Freelance workers available at a moment’s notice will reshape the nature of companies and the structure of careers

 HANDY is creating a big business out of small jobs. The company finds its customers self-employed home-helps available in the right place and at the right time. All the householder needs is a credit card and a phone equipped with Handy’s app, and everything from spring cleaning to flat-pack-furniture assembly gets taken care of by “service pros” who earn an average of $18 an hour. The company, which provides its service in 29 of the biggest cities in the United States, as well as Toronto, Vancouver and six British cities, now has 5,000 workers on its books; it says most choose to work between five hours and 35 hours a week, and that the 20% doing most earn $2,500 a month. The company has 200 full-time employees. Founded in 2011, it has raised $40m in venture capital.

Handy is one of a large number of startups built around systems which match jobs with independent contractors on the fly, and thus supply labour and services on demand. In San Francisco—which is, with New York, Handy’s hometown, ground zero for this on-demand economy—young professionals who work for Google and Facebook can use the apps on their phones to get their apartments cleaned by Handy or Homejoy; their groceries bought and delivered by Instacart; their clothes washed by Washio and their flowers delivered by BloomThat. Fancy Hands will provide them with personal assistants who can book trips or negotiate with the cable company. TaskRabbit will send somebody out to pick up a last-minute gift and Shyp will gift-wrap and deliver it. SpoonRocket will deliver a restaurant-quality meal to the door within ten minutes

The obvious inspiration for all this is Uber, a car service which was founded in San Francisco in 2009 and which already operates in 53 countries; insiders say it will have sales of more than $1 billion in 2014. SherpaVentures, a venture-capital company, calculates that Uber and two other car services, Lyft and Sidecar, made $140m in revenues in San Francisco in 2013, half what the established taxi companies took (see chart 1), and the company shows every sign of doing the same wherever local regulators give it room. Its latest funding round valued it at $40 billion. Even in a frothy market, that is a remarkable figure.

Bashing Uber has become an industry in its own right; in some circles, though, applying its business model to any other service imaginable is even more popular. There seems to be a near-endless succession of bright young people promising venture capitalists that they can be “the Uber of X”, where X is anything one of those bright young people can imagine wanting done for them (see chart 2). They have created a plethora of on-demand companies that put time-starved urban professionals in timely contact with job-starved workers, creating a sometimes distasteful caricature of technology-driven social disparity in the process; an article about the on-demand economy by Kevin Roose in New York magazine began with the revelation that the housecleaner he hired through Homejoy lived in a homeless shelter.

This boom marks a striking new stage in a deeper transformation. Using the now ubiquitous platform of the smartphone to deliver labour and services in a variety of new ways will challenge many of the fundamental assumptions of 20th-century capitalism, from the nature of the firm to the structure of careers.

The young Turks

The new opportunities that technology offers for matching jobs to workers were being exploited well before Uber. Topcoder was founded in 2001 to give programmers a venue to show off. In 2013, it was bought by Appirio, a cloud-services company, and now specialises in providing the services of freelance coders. Elance-oDesk offers 4m companies the services of 10m freelances. The model is also gaining ground in the professions. Eden McCallum, which was founded in London in 2000, can tap into a network of 500 freelance consultants in order to offer consulting services at a fraction of the cost of big consultancies like McKinsey. This allows it to provide consulting to small companies as well as to concerns like GSK, a pharma giant. Axiom employs 650 lawyers, services half the Fortune 100 companies, and enjoyed revenues of more than $100m in 2012. Medicast is applying a similar model to doctors in Miami, Los Angeles and San Diego. Patients order a doctor by touching an app (which also registers where they are). A doctor briefed on the symptoms is guaranteed to arrive within two hours; the basic cost is $200 a visit. Not least because it provides malpractice insurance, the company is particularly attractive to moonlighters who want to top up their income, younger doctors without the capital to start their own practices and older doctors who want to set their own timetables.

