A New Wave of E-Commerce
July 2015 marked the much anticipated launch of Jet.com, an e-commerce startup with lofty dreams: to take on Amazon. For Jet, these were well-funded dreams, as the company was able to raise over $200 million even before the site launched. Heralded in the press for its savings-driven value proposition, Jet.com’s business model centered around a $50/month membership fee, which would enable customers to take advantage of 10-15% discounts on merchandise. The planned business model relied primarily on this fee to drive profits for Jet.com. Its model was intended to target what Jet viewed as the next wave of online shoppers, a group who looks “more like the general public” than existing, convenience-driven online shoppers.
An Early Shift
In October, three months after launching, Jet.com announced that it would abandon the membership fee, effectively dismantling its original business model and sending followers of the company into a tailspin. Jet’s announcement seemed to beg the question: were they giving up on their core business model so soon?
However, the decision to overhaul its business model signals a level of adaptability that may prove to be critical as Jet prepares for the long road ahead. Rather than a lack of commitment, this shift demonstrates that Jet is willing and able to experiment to get it right. For many companies, the optimal alignment of business and operating models may not happen right out of the gate, and organizations like Jet.com shouldn’t be afraid to revise their models along the way.
Learning from Experience
Jet’s decision to drop the membership fee was driven by lessons learned in its first few months post-launch. During this time, it was able to observe user behavior and gain a more robust understanding of how its customers perceived the site’s value proposition. These initial findings revealed flaws in the membership concept, and pointed to Jet’s “Smart Cart” as a more compelling feature of the site. This feature provides real-time price reductions when a cart becomes less costly to deliver, based on a variety of factors. In revamping its business model, Jet is emphasizing this Smart Cart as its core offering to customers.
The Value of the Smart Cart
Refocusing on the Smart Cart feature allows Jet to do something unique with its business model: engage the customer in the quest to optimize delivery logistics. Customers are incentivized to put together shipments that are less costly to fulfill, and thus stand to benefit financially if they’re willing to make sacrifices on things like delivery speed. In this way, Jet is able to very acutely tailor its operating model to fit the needs of its value-conscious customer base. When shopping on Jet.com, these customers see savings when key factors drive down logistics costs, such as:
- Whether products in the basket are located in the same warehouse
- How far the order needs to travel
- Type of payment (credit v. debit)
- Customer’s ability to return
This feature allows Jet not only to optimize its operating model by realizing efficiencies in its delivery logistics, but also to optimize its business model by offering lower prices to the customers it targets.
Lessons from Jet: Always be Experimenting
Though the jury’s still out on whether Jet.com will ultimately be able to take on Amazon, the company is certainly pulling out all the stops to position itself for success. By providing customers unprecedented transparency into operational tradeoffs, and passing along the associated savings, Jet.com hopes to usher in a new wave of online shoppers. Most importantly, it’s doing this with a business model that is nimble enough to shift as the company learns in the market. Rather than trying to force fit a business model that isn’t getting traction, the company continues to analyze and only keep the most valuable features. For a new company with big dreams, this profound ability to experiment, learn, and adapt is key to driving sustainable alignment between the operating model and business model.