Wal-Mart in Talks to Buy Web Retailer Jet.com for $3B
wsj.com
wsj.com
Before everyone gets up in a big frenzy on the price, read the article (closely):
"It isn’t clear how much Wal-Mart would pay, but a person familiar with the matter said Jet could be valued at up to $3 billion in private markets."
That is nowhere near a statement that $3B is number from Wal-Mart. That means "someone" thinks they COULD be valued at UP TO $3B in "private markets". That "someone" could be Jet's CEO. Or their banker.
Wal-Mart isn't dumb. In fact, they're the opposite of dumb when it comes to paying for things. They wouldn't pay $3B for a failed ecommerce startup if they can let it fail and buy the assets or pay much, much less in various other scenarios.
I doubt we'll see this deal go for anywhere close to $3B, if it happens at all. This is likely a negotaition tactic to drum up interest (and/or the price) from other potential acquirers.
Amazon is at roughly 86 billion (I'm sure it's more) in sales online, Walmart is at 12 billion online. Amazon is growing in the double digits Walmart is in the single digits online. How is Walmart going to catch them?
If jet is at 4 million+ loyal customers in a years time being live, how exactly is it dumb to buy a company that is at 1.1 billion in sales in a years time when it took you 10 years to get to that? How long has Walmart been selling online? Jet will pass Walmart in under 2 years, then what will Walmart do to beat Amazon?
I think people on hacker news live in la la land. Ecommerce is very different from your googles and facebooks.
Marc Lore knows exactly what he's doing, he probably won't sell it to Walmart for that little.
Edits: spelling and grammar.
I doubt many of them are loyal. Most ordered from Jet due to huge discount codes, making them the cheapest. I'd love to see how many people place a second order, one with no discount code.
Amazon is about to close down every Walmart in America. They are going to shut down the number one employer in the whole country. It is absolutely on its way.
I for one hope we have a few players in this space.
Edits: for grammar and clarity.
Amazon released Prime Now about 9 months after Google Express and will copy any other successful e commerce trend and do it way better than another startup.
Real, sustainable competition is what makes capitalism great. Jet spending $800mm+ in a year and taking a loss on every sale is not sustainable.
OTOH, spending and taking losses like that is often the cost of breaking into a business with established competition, even if you have a fundamentally better model -- a bit part of what every business wants to do is establish the kind of "moat" that makes that kind of thing necessary for any would-be new competitor.
From the OP:
>But for both Jet and Wal-Mart, Amazon’s frenzy of warehouse construction and fast delivery—as quickly as one-hour—have proved formidable. The retailer has logged three straight quarters of record profit while locking in an estimated 60 million members to its $99-per-year Prime service, cultivating a loyal customer base and giving consumers fewer reasons to shop at traditional stores.
The answer is not buying a unicorn startup with seemingly no fundamental advantage over Amazon. If I were Wal-Mart, I would take the $3B and try to build a great technology organization and/or fund Wal-Mart Labs more. So much of what makes Amazon better is the data accrued over the last 18 years and the insight mined from them by their super-talented team.
And Jet.com is definitely not going to give that to Wal-Mart overnight. If I were them, I'd focus on long-term viability, not a short-term hack to placate shareholders.
Someone advocating a rational, realistic way forward (like you) would be pushed out in favor of people who "get it" and want to "move things forwards dramatically"
partially why consultants can come in and clean up shop. They don't care about following the conventions.
So it may be the price Walmart is willing to pay to ensure nobody is making Jet their new source for houseware products and avoiding the WalMart Brand. We also don't know what else Jet has in the pipeline, negotiating with them and through their research may be revealing more to WalMart.
all said, I hope Walmart doesn't buy Jet. I want Jet to exist on its own. Competition is the way forward in shopping, if not against Walmart, definitely against Amazon.
You place an order, and someone physically walks around a local supermarket, picks up stuff, they put on a van, and it is delivered to your home. It is actually very inexpensive (and free if you spend enough).
Yet nobody in the US does that (well nobody outside of big cities). Walmart right now today has a HUGE advantage, they can deliver products impossible to Amazon like fresh fruit and veg, meats, and all kinds of things.
But yet, do they? No. Walmart already has "warehouses" in every state, city, location. They're called stores. But instead of double dipping on that advantage, they keep using them as traditional retailers while Amazon rules the home delivery advantage.
Amazon are currently moving into an area Walmart already has an advantage in (being local) but because Walmart under utilises their advantage to such a large degree, Amazon is left alone to do so.
You can do it in much of the US, too; a number of brick-and-mortar grocery chains offer online ordering home-delivery services, even before considering third-party or online-only grocers.
Awesome service but I asked the lady how many pick ups they did this Sunday and she said 35. and I said what's the most and she said 65 - 70.