The Los Angeles-based Business Talent Group provides bosses on tap for companies that want to tackle a specific problem without adding another senior executive to the payroll: Fox Mobile Entertainment, an online-content provider, turned to it for a temporary creative director to produce a new line of products. Creative companies add a twist to the model: they demand ideas, rather than labour and services, and give a prize or prizes only to the ones they find interesting. Innocentive has applied the prize idea to corporate R&D; it turns companies’ research needs into specific problems and pays for satisfactory solutions to them.

A job for the afternoon

Tongal does the same thing with its network of 40,000 video-makers. In 2012 Colgate-Palmolive, a consumer-goods company, offered $17,000 to anyone who could make a 30-second advertisement for the internet. The ad was so good that the company showed it at the Super Bowl alongside blockbuster ads that cost hundreds of times more. Members of the Quirky network post their product ideas on the company’s website. Other members vote on the attractiveness of each idea and come up with ways of turning it into reality. Since its birth in 2009 the company has acquired over a million members and brought 400 products to the shops.

Perhaps the most striking of all the on-demand services is Amazon’s Mechanical Turk, which allows customers to post any “human intelligence task”, from flagging objectionable content on websites to composing text messages; workers on the site choose what to do according to task and price. The set-up uses to the full most of the capabilities and advantages that make on-demand business models attractive: no need for offices; no full-time contract employees; the clever use of computers to repackage one set of people’s needs into another set of people’s tasks; and an ability to access spare time and spare cognitive capacity all across the world.

The idea that having a good job means being an employee of a particular company is a legacy of a period that stretched from about 1880 to 1980. The huge companies created by the Industrial Revolution brought armies of workers together, often under a single roof. In its early stages this was a step down for many independent artisans who could no longer compete with machine-made goods; it was a step up for day-labourers who had survived by selling their labour to gang masters.

These companies introduced a new stability into work, a structure which differentiated jobs from one another more clearly than before, thus providing defined roles and new paths of career progress. Many of the jobs were unionised, and the unions fought to improve their members’ benefits. Governments eventually built stable employment along these lines into the heart of welfare legislation. A huge class of white-collar workers enjoyed secure jobs administering the new economy.

For a while after the second world war everybody seemed to benefit from this model: workers got security, benefits and steady wage rises; companies got a stable workforce in which they could invest with a fair expectation of returns. But the model started to get into trouble in the 1970s, thanks first to deteriorating industrial relations and then to globalisation and computerisation. Trade unions have lost power in the private sector, particularly in America and Britain, where legislation has reduced their ability to take action (see chart 3). Companies kept stricter control of their labour costs, increasingly contracting out production in industrial businesses and re-engineering middle-management. Computerisation and improved communications then sped the process up, making it easier for companies to export jobs abroad, to reshape them so that they could be done by less skilled contract workers, or to eliminate them entirely.

This has all resulted in a more rootless and flexible labour force. Pensioners and parents wanting or needing to spend more time on child care swell the ranks of students and the straightforwardly unemployed. A recent study by the Freelancers Union, a pressure group for freelance workers, suggests that one in three members of the American workforce (and a higher proportion of younger people) do some freelance work.

The on-demand economy is the result of pairing that workforce with the smartphone, which now provides far more computing power than the desktop computers which reshaped companies in the 1990s, and to far more people (see chart 4 on next page). According to Benedict Evans of Andreessen Horowitz, the new iPhones sold over the weekend of their release in September 2014 contained 25 times more computing power than the whole world had at its disposal in 1995. Connected to each other and to yet more data and processing power in the cloud, these devices are letting people design or find ad hoc answers to all sorts of business problems previously solved by the structure of the firm.

Coase and effect

The way economists understand firms is largely based on an insight of the late Ronald Coase. Firms make sense when the cost of organising things internally through hierarchies is less than the cost of buying things from the market; they are a way of dealing with the high transaction costs faced when you need to do something moderately complicated. Now that most people carry computers in their pockets which can keep them connected with each other, know where they are, understand their social network and so on, the transaction costs involved in finding people to do things can be pushed a long way down.

