When Jet.com launched in June of this year the company was hyped as bringing the wholesale membership club model (think Costco) online, but just three months later the company has done away with its annual membership fee, the cornerstone of its business model. Was this major, and rapid, shift the right move?

Original Membership Model

The original Jet.com model mirrored the Costco model, offering consumers discounted prices on everyday household goods, as well as electronics and higher ticket items, for an annual $50 membership fee. Unlike Costco, however, Jet.com would not profit at all from the products sold, earning its profit almost solely from membership fees. Whenever Jet.com finds inefficiencies and is able to reduce costs, it promises to pass on 100% of the savings to consumers. Consumers can also save by shopping in ways that reduce costs for Jet and its retailers – for instance, by waiving free returns and paying with a debit card or preferred credit cards. In addition, Jet has created a unique algorithm that generates “Smart Cart” savings; as users add more products to their carts, they make their orders more efficient and thus less costly to fulfill, and the resultant savings are passed to the consumer. Aggregating these cost reductions, Jet promised savings of 10%-15% versus competitors (including Amazon).

 Challenges Facing Membership Model

To entice users to try out the site, Jet gave away free three and six month memberships and reported strong initial results (sales of $20 million in September, which beat expectations, and a 23% repeat buyer rate in the first six weeks). The critical question was whether Jet could convert its free users to paid subscribers and garner new paid users. Jet estimated it would need 15 million paid users and $20 billion in gross sales to begin turning a profit. This is undoubtedly a major challenge. The average e-commerce customer is acclimated towards current e-commerce models which offer access (free of charge) to a large selection of products at discount prices. Paying a membership fee represents a big change to this norm; consumers have to anticipate savings rather than realizing it immediately. As a result, a membership fee represents a formidable barrier to acquiring users.

Beyond this challenge, Jet has to contend with the fact that many e-commerce consumers value more than just savings. Amazon, for instance, has many loyal users (myself included) who gladly pay a $100 annual fee for Amazon Prime to get access to free two day shipping and other benefits, and who value Amazon’s enormous product selection, countless product reviews (which Jet doesn’t offer), and unparalleled customer service. Amazon also offers a variety of ways to secure additional discounts, including Subscribe & Save, Add-on Items, and Amazon Moms, which makes Jet’s deals materially less attractive.

Jet did have a compelling approach to addressing these hurdles:

  1. Jet guaranteed that members would save more than the cost of the $50 membership fee, which mitigates the “risk” of shelling out the membership fee prior to achieving savings. As a side note, I do question the legitimacy of Jet’s calculation of “savings”. Is the comparable price truly the best price alternative to Jet? 
  2. Jet made its value proposition as obvious to users as possible. Namely, they listed Amazon’s comparable cost in the listing for every product.
  3. Jet’s business model has another key component aimed at retaining customers and engendering loyalty: Jet’s affiliate program, JetAnywhere. Mirroring the ebates business model, Jet features retailers on its site who pay Jet when shoppers click through and make purchases on the retailers’ sites. Jet takes 20% of the merchant commission to cover costs and passes on 80% of the commission to shoppers in the form of JetCash which can be used to make purchases on Jet.com. As with product sales, the affiliate program isn’t meant to be a profit center. Rather, it adds value to Jet’s core offering by attracting users and it promotes loyalty by incentivizing users to acquire and spend JetCash. While ebates has a leg up on Jet in that it pays cash, Jet could entice users by passing back more of the merchant commissions than ebates and similar programs, which typically pass back 50-70% to consumers.

Pivot to New Model

Apparently CEO Marc Lero decided that despite these efforts, Jet wasn’t going to be able to break down the barrier to consumers that a membership model presents. Jet gave up on the membership model just as the first wave of free memberships expired, before it even tested whether free users would convert to paid. The new model is more akin to traditional e-commerce; Jet will raise prices (supposedly keeping them 5-6% cheaper than competitors, vs. 10-15% in the subscription model) and make a small margin on sales. Jet believes the model remains differentiated, as it still incorporates Jet’s proprietary Smart Cart program, where customers save more with larger orders sizes.

