarWinds a public (stock: SWI) fast-growing technology company. I enjoy sharing my thoughts on strategy, marketing and leadership.


  1. I think you are truly underestimating “Smart Cart” technology and I believe this is how e commerce will progress.

  2. Byron, thanks for your comment.
    You may be right, however, the benefits of SmartCart are still theoretical as there is no proof of value for consumers or retailers.

    It is competing against similar technology from Amazon including intelligent bundling in the product page, related products, subscribe and save, and even Prime.

    Further, SmartCart does not make Jet a more viable company as it does not give it a cost advantage over larger retailers.

    Note that I have nothing against Jet, or for Amazon, just pointing out what I see as a flawed strategy. It will be interesting to see how thing play out in the next few years.

  3. Great post. The main flaw I see with Jet.com is that nothing they are doing can’t be replicated by Amazon. And Amazon already has the skills, shopping experience, and the reviews which are a big part of what make it a useful site. I agree with your 80% likely fail rate. Perhaps their business plan initially was just to look serious so Amazon would buy them out at a profit.

  4. Gerardo, I just saw a TV commercial for Jet.com and out of curiosity I went to their website.
    I did not look at any products. I looked at their purchase terms which is by far the most confusing “term” I’ve ever read. https://jet.com/purchase-terms This was just for some of the retailers they deal with. They also offer JetCash, which also have very confusing terms. You did not mention JetCash in your article. I agree: I don’t know how they can make money and to be quite honest, I would never purchase anything with such arbitrary rules. Your order is not really an order but a request and you wait to hear from them to confirm the actual price and availability. Who on earth would want to shop that way? Your article popped up when I googled Jet.com and I found it very informative. Thanks you.


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