Episode 19 Jet

Summary Notes


In episode 19 of Acquired FM, hosts Ben Gilbert and David Rosenthal discuss Walmart's acquisition of Jet.com, a significant move in the technology acquisitions landscape. The episode begins with a community spotlight on Chris Laurent's app Nowdo, which facilitates fast invoicing through Slack. The hosts then delve into the history of Jet.com, founded by Mark Lore after his previous company, Quidsi, was aggressively acquired by Amazon. Jet.com, aiming to compete with Amazon by offering lower prices to middle-class consumers, raised substantial funding but eventually dropped their membership fee model, a key revenue source. Despite impressive growth, Lore signaled a shift in strategy, acknowledging that Jet couldn't outpace Amazon but could be a significant player. The acquisition by Walmart for $3.3 billion includes Lore's leadership over Walmart.com, suggesting Walmart's intent to bolster its e-commerce presence against Amazon's dominance, leveraging Jet.com's technology, growth model, and Lore's expertise.

Summary Notes

Introduction to Acquired FM Podcast

  • Hosts Ben Gilbert and David Rosenthal discuss technology acquisitions.
  • Episode 19 focuses on Walmart's acquisition of Jet.com.
  • The hosts aim to cover topics requested by their audience.

"Welcome to episode 19 of Acquired FM, the podcast where we talk about technology acquisitions. I'm Ben Gilbert."

This quote introduces the podcast and the hosts, setting the stage for the episode's topic.

Community Spotlight

  • Chris Laurent, a listener, developed an app called Nowdo.
  • Nowdo is an invoicing Slack app powered by Stripe.
  • The hosts encourage listeners to engage with them for future community showcases.

"We have a listener. His name is Chris Laurent, and he has an app called Nowdo invoicing like it's the future."

This quote highlights the community engagement aspect of the podcast, showcasing a listener's entrepreneurial venture.

Pilot Sponsorship

  • Pilot is a company offering accounting, tax, and bookkeeping services.
  • It is aimed at startups and growth companies.
  • Pilot's growth is highlighted, with backing from Sequoia, Index, Stripe, and Jeff Bezos.

"Pilot is the one team for all of your company's accounting, tax and bookkeeping needs."

This quote describes the services provided by Pilot, emphasizing its role in supporting businesses.

Acquisition History: Jet.com by Walmart

  • Jet.com was acquired by Walmart for over $3 billion.
  • Jet.com's history traced back to Quidzi, founded by Mark Lori.
  • Quidzi's main operating business was Diapers.com, which was acquired by Amazon in 2010.

"Jet.com blockbuster acquisition this month by Walmart. Over $3 billion for a company that was two years old but had only been public for a year."

This quote summarizes the significant acquisition of Jet.com by Walmart, noting the company's age and the acquisition price.

Mark Lori's Background and Vision

  • Mark Lori previously founded Quidzi and Diapers.com.
  • He had an interaction with Jeff Bezos, leading to competitive dynamics with Amazon.
  • Lori's vision for Jet.com was to compete on price and target middle-class consumers.

"There's this huge middle class of people that are going to be spending more and more dollars online. And for them, it's going to be all about price."

This quote reflects Lori's strategic focus on price competitiveness to attract middle-class customers to Jet.com.

Seed Funding and Launch of Jet.com

  • Jet.com raised significant funding before launch: $80 million seed round and $140 million additional funding.
  • The company had a strong pre-launch marketing campaign and user base.
  • Jet.com's business model was inspired by Costco, focusing on price and membership fees.

"He raises a seed round from NEA, Accel, Bain, and WTI as he's starting the company. So since July 2014, one year away from launch, just starting the company raises $80 million right off the bat."

This quote highlights the substantial seed funding raised by Jet.com, indicating investor confidence in Lori's vision.

