Jet is not living up to the hype surrounding its launch, abandoning the membership-only business model that was key to turning the site into a serious threat to Amazon. Jet launched in July and charged a $50 annual fee to shoppers, but on Wednesday, founder Marc Lore said he was “incredibly excited to announce that we’ve decided to drop the membership fee and make Jet free for all shoppers.”
While the company spun it as a positive, the Wall Street Journal seemed less certain that it bode well for the company.
“Jet had insisted the fee would stand as its sole source of profits, giving back commissions it collects on the sale of merchandise to customers in the form of lower prices.” However, the newspaper wrote, “Without the membership fees, it will be more challenging to sustain lower prices than Amazon’s – its key pitch to customers – while also funding a massive advertising campaign.”
The Wall Street Journal had explained in an earlier article that Jet created the illusion of bountiful virtual shelves upon its launch; when an order comes in for something not in-stock, an employee purchases the product on a rival website in order to fulfill the order.
Jet acknowledged to a customer responding to Lore’s post on Facebook that starting prices might be higher as a result of doing away with membership fees, but said members could expect to receive the overall savings they had been getting. “The move to free memberships didn’t change our pricing model, but we have shifted our emphasis to the ways members can save as part of our push to attract retailers and expand our products. The starting price for certain items may have increased as a result, but you can still expect the overall Jet savings you’re used to.”
In his post, Lore said the response to Jet had been stronger than anticipated – “With the average number of units per order twice what we expected, Smart Carts have been the rule, not the exception.” And he said retailers were able to reach new customers while capturing more efficient and profitable orders. “We’ve learned so much in 11 weeks, but this is just the beginning,” he wrote.