Amazon.com Inc. will continue investing heavily in India, the chief of its local operations said, dispelling concerns of slower spending by the US e-commerce company after its chief financial officer Brian Olsavsky said that while the India investments were starting to show results, they had hit margins, contributing to lower-than-expected results in the third quarter. “Not at all,” Amazon’s India chief Amit Agarwal said in an interview on Monday when asked whether Amazon would slow down investments in India. Amazon, which initially said it would invest $2 billion in India, had said in June that it would invest an additional $3 billion in the country. That investment is on track, Agarwal said, adding that the company is “excited about the momentum that we see in India”. “India is very early in its e-commerce trajectory. Amazon is very early in its e-commerce trajectory in India. To transform how India buys is going to take a long time; it will take a lot of investment and… for many years. This is just the beginning.” Amazon is betting big on its Prime service in India and expects the loyalty programme to dominate sales in the coming months. “Prime continued to be the top seller in all of October, not just for wave one (of the Great Indian Festival). Prime membership continues to be a top seller and it is going to be so going forward every month. My belief is that Prime membership will be the top seller every month based on the trends that we are seeing,” said Agarwal. On Monday, Amazon also said that it witnessed record numbers during its month-long Diwali sale event, the Great Indian Festival, with sales jumping 2.7 times from last year. This year’s Diwali sale has proven to be the biggest showdown in the history of Indian e-commerce, with Amazon India and rival Flipkart going all out to woo shoppers. While Flipkart claimed to outsell Amazon India during the first leg of the sale season, Amazon claims it came back strongly during the latter half of the sale season, with bigger discounts in key categories such as smartphones and large appliances. “October this year for us was 2.7 times of last year’s October—which is incredible because last year was 4 times the October before,” said Agarwal, adding that this growth came even as “conversations” suggested growth in India’s e-commerce business was going to be flat. Agarwal said that October could be an inflection point for e-commerce in India. “We had categories from phones to Amazon Fashion to appliances growing three to 11 times; even newer categories such as luxury and beauty grew 46 times; grocery and everyday consumables, 7.1 times; furniture, 11.8 times; gold jewellery, eight times—so a lot of these categories are showing robust growth.” Agarwal said that 70% of the company’s new customers in October came from tier-II and tier-III cities, adding that it was confident of carrying the momentum from its Diwali sale well into November and December. Mint couldn’t independently verify the numbers, but, in general, all e-commerce marketplaces (including Snapdeal, Amazon and Flipkart’s smaller rival) did well in October, carrying forward their momentum from their annual sales. “When I look at the gaps between the waves, our growth rates in those gaps continued to the same extent. We’re growing at 150% year-over- year. At peacetime, the growth rate is still what I’m telling you. And as we exit out of wave three (the third sale event in October), we don’t see a slowdown,” Agarwal said. “The broader e-commerce story is not just a Flipkart-Amazon battle. Of course, both Flipkart and Amazon are trying to get a fair share of the pie in key categories such as electronics, fashion and large appliances. And despite drags on margins, nobody is going to reduce investments in India. What you will see, however, is that they will focus on innovation. For example, during the festive season, smartphone sales shot up and a lot of the sales jumped due to things like product exchanges. Another new innovation was something like Amazon Prime. So, you’ll see a lot of that going forward,” said Sreedhar Prasad, partner-e-commerce at KPMG
Amazon has been quietlybeefing up its own shipping logistics network lately.
Although Amazon publicly says it’s meant to complement existing delivery partners like FedEx and UPS, a new report by The Wall Street Journal’s Greg Bensinger and Laura Stevens says Amazon has broader ambitions.
Eventually, Amazon aims to build a full-scale shipping and logistics network that will not only ship products ordered from Amazon, but also will ship products for other retailers and consumers.
In other words, Amazon is looking to compete against delivery services like FedEx and UPS, the report says. Internally, some Amazon execs call the plan „Consume the City.“
Here are other new details around Amazon’s logistics plan, according to the report:
- Amazon recently hired former Uber VP Tim Collins as VP of global logistics.
- It recruited dozens of UPS and FedEx executives and hundreds of UPS employees in recent years.
- Test trials for last-mile deliveries are running in big cities like Los Angeles, Chicago, and Miami.