Jet.com's Strategy and Operations

  • Jet.com aimed to offer products at 10-15% cheaper than other online retailers.
  • The company incentivized customers to buy multiple items to reduce shipping costs.
  • Jet.com's financial model relied on membership fees, similar to Costco.

"The bottom line is we're basically not making a dime on any of the transactions. We're passing it all back to the consumer."

This quote from Mark Lori explains Jet.com's strategy of not profiting from transactions but rather from membership fees, aiming to provide lower prices for consumers.

Interchange Back and Discounts for Waiving Return Rights

  • Jet offers a 1.5% discount on the use of a specific card.
  • They return half the interchange to the customer.
  • Additional discounts are provided for waiving the right to return certain items.

They give you half the interchange back.

This quote summarizes Jet's policy of sharing the savings from interchange fees with customers, effectively offering a rebate on purchases.

If you waive your right to return anything, then they'll give you an extra discount on, if you waive your right to return certain items, they'll give you a discount on those items.

This highlights Jet's strategy to incentivize customers to waive their return rights in exchange for additional discounts, reducing costs associated with returns.

Jet's Ambitious Financial and Technological Modeling

  • Jet's business model is based on complex financial modeling and technology.
  • They calculate the costs and benefits of returns versus customer satisfaction.
  • The goal is to pass operational savings back to consumers with low starting prices.
  • Jet's membership fee was meant to compensate for low gross margins.

They're figuring out what return rates are, what it's worth to them.

The quote emphasizes the intricate financial calculations Jet undertakes to determine the viability of their customer satisfaction versus return costs.

Our starting prices are going to be so low anyway that we're basically not making any gross margin anyway. And the whole idea was the membership fee would make up for that.

This explains Jet's initial revenue model, which relied on low prices and a membership fee to offset minimal gross margins.

Jet Drops Membership Fee

  • Jet launched with a membership fee but dropped it three months later.
  • The decision was likely due to internal data showing the model was not working.
  • Jet aimed to compete with Amazon's low prices and scale without a clear profit engine.

Jet announces that they're dropping the membership fee.

The dropping of the membership fee indicates a significant pivot in Jet's business strategy and suggests that the initial model was not sustainable.

Jet literally became a charity being run for the benefit of the american consumer.

This metaphorical quote reflects the unsustainable nature of Jet's business model after dropping the membership fee, operating without a clear profit-making mechanism.

Jet's Growth and Venture Capital Investment

  • Jet experienced rapid growth, reaching 2 million active customers and $33 million in revenue in December 2015.
  • Despite questionable unit economics, the growth attracted a $350 million investment at a $1.4 billion valuation.
  • The investment was likely driven by the potential for customer acquisition and infrastructure development.

They managed to raise another $350,000,000 round that fidelity leads.

This quote indicates the significant capital investment Jet received despite the earlier challenges, highlighting investor confidence in the company's growth potential.

This is for a company that only launched six months ago. So this is incredible, incredible growth.

The rapid growth of Jet within a short period is emphasized here, showcasing one of the key factors that attracted venture capital investment.

Jet's Revenue Growth and Market Positioning

  • Jet's revenue tripled by May 2016, signaling strong performance.
  • Mark Lori's statement suggested a shift in strategy, aiming to be a large player but not necessarily the leader in e-commerce.
  • The discussion of retail as a winner-take-all market explores whether Jet could compete with Amazon's dominance.

So they've tripled revenue, monthly revenue from the December holidays.

This highlights Jet's significant revenue growth, which is a key indicator of the company's success and potential.

This has never been a winner take all market.

Lori's quote reflects a strategic shift in Jet's positioning, acknowledging the difficulty of overtaking Amazon and aiming to secure a strong alternative position in the market.

Walmart Acquires Jet

  • Walmart acquired Jet for $3.3 billion, with Mark Lori to run Walmart.com and Jet as standalone entities.
  • The acquisition suggests Walmart's intent to strengthen its e-commerce and appeal to a different demographic.
  • Lori's significant ownership and financial incentives are tied to a long-term commitment to Walmart.

