From my understanding, the Jet.com deal was more of an acquihire to get Marc Lore to work for walmart.com[1]. The Jet.com numbers didn't look good at all, and they were rapidly burning through capital. Walmart didn't have technology as a core competency (nothing wrong with that), so it saw an opportunity to grow into the digital space through this acquisition. This leads me to think that everyone from the company is likely in golden cuffs.
> Walmart didn't have technology as a core competency
Is this really true? Isn't the prototypical example of real world big data that Walmart learned to stock pop tarts before hurricanes? They also seem to have a wide range of tech related jobs at their job portal.
Walmart clearly knows how to leverage technology. Their business is built around using technology to lower costs and manage the flow of inventory. Walmart has always relied very heavily on IT, and has been a driver of retail IT innovation.
My take is that even a very seasoned technology team with a deep bench can occasionally miss the beginning of something important, and be forced to catch up. 1) Don't let that be you. 2) Admit it, someday it will be you, so don't be so arrogant that you can't start executing plan B.
Wal-Mart does use IT to improve the flow of inventory, but also to improve our interactions with shoppers, employees, and the communities that the stores are based in.
We recently just had an internal hackathon, of which there was everything from AI to complete redesigns of our business model. I guarantee that one of those will become a full project withing the walls.
Unsolicited, free-to-steal idea dept.: I think there's a non-zero market (in some markets) to charge/invite customers to shop outside NBH / even shutdown 24/7 store temporarily for the right $$$$. I, for one, hate shopping with huge, slow crowds... I'll go somewhere else and/or only go during low-traffic hours. Btw, Costco (and what was PriceClub) used to do this (eg early hours) for commercial and executive customers... (oddly, IDKW I haven't downgraded to Basic given there's almost no advantage to Executive these days.) Apple, although upmarket extreme, also does this for shopping and training.
Also, wish large chains would trial Amazon Go-style cashierless checkout, but perhaps adding a paper receipt for legacy interop/loss prevention/audit. All kinds of great, reusable data could be had with ML/CV with real-time, total product awareness. Lots-and-lots of cameras, networking and datacenter floorspace... but likely worth the investment. AI tallying up what was taken as-it-goes saves a great deal of human effort and customer time, basically an inevitable modality.
EDIT: Maybe in the future, we won't even need stores when/if drones can bring things around to try out/handle returns/prevent loss. Can picture drones from multiple vendors jostling to sell competing product, getting angry with each other and undercutting pricing of each other in real-time. Perhaps even drones carrying flowers / selling "Rolex'es" on a train.
WalMart Grocery's online order/pickup in store option is great. Comparable to Instacart's shopping experience, without the markup - you just drive to pickup, and it's already bagged and brought out to your car.
I would gladly pay $500-$1,000/year for a dedicated parking area and access to a no-wait checkout lane at Costco. Could be part of a 'Signature' membership or something.
As someone who worked in Amazon's supply chain, I'd have to say that WalMart anecdotally smashed us with their planning and buying technology. They had an entire system of weather-based inventory adjustments. I've heard stories of inventory being pulled off of shelves in the midwest to reroute to Florida a week in advance of a hurricane, well before the local authorities had even issuing weather alerts. I'm talking batteries, water, prepackaged foods, etc. Their planning systems are pretty magnificent.
The whole customer experience for Amazon so much better though. It's definitely not perfect, but we went through a lot of trouble to be as accurate and upfront about delivery expectations, prices, alternative products, accurate reviews, etc. Walmart still has a ways to catch up on the customer side.
Walmart fundamentally doesn't give a crap about the customer, and it shows. They know that at 2am, they are the only place your gonna be able to buy bedding, a cable modem, etc. and thus will staff the front end with 1 cashier to deal with a line of 20+ customers.
Returns are even worse, they will not comply with the store policy they have clearly printed on the signage behind them (eg: Store credit for an airbed that was defective and brought back the same day).
That being said, Amazon is sitting much worse with me than Walmart right now, over the past year I've had issues with 1/3rd of the products I've ordered off Amazon (bad mouse, Evo+ card performing at 6MB/s when rated for 25MB/s), and I'd never shop at any of the Amazon brick & mortar stores going up in Ballard or other parts of the city due to this. Amazon would likely sell me e.coli covered veggies at their current success rate.
The story I heard from my data warehouse professor in college was that Walmart analyzed receipts of purchases made on saturdays, and noticed a strange correlation between diapers and cases of beer.