- The company also experimented with a program called „I Have Space“ to store Amazon’s inventory in warehouses owned by other companies.
On top of that, InternetRetailer.com recently reported that Amazon has hired Ed Feitzinger, the former CEO of UTi Worldwide, one of the largest supply chain management companies, as VP of global logistics. Add that to the fact that Amazon has now built facilities within 20 miles of 44% of the US population, and Amazon is starting to look like a real threat to existing logistics networks.
According to Baird Equity Research, Amazon is looking at a $400 billion market opportunity by launching all these initiatives. They could also help Amazon reduce some of its shipping costs, which have been increasing every year.
People in the industry are starting to take notice, too, according to Zvi Schreiber, the CEO of Freightos, an online marketplace for international freight.
„After dominating e-commerce and warehousing, Amazon is moving farther up the supply chain and eyeing the logistics sector from all angles, particularly looking to leverage technology, capital, and manpower to make logistics more efficient,“ Schreiber told Business Insider.
„Given their track record of disrupting industries — from retail to warehousing and e-commerce fulfillment to cloud computing — the trillion-dollar freight industry is certainly tracking Amazon nervously.“
At the close of trading this Monday, the top five global companies by market capitalization were all U.S. tech companies: Apple, Alphabet (formerly Google), Microsoft, Amazon, and Facebook.
Bloomberg, which reported on the apparent milestone, insisted that this “tech sweep” is unprecedented, even during the dot-com boom. Back in 2011, for example, Exxon and Shell held two of the top spots, and Apple was the only tech company in the top five. In 2006, Microsoft held the only slot—the others were in energy, banking, and manufacture. But things have changed. “Your new tech overlords,” Bloomberg christened the five.
But what makes a company a technology company, anyway? In their discussion of overlords, Bloomberg’s Shira Ovide and Rani Molla explain that “Non-tech titans like Exxon and GE have slipped a bit” in top valuations. Think about that claim for a minute, and reflect on its absurdity: Exxon uses enormous machinery to extract the remains of living creatures from geological antiquity from deep beneath the earth. Then it uses other enormous machinery to refine and distribute that material globally. For its part, GE makes almost everything—from light bulbs to medical imaging devices to wind turbines to locomotives to jet engines.
Isn’t it strange to call Facebook, a company that makes websites and mobile apps a “technology” company, but to deny that moniker to firms that make diesel trains, oil-drilling platforms, and airplane engines?
Part of the problem has to do with the private language of finance. Markets segment companies by industry, and analysts track specific sectors and subsectors. Exxon is an energy industry stock, while GE straddles energy, transportation, public utility, healthcare, and finance. The “technology” in the technology sector is really synecdoche for “computer technology.” Companies in that sector deal in software, semiconductors, hardware manufacturing, peripherals, data processing services, digital advertising, and so forth.
“Technology” has become so overused … that the term has lost all meaning.
For the NASDAQ exchange, where most so-called technology companies are traded, those industries are based on the Industry Classification Benchmark (ICB), a classification system developed by the London Stock Exchange’s FTSE Group. The ICB breaks the market down into 10 industries, each of which is broken down further into supersectors, sectors, and subsectors. The ICB technology industry counts “Internet” as a subsector of “Software & Computer Services,” for example. Companies are assigned to sectors and subsectors based on the (largest) source of their revenue (thus, GE is considered an energy company).
A company like Microsoft fits squarely into Technology, Software & Computer Services, because that’s where the majority of its revenue derives. Likewise, Apple is a traditional ICB “technology” company, in the sense that it makes most of its money from selling computer hardware. But the other companies in Bloomberg’s Monday top five are technology companies in a mostly vestigial way.
Almost all of Google’s and Facebook’s revenue, for example, comes from advertising; by that measure, there’s an argument that those firms are really Media industry companies, with a focus on Broadcasting and Entertainment. Of course, Alphabet is a lot like GE, or at least it aspires to be, with its investments in automotive (Self-Driving Car Project), health care (Calico), consumer goods (Nest), utilities (Fiber). But the vast majority of its revenue comes from Google’s ad business.
Amazon generates a lot of revenue from its Amazon Web Services (AWS) business—perhaps as much as $10 billion this year. It also derives revenue from manufacturing and selling computer hardware, like the Fire and Kindle. But thevast majority of Amazon’s revenue comes from international sales of consumer goods. Amazon is sort of a tech company, but really it’s a retailer.