Walmart acquires Jet for $3.3 billion.

This quote states the acquisition price, indicating the value Walmart sees in Jet and its capabilities.

Lori is going to continue to run jet. It will be a standalone property.

The quote explains the post-acquisition structure, with Lori leading both Jet and Walmart.com, suggesting a strategic move to integrate Jet's strengths into Walmart's operations.

Acquisition Analysis and Future of Retail E-commerce

  • The acquisition is categorized as a combination of people, technology, and asset purchase.
  • The discussion includes the potential for Jet to influence Walmart's technological direction and e-commerce strategy.
  • The future of retail e-commerce is debated, considering whether market dynamics will favor a winner-take-all outcome.

I don't believe that Walmart will independently operate Jet.com forever.

The quote expresses skepticism about the long-term independence of Jet post-acquisition, suggesting an eventual integration of Jet's technology and practices into Walmart's e-commerce strategy.

The fact that they're putting in the acquisition announcement that he's going to run Walmart.com.

This highlights the strategic importance of Mark Lori's role in the acquisition, implying that his expertise is a key asset Walmart sought in the deal.

Amazon's Dominance and Competition

  • Amazon's growth and long-term plans have positioned it as a major player that other companies must consider when entering the market.
  • The comparison to Microsoft's past dominance in the tech industry is made, suggesting Amazon has a similar influence today.
  • There is speculation about what could potentially disrupt Amazon's dominance, with suggestions including drones, voice technology, 3D printing, and virtual reality.

"uge fans of Amazon here, so I'm really trying to take off my Amazon's going to take over the world hat when looking at this thing because I think more and more, even over the past year, with Amazon's tremendous growth and just having a lot more faith in their long term plan, I just start evaluating things as are they really going to compete with Amazon? And I think that's a pretty fair assessment."

The quote reflects the speaker's recognition of Amazon's significant growth and their belief in Amazon's long-term strategy, leading to evaluating other companies based on their ability to compete with Amazon.

The Role of Mobile Technology

  • The impact of mobile technology on industry giants like Microsoft is discussed, with mobile being the disruptor in this case.
  • Apple's success with mobile is attributed to skipping a generation and losing the previous war, prompting a discussion on who might be the next to innovate and challenge Amazon.
  • The ubiquity of smartphones is highlighted, with the expectation that they will become even more embedded in everyday life.

"And then Google? That was like the question. So this is like a great allegory. So mobile undid Microsoft, or at least the old way. Like, what will be the thing that pushes Amazon into."

The quote draws a parallel between the rise of mobile technology undermining Microsoft's dominance and the potential for a new innovation to challenge Amazon.

The Future of Mobile and E-commerce

  • The discussion moves to the future of mobile technology and e-commerce, with the belief that there is still significant growth ahead.
  • Tim Cook's comments on the mobile market are referenced, emphasizing its potential despite the current saturation of smartphones.
  • The conversation suggests that smartphones will increasingly become central to various aspects of life, such as healthcare and shopping.

"But there's a really good one with Tim Cook, and he kind of talks about this a little bit. And I love this because in tech, it's so easy for us to always be thinking, what's the next thing? And he talks about this. The interviewer asked him, iPhone growth is slowing. It actually was down last quarter. What's next after mobile? Is it a car? Is it ar? And Tim makes this great point. He's like, mobile is the greatest market that technology has ever seen. And we are still so early in it every person on the planet is going to have a smartphone and half of them do already."

The quote summarizes Tim Cook's perspective on the mobile market, suggesting that despite slowing growth, there is still a vast untapped potential in mobile technology.

Statsig Sponsorship and Product Development

  • Statsig is introduced as a sponsor, offering a feature management and experimentation platform for product teams.
  • The platform's capabilities in automating A/B testing and linking features to core business metrics are emphasized.
  • Statsig's customer base includes notable companies, and the platform is particularly useful for AI feature testing and integration with data warehouses.

