The red-hot e-commerce startup Jet has shifted its business model, dropping the $50 membership fee it once proposed would be its sole source of profit.
The move comes less than three months after Jet’s official launch in July.
Originally, Jet used a Costco-esque model: Instead of making money on individual product sales, its profit would come from the $50-a-year membership fee. It would persuade people to pay the fee by promising prices that were 10% to 15% lower than those of competitors.
With that audacious push to take on Amazon, Jet raised $225 million at a $600 million valuation (that’s the most equity funding to be raised in the first 12 months by a US commerce company). Now that it’s dropping the membership fee, the company will try to make profit on each sale.
CEO Marc Lore announced the news on Medium, writing, “The response to Jet’s core value proposition has been stronger than we anticipated.”
He’s referring to Jet’s “Smart Cart” dynamic-pricing model, which offered shoppers discounts when they combined multiple orders into a single shipment, waived the ability to return something, or used debit cards instead of credit cards. Originally, products started about 8% cheaper than could be found elsewhere, and the Smart Cart savings would knock off another 4% or 5%. Now it’s all about the Smart Cart savings.
The shift is a bold move considering that Jet had called its extreme discount model the “biggest thing in shopping since … shopping.”
Lore told Re/code’s Jason Del Rey that the reason behind the decision to cut the fee was not that the company didn’t think enough people would pay it. The move, he said, came because the company noticed that people were buying more per visit than it expected and because dropping the fee would help broaden its appeal. Eliminating the up-front ~8% discount will help persuade retailers who don’t sell on eBay or Amazon to try it out.
“A lot of brands and retailers were telling us, ‘We love that you’re brand-friendly and if you just didn’t have these (discounted) starting prices, we’d be really interested,” Lore told Del Rey. “We think long-term we have the ability to win with brands and retailers that don’t want to sell on other marketplaces.”
Lore has previously said Jet doesn’t plan to reach scale or profitability until 2020, when the company projects to have 15 million paying customers and $20 billion in sales.
It’s unclear how this shift will alter those projections.