This has a range of knock-on consequences, all of which are becoming key features of the on-demand economy. One is further division of labour. Thomas Malone, of the MIT Sloan School of Management, argues that computer technology is producing an age of hyper-specialisation, as the process that Adam Smith observed in a pin factory in the 1760s is applied to more sophisticated jobs.

Another is the ability to tap underused capacity. This applies not just to people’s time, but also to their assets: to drive for Lyft or Uber, you do need a car. The on-demand economy is in many ways a continuation of what has been called the “sharing economy” exemplified by Airbnb, a company which turns apartments into guesthouses and their owners into hoteliers. For people with few assets, though, on-demand labour markets matter more.

And new areas are being opened to economies of scale. SpoonRocket prepares its food in two central kitchens in San Francisco and Berkeley. It delivers food quickly because it keeps a fleet of cars, equipped with thermal bags to keep the food warm, roaming the streets of San Francisco. “We’re like a gigantic cafeteria serving all of San Francisco,” says Anson Tsui, one of the company’s founders.

Scheduling success

The aim of the on-demand companies is to exploit low transaction costs in a number of ways. One key is providing the sort of trust that encourages people to take a punt on the unfamiliar. Customers worry about the quality of their temporary employees: nobody wants to give the key to their apartment to a potential burglar, or their health details to a dud doctor. Potential freelances, for their part, do not want to have to deal with deadbeats: about 40% of freelances are currently paid late.

On-demand companies like Handy provide customers with a guarantee that workers are competent and honest; Oisin Hanrahan, the company’s founder, says that more than 400,000 people have applied to join the platform, but only 3% of applicants get through its selection and vetting process. The workers, for their part, can hope for a steady flow of jobs and prompt payment with minimal fuss. Handy’s computer system also tries to schedule each worker’s jobs in such a way as to minimise travel time.

Despite these capabilities, Handy is not necessarily looking at huge success, any more than the other Ubers-of-X are. There are three reasons for scepticism about their chances.

The first is that on-demand companies trying to keep the costs to their clients as low as possible have difficulties training, managing and motivating workers. MyClean, a cleaning service based in New York City, tried using purely contract workers, but discovered that it got better customer ratings if it used permanent staff. The company thinks that better services justify higher labour costs. Uber drivers complain that the company pays them like contract workers while seeking to manage them like regular employees: they are told to take regular rather than premium fares, but are not reimbursed for their fuel. America’s gathering economic recovery may make it harder for companies to attract casual labour as easily as they have done in the past few years.

The second problem is that on-demand companies seem likely to be plagued by regulatory and political problems if they get large enough for people to notice them. American on-demand companies are terrified that they will be stuck with retrospective labour bills if the courts force them to reclassify their workers as regular employees rather than contract workers (a classification which is not always consistent from jurisdiction to jurisdiction, raising the level of anxiety). Handy at one point included a clause in its contracts imposing any such retrospective costs on its clients, though it has now withdrawn it.

Faced by the threat of Uber, established taxi companies around the world have organised strikes, filed lawsuits and leant on regulators. In the Netherlands Uber has been banned; South Korea is treating it as an illegal taxi service. In Germany anti-Uber feeling has nurtured a broader criticism of “Plattform-Kapitalismus”; its perceived readiness to reduce all aspects of people’s lives, from spare rooms to spare time, to assets to be auctioned off is seen as deeply dehumanising. But such protests often act as advertising for the services they are aimed against. And a recent study revealed that American politicos spend more on Uber than on regular taxis when campaigning, a strong indication that the road ahead is likely to remain clear.

The third issue is size. The on-demand model obviously has network effects: the home-help company with the most help on the books has the best chance of providing a handyman at 10:30 sharp. Yet scaling up may be difficult when barriers to entry are low and bonds of loyalty are non-existent. It will be hard to get workers to be loyal to just one middleman. A number of Uber drivers also work for Lyft.