A day later, at the close of the markets Tuesday, August 2, the tech sweep was already history. Exxon Mobil had pushed Facebook out of position five, topping the, uh, online broadcast media company’s $352 billion market cap by $8 billion, or 2 percent. Warren Buffett’s conglomerate Berkshire Hathaway also closed Tuesday at $354 billion in total value. Among Berkshire Hathaway’s top revenue drivers are insurance, manufacturing, and the obscure but ubiquitous McClane Company, which provides supply-chain management and logistics services for the grocery industry. It brought in $28 billion in revenue last year, or about $10 billion more than Facebook. Johnson & Johnson, which sells consumer and industrial health products from Actifed to Zyrtec, wasn’t far behind, with a $345 billion market capitalization at the close of business Tuesday.
Every industry uses computers, software, and internet services. If that’s what “technology” means, then every company is in the technology business—a useless distinction. But it’s more likely that “technology” has become so overused, and so carelessly associated with Silicon Valley-style computer software and hardware startups, that the term has lost all meaning. Perhaps finance has exacerbated the problem by insisting on the generic industrial term “technology” as a synonym for computing.
There are companies that are firmly planted in the computing sector. Microsoft and Apple are two. Intel is another—it makes computer parts for other computer makers. But it’s also time to recognize that some companies—Alphabet, Amazon, and Facebook among them—aren’t primarily in the computing business anyway. And that’s no slight, either. The most interesting thing about companies like Alphabet, Amazon, and Facebook is that they are not (computing) technology companies. Instead, they are using computing infrastructure to build new—and enormous—businesses in other sectors. If anything, that’s a fair take on what “technology” might mean as a generic term: manipulating one set of basic materials to realize goals that exceed those materials.
This week, Intel CEO Brian Krzanich announced that people are keeping their PCs a lot longer before upgrading: The average has increased from four years to as many as six.
The tablet-refresh cycle isn’t much shorter than that, to Apple’s eternal chagrin. Even iPhone sales have started to taper off, partly because people are keeping their phones longer or choosing cheaper Android phones.
What’s happening is pretty simple. The hardware and the software running on any device itself have become way less interesting than the web apps and services, like the ones that Google and Amazon have made the core of their business.
Why buy a $700 iPhone when a $200 Android phone can access the same YouTube or Amazon Music as everyone else? All you need to do to get new Facebook features is refresh your browser or update your app. You don’t need a high-performance device to participate in the 21st century.
It’s a stark contrast with the traditional model for consumer electronics, where you’re expected to upgrade the hardware to keep pace with the new features they release.
And it could be a dire omen for high-margin hardware companies like Apple.
Meanwhile, web-first companies like Amazon and Google are more than happy to exploit this, even as our notions of what a computer actually is continue to shift. Just look at devices like Google Chromecast and the Amazon Echo.
Chromecast, Echo, case in point
Since 2013, Google has sold 25 million Chromecast devices — the completely amazing $35 dongles that turn any TV into a smart TV. That’s right, $35.
The real brilliance of the Chromecast lies in what it isn’t, rather than what it is. It doesn’t have an interface of its own. You just push a button on your phone and have whatever YouTube video you’re watching or Spotify album you’re listening to appear on your TV screen.
A nice side effect: It’s relatively simple to take an existing smartphone app and add Chromecast streaming capabilities, and literally tens of thousands of apps have done that integration.
You don’t have to think about it or learn a new interface; you just click and go.Getty
It means that every single day, I get more return on the initial $35 investment in the Chromecast I bought in 2014. But since all of the good stuff is happening in the apps, not the Chromecast itself, it’s extremely unlikely that I will ever have to replace this Chromecast, barring a hardware malfunction.
You could probably say the same thing about the Amazon Echo home voice assistant. Developers have released almost 1,000 „skills“ for the Amazon Echo’s Alexa platform, including the ability to call an Uber, play Spotify music, or order a Domino’s pizza.
These gadgets are getting better, not worse, the longer they stay on shelves. And while there may be periodic minor hardware improvements, they’re way more minor than the gap between an iPhone 5 and an iPhone 6, and far less necessary to keep getting maximum value from the device.
