Why Walmart’s $3 Billion Bet on Jet Wasn’t an Epic Failure
The soon-to-be-retired Jet.com wanted to be the Amazon killer. Instead, it gave Walmart a fighting chance at e-commerce.
We gather here today to mourn the short life of Jet.com, the e-commerce startup launched in 2015, which Walmart purchased for $3.3 billion in 2016 — and announced last month that it was shutting down. In Walmart’s Q1 earnings release, the company stated, “Due to continued strength of the Walmart.com brand, the company will discontinue Jet.com. The acquisition of Jet.com nearly four years ago was critical to accelerating our omni strategy.”
But is this really such a loss? And what can we take away from this brand’s passing?
Jet’s early days
Say you want to compete with Amazon. How would you do it?
Marc Lore, who previously founded Diapers.com and sold it for $535 million, had an idea. Amazon competed on both price and convenience. What if a company competed only on price? With this in mind, he began working on the company that would become Jet.com.
Jet’s innovation was its “Smart Cart,” which dynamically updated the prices of goods as customers added them to their cart to give them lower prices.
Because shipping and fulfillment costs are lower when you ship from the same distribution center, if you added something from a warehouse in Texas, Jet.com could show you a lower price for other items in that warehouse. Additionally, customers could get further savings on Jet.com by using a cheaper payment method (such as a debit card) or agreeing to not return an item.
The first few months after launch, Jet actually exceeded sales expectations, so much so that it ended the $49.99 annual membership fee. But increased revenue wasn’t going to fix a more fundamental problem with Jet’s business model.
Jet’s LTV problem
The main issue with Jet was unit economics. In the early days of a startup, investors focus on the ratio of…