Grocery pick-up has not caught on yet and grocery delivery I would imagine is even less than that
Being able to order our groceries online and have them delivered or picking them up in some kind of drive-through lane is a huge quality of life improvement for families like mine.
In the US my local grocery (Harris Teeter) has a service where you order online and go through a drive through to pick up. The cost was $4.95/order or $99/year. They have recently added full delivery for $14.95/order (not sure on the yearly fee).
I live in a medium sized city.
Because outside of the big cities, you don't give up a minimum of 2 hours of your daily life just driving to and from work. It wouldn't make sense to have someone take of tasks like that.
Jet has a super smart team looking at ways to gain margins in areas amazon is ignoring. short term their investors won't appreciate this buy.
So does Walmart Labs, though. What makes Jet a better buy? Even if they've proven successful as their own company I'm super-skeptical of any startup merging with a larger organisation and retaining anywhere near 100% efficiency.
They might be smart but they haven't been successful. They almost immediately abandoned their original value proposition-- make money on the subscriptions like Costco and break even on sales.
It's a strange world when a startup that was just founded 2 years ago and is steadily growing [0][1][2], is considered a failure because they haven't already wiped out a 22-year-old goliath that has had a long history of struggling to break even, and operates in several other markets (AWS, Streaming Video, Devices, etc) that aren't this startup's main focus.
[0] https://www.snapagency.com/blog/jet-com-vs-amazon-mean-ecomm...
[1] https://www.internetretailer.com/2016/04/15/jetcom-predicts-...
[2] http://time.com/money/4337044/jet-com-lowest-prices-amazon-w...
Somehow, with all that money raised, they failed to realise there'd be some customers using freight forwarders.
When I went to purchase, the site stopped working, just providing some sort of generic error page. I called them up. A lady told me they were "performing maintenance" (middle of day). The website provided zero indication; just appeared broken.
Shipping took a while.
I'm certain they have smart people. But my anecdotal experience was that things were a bit clueless and not even remotely close to the level of taking on Amazon in any way.
Walmart.com blocks the VPN I use with a generic 403 Forbidden.
Maintenance to fix a security critical bug in the middle of the day to remain in compliance for credit card processing could have been a reason for this nuisance. Lots of factors and variables.
I think they set up their CloudFlare 100% correctly.
Jet does not sell outside the U.S., they have no plans to ever sell outside they U.S. Most of the cyber attacks against them are from outside the U.S. Their entire business plan is cutting cost out of the supply chain inside the U.S. By bundling items together in the same box and saving the consumer in the U.S. Money.
The entire point is to reduce the risk footprint, when most startups are being hacked left and right jet is being very smart by throwing captchas and saying to everyone outside the U.S. we don't want your scammy business.
You'd think with all that money spent, they'd have recognized this. FWIW, they eventually fixed it, a week or two (or so) after several poorly-written emails I sent them. So I think it is more likely to be the result of bad thinking, or just being unaware of the situation.
Furthermore, if their anti-hacking defense relies on a captcha or not being able to easily download their app, they're beyond screwed. I don't think they are that incompetent, it might have been, at best, oversight.
Probably the fault is at least partially on Cloudflare, though. Trump's read-only campaign website throws up a captcha at least to Guatemala. And GT isn't known as a centre of any hackers, to say the least. So if they have high profile sites like that which are misconfigured, perhaps they don't do enough review or customer education.
Unless it's under a current attack, and even then it should go by IP or something. Visiting from an IP never used before should now throw up a captcha. Nor should it continue to do so on repeated visits.
It's broken, full stop.
Edit: I mention Trump's site because it's a reasonably high profile, static, site that I've seen CF blocking on. Also, FWIW, after I sent several emails to Jet, they seemed to reverse course and their app and site are available. Seems like an oversight/not knowing to me. CF's defaults are not very good so they probably didn't change them. CF should review their customers and suggest better defaults, at least to high end clients.
Maybe a good time to join a CPG/e-commerce startup :)
I think the key phrase here is _verticalized_. Go-to-market as well as scaling operations is much easier when you can focus on a single product category.
This will be chalked up as a "failed" startup but at least the investors get to take their money and play another round elsewhere. For the employees this is likely not a great thing. I'm guessing when they joined a hyped up startup it was in large part because they didn't want to work for companies like WalMart and stood to strike it rich if Jet went public or hit it big. Now they could be wearing a WalMart badge and the company sold out to save the ass of its investors.
Conversation at the deal table is usually something like "we need X valuation to meet our term sheet with investors so the founders and a few others get paid." The rescue buyer generally doesn't care about what the employees get, in fact it's very much in the buyers interest that the employees don't get too much.
In other words the size of the valuation being bounced around is likely not driven by the value of assets for shareholders but rather the size of the contractual hole in the ground that founders dug with their investors... to escape that hole $X is needed.