The pressure is on
This move is going to keep putting pressure on hardware-first manufacturers — especially those who rely on high margins, like Apple.
The Chromecast and the Echo are relatively cheap gadgets — because all the important, useful stuff about them lives in the cloud, they’re optimized to be small, efficient, and unobtrusive.
Amazon doesn’t need to make money on the Echo itself, as long as it drives more commerce to its retail business. Same with Google: as long as the Chromecast gets more people to watch YouTube videos and download more stuff from Google Play, they don’t have to make money from the gadget itself.
And you’re seeing more of this all over, like when Tesla made thousands of its electric cars partially self-driving with an overnight software update. The gadget Tesla drivers already owned — in this case a car — suddenly got way more useful.
This trend isn’t going to kill off the smartphone, or the PC, or the tablet. But it means lower-cost gadgetry that lasts a lot longer. We’re only seeing the early stages of this shift now, but it has a lot of potential to shake up how we think about and how we buy our devices.
During Amazon’s most recent earnings call, Baird Equity Research analyst Colin Sebastian asked two questions to Amazon CFO Brian Olsavky: one about Amazon Web Services‘ margins, and another about the chances of Amazon expanding its own shipping logistics services to other companies.
The first one got answered promptly, though Olsavsky had to stop mid-sentence because the operator accidentally jumped in early. Still, Olsavsky made it a point to get back and finish his answer.
The second question never got answered.
„If he wanted to talk about it, he would have remembered to answer,“ Sebastian told Business Insider. „Either way, I think the answer is that Amazon doesn’t talk about potential or future services.“
Amazon’s notoriously secretive about its future plans, so it’s not too surprising that Olsavsky skipped Sebastian’s question.
But when you’re going after something as big as the logistics and shipping market, it’s hard to keep your plans under wraps — and a growing amount of evidence suggests Amazon may indeed be going after the delivery and logistics market, which Sebastian pegs as a $400 billion market opportunity.
Next $400 billion opportunity
Over the past few months, we’ve seen a series of reports speculating Amazon’s plan to establish a bigger in-house logistics service that will allow it to potentially bypass its current delivery partners, like UPS and FedEx.
- Calling itself a „transportation service provider“ for the first time in its annual report.
- Leasing at least 20 cargo planes.
- Registering Amazon China as an ocean freight forwarder, allowing it to potentially ship products from China to the US.
- Buying thousands of its own, Amazon-branded trailer trucks.
- Increasing the number of Amazon fulfillment center warehouses.
- Hiring „one of the world’s leading recruiting firms“ to find management-level executives with chops in the small-package industry.
- Secretly operating its own air freight service in Europe ahead of Christmas.
- Becoming increasingly unhappy with the rising shipment costs, and its relationship with UPS, its biggest delivery partner, is fraying.
- Buying the remaining 75% of French delivery company Colis Privé it already partially owned.
Serbastian believes this all points to Amazon building up its in-house logistics delivery network. He envisions Amazon first starting out with its own deliveries, but eventually opening up the service to other companies, putting it in direct competition with the likes of UPS and FedEx.
„Among other opportunities, Amazon has ‚powerhouse potential‘ in the large transportation and logistics market, dominated by global enterprises such as DHL and UPS,“ Sebastian wrote in a recent note.
„Amazon’s cloud technology expertise and increasingly complex fulfillment, logistics and delivery network seem to be obvious foundation to offer third-party services, with an incremental $400-450 billion market opportunity.“
Project Dragon Boat
Perhaps the strongest indication of a bigger Amazon logistics ambition was disclosed last week in a report by Bloomberg’s Spencer Soper.
The report, citing a 2013 Amazon document, revealed an internal project called Dragon Boat, which is intended to become a service that controls everything from picking up the product at the factory in China to delivering it to the end customer in the US.
It said the document described Project Dragon Boat as a „revolutionary system that will automate the entire international supply chain and eliminate much of the legacy waste associated with document handling and freight booking.“
„Sellers will no longer book with DHL, UPS, or FedEx but will book directly with Amazon,“ the report said.
When Amazon’s Olsavsky was asked about its logistics plan again by another analyst during earnings call, he simply shrugged it off as a complementary service, saying it’s intended to supplement, not replace, existing delivery companies.