A deeper analysis showed that fathers where being tasked with the replenishing of the diapers stock on weekends, and made a stop by the beer section on the way.
Following this, Walmart put diapers and beer close the each other, and sales skyrocketed.
It's probably not the real story, but it was a memorable enough introduction to get a bunch of sleepy students to learn what normal forms were all about.
> Isn't the prototypical example of real world big data that Walmart learned to stock pop tarts before hurricanes?
I've wondered about that too. My very speculative hypothesis: Walmart's tech and operations are designed for the 'wrong' model:
* Walmart: Regional warehouses (do they use them?). Inventory at and distribution to 10,000 retail stores. Brick-and-mortar retail sales operations (including store location, greeters, placement on shelves, etc.). Appropriate partnering and other arrangements such as rack jobbing.
* Amazon: Inventory at and distribution to a few massive regional warehouses. Web-based retail sales operations. Appropriate partnering arrangements such as web referrals, drop shipping, etc. Distribution one item at a time to customers' homes and businesses.
The tech that runs Walmart seems like it wouldn't work for Amazon. Think of just distribution and inventory: Walmart ships items in bulk to stores (i.e., essentially regional warehouses where the consumers come and pick from the shelves); Amazon ships items one at a time to consumers.
Walmart does stuff that is quite a bit more sophisticated than you imply, such as having quite a lot of inventory already in motion on trucks ready to be re-routed to where it is needed. It is my understanding that Amazon adopted some similar approaches to make sure it's regional warehouses remain stocked.
For that matter, Walmart certainly does ship in bulk (as in, whole trucks), but the contents of those trucks aren't measured only in whole pallets of items, but also smaller replacement inventory amounts (ie. when an item is rung up on the register, the system increments by one the amount going out on the next shipment to that store, which might be the next day, not to mention the amount being re-ordered from the supplier, etc.).
Not to mention that Walmart does handle a lot ofbretail e-commerce purchases that are shipped to individuals.
They were innovating from their earliest days (earliest example I remember were the "break-away" pricing labels to resist tag switching)
They were one of their first big enterprises to embrace node.js, contributing in open source, and leveraging it to handle Black Friday traffic.
IMO the online grocery shopping experience is better than Instacart (it's a matter of when, not if, they add home delivery to pickup)
I think the idea that they aren't a technology company is the result of cognitive dissonance between stores and the back-office, that WalMart is the culture that People of WalMart mocks, a bunch of redneck bumpkins from red states.
I meant that historically, Walmart's money-making pursuits were not bastioned mainly on technology, but supply chain and leveraged buying positions. This does not preclude them from having highly-competent specialists (e.g., technologists) to support these operations. For example, Google has a stellar legal team, but is still an advertisement technology company.
In fact, I think that Walmart had a lot to do with the standardization of UPC codes, which is a technological innovation for sure. Depending on your definition, everything could be a technology play, which makes for a far less useful term.
Yes but that is more so relying on off-the-shelf software versus building it yourself. A technology company will be building the tools, not exclusively buying them. Wal-Mary's core competency has been supply chain and apparently operations research.
When I want to buy something my first thought is to check Amazon.com. Walmart wants me to think of Walmart.com first. That's what I believe this purchase was all about.
"Walmart didn't have technology as a core competency"
Wallmart has absolutely amazing tech as a 'core competency'. You don't deliver more goods than anyone on planet earth without this.
But it was ops-ish. Not 'e-commerce-ish'.
Also - there is no 'acquihire' for billions. Surely some people are worth a lot, but even if he was worth that much, it's not within Wallmart DNA to do that.
Jet.com is a 'working infrastructure of direct e-commerce' that Wallmart surely sees as the future, and what is missing from their tech.
Imagine if they could graft Jet ops, into the Wallmart beast - it would make them Wallmart + Amazon type thing.
Which makes sense, even at high valuations. Wallmart business is so massive, that if anything can help them push out into more e-commerce domain, it's worth it.
The surplus in valuation is due to strategic alignment, not so much some 'op knowledge' that will increment revenues by x%.
Amazon is an existential threat to Wallmart, and the 'game is on' to win people buying online, so this was a weapon they bought.
$3 billion is a lot to hire one person. They had to think the tech, relationships, or something there was valuable, it makes no sense as just an aquihire imo.
I think there's definitely truth in what you're saying, and that $3BB is surely a lot to hire an individual. However, a company is more than just its employees and cash on hand, and I think Walmart saw value in paying for a team that could enable it to execute successfully online.