In defense of this pivot, Jet claims it was not driven by a belief that they couldn’t acquire paid members. Rather, Jet has observed that shoppers love the Smart Cart feature and believes they will choose Jet.com for the Smart Cart savings, even without big up-front discounts. Secondly, Jet says they didn’t want to be perceived as a discount site, which prevented some premium retailers from signing up. Jet believes that without the membership fee, it can attract retailers who don’t sell on Amazon and other competitors.  These assertions raise questions though. Why wouldn’t Jet at least wait to test their original model unless they really didn’t believe they could get paid users and wanted to avoid reporting disappointing results? Also, if they don’t want to be perceived as a discount site, why did they brand themselves as the Costco of the internet? Even with the business model change, Jet is inherently a discount site, competing on price.

Will it Work?

Jet clearly believes its new model stands a better chance of success. While Jet certainly has eliminated a massive barrier to accessing shoppers, it now may be facing an even bigger barrier: a lack of differentiation. The subscription model drove home the idea that Jet was the online version of Costco. In adopting a new business model, Jet is rebranding and repositioning itself, abandoning the Costco of the internet pitch. If I were a stakeholder, I would be very concerned that Jet is now just another online marketplace. Jet does offer some differentiated value with Smart Cart and JetAnywhere, but without the membership structure, Jet is competing even more directly with Amazon and others on price, and its prices no longer look significantly better than those of competitors (in fact, Jet no longer puts Amazon prices in its listings, likely because it doesn’t look so good).

Additionally, and perhaps most importantly, the subscription model engendered loyalty. While acquiring paid users would have been very difficult, once Jet had users, at least those users would want to get the most out of their membership. Jet would always be top of mind to a paying subscriber and they would have gone to Jet first. That won’t be the case anymore. More users will price compare across e-commerce sites and choose Jet for the cheapest items only, whereas under the subscription model shoppers may have bought from Jet even when prices weren’t the cheapest. Jet was already fighting an uphill battle, but this new model makes its prospect even less bright. Jet already has revised down its 2016 sales projections from $3 billion to $2.3.

Despite the aforementioned challenges, maybe Jet will pull through. It’s certainly positioned nicely, having raised over $200 million before it even launched (setting the record for funding raised in year one for an e-commerce startup) and dedicating a whopping $100m to marketing in the first year. Many clearly believe in the new business model; it was just announced that Fidelity is leading a $500 million round of funding valuing the company at $1 billion pre-money. Still, I wouldn’t bet on them, especially now that they’ve abandoned their differentiated, albeit challenging, membership model. Once the hype around Jet subsides, it’s not hard to imagine Jet.com getting lost among the many other e-commerce players aggressively vying for discount-seeking online shoppers.













By: Jacquelin Sibears

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Will There Be More Than One Winner in the Local Services Market?

For years, investors and technologists have been pointing to the trend of “verticalization”, or the need for a new marketplace start-up to be vertically focused on an industry or function in order to succeed.  As Chris Dixon, a partner at Andreessen Horowitz, pointed out, with the dominance of Craigslist’s marketplace across almost any category you can imagine, this focus increases a start-up’s chance of success by allowing for a better user experience and quicker minimum viable liquidity on both sides of the platform.

As Uber, Airbnb, Lending Club, and others have shown, because many of the categories on Craigslist are addressing multi-billion dollar markets, there is enough demand to create a billion dollar business by just focusing on one sub-category listed on Craigslist. As David Haber illustrates in a blog post (pictured below), dozens of large, successful, businesses have been built doing just that.

haber market map

This trend towards vertical specialization has persisted in business models today. In just the local services category on Craigslist, companies are focusing on specific sub categories like dog walking (Trottr), cleaning (Handy), and home improvement (Porch), among others. However, Thumbtack, one of the latest tech unicorns, has bucked conventional belief and focused on a more horizontal approach. Despite skeptics view that this approach is doomed to fail because of Thumbtack’s lack of specialization relative to its more vertically focused competitors, Thumbtack has seen impressive growth, fielding thousands of requests for providers a day.