„What we found in order to properly serve our customers at peak, we’ve needed to add more of our own logistics to supplement our existing partners. That’s not meant to replace them,“ Olsavsky said.
But don’t expect Amazon’s logistics business to expand overnight.
If anything, it’s going to take a few years to fully ramp up and establish itself to become a viable delivery option for other companies, according to Sebastian.
„They will start small, mostly to add capacity for their own business, but then, over time, as they gain more expertise, they will offer extra capacity to other companies,“ Sebastian told us.
In that sense, it could follow the path of Amazon Web Services, its cloud computing service that’s now generating almost $8 billion in annual revenue.
Amazon built AWS out of the infrastructure it had created to support its own operations, but it’s now become one of the most widely used cloud computing platforms, used by everything from small startups to big companies like Netflix and GE.
„I think it’s like AWS,“ Sebastian said. „But it took 10 years for AWS to get as large as it is.“
Mobilfunkanbieter werden austauschbar
Weltweit gibt es sieben Milliarden Mobilfunkanschlüsse, davon in Deutschland 112 Millionen . Tendenz steigend. Läuft es also gut bei den Mobilfunkanbietern? Nur für den Moment. In Zukunft werden sie austauschbar, denn schon heute unterscheiden sie sich im Prinzip nur durch Preis, Datenvolumen und Netzabdeckung voneinander. Zusatzdienste, die zu den Anfängen des Mobilfunks für die Nutzer noch eine Rolle spielten, haben keine Bedeutung mehr. In Zeiten von WhatsApp oder iMessage brauchen Nutzer keine teuren SMS-Pakete mehr. Auch die Telefonie wird unwichtiger, was zählt ist die Datenverbindung.
Over-The-Top-Dienste (OTT) wie Skype, WhatsApp, iMessage und Co. legen kontinuierlich zu, während die klassischen Kommunikationsdienste wie Telefonie oder SMS in der Nutzung sinken. Laut der Bundesnetzagentur lag die mobile Datennutzung 2014 im Monatsmittel bei 288 Megabyte und damit viermal so hoch wie noch 2011. Mobil telefoniert wurde in Deutschland 2014 im Monat nur noch knapp 80 Minuten. Drastisch eingebrochen ist auch die SMS-Nutzung : von 60 Milliarden SMS im Jahr 2012 blieben 2014 nur noch 22,5 Milliarden übrig.
Die Kluft zwischen Nutzer und Mobilfunkanbieter wird größer
Gleichzeitig wird die Kluft zwischen Nutzer und Mobilfunkbetreiber immer Größer, wie die Umfrage des Marktforschungsinstituts für Servicequalität zeigt. Das Gesamturteil für die Mobilfunkbranche ist nur befriedigend und an erster Stelle stehen bei der Kundenzufriedenheit die Mobilfunkdiscounter. Die Netzbetreiber Telefonica, Telekom oder Vodafone bilden das Schlusslicht. Die qualitativen Unterschiede zwischen den Netzbetreibern, anfänglich noch deutlich größer, werden immer geringer.
„Es gibt kein wirklich schlechtes Mobilfunknetz mehr.“
Es gibt kein wirklich schlechtes Mobilfunknetz mehr, was auch zur Wechselfreudigkeit beiträgt. Dank der Möglichkeit der Mitnahme der Rufnummer sinkt die Bindung zu einem bestimmten Mobilfunkanbieter. Obwohl die Kluft zum Kunden immer größer wird, unternimmt die Branche viel zu wenig, um den Kunden zu binden. Auf den demografischen Wandel der Nutzer und die damit einhergehende Veränderungen im Nutzungsverhalten wird mit den falschen Maßnahmen reagiert. Die steigende Beliebtheit von Messaging-Diensten wie WhatsApp wurde anfänglich belächelt, bis dann vier Jahre nach dem Start von WhatsApp & Co der zaghafte Versuch unternommen wurde, mit der App Joyn eine Alternative zu bieten. Erfolglos, schaut man sich das Ranking im App-Store und der Anzahl der Bewertungen an.Gleichzeitig untersagen die Mobilfunkanbieter in ihren AGB die Nutzung von Diensten wie P2P (Peer-to-Peer), Instant Messaging oder VoIP (Voice over IP). Kein Problem hat man damit, Streaming-Dienste wie beispielsweise Spotify von der Berechnung des Datenvolumens auszuschließen. Mit Netzneutralität hat das nur noch wenig zu tun. Hauptsache der Rubel rollt. Statt sich auf den Nutzer zu fokussieren, wird selbiger lieber gemolken. So sind in kaum einem anderen Land die Kosten für mobiles Internet so hoch wie in Deutschland. Ist in Finnland ein Inklusiv-Volumen von 50 Gigabyte üblich, steht Deutschland mit einem Gigabyte hinter Italien, Tschechien oder Spanien und nur knapp vor Ungarn. Finde den Fehler.