Jet.com had great technical execution and some interesting predictive capabilities: e.g., if a customer felt overserved and didn't want 2-day shipping or return option, then there were additional discounts that could be offered. If this could tool Walmart up to the point where it could be competitive online, then maybe it would be worth just under 1% of their almost $500BB annual revenues to buy this company.
The Resource-Process-Value framework could be a decent way to think about this[1]:
> Every time one company acquires another, it buys its resources, its
> processes and its values. Acquiring managers, therefore, need to begin by
> asking, “What is it that really made this company that I just bought so
> expensive? Did I justify the price because of its resources–its people,
> products, technology or market position? Or is a substantial portion of
> its worth created by its processes and values–its unique ways of working
> and decision making?”
I think by "competition", they were referring to Amazon, not Jet. Buying Jet for 3 gigabucks could still be worth it, if it can help Wal-Mart vault into serious online competition with Amazon.
But Jet can only help Walmart compete with Amazon if it has some virtues. And the point is, even if its people are great, they aren't worth $3B. If Jet's technology or brand or whatever are going to help Walmart compete with Amazon, then it's not an acquire-hire.
I never really understood the acquisition because of the reasons you said. Jet was burning through cash, and from what I can tell was gaining no mindshare over Amazon. When they didn't have inventory for products on their store, which was regularly in my personal experience, they'd just order them from Amazon and then offer more coupons to the customer.
So Walmart spent $3 billion to acquire someone who can spend cash fast? What exactly did he prove with Jet, other than he can spend more money to acquire customers than they will pay?
I only know what I read about it from a few articles, so I don't know the specifics. But from a consumer perspective Jet was losing horribly to Amazon - I'd use their coupons when it was cheaper than Amazon and then go back to Amazon. I figured out ways to essentially get steep discounts for every order, and even then I still preferred to use Amazon because it had less friction.
That isn't what they bought. You have to understand more of the back story. Marc built an e-commerce business up from nothing and sold it to Amazon for 500M. The thing Amazon bought then wasn't just the customers/revenue but all of his experience using Kiva robots to automate the logistics and keep costs down. They now use that in all of their warehousing.
My understanding is that Marc is none too fond of Amazon for whatever reason and jet.com was created specifically to beat Amazon. Jet's group coupon and localized shipping discounts became to hard to figure out profitability and keep growing the business so it was keeping raising and fighting or go help do it with Wal-Mart's checkbook. I actually think it was a win-win.
I hope you're right, as I believe competition is good for the consumer. But in this case I'm not sure I see it. I can understand Walmart wanting to buy Marc, but not at that price point for a company that is growing its burn rate.
Of course, I don't know the logistics and how Walmart's acquisition could effect their burn rate and their revenue stream. My point was specifically that Jet was spending money to acquire customers, but the customers (in my anecdotal experience) always went back to Amazon.
Focus on value, not cost. Sure, 3 bil is too much if all you want is Jet.com as is. But 3 bil might be just fine if what you want is a team to help you catch up online and compete with Amazon.
$3 billion to acquire a team that has not proven an ability to generate a profit? That's what boggles my mind. It's still a risk, but it's valued like a sure thing.
> a team that has not proven an ability to generate a profit
There is more than one flavor of unprofitability. On one end, you have Pets.com-style "selling stuff for less than it costs to stock and ship", and on the other end you have Amazon-style "every penny of profit and funding goes into expanding infrastructure ahead of projected demand and leveraging current infrastructure to enter new markets."
One thing you're seeing in the burn rate crescendo is that just before the acquisition, jet bought small rivals such as hayneedle.com so as to bargain based on a higher market share.
> What exactly did he prove with Jet, other than he can spend more money to acquire customers than they will pay?
So true.
- Did they prove the membership model would work for them? No.
- Did they prove their loyalty program / gamified shopping (discounts, opting out of returns, etc) would work. No.
- Did they prove they could use technology to minimize shipping costs? No. they acquired customers by essentially giving away money.
They were basically fulfilling from Walmart and others at a loss. I can't think of another company post dot-com bust that deserved to crash and burn more than Jet. And yet they got a nice exit. The pixie dust must be amazing. Or it's just blinding FOMO on Walmart's part.
Anyway - the part that's ignored in their gamified shopping is that saving money requires work from the consumer:
- Use a debit card to save credit card fees - little to no consumer credit protections, no rewards points, can't delay payment. People that want to use this option aren't going to be the penny pinchers.