However, several questions still remain. Who will eventually win in the local services space? Is it a winner-take-all market or can there be more than one player in these verticals?

For the following reasons, I personally believe there can be multiple winners due to diverse consumer preferences and markets that are large enough to support more than one player, and that Thumbtack’s horizontal approach and business model will allow it to succeed.

 First, let’s start with Thumbtack’s business model. Thumbtack is a horizontal marketplace for local services, meaning that consumers can find specialists to perform almost any task for them in their local area. Consumers fill out a form describing what they need and Thumbtack provides them with up to 5 bids from local providers. In order to be able to bid on consumers’ requests, providers need to buy points, essentially paying to bid on specific customer requests.

1) Why There Will be Multiple “Winners” in Local Services

  • Consumer preferences for local service providers are diverse and thus there is strong demand for differentiated products. Some consumers want the “quickest solution” while others want “lowest cost” and others want “high quality”. Different platforms that cater to these different market segments can co-exist.
  • In fact, multi-homing costs not that high, meaning that it is relatively easy to compare prices and providers across multiple platforms. For example, consumers will often check Amazon, Thumbtack, and Taskrabbit before selecting a provider to install their new television.
  • Local services market is large. Forbes estimates it to be between $400-800 billion. Within the overall category, many verticals, like catering and home repair, are multi-billion dollar markets.  Therefore there is enough value to be captured for more than one player to build a multi-million dollar business in terms of revenue and profits.

2) Why Thumbtack Will be a “Winner”

  • Often, consumers’ preferences for a specific provider are based on who they believe provides the greatest “value”. However, consumers’ view of value (e.g. lowest cost, quickest service, etc.) differs not only across consumers, but also specific tasks (e.g. moving vs. catering). Thumbtack allows consumers to compare providers and decide which one provides the optimal value for them by job they need completed.
  • Thumbtack’s pay-per-lead system is distinct from other competitors in that it forces service providers to pay upfront to bid on a job. If the market is working correctly, this competitive bidding model should only attract proposals from service providers who are qualified for the job and who offer competitive rates, otherwise consumers will not select them from their service provider options.
  • Lastly, because all service providers pay the same amount to bid on a particular job, Thumbtack is indifferent as to which provider the consumer picks from a revenue perspective, aligning the service providers’ incentives with Thumbtack’s. In comparison, on other platforms service providers pay a hefty percentage of the total transaction value, incentivizing providers to charge a higher rate. 

For the reasons above, I believe that Thumbtack will be one, but not the only, “winner” in the local services market. Thumbtack’s business model, though contrary to current wisdom about vertical specialization, creates a marketplace that provides great value to both the providers and consumers on its platform, while also being able to extract value through its bidding system.

However, Thumbtack and its competitors are still working hard to build their businesses and experts still differ on the questions of who will succeed and why. It will definitely be interesting to see how competition plays out in this space and to see how many “winners” do emerge, and which companies they will be.

By: Medha Agarwal

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Why Does Amazon Mechanical Turk Still Exist?

Amazon Mechanical Turk (MTurk) has provided inspiration for strongly-worded blog posts since its inception in 2005.[1] I will focus here on the specific question of how MTurk will persist in light of dissatisfaction among so many network participants.

Amazon launched MTurk to “crowdsource” Human Intelligence Tasks (HITs) that are relatively easy, or at least possible, for a human to complete, but challenging or impossible for a computer to complete reliably. HITs might include determining whether there is a barber shop in an image or identifying the mood of a song.

More recently, MTurk has played an important role in social science research as a convenient hive of inexpensive survey participants that, according to some studies, are sufficiently representative and reliable.[2]

MTurk is named after an 18th century ruse in which a chess master was hidden inside a contraption–a Mechanical Turk–claimed to be a chess-playing machine.



