Why Jet.com Was Rerouted

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The Amazon competitor most likely scuttled its subscription-based plan when it discovered small commissions and higher volume worked better.

Jet.com burst upon the scene in July with $225 million in seed money and a bold plan to carve out a piece of Amazon's customer base by guaranteeing the lowest prices on the Web. It would take no commission dollars from sellers, instead passing them on as savings to customers and subsisting on their $50 annual subscription fees.

But, to the surprise of the e-commerce community, Jet this week made a 180-degree course correction, deciding to keep some of those seller commissions after all. “It's been amazing to see how deeply this idea has resonated with our customers and retail partners,” wrote Jet.com founder and CEO Marc Lore in a notice announcing the change. “I am therefore incredibly excited to announce that we've decided to drop the membership fee and make Jet free for all shoppers.”

More likely what got Lore excited was price tests showing that an incredibly high volume of bargain hunters transacting at price points high enough for Jet to drop the fee and still make money. Third-party sellers pay commissions to marketplaces on sales ranging from around 8-15%.

“They came out and said ‘We're going to have the lowest prices on the Web,' and gave the full 10 or 15 percent discount to the buyer. But now they've rolled the discount back to four or five percent and still see the needle moving, so they'll make money keeping a bigger portion of the commission,” observes Clarus Commerce CEO Tom Caporaso, who operates FreeShipping.com.

“I think this shift in business structure will help Jet attract more shoppers,” says David Spitz, CEO of ChannelAdvisor, whose platform connects suppliers with online retailers the likes of eBay, Alibaba, and Amazon. “The Smart Cart will be the key for Jet to continue to make money without the membership fee. Jet can find ways to add margin to orders as consumers add items to their Smart Carts, such as fulfilling products from one warehouse to eliminate shipping costs.”

The Smart Cart operates on a proprietary Jet.com algorithm that locates the sources where products can be purchased and fulfilled at the lowest prices. Today, however, Jet needed to get its computer scientist working on getting the machine itself aloft. At press time, Jet had crashed and was unable to be boarded.

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