- Watch for the tag icon so you can bundle items that can ship together and save money. Requires work to save compared to competitors. Not everyone is a stay at home coupon clipper.
- Forego the ability to return your item and save money. If they know it's not likely to be returned - they should just lower the price on their end so the consumer doesn't have to think. And if there's a chance they might return it - now the consumer has to gamble? Sore taste the first time you gamble and lose.
- Free shipping, but only over $35. Another thing to think about.
I find it hard to believe that even with Walmart's audience, the gamification will pay that $3B off. Jet's trying to compete with Amazon on price, but they added more work for the user to save. And because of inventory/reviews/value, Amazon is the first stop for consumers. I don't see how Jet's offering is compelling at all.
Target, Walmart, Best Buy all need to improve their online and mobile experiences. Jet.com was the first real contender to Amazon. Makes sense for someone to scoop them up. I'd bet there is room for more companies like jet. It could also be instacart or some other delivery oriented company if they can get nationwide scale.
As someone who has tried to work with them, I'd say no it doesn't. They are not responsive, very slow to do anything and frankly are more of a product API than a real innovation team. I'd love to see more from this group, I'd love to see them engage with the people in the labs forum more!
I cannot be specific in the open, but if you look at my profile you might be able to take a guess.
Frankly my experiences are limited to the Walmart Open API that came out of labs, so likely I'm just looking at a very small portion of what they're really doing (I'd guess most of which is for in house audiences).
Labs has many good people but also lots of legacy from Sterling world. This affects culture. For example, their execution (especially speed) is not as good as Amazon's. Their use cases are more complex than Amazon's because customers expect store pickup and/or store delivery. They are trying to leverage their stores but it adds is more work. Marc and team has been brought to change how execution happens.
Sometimes that knowledge doesn't trickle out due to a variety of political reasons. A fresh face, with the blessing of senior management, can make a solid impact.
Not saying this is what happened, and I greatly respect Walmart labs, especially the electrode project.
I work about 3 blocks down the road from them in Hoboken, and I've seen an influx of nicer cars in the area. Not sure if there is a correlation between the two.
There were SEC filings and some early employees have clear numbers there. Yes, there were some millionaires.
Not a huge number of them but at the time of the acquisition, the average tenure of an employee was under a year because of the fast growth rate.
Disclosure, I was and still am at Jet. I won't throw my numbers out but I will say it is bellow the million line but also under a year of time pre-acquisition.
From what I was told employees did well but not anywhere nearly as well as some of the numbers that had been initially tossed around (e.g. In regards to the contest winner that got options for signing people up). There were a lot of people that had to get paid before the employees got their cut.
That said no matter how you slice it, it was an impressive deal considering the company itself was burning cash like crazy and failing badly on their original mission of going head to head with Amazon. Well done to the team there. Only time will tell if saving Jet was ultimately a good move for WalMart.
For what it's worth, I wrote that viral article about the Jet content winner (http://www.cnbc.com/2016/08/08/this-pennsylvania-guy-probabl...) and afterward, Jet pretty seriously clamped down on who would talk to me. I would love to talk to Jet employees anonymously about how it all went down! It was super interesting.
IIRC, Jet was handing out equity in lots in order to hide the percentage of equity granted. This typically means a) They want to hide how little piece of the pie you are getting b) They are going to do further shady stuff like reverse splits, clawbacks, etc
Edit: The employee in this thread is still working so not FU money. Maybe "FU for a year while I travel the world" money.
I know a person who works there, and he has never mentioned it once. I presume if it was F-U money, there would be some conspicuous consumption. He joined a year before the acquisition.
A year before an exit prob means they only vested like 25% percent of their options. At that stage they were prob pretty expensive options and highly diluted. Options are not much good if they are not vested and priced too high.
Typically when a company is acquired unvested employee options are converted into options in the acquiring company's stock. So in this example the employee in question would just have to work another three years to realize the gains (just as he would have had to do otherwise).
Although not apropos to the question posed, I'd like to share that my recent, first (and final) attempt to buy something from jet.com went about as poorly as it could have, given that I ordered a readily-available monitor, and it took Jet a full week to arrive at the conclusion that they could not actually procure/sell it to me. Rather pathetic.
[1] see the subtle language that suggests Lore will be working on walmart.com: http://fortune.com/2016/09/20/walmart-acquisition-jetcom/