"So now Statsig is the modern version of that promise and available to all companies. Building Great Products Statsig is a feature management and experimentation platform that helps product teams ship faster, automate a b testing and see the impact every feature is having on the core business metrics."

The quote describes Statsig's role in the product development process, highlighting its ability to streamline feature release and measure impact on business metrics.

Amazon vs. Google Advertising and Customer Acquisition

  • The relationship between Amazon and Google is discussed, with Amazon being a significant advertiser on Google's platform.
  • Amazon's efforts to reduce its dependency on Google for customer acquisition are mentioned, such as the use of smile.amazon.com to encourage direct traffic.

"And neither Google nor Amazon are happy about know Amazon is aggressively trying to do everything they can to reduce that dependency."

This quote highlights the competitive tension between Amazon and Google, with Amazon actively seeking ways to reduce its reliance on Google for customer acquisition.

Jet's Potential Outcomes and Walmart Acquisition

  • The acquisition of Jet by Walmart is discussed, with speculation on alternative outcomes had Walmart not made the purchase.
  • The potential for Jet to be acquired by other retailers or technology companies like Google is considered.
  • The challenges of competing with Amazon's thin margins are noted, and the historical difficulty of disrupting a dominant player in such a market is discussed.

"Well, I can tell you one thing that would not have happened. Jet would not have sold to Amazon under any circumstances. I mean, I can't imagine know working for again."

The quote suggests that despite the various potential outcomes for Jet, an acquisition by Amazon was not considered a possibility.

Walmart's Strategy and the Innovator's Dilemma

  • Walmart's acquisition of Jet is seen as an attempt to compete with Amazon, but skepticism remains about its effectiveness.
  • The concept of the innovator's dilemma is applied to Walmart, which faces the challenge of adapting to a low-margin e-commerce model without undermining its existing business.
  • The acquisition is viewed as a strategic move, albeit with an uncertain outcome in the face of Amazon's dominance.

"This is such a classic innovator's dilemma. For 20 years now, Walmart has watched and their biggest fear materialize, where Amazon just grows and becomes this mega behemoth and starts stealing their business. But they can't seem to compete because what that would involve is cannibalizing their incredible business and building a super low margin business."

The quote addresses the strategic predicament Walmart faces as it tries to pivot to an e-commerce model that competes with Amazon, highlighting the difficulties of making such a transition.

Expected Value Calculation in Investment

  • Expected value calculation is an important tool for investors to assess the potential success of an investment.
  • Investors must estimate the probability of success and the potential return to determine if an investment is worthwhile.
  • Long-term horizons and the size of the category are considered when evaluating the potential of a business.

"You kind of have to do an expected value calculation and figure out what do you think the chances that this thing actually succeeds are that."

The quote emphasizes the necessity of expected value calculations in investment decisions, highlighting the need to estimate the likelihood of a business's success.

Jet's Potential and Walmart's Acquisition

  • Jet.com's acquisition by Walmart is debated in terms of its potential to succeed against Amazon or as a strong number two in the market.
  • The discussion includes the high acquisition cost and the strategic rationale behind it, including the recruitment of e-commerce expertise.
  • The conversation touches on the potential outcomes of Walmart's acquisition of Jet.com and the challenge of competing with Amazon's business model.

"There is a non zero chance that jet can either beat Amazon or become a meaningful number two."

This quote discusses the possibility, however small, that Jet.com could become a significant competitor to Amazon, which was a consideration in Walmart's acquisition decision.

Investment as an Art and Science

  • Investment is described as both an art and a science, involving subjective judgment of probabilities and outcomes.
  • The discussion includes the difficulty of assigning precise probabilities and values to potential investments.
  • The binary nature of investment outcomes is highlighted, with a focus on the high stakes of either significant success or failure.

"This is the art of being an investor versus the science."