Zukunft der Mobilfunkanbieter ist düster
Die Liste der gescheiterten Unternehmungen, eigene Dienste zu etablieren, ist lang. Messaging, Musik-Streaming oder Mobile Payment, allesamt eher klägliche Versuche beim Nutzer zu punkten. Der Zugriff auf den Kunden wird in Zukunft weiter sinken, denn gemeinsam mit der GSM-Association, dem Verband der Mobilfunknetzbetreiber, verhandeln Samsung und Apple über die Einführung der eSim. Bei der eSIM handelt es sich um eine fest verbaute Sim-Karte, auf die jeder Mobilfunkbetreiber aufgeschaltet werden kann. Kunden brauchen in Zukunft keine Sim-Karte mehr für das Smartphone, sondern können sofort loslegen.
Der Wechsel zwischen den Mobilfunkanbietern wird damit entsprechend vereinfacht, da der lästige Wechsel der Sim-Karte entfällt. Die Hoheit der eSim liegt beim Hardware-Hersteller, also bei Apple und Samsung. Das heißt, dass sowohl Apple als auch Samsung einen Mobilfunkbetreiber anbieten, aber eben auch ausschließen können. Mobilfunkanbieter, die besonders restriktiv gegenüber bestimmten Onlinediensten sind, könnten einfach seitens der Smartphone-Hersteller ausgeschlossen werden. Mit der eSim geht ein weiterer Baustein in der Kundenbeziehung für die Mobilfunkanbieter verloren. Und es bröckelt weiter, denn Apple bietet, zunächst nur in den USA, das iPhone als Abo-Modell an.
Für einen Betrag von 39 US-Dollar kann das iPhone gemietet werden und der Kunde bekommt automatisch immer das neueste Gerät. Das Gleiche bietet Samsung auch an und andere Hersteller werden folgen. Mit neuen Smartphones gekoppelt an eine Vertragsverlängerung können die Mobilfunkanbieter künftig also auch nicht mehr locken. Die nicht abreißenden Gerüchte, Apple wolle ein VMNO, ein virtueller Mobilfunkanbieter werden, dürften bei den etablierten Mobilfunkbetreibern nur so mittelgut ankommen. Ganz abgesehen von Projekten wie Googles Loon, dessen Ziel nichts geringeres ist, als die Welt mit Internet auszustatten.
Sri Lanka ist das erste Land, welches mit Hilfe von Google Loon einen landesweiten universellen Internetzugang über WLAN bekommt. Auch wenn Sri Lanka nur eine Insel und nicht Europa ist, sieht man, wohin die Reise bei Google geht. Für Unternehmen wie Google, Facebook oder Apple ist mobiles Internet die Basis für alle Produkte. Die Abhängigkeit von Mobilfunkprovidern ist, wie man am gerade von Google gestarteten Accelerated-Mobile-Pages-Project sehen kann, ein Problem.
Die Frage ist nicht, ob es die Mobilfunkanbieter in Zukunft noch geben wird, sondern viel mehr welche Rolle sie spielen werden. Die Bindung zum Kunden geht zunehmend an Unternehmen wie Apple, Google, Facebook oder Amazon verloren. Ein Ökosystem, wo Kunden Lösungen aus einer Hand bekommen, die nahtlos mit einander funktionieren, ist heute essentiell. Apple, Google, Facebook und Amazon haben das erkannt und bieten genau das: einzelne Lösungen aus einer Hand für unterschiedliche Anwendungsfälle mit Fokussierung auf den Nutzer.