In many service industries it is hard to see obvious economies of scale on a national or global level. Being the best dry-cleaning service in Cleveland does not necessarily offer a killer edge in Cologne. And taste can be fickle, especially with companies that often look like positional goods that trade, at least in part, on the cachet that they confer to their consumers. Many of the people who currently regard SpoonRocket as cool may drop it if it becomes a national brand. On-demand companies may find themselves stuck in a world of low margins, high promotional costs and labour churn as they struggle to attain the sort of market dominance that locks in their network advantages. Alfred, a subscription service, is already aggregating the work of specific on-demand companies such as Instacart and Handy to offer its Boston members a one-stop shop; such aggregation could drive down prices for the basic on-demand providers yet further.

Everyone a corporation

Even if the eventual on-demand victors do carve out profitable domestic-service businesses, many observers doubt that their model is more broadly applicable. Some critics argue that on-demand companies like BloomThat and Handy may be capable of delivering flowers or cleaning houses, but when it comes to companies in the main flow of the knowledge economy they are destined to remain marginal. This objection, though, is not very convincing. The sort of people currently using Uber are subject to the same forces as the people who drive them from place to place.

The knowledge economy is subject to the same forces as the industrial and service economies: routinisation, division of labour and contracting out. A striking proportion of professional knowledge can be turned into routine action, and the division of labour can bring big efficiencies to the knowledge economy. Topcoder can undercut its rivals by 75% by chopping projects into bite-sized chunks and offering them to its 300,000 freelance developers in 200 countries as a series of competitive challenges. Knowledge-intensive companies are already contracting out more work to the market, partly to save costs and partly to free up their cleverest workers to focus on the things that add the most value. In 2008 Pfizer, a pharma company, undertook a huge self-examination under the heading PfizerWorks. It realised that its most highly skilled workers were spending 20% to 40% of their time on routine work—entering data, producing PowerPoint slides, doing research on the web. The company now contracts out much of this work.

Thus more and more of the routine parts of knowledge work can be parcelled out to individuals, just as they were previously parcelled out to companies. This could be bad news for the business models of professional-service companies which use juniors to do fairly routine work—thus providing the firm with income and the juniors with training—while the partners do the more sophisticated stuff. As on-demand solutions and automation prove applicable to more and more routine work, that model becomes hard to sustain. InCloudCounsel undercuts big law firms by as much as 80% thanks to an army of freelances that processes legal documents (such as licences, accreditation and non-disclosure agreements) for a flat fee.

The key role that cutting things up into routines plays in both spheres suggests that the interaction between the on-demand economy and automation will be a complex one. Gobbetising jobs with the aim of parcelling them out to people who don’t see or need to see the big picture is not that different from gobbetising them in a way that allows automation. Often the first activity may prove a prelude to the second; it is easy to see Uber as a forerunner to an eventual system that has no drivers at all. In other cases, though, the cost-efficiency of contracting out may reduce the incentives to automate.

What sort of world will this on-demand model create? Pessimists worry that everyone will be reduced to the status of 19th-century dockers crowded on the quayside at dawn waiting to be hired by a contractor. Boosters maintain that it will usher in a world where everybody can control their own lives, doing the work they want when they want it. Both camps need to remember that the on-demand economy is not introducing the serpent of casual labour into the garden of full employment: it is exploiting an already casualised workforce in ways that will ameliorate some problems even as they aggravate others.

The on-demand economy is unlikely to be a happy experience for people who value stability more than flexibility: middle-aged professionals with children to educate and mortgages to pay. On the other hand it is likely to benefit people who value flexibility more than security: students who want to supplement their incomes; bohemians who can afford to dip in and out of the labour market; young mothers who want to combine bringing up children with part-time jobs; the semi-retired, whether voluntarily so or not.

Megan Guse, a law graduate, says that the on-demand model allows her to combine a career as a lawyer with her taste for travel. “A lot of my friends that have gone the Big Law route have these stories about having to cancel weddings, vacations and miss family events. I can continue working while being in exotic places.” Flexibility is also valuable for elite workers who want to wind down after decades of selling their soul to their companies. Jody Greenstone Miller, the founder of Business Talent Group, says that her company’s comparative advantage lies in rethinking corporate time: by breaking up work into projects, she can allow people to work for as long as they want.