The structure of MTurk is a classic two-sided network consisting of Requesters and Workers. Requesters set prices for completion of HITs, and Workers may accept HITs after reviewing them. Workers are not penalized for not completing HITs, but receive no compensation for incomplete HITs.

Both Workers and Requesters benefit from the size of the MTurk network. Workers benefit from having many Requesters who provide many HITs from which to choose (increasing demand for labor and availability of work), and Requesters benefit from an abundance of Workers to ensure competition for HITs, driving prices down and increasing speed of HIT completion. MTurk provides value to all parties by monetizing underutilized assets–in this case, human labor–by reducing labor-market friction (transportation, recruitment, etc.) through the efficiency of a technology platform. Just like Airbnb allows someone to monetize their “underutilized” home, MTurk allows Workers to monetize their “underutilized” ability to complete HITs.

This summer, MTurk changed the structure of its commissions (the amount it charges a Requester per HIT) amid complaints from both Workers and Requesters.[3] From the MTurk blog, “These changes will help allow Amazon to continue growing the Amazon Mechanical Turk marketplace and innovating on behalf of our customers.”[4]

The commission increase is one, but not the only, reason why the current structure of MTurk invites competition from upstart competitors. Wages for Workers were very low even before the commission increase, which constrains demand for HITs and drives wages even lower.[5] Further, Workers have little recourse when Requesters provide misleading Task instructions or time estimates. So a competing service that offers more protections could be an attractive alternative. (But wouldn’t Requesters avoid a competing service that protected Workers from abuse? Stay with me.)

Requesters also see diminishing benefits of MTurk. The commission increase directly reduces the ability of social science researchers (an increasing proportion of Requesters)[6] to use MTurk as a tool to collect survey respondents, given that research funds tend to be fixed. Some researchers have decided to reduce the wages they offer, or simply recruit fewer respondents,[7] eroding the quality of MTurk for Workers.

Requesters face another type of challenge in addition to the commission increase: the inherent value of MTurk to social science survey research may be declining. This issue is more fundamentally erosive of the MTurk value proposition than commission increases and less easily remedied (though not impossible to remedy). The quality of MTurk-generated survey research is threatened by the trend toward “super users” who are skillful at answering the same types of questions; social networks such as mturkforum.com or reddit where Workers share tips on answers and strategies; and the lack of enforcement of basic standards of social science research that ensure quality data as well as ethical practice.[8]

Other networks are forming that provide some benefits that MTurk does not. Sticky Crowd touts better rates than MTurk; sites like peopleperhour and Upwork focus on more highly skilled tasks. Notably, a popular Requester, Crowdsource, has insourced and now uses its own platform to accomplish the same end as it did with MTurk.

It seems clear that the technology of MTurk is nothing special, at least not in 2015. (That is to say, it is replicable.) MTurk may be the largest player in the space presently, but because multi-homing costs are low for both Requesters and Workers (it is convenient for either type of user to sign up for multiple services), an upstart competitor could lure Workers and Requesters by providing a superior product with better Worker protections and lower commissions. While Worker protections could force Requesters to pay more for HIT completion, it would ultimately result in a stronger, more sustainable network that would benefit both Requesters as well as Workers. Better Worker conditions would attract a more representative and reliable pool of Workers, as well as establishing accountability among all Requesters and rooting out the rotten apples that spoil the bunch.

Perhaps the reality is that survey responses as cheap as MTurk initially provided cannot yield good data in the long run and were merely the result of the platform’s novelty. So, a company that provides an MTurk-type platform at high quality could ultimately be the Facebook to MTurk’s MySpace.

Why, then, does Amazon maintain MTurk in its current format? Perhaps it is at least slightly profitable. Or the strategy is (ostensibly) frugal, if not directly profitable: if Amazon continues to use MTurk to recruit Workers for its own HITs, which was the original reason for MTurk’s existence, it makes sense to open platform for other Requesters to recruit Workers, thereby increasing Amazon the supply of Workers.

But if Amazon does not cultivate and improve the MTurk network to keep both Requesters and Workers happy, the current strategy will prove penny wise and pound foolish, and we may see the day when nobody wants to use Mechanical Turk anymore, leaving Amazon to outsource its own HITs to a competitor.

