With a potential $1 billion in 2016 revenue and $803 million in funding, e-tail startup Jet.com has some heft, but it’s still a lightweight compared with e-tail king Amazon.com ( AMZN ). But that doesn’t faze Jet CEO Marc Lore, who has a strategy, which he laid out for IBD in a phone interview from the company’s Hoboken, N.J., headquarters. It boils down to two big ideas: that e-commerce overall will soar from a $300 billion market to $1 trillion in the next 10 years; and that Amazon can’t possibly take the whole thing. His third point underlying both big ideas is that Jet is targeting shoppers that Amazon is not — those obsessive about saving money. “W e’re going after a different type of customer with a different need,” Lore said. “ We are about saving people money and empowering them to shop in a smarter way. And o ur technology is built to help consumers and retailers pull costs out of the overall ecosystem. So it is a more efficient way to buy product.” Jet aims to present shoppers with an experience that more closely matches what they’d find in a store. Every product, for example, has a single view. That’s unlike e-tail giants like Amazon or eBay ( EBAY ), where shoppers are confronted with multiple, competing listings from a number of sellers. Instead Jet.com finds the best price for a given product after searching multiple sellers and displays. So, for example, in a search for Levi’s jeans, a shopper would see a single listing for each style of jeans. The single product view may also help Jet.com avoid the SEO challenges that have plagued eBay , which has a longtime beef with search leader Google. Jet.com Secret Sauce Is ‘Dynamic Pricing’ But the real secret sauce for shoppers is the company’s dynamic pricing. Essentially, customers are rewarded for buying multiple items, which decreases shipping costs and thus decreases customers’ costs. Then, when the customer goes to check out, Jet’s algorithm behind the scenes figures out which sellers are the most efficient in terms of shipping and price, so if one seller is closer but charges more for shipping, you’ll buy from a more distant seller that charges less for shipping and thus results in a lower overall cost for the customer. “Ou r technology is built more like a real- time trading system than it is an e-commerce site,” Lore said. “A s people shop, we’re repricing products to reflect the true underlying economics of getting those products to the customer, based on what products are already in the (checkout) basket and based on how far away those products are from where the customer lives.” Jet continues to tweak its website. When Lore launched the venture in January 2015, the company used a membership program similar to Costco ‘s ( COST ) to generate profit. That didn’t last long, and the company changed its business model in October, hiking prices. Though there were reports the change signaled trouble , several analysts interviewed for this report said startups often make strategic changes early on. Amazon’s E-Commerce Empire As shown by its fundraising and number of investors, Jet.com has its believers. Its venture money comes from China e-commerce giant Alibaba ( BABA ), prominent Silicon Valley venture capital firms such as General Catalyst Partners, and the venture units of financial powerhouses Goldman Sachs ( GS ) and Fidelity National Financial ( FNF ), among others. The company is valued near $1 billion, huge for any startup but a blip compared with Amazon’s $286 billion market cap. Amazon has annual revenue topping $100 billion — not including the more than $131 billion in third-party sales — and is catching up to longtime No. 1 retailer Wal-Mart ( WMT ). Amazon also has a nascent payments business that competes with PayPal ( PYPL ). To facilitate its e-commerce sales, the company has elected to get into the ocean shipping business, which has the potential to generate hundreds of millions in free cash flow . And that’s just the e-tail business. In E-Tail, Go Big Or Go Home Conventional wisdom holds that one strategy to beat Amazon is to pick and choose categories of goods that Amazon is not strong in. One, for example, is fashion — though Amazon recently launched its own line of apparel and a live-streaming TV show . Alibaba-funded e-tail startup ShopRunner is taking aim at Amazon that way. Lore chose another route. In Lore’s view of the e-commerce universe, mass market firms — those competing across a range of product categories — are the only viable firms. That’s because, Lore says, whether a website is selling one category of products or 10, you need to push them “through the same set of pipes.” And thus, he says, it makes more sense to leverage the same set of fixed costs to increase sales. “If you have 10 times as many categories and 10 times the gross marketplace value going through the same set of pipes, you’re going to get a lot more leverage in your fixed expenses, and your expenses as a percentage of revenue is going to be a lot lower,” Lore said. “It makes it really difficult for the specialty guys to compete on price with mass merchants for that reason.” Lore himself has a fair bit of experience with Amazon and its CEO, Jeff Bezos. As founder and former CEO of Quidsi, known for its Diapers.com, Lore spent years facing off against Amazon. Ultimately, Bezos killed Diapers.com with a price war — the e-tail giant can afford to lose money for longer than its often smaller competitors — and bought the company from Lore. The CEO stuck around for about three years but ultimately left in 2013 . A little more than a year in, Jet.com remains one of the few e-tail companies in the U.S. that’s openly challenging Amazon’s dominance. With $1 billion in gross merchandise value — a figure often very close to revenue for e-tail firms — and 3.5 million registered shoppers, Lore already has taken Jet on a long flight, with a long runway ahead.