A limited Utopia

The on-demand economy is good for outsiders and insurgents—and for entrepreneurs trying to create new businesses using such people. Matt Barrie, the founder of Freelancer.com, links the fate of two groups of potential winners: entrepreneurs in the rich world who have few resources will be able to link up with workers in the poor world who have little money. In Europe the labour market drives a wedge between insiders who have lots of protections and outsiders who don’t; on-demand arrangements may give outsiders a chance of breaking in. Thus in countries such as France, Italy and Spain, on-demand companies may improve the job chances of the young unemployed.

If this seems attractive, it is also a measure of the way that the on-demand economy will contribute to pressure to reduce labour rights in all sorts of situations; a growing abundance of on-demand employees with no normally accepted rights such as sick-pay and overtime will give employers at firms with more standard structures an incentive to cut back. The more such pressures spread, the more protests against “Plattform-Kapitalismus” the world is likely to see.

The on-demand economy will inevitably exacerbate the trend towards enforced self-reliance that has been gathering pace since the 1970s. Workers who want to progress will have to keep their formal skills up to date, rather than relying on the firm to train them (or to push them up the ladder regardless). This means accepting challenging assignments or, if they are locked in a more routine job, taking responsibility for educating themselves. They will also have to learn how to drum up new business and make decisions between spending and investment.

At the same time, governments will have to rethink institutions that were designed in an era when contract employers were a rarity. They will have to clean up complicated regulatory systems. They will have to make it easier for individuals to take charge of their pensions and health care, a change which will be more of a problem for America, which ties many benefits to jobs, than Europe, which has a more universal approach. They will also have to encourage schools to produce self-reliant citizens rather than loyal employees.

One of Gilbert and Sullivan’s oddest operettas, “Utopia Limited—or the Flowers of Progress”, focuses on an exotic South Sea island which, under the influence of Victorian industrialism, sets about turning all the inhabitants into limited companies. It is rarely performed today, in part because the targets of its on-the-nose-in-1893 satire seem remote. But perhaps, after a century in which companies were vast things, such a satire of corporate individualism is due for a revival or two. If so, the piece will be easier than ever to stage: if there are not already on-demand services that can provide Polynesian props, semi-retired set designers and down-on-their-luck tenors at the swipe of a screen, there soon will be.

jet.com Amazon Bought This Man's Company. Now He's Coming for Them

The historic downtown commercial district of Montclair, N.J., is known for its restaurants, antique shops, and art-house movie theater. It’s not usually home to lavishly funded attacks on the entrenched giants of global e-commerce. Yet on the second floor of a three-story red-brick building on Bloomfield Avenue, across a parking lot from a fancy pizza joint and up an unmarked stairwell, are the offices of one of the biggest bets in the history of online retail: a 100-­employee startup called Jet.com.

Jet is the brainchild of Marc Lore, the founder and former chief executive officer of Quidsi, a company best known for its most popular website, Diapers.com. He spent years competing with Amazon.com before getting clobbered in a price war and then, in 2010, selling out to the company for $550 million. Lore stayed on at Amazon for more than two years; now he’s preparing to assault it.

He wants to reinvent the wholesale shopping club. Jet plans to open for business on a “friends-and-family” basis in January and will start limited sign-ups on Feb. 20. Customers will find just about everything, from clothes, books, and electronics to baby goods and athletic gear. After a 90-day free trial period, Jet customers will be asked to pay $49.99 a year for access to what Lore claims will be prices that are 10 percent to 15 percent lower than anywhere else online.

Like Costco, Jet plans to make money on membership fees. Every other savings will be passed along to the buyer. And like EBay and the dominant Chinese e-commerce player, Alibaba.com, it will function primarily as a marketplace, allowing other merchants to compete to offer their wares to customers. But there’s a twist: Shoppers can squeeze out more savings if they can control the urge for instant gratification and let Jet figure out how to deliver the goods as economically as possible. For example, prices can drop when a shopper combines multiple orders into a single shipment or is willing to wait for a seller offering a more economical shipping option

“The bottom line is, we’re basically not making a dime on any of the transactions. We’re passing it all back to the consumer,” Lore says from a conference room in his Montclair headquarters. “We want to build a different type of relationship with the consumer. When we show you a product, it’s not because we are making money on it and not because we are closing out a line. It’s because we think it’s a good deal.”