Harsh terms yes, but not uncommon.
Preferred shares are common for investors that pay out at a multiple of the common shares, so in an exit the preferred pool can be paid at a dramatically higher rate than common shares.
Funding often also comes with guarantees on return - i.e., if the exit price is below a threshold, the investor gets a guaranteed minimum return before other are paid. This works out for the company if it's a smashing success (the upside is also capped) but can wipe out common shareholders if the company sells for anything less than stratospheric valuations.
This should be a lesson to anyone thinking about working for a startup: a company raised $570M and sold for $3B, and in all likelihood the employees will receive very little from this sale.
In the modern startup fundraising scene, and the way startup equity is structured for employees, if your company exits for anything less than a mind-boggling headline-making valuation, you are almost certainly receiving little to nothing.
Loyal users? Nope. Their version of "prime" is the proverbial pig in a poke, as you need to buy that one before you can actually figure out if you like to become a longstanding customer (experience, logistics, price/value, positive surprises). Most users are just the coupon cutters who will switch to whatever next crazy person is offering loss leaders.
A strong brand? Plastering NYC subways without having launched does not mean a viable brand. Also they nowadays focus pretty much only on performance marketing. So nope.
Strong technology? Meeeh...
The rationalization at Walmart HQ probably is that with Walmart's purchasing muscle they might improve the unit economics a lot. But why buy a flash in the pan in the first place...
That led to a ton of funding which allowed for extremely aggressive marketing and customer acquisition, not to mention plenty of media coverage.
If anyone can battle Amazon, it's probably Jet. I can see why Walmart would want Jet (and Marc) in their camp.
What's remarkable is Jet was able to pull this off by being in meatspace, by acting as a VC-subsidized arbitrage broker for consumer products, hoping to get enough mindshare to be considered more of a threat than a nuisance so it can get bought out. It worked!
I'd be careful about drawing too many conclusions from this story. For one thing, you are not Marc Lore. With a successful Amazon sale under his belt, he certainly had a leg up on fundraising over almost anyone. His name alone helped to generate buzz.
But even being Marc Lore is enough. I worked for his cofounder from diapers.com and you've probably never even heard of that company—building hype requires a compelling narrative, not just a big name.
I tried this site once and it was a disastrous experience. Their customer service is horrendous, and the complete opposite of Amazon. After that purchase it became pretty clear to me that Amazon has nothing to worry about.
This reminds me, I have around $100 in credits from 1 failed order because they messed up multiple times. Would be awesome if they sold Amazon gift cards.
It doesn't explain the Amazon example you mentioned, but I was under the impression they have special affiliate arrangements with 3rd party retailers and that they were somehow being allowed to invest their affiliate commissions into the consumer (which is typically not allowed).
So if they're making 15% affiliate commissions from B&N they're able to drop the consumer price 10%. They've been focused on scale more than margin since day 1, so it would make sense that they would just operate on something razor thin and continue to drive home that they have unbeatable prices.
For the 3rd party retailers it's a way to compete with AMZN on price without actually having to drop their prices and I can see how that would be attractive to a retailer that's losing market share.
No basis for this, just one man's theory.
The more items you buy, the bigger cut of the commission Jet gives you off. The buyer almost never pays the same cost as what the seller got paid.
http://www.amazon.com/gp/help/customer/display.html/?nodeId=...
Jet had a rule though - No boxes with competitor logo. So you had to pay Amazon $1 per box to ship it without a logo.
An Amazon email just went out they are discontinuing the unmarked boxes for $1 program. Likely directly to fight Jet.
Let me know if you had any more questions about how any of this work.
Source - Worked at a startup that let people sell on places like Jet with Amazon inventory.
They're probably loss leading on almost every product sold right now.
They buy the company because they want something that they can't easily replicate (which, again, is NOT the technology, because they can hire engineers and replicate your work product).
Typically it's one of these things:
a. they want your installed userbase. It's really hard to get people to use something new. If you have a lot of users, they will buy you even if your stuff is total crap so that they can get access to your users.
b. they want your intellectual property, like a patent and/or trademark portfolio. Patents are a great way to make companies think about buying your company instead of just ripping it off and copying it internally.
c. they want to retain the personal goodwill of someone they care about. For example, investors will often buy each others' portfolio companies, even when they're worthless, as a way to save face and ingratiate themselves one to another.
It's important, as entrepreneurs, that we understand what really goes into a big exit, and how it's not tech (unless you have patents, in which case they're buying the patents), but installed base.
They eventually launched, with a mixed reception, but they had enough numbers to keep them relevant.
What do you mean by this? I don't deal with things of that scale, but I would imagine it would put Wal-Mart in a very good position to negotiate down near at-cost. It could be good for Microsoft on the PR front against Amazon, but bad for profit margins (on this one account).