Im Mobilfunk wird das vernachlässigt und es fehlen innovative Ideen und Lösungen. Themen werden entweder zu spät oder nicht nutzerzentriert angegangen, wie man an den Entwicklungen im Bereich Mobile Payment sehen kann. Anstatt sich mit den Kundenbedürfnissen zu beschäftigen, steht am Anfang das Geschäftsmodell. Am Ende bleibt nur noch die Rolle des Technologie-Anbieters, die in etwa so spannend ist wie Strom aus der Steckdose. Gar nicht.
But you have to give Jet credit for a strategy that, however sophisticated the machinery underlying it, sticks to the basics. Jet thinks it can win by saving you money.
The long-awaited startup is coming out of beta and launching its online marketplace today with the promise to get you the best price for any product you want to buy. Jet wants to be the place you think of first when you need to restock everyday stuff—toothpaste, toilet paper, a new speaker, or pretty much anything (besides fresh produce—for now).
The catch? Similar to Costco or Sam’s Club, you pay a $50 membership fee to Jet each year to have access to its goods. With your card, the company promises low prices and savings, claiming members will save an average of $150 a year.
As a shopper, you already have plenty of options from major megastores—Amazon, Walmart, Costco, Target—to smaller niche retailers online and IRL. You likely already have a favorite place to get discounted electronics or deals on household products.
But Jet thinks it can elbow its way into retail by changing how it works. “We’re trying to do something different in that, pretty much anything you want to buy from TVs to toilet paper, you could get 10-15 percent off what you normally spend, without doing anything other than coming to our site and becoming a member,” Liza Landsman, Jet’s executive vice president and chief customer officer, says.
Now that it’s live, we’ll finally get a chance to see if Jet is the next big thing—or the next big bust.
How It Works
Unlike other online retailers, Jet’s revenue comes only from membership fees, not sales. This gives the company every incentive to charge the lowest price possible for items to get you to sign up.
Behind the scenes, Jet uses a pricing engine to help you find the lowest price. Let’s say you decide you want to shop for that toothpaste, toilet paper, and shower speaker. On top of its already lower sticker price, the site offers additional savings if you, say, buy the toothpaste and toilet paper from the same retailer, or from the same location. (Jet sells some merchandise itself but mostly acts as a marketplace for third-party sellers.) The company says you can gain additional savings by, for instance, waiving the option for free returns or, eventually, opting for slower delivery.
Earlier this year, Jet founder and CEO Marc Lore told my WIRED colleague Issie Lapowsky that Jet’s tech resembles a real-time financial trading service. With the help of this service, Jet not only allows you to find the cheapest available price for a product but also recalculates your shopping cart as you add more products, applying rules based on what the retailers themselves are offering and showing you in real-time how to get more savings by, say, buying two products together. More stuff may mean more discounts.
For retailers, this set-up might seem like a nightmarish recipe for losing money. But Jet says that it doesn’t undercut retailers since it isn’t itself taking a cut, unlike some other online retailers. In fact, for products that aren’t already in its inventory or from one of its partners, the Wall Street Journal reports that Jet is actually buying products at their regular prices from those outside retailers (and paying for shipping charges) while still offering the discounted price to its customers. At times, Jet is taking the loss, it seems, in the hope that it can keep you coming back.
Future of Retail
But if Jet is forced to pay the difference to deliver goods to you on the cheap, the company may have a difficult time becoming profitable (this challenge has stymied Amazon for the past two decades). In fact, for Jet to succeed—and to fend off retailers such as Amazon, Walmart, and Costco—it will likely need to prepare for several years of losses, if not more. Jet’s model can only succeed at a huge, huge scale—and to get there, it’ll need lots and lots of people like you.
Of course, that may very well happen. According to Forrester Research, 69 percent of the US online population “regularly buys products online.” This year Americans are expected to spend $300 billion online, a number that will likely only keep on growing. “You’ll see more people adopting e-commerce and buying more,” says eMarketer retail analyst Yoram Wurmser. “There’s a lot of room for growth.”
By appealing to the more frugal side of all of us, Jet and its backers expect this audacious startup can not only save us money, but truly challenge Amazon in the process. “Jet is legitimate. It’s small, it’s a startup, but it’s got a good model,” Wurmser adds. “I think Jet does represent a competitor because they can undercut prices.” And, after all, who doesn’t want cheaper stuff? It just has to solve one of the most tantalizing paradoxes of retail: making more money by letting you pay less.