Lore reassembled members of his old Quidsi band and has raised one of the largest seed funding rounds of all time. Before completing a single sale, he’s collected $80 million from venture capital firms NEA, Bain Capital Ventures, Western Technology Investment, and Accel Partners, the firm that backed Facebook, and plans to raise hundreds of millions more. It may be the riskiest bet on an unproven e-commerce business model since Amazon itself raised billions in debt in the late ’90s, when it was still highly unprofitable.

“This idea is massive,” says Patrick Lee, a partner at Western Technology Investment. “If Marc is right on this one, it will be multiple times bigger than Quidsi ever was.”


Lore founded Quidsi in 2005 with his childhood friend Vinit Bharara and built it while Amazon focused on media categories and hard goods like TVs and kitchenware. Lore and Bharara built a reputation for excellent service, adding a personal touch that resonated with customers. Diapers and other necessities, packed in blue, red, and green boxes—often with a hand­written note inside—arrived promptly at the doorsteps of grateful new parents. By 2010, Quidsi was pulling in about $300 million in annual sales.

Then Amazon took notice of Quidsi’s rise and, in the fall of that year, cut diaper prices by a third. Lore calculated at one point that Amazon was on track to lose $100 million over three months on diapers alone. Quidsi’s profitability sank, and Lore was forced to sell out to Amazon during the Great Recession, when additional capital to fund the fight was impossible to obtain.

Lore and Bharara spent a little less than two and a half years inside Amazon. (Bharara is an investor in Jet but has founded his own startup, online magazine Cafe.com.) Lore, whose default mode is tactful and earnest, tries to steer away from criticizing Amazon but frequently can’t help himself. “I felt like I did everything I could do there,” he says. “Little by little, they started wanting more and more control.”

A few weeks after Lore left, Amazon cut out the distinctive colored delivery boxes. It was a move to reduce costs, but to Lore it symbolized an operating philosophy he doesn’t share. “It was a superlogical decision, and I’m sure the numbers worked out fine,” he says. “But you can’t put a number on what it means to create a personal connection to the consumer.”

“We’re basically not making a dime on any of the transactions. We’re passing it all back to the consumer”

Lore watched these moves from afar, as he was trying and failing at an early retirement. He has two teenage daughters and, after he left Amazon, spent a few months with his family living in California wine country. He also invested in Lot18, a wine delivery company, though he sold his stake back to the company when he realized he had ideas about the business but as a passive investor couldn’t actually see them through.

It was there in Northern California, amid the rolling vineyards, that Lore had what he considers his e-commerce epiphany. Big players like Amazon, Walmart.com, and Googleare all scrambling to offer the fastest possible service, catering to today’s typical wealthier-than-average online shoppers who care more about convenience than value. Although shipping can appear to be free, it’s often baked in as higher prices. “There’s this huge middle class of people that are going to be spending more and more dollars online, and for them it’s going to be all about price,” Lore says.

He took inspiration from Costco, which invented a new category of discount retail, the members-only warehouse. It saved money by locating its cavernous, no-frills stores in out-of-the-way places and stocking them with a limited variety of supersize products—and it passed those savings on to shoppers in the form of lower prices. Costco, Sam’s Club, and other chains now have more than 100 million paying members in the U.S.

A few weeks after he left Amazon, Lore had lunch in New York with Sameer Gandhi at Accel and said he wanted to bring the membership-based shopping club model online. It was just a germ of an idea, but Gandhi wrote him a check for $1 million anyway because Lore had a record of making and then delivering on big promises. “When you are ready to do it, here is your seed money,” Gandhi told him.

Lore’s first task was finding new ways to squeeze costs out of e-commerce transactions. He started with packaging and shipping. With Jet.com, customers will be able to make multiple online purchases from a range of sellers and combine the merchandise in one box, which is then cheaper to ship. Jet turns these savings over to the customer. When Jet.com members add more items to their shopping cart, they’ll see the price for each product fall.