A hero customer typically pushes your platform in radical ways to let you know what to improve. They're also someone you can talk about, and it instantly gains you credibility. For Azure, actual workloads are lacking, especially workloads that are volume, B2C businesses a la AWS's Netflix, and GCE's Spotify.
for me I believe it was couchdb that brought erlang to light .. but now it seems erlang isn't really getting any more popular
but yea, of course being used by whatsapp is very strong validation for erlang
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[0] https://www.crunchbase.com/funding-round/79d35bb376dcc222a8a...
[1] Math: $500M invested at $1B results in those investors owning 1/3 of the company. Assuming pro rata distribution of the acquisition proceeds, they would get $1B in a $3B acquisition.
[2] http://www.bloomberg.com/news/articles/2015-03-17/the-fuzzy-...
Decent article on this from Fred Wilson http://avc.com/2009/03/what-is-a-good-venture-return/
This is a company which was all but guaranteed to succeed and sell in <3 years for billions.
If they get bought out, I'd have missed out on potentially a very nice options payout. But then I'd have to find a new job, because I definitely wouldn't want to work for Wal-Mart. So I guess I'm happy with the decision to stay where I am, despite some of the drawbacks of working for a really tiny non-startup company. (Not that there aren't good perks too.)
For those of you who spend your careers in startups, how do you feel about new owners after a buy out? If you have reservations about them, do you stick around and see how it goes, or head straight for the exit?
They raised 820M so I highly doubt it'll be that great of a payout considering that's only 4x what they raised.
As for a buyout, it's typically crappy because the company buying you ruins the culture.
Edit: I've been through the buyout ruining the company culture, so I definitely agree with you there.
Goes to show just how entrenched some of the negative feeling (not everywhere, but where it exists, including with many in the Amazon demographic) is about Walmart.
All of these companies (Walmart, Bestbuy etc) are trying to compete with Amazon by offering things like price match etc. Sure it is nice to have a price match from Bestbuy and pick up your product on the same day from Bestbuy. But Amazon came back with a KO punch and offered Same-Day/One-Day shipping. I can basically order it before midnight of the previous day and have it at my doors by max 7pm the next day. Amazon has successfully created a concept of brand among household consumers. They are the Apple of household consumerism and most people don't want to buy from uncool brands. When I search for a product on Google shopping and if the price is same on Amazon and Walmart, I would pick Amazon because of "PRIME" shipping. Even if it is $1 cheaper on Walamrt I would still go for Amazon. Brand loyalty can't be bought with $3B. Brand loyalty needs to be created at grass root level.
I don't think they are even close to Amazon.
Looks like it would be a good exit given how much capital they've raised: $565M per crunchbase.com/organization/jet. 6x capital in means everyone should make good money.
Back in Fall 2015, I ordered two cases of water (I think 24 count in each; normal 500 mL water bottles) for $5.70 each with free two day shipping. They ended up sending me two packages via FedEx Ground (one case per box) with Jet.com branding on the boxes. I was legitimately shocked that they actually processed my order since each case was 30 pounds. They lost so much money on my order. When I checked back two weeks later, they were no longer for sale on the website.
Every other order I've had (3) something has been broken during shipping (as well as two of the cat litters) due to piss poor shipping practices. They put a whole bunch of stuff including crushable and fragile stuff along with bulky heavy stuff in one HUGE box. Of course all the bulky stuff crushed the fragile stuff, who thought that was a good idea? So they not only refunded the broken items but gave me $5 credit.
On top of that they gave 30% off my first order and 15-20% off the next few orders.
That's not a sustainable business.
They also had a couple of really good AMEX offers in the last six months but I don't know if they pay for that or AMEX does.
I tried shopping at Jet and while some of the prices were very good, others were worse than Amazon, and little things like product detail information, pictures, etc., were strongly subpar. Product search was also in serious need of tuning.
Does anyone know which pieces of infrastructure (or ops) that Jet built have the most value to Wal-Mart?
[0] - https://tech.jet.com/blog/2015/03-22-on-how-jet-chose/
All the article says is that "a person familiar with the matter said Jet could be valued at up to $3 billion in private markets."
If this is a HN addition, can that be fixed?
Also, at this point I feel safer buying cables and chargers from Wal-Mart. I now worry about any retailer doing fulfillment for other sellers.
Is someone actually not doing this?
To secure 250K users, they offered 20K shares or something like that.
To sign up, you had to tweet, fb share, etc....
250K users in queue enabled them to do a lot of things, but in many senses it may have been a false proxy.
Maybe it's a sign Walmart is doing better than it had promised and the time is right
No, but it's entirely reasonable to suggest that an e-commerce company that's trying to compete with Amazon isn't valuable if you haven't even heard about it in passing from friends or family.