A Lesson in Adapatability

In the first few months after its launch, isn't afraid to experiment to get its business model right

A New Wave of E-Commerce


July 2015 marked the much anticipated launch of, 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,’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  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, 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 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, 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 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, 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.








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Student comments on A Lesson in Adapatability

  1. Great pick of a very ambitious business. At Bessemer Venture Partners, we invested in Marc Lore (Jet’s CEO) when he was building He’s a brilliant guy. However! I think this is an extraordinarily uphill battle for Jet and so frankly, while the business and operating models look aligned (SmartCart = activity-based pricing = better pricing), I don’t think it’s defensible.

    First, I’m not sure how valuable the dynamic pricing system is: if they are providing laundry detergent to me for $5 because I live around the corner from their distribution center but someone who lives far away gets quoted $7, then I’m going to buy it at and he/she will be it from Amazon for $6 (since Amazon doesn’t discriminate). In other words, I’m likely going to cherry pick what’s cheapest for me. And if there is true value in this approach, wouldn’t Amazon do it themselves? Their product culture is very customer-oriented and I wouldn’t doubt their ability to roll something out despite their massive existing infrastructure. Is Jet unequivocally selling its products for lower margin than Amazon does? That is perhaps even more dangerous. I would not be surprised if Jet has been running at negative gross margins to reach the scale it has in such a short time and that just isn’t sustainable.

    Secondly, this business is enormously capital intensive. Part of their value proposition is that they’ll have their own fulfilment centers (a la Amazon) and that requires money. Since their core business burns cash instead of generating it, the company will require significant funding. My guess is 100s of millions of dollars. How many investors are prepared to underwrite this kind of business?

    Good luck, Jet.

  2. Great job, Kels. As a relatively unsophisticated user of the interwebs, I didn’t know a ton about Kudos to them for taking on Amazon! I feel inspired to go pick a fight with Floyd Mayweather. Exciting to see if a new company can spur some innovation in the industry. I like the Smart Cart idea – great summary/description. If I don’t need an item anytime soon, I would gladly pay marginally less money for slower delivery. And the “adding this item to your basket because it’s in the same warehouse” element seems like a good opportunity to upsell. Basically an improvement to Amazon’s “Customers Who Bought This Item Also Bought”, because it adds an expiring discount (i.e., it’s a discount specific to my current basket of goods). But I agree with Ves – seems like Amazon could let Jet try this out and incorporate it if it gains traction. We’ll see!

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