1. http://www.theguardian.com/technology/2014/dec/03/amazon-mechanical-turk-workers-protest-jeff-bezos

2. Buhrmester M, Kwang T, and Gosling SD. Amazon’s Mechanical Turk: A New Source of Inexpensive, Yet High-Quality, Data? Perspectives on Psychological Science 6(1) 3–5, 2011. http://datacolada.org/wp-content/uploads/2014/04/Burhmester-Kwang-Gosling-2011.pdf

3. http://blogs.wsj.com/digits/2015/06/23/amazons-mechanical-turk-fee-hike-irks-researchers/

4. http://mechanicalturk.typepad.com/blog/2015/06/following-up-on-our-commission-structure.html

5. http://www.utne.com/science-and-technology/amazon-mechanical-turk-zm0z13jfzlin.aspx

6. http://www.washingtonpost.com/blogs/monkey-cage/wp/2015/05/04/researchers-are-rushing-to-amazons-mechanical-turk-should-they/

7. http://blogs.wsj.com/digits/2015/06/23/amazons-mechanical-turk-fee-hike-irks-researchers/

8. http://www.linkedin.com/pulse/my-experience-amazon-mechanical-turk-mturk-worker-utpal-dholakia

By: Leo Brown

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Have you ever written a fake review on Yelp, Amazon or the App store to help promote a friend’s restaurant, new product or app? Did you think that it was’nt a big deal and that your comment wouldn’t hurt anybody? If so, now is the time to reflect and change your habits.

What is at stake:

There are two reasons explaining why fake reviews are dangerous for online businesses, whose models rely on trustworthy assessments of products and/or services:

1. Fake reviews kill transparency: by providing fake comments, one essentially removes any element of honesty and trust, which is at the cornerstone of ecommerce businesses. Take Amazon for instance. A fake product review creates friction in the supposedly seamless transaction process by providing false pieces of information. Amazon ends up with unaware customers, who might just end up purchasing subpar products.

 2. Fake reviews limit network effects: Amazon’s value proposition is offering an independent and neutral third party platform to sellers and buyers willing to do business with one another. If that platform becomes crooked and biased, and if sellers can effectively push their products with paid reviews, one can easily imagine online shoppers leaving the platform for better sources of information. Fewer shoppers, fewer sellers, fewer transactions, and in the end, a weakened market place platform with no network effects.

The Amazon police:

In an effort to cut down the risks associated with such threats, major online businesses that rely on ratings and reviews to operate have pulled out the big guns. Amazon is the best example:

Since April 2015, Amazon has launched a very aggressive campaign against fake review providers. It started by filing suit against the operators of buyazonreviews.com, buyamazonreviews.com, bayreviews.net and buyreviewsnow.com. Before these sites were taken down, they allowed any interested Amazon seller to buy fake 4-5 star customer reviews in order to boost sales. As for the sellers who commissioned fake reviews, Amazon banned them as well.

Yesterday marked the second step in Amazon’s crackdown of fake reviews and in its fight against those who create a poor ecosystem. This time, Amazon went directly at those using Fiverr.com to buy and sell Amazon reviews. In a nutshell, Fiverr is an online marketplace that allows users to offer small tasks and services for USD 5. Services include writing, editing, or programming, among others. With the help of Fiverr, Amazon spotted over 1,100 fraudulent individuals and sued them all with the hope that this will send a strong signal to those who try to play around its terms of service.

What more can be done:

With that said, small businesses do not have Amazon’s strike force and it is often too expensive and inconvenient for them to file suits. How can these smaller players combat fake reviews? I see a few ways smaller players can fight fraud from flourishing:

  • Make the review writing process more demanding by asking a series of personal questions that can help identify writers. This can help remove robots from writing the reviews.
  • On one hand, manually filter reviews and remove fake looking ones. This is time consuming and not perfect though. On the other hand, create algorithms that detect fake reviews.
  • Identify dishonest sellers, writers and tag them publicly as such on their profile. Run a zero tolerance policy for everyone to see. Yelp, through its consumer alerts program, along with TripAdvisor among others, are using this technique for instance.






