Jet.com, the closely watched e-commerce startup trying to perfect a business model that it hopes will upend Amazon, announced on Wednesday it will no longer charge a $50 membership fee to shop on its site.
It’s a drastic departure from the previous business model, as those $50 payments were going to be Jet’s primary source of revenue. The company is a marketplace that doesn’t take a cut of the sales third-party retailers complete through its platform, so it remains to be seen how it plans to make its money.
Clearly, the young e-commerce contender with more than $200 million in venture backing is rethinking its business model in a big way just months after launching.
The company originally set out to accomplish a lot of what Amazon does with fast shipping and a huge selection of goods, but it wanted to build a completely new model to do it. Members would see discounts of about 7 percent on most items, and additional savings were tacked on if they did things that made transactions cheaper on Jet’s end, like placing larger orders or selecting items that didn’t have to be shipped as far.
When I added laundry detergent to my cart, for example, it lowered the price on a pack of sponges by 47 cents because the items could be shipped together. If I waived the right to return my detergent, I would save another 34 cents.
Jet CEO Marc Lore told Recode those bonus savings have proven to be enough to get customers hooked without the 7 percent discount off the top. So the company is putting prices back at market rate, getting rid of the membership free but keeping the special discounts to differentiate itself from other online retailers.
What Lore didn’t explain was how Jet will make money with this new model. Previously, he told GeekWire the company expected to have 15 million paying members by 2020. At $50/year per member, he said that would generate about $750 million in revenue for the company.
Jet is just getting started, so it’s not a total surprise that we’re seeing the business model shift over time. This is a more drastic change, earlier than expected, but the company has lofty ambitions and is clearly willing to experiment in order to get there.