The quote contrasts the subjective (art) and objective (science) aspects of investment, emphasizing the role of judgment in evaluating probabilities and outcomes.

Aggregation Theory and Jet's Strategy

  • Aggregation theory is discussed, with the argument that the best customer experience wins on the internet.
  • The speakers express skepticism about Jet.com's strategy, which focused on price over other factors like convenience and selection.
  • The conversation suggests that all three aspects of the "holy trinity of retail" (price, convenience, selection) are important to consumers.

"I so totally believe in aggregation theory and Ben Thompson's aggregation theory and the idea that on the Internet the best customer experience wins."

This quote highlights the speaker's belief in aggregation theory, which posits that the best customer experience is the key to success in the online marketplace.

Amazon's Business Model vs. Jet's Approach

  • Amazon's business model is discussed, with its focus on third-party sellers, fulfillment services, and diversified revenue streams.
  • Jet.com's approach is contrasted with Amazon's, being characterized as a traditional retail model.
  • The speakers discuss the implications of these differing business models for Jet's ability to compete with Amazon.

"Amazon has this different business model where they've created this incredible flywheel where they make a small margin on third party sellers for using the platform."

This quote explains Amazon's business model, which leverages a platform approach to generate revenue from various sources, contrasting with Jet's traditional retail model.

Grading Walmart's Acquisition of Jet

  • The acquisition of Jet.com by Walmart is graded, taking into account the necessity for Walmart to make a strategic move in e-commerce.
  • The discussion includes the challenges Walmart faced in recruiting e-commerce talent and how the acquisition addressed this issue.
  • The speakers express mixed opinions on the success of the acquisition, with grades ranging from C to D.

"D, it's not an F because Walmart had to do something."

This quote reflects the speaker's view that while the acquisition of Jet.com may not have been ideal, it was a necessary action for Walmart to remain competitive in e-commerce.

Discussion of Star Wars Trailer and Cultural Shifts

  • The new Star Wars trailer is discussed, with a focus on the brief appearance of Darth Vader and the significance of a strong female protagonist.
  • The conversation highlights the positive cultural shift towards female leads in major films and the role of social media in discussing these changes.
  • The speakers praise Disney's stewardship of the Star Wars franchise and the anticipation for upcoming films.

"Seeing a strong female protagonist for the other 215 is more important."

This quote celebrates the importance of having a strong female lead in the Star Wars film, emphasizing the cultural significance of this representation.

Hot Takes on Recent M&A Transactions

  • The speakers provide quick opinions on several recent mergers and acquisitions, including Verizon/Yahoo, Lyft/GM, and Microsoft/Beam.
  • The conversation touches on the strategic rationale and potential outcomes of these deals.
  • Opinions on the transactions range from skepticism to curiosity about the future integration of the acquired companies.

"I don't think there is a way that you can be almost exactly like Uber but slightly worse without a different value prop."

This quote expresses doubt about Lyft's position in the market compared to Uber, questioning the viability of a similar but slightly inferior service.

Carve Outs and Recommendations

  • The speakers share personal recommendations, including podcasts and applications that they find valuable.
  • Michael Mabison's work on skill and luck in investing and the Strava app for tracking workouts are highlighted.
  • The conversation includes appreciation for the content and functionality of these recommendations.

"He has a podcast episode where he is on the masters in business."

This quote refers to a podcast episode featuring Michael Mabison, whose insights on investing are recommended by the speaker.

Conclusion and Final Thoughts

  • The episode concludes with a summary of the topics discussed and an invitation for listeners to subscribe and engage with the content.
  • The speakers express enjoyment in discussing the topics and announce the end of the episode.
  • The conversation ends on a humorous note with a reference to a song lyric.

"Okay, that's what we got for Jet. Hopefully you enjoyed it. This was a lot of fun doing."

This quote concludes the discussion on Jet.com, indicating that the speakers found the topic engaging and hope the audience did as well.

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