How e-commerce start-ups can give Amazon a run for its money

There are two ways for start-ups to take on Amazon, the reigning monarch of US online shopping.

One is to mount a frontal attack: Raise hundreds of millions of dollars from investors, build huge warehouses and a complex delivery infrastructure, establish deals with thousands of merchant partners and aim, through sheer brute force, to compete with Jeff Bezos’ behemoth on the very qualities that have made Amazon peerless – selection, speed, customer friendliness and price.

The other way is to come out of left field.

While ceding some advantages to the Bezos machine – admitting that it may never beat Amazon on price, say – a start-up could cleverly marshal new technologies to attack the giant on more advantageous ground.

In the past few months, two retail veterans have been working on companies that explore different ways of breaking into online commerce.

Enjoy & Jet. com

Ron Johnson

, who, with

Steve Jobs

, created Apple’s lucrative physical stores, has been working on something unconventional – a selective online store called Enjoy, which, for no additional cost, will send an expert to hand-deliver tech products and spend an hour helping people set up and learn to use their new things.

The service, Johnson said, is a smartphone-era take on his past at Apple – an effort to create the friendliness of an Apple Store in people's homes and offices.

Then there's Marc Lore, an e-commerce veteran who in 2010 sold his company, Quidsi, to Amazon for about $550 million.

Lore's new service, Jet.com, represents a frontal assault on Amazon. Lore has raised more than $200 million – a staggering sum before even opening up shop – to create a nationwide e-commerce giant to compete with Amazon on selection, service and, especially, price.

Jet’s promise is simple and, if the company can keep it, potentially momentous: to offer the absolute lowest price on just about everything, from paper towels to porridge to tennis rackets, guaranteed.

I’ve been chatting with Johnson and Lore about their ambitions, and testing each of their services in early, prerelease form.

While their companies are completely different – and, like all start-ups, face long odds in reaching a critical mass of users – they each represent potentially transformative ways to shop online.

Their efforts suggest that online commerce remains a huge area of innovation and opportunity – and that Amazon, as big and indomitable as it sometimes seems, doesn’t have the whole thing locked up.

“E-commerce today is primarily logistics and convenience – you order today and, boom, get it tomorrow,” Johnson said in a recent interview at Enjoy’s headquarters, a bustling warehouse in Menlo Park, California.

That model, he said, would remain a primary way to buy things, but smartphone-powered local delivery networks have also opened up a potential new way of shopping Johnson calls “personal commerce”.

Johnson began noodling around with the idea that would become Enjoy early in 2014, about a year after he was dumped from a disastrous run as chief executive of JC Penney.

He became intrigued, he said, by the possibility of reimagining Personal Setup, a service he created at Apple that offers free in-store assistance to people who buy new products.

“I remember when we launched that, Steve said, ‘Are you sure you can do that? Your stores are busy’,” Johnson said. “But I thought it was the right thing to do. And within a matter of weeks of launching it, well over half the purchases were being set up in a store.”

Enjoy, which has recruited several former Apple employees, aims to offer a similar kind of set-up, but at a time and place of the customer’s choosing.

Among other things, Enjoy’s representatives will show you how to transfer your data from your old smartphone to your new one, train you to shoot and edit video on a GoPro, or explain how to add music to your Sonos audio system. As I saw in my own session with an Enjoy rep, the company will even teach you how to fly your new drone.

Starting small

Enjoy is starting small. The company, which has raised about $30 million from investors, is starting out in the San Francisco Bay Area and New York City.

Enjoy does not compete with Amazon on selection; it offers only about a dozen or so high-margin tech products for sale, among them laptops, GoPros, drones and, in an exclusive deal, smartphones and tablets purchased from AT&T.

Johnson believes that by limiting selection, Enjoy can offer free delivery and setup. Because it needs to stock only high-end products, the company hopes to squeeze enough out of each purchase to cover delivery and personal consultation.

Enjoy's big bet is that it can stock, route and schedule appointments efficiently enough to justify its staff of travelling experts – all of whom, in an interesting twist, are salaried employees and not hired on contract, a model used by many other logistics start-ups, including Uber.

Enjoy is in stark contrast with Jet, which, when it opens to the public in early July, does not aim to start small. Right out of the gate, it makes a huge promise: “You should never find an item that’s more expensive on Jet than anywhere else,” Lore told me this week.

Lore says he believes he can keep that promise thanks to an unusual business model. Jet will charge an annual membership fee, in this case $49.99. That fee is intended to free Lore from making any profit on each item – and thus pass all potential savings to customers.

The site’s selection, search functions and product descriptions are not polished, and it is missing useful features such as reviews and recommendations. Lore said many of these shortcomings should be fixed by the time Jet goes public.

Right now, the service is working well enough to bolster Lore’s basic claim. On dozens of items I searched for, Jet was cheaper, sometimes unbelievably so, than Amazon, Wal-Mart or anywhere else online.

What’s most fascinating about the e-commerce industry is that neither Lore’s frontal attack nor Johnson’s flanking manoeuvre is an obvious loser. Amazon is almost 22 years old, and every year it captures an ever-greater slice of US national shopping. And yet, in the overall scheme of commerce, it is tiny.

Over the Christmas period, Amazon sold a record $29.3 billion in merchandise, more than many large e-commerce companies combined. But Americans spent about $1.2 trillion in the same period, meaning Amazon accounted for just 2 per cent of purchases in the US. In other words, there’s lots of room for new ways to get shopping online.

– (New York Times News Service)