By: Edouard Delvaux

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A growing trend among online retailers is the expansion into brick and mortar stores. Google, Amazon, Rent the Runway, Warby Parker, Bonobos, Birchbox, and Honest Beauty have all complemented their online businesses with offline retail concepts in the form of showrooms, pop-up stores or traditional retail formats. This expansion offline is allowing retailers capture greater growth and more effectively convert today’s highly informed consumers. This trend, coupled with the increasingly blurred line between the online and offline retail channels, is leading to the emergence of the omni-channel retail concept of the future.


Amazon Store in Manhattan






Unlocking Meaningful Growth

Online retail has experienced significant growth over the past decade but, while still attractive, e-commerce growth rates have declined from ~30% per year in the early 2000s to ~10% today. Approximately half of today’s growth is generated by those online retailers that also have a physical retail presence, a distribution channel that still generates between 94% to 97% of total retail sales. Retailers that have both an online and physical retail presence report an average annual growth rate of 23%, relative to the 9% experienced by online only retailers. With the online retail space experiencing declining growth rates, brick and mortar stores offer online retailers with an additional channel through which they can broaden their customer reach and extract meaningful growth.

Enhanced Customer Conversion

The customer conversion process is becoming longer as consumers are increasingly inundated with information and becoming smarter as a result. While the online retail channel is undeniably valuable, the addition of a physical presence allows retailers to directly interact with the customer and to tell the story of their brand through a differentiated shopping experience. Touching and feeling a tangible product and creating a physical and human experience with the brand is a powerful way to convert increasingly smarter consumers.

Those consumers acquired through the offline channel have the potential to be of higher long-term value to the retailer by means of relatively larger purchase sizes and greater loyalty to the brand.

Bonobos has reported that customers buy ~75% more if they buy in the fashion retailer’s brick and mortar stores. In this setting, the customers’ experience of the Bonobos brand is enhanced by their ability to touch and try on the Bonobos products as well as the one-on-one human experience, which the company believes leads to greater customer loyalty.

Warby Parker Co-Founder and Co-CEO, Dave Gilboa, notes that “selling offline is a key way to interact with customers” and “the offline sales component is part of a long-term customer acquisition strategy which can fuel more sales online.”


One-on-one shopping experience at a Bonobos Guide Shop

The Omni-Channel Concept of the Future

As the divide between online and offline retail concepts is becoming increasingly blurred, we are seeing the emergence of the omni-channel retail strategy of the future.

To build a valuable brand, meaningful customer base and to stay relevant, retailers must combine the best of the online and offline retail concepts into a reimagined, new and innovative retail experience for customers.

Bonobos and Warby Parker were early movers with their launch of small-scale concept stores that serve as showrooms (inventory is for display and trying on only). This retail concept allows consumers to physically experience a brand, while also being introduced to the company’s online store. Retailers also benefit from higher customer conversion rates, generally larger order sizes and the lower costs associated with significantly lower in-store inventory volumes.

Rebecca Minkoff and eBay have joined forces and are also paving the way to the omni-channel experience of the future with the launch of an interactive store in New York City’s SoHo. The store combines the best aspects of the online and offline shopping experience. Shoppers can browse through the entire Rebecca Minkoff catalogue on the “Connected Glass” interactive shopping wall. At the touch of a button on the wall, the customer can have their selected products sent to a dressing room. The dressing room mirrors are also interactive and allow the customer to request additional items as well as a stylist at the touch of a button. The interactive system also allows the customer to link any products that they have tried on to their personal profile, which they can access online or during future visits to the interactive store.

As demonstrated by Bonobos, Warby Parker and Rebecca Minkoff, the possibilities are endless and the race is on to develop the ultimate omni-channel retail experience of the future.


Rebecca Minkoff’s Interactive Shopping Wall










By: Jessica Reed

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