The trick will be to persuade shoppers to load up their carts instead of buying individual items impulsively. “We need to open people’s eyes a little bit,” says Mike Hanrahan, a former executive at Quidsi and now Jet’s chief technology officer. “If we can educate them that, ‘Look, instead of buying one thing every week, come back every two weeks and buy two things and you will save a few percent,’ it’s actually a lot of money.”

Buyers will also save by being offered items from sellers located near them. In a perfectly efficient online transaction, customers would buy only after filling their digital carts from nearby stores. Jet is more likely to emphasize merchandise that is physically close to the buyer and, again, pass the savings along.

The Jet model wouldn’t have worked a few years ago, but now that nearly every merchant is online and looking for new ways to compete with the likes of Amazon, it might. So far Jet has signed up Sony Store, electronics retailer TigerDirect.com, Sears Hometown & Outlet Stores, and hundreds of smaller retailers. BabyAge, a Jet.com seller based in Jenkins Township, Pa., spends $5 to ship to the East Coast, on average, and $15 to California. Usually the site sets prices that cover the highest possible shipping costs. But using a set of online pricing tools that Jet is making available to its sellers, it can reward the most efficient transactions. For example, a Graco stroller that might cost $119 on Amazon will cost $108 for anyone on Jet buying from BabyAge in the Northeast. “This is going to produce regional specialty in e-commerce, because now I’ll be able to sell for less than Amazon,” says Jack Kiefer, the company’s CEO.

Jet customers will get to choose whether to use a debit card instead of a credit card, and if they do, once again they’ll watch the prices for individual products fall by roughly 1.5 percent. Similarly they’ll have the choice to opt for delivery times of a week or more and to tap the savings that come from shipping via ground instead of air. Jet itself will sell some high-volume items such as diapers, dog food, and paper towels from fulfillment centers in Reno, Nev., and Swedesboro, N.J.

Because software can be used to track every possible decision they make on the site, customers will be able to watch their savings add up and judge whether it’s worth the annual fee. “It’s going to be a no-brainer,” Lore claims. “Every household in America should have a Jet membership. Why not spend $50 bucks to save $200?”


Lore, 43, is that rarest of tech entrepreneurs, a very Jersey guy who’s as much a student of Bruce Springsteen as Steve Jobs. He spent his early years in an Italian neighborhood on Staten Island, before his family moved to Lincroft, N.J., while he was in middle school. His father owned a computer consulting firm, and his mother raised the kids—Lore has two younger siblings. His parents fought frequently, to which he attributes his visceral distaste for conflict.

Lore was showing an entrepreneurial bent by age 6, when he charged family members 5¢ each to watch Casper the Friendly Ghost on a slide projector; he came up with a story for each frame. By 14 he was trading stocks using his parents’ money and buying and selling baseball cards at trade shows.

Bharara, his childhood friend, calls Lore “a human calculator” who’s almost eerily talented with numbers. Lore didn’t apply himself in high school, however, frequently opting to sneak down to the casinos in Atlantic City and count cards in blackjack. His track coach, fearing that Lore might flunk out of high school during his junior year, refused to let him train until he improved his grades. Something clicked, and Lore raised his grade-point average to 3.9 and got a near-perfect score on his math SAT. He got into Bucknell University and became the first member of his family to attend college.

Photographer: Jason Nocito for Bloomberg Businessweek

After graduation, Lore spent a few years working in risk management for Bankers Trust and Credit Suisse First Boston in New York and then for Japan’s Sanwa Bank in London, raising red flags on chancy trades and generally getting ignored by the hotshot traders who were making a killing with credit-default swaps and other newfangled derivatives. One morning when he was 27 years old, Lore fell to the floor in his office, feeling an electric jolt in his chest. It was stress and the result of overwork, not a heart attack, but Lore got the message, left finance, and started following his entrepreneurial passions.

His first company, The Pit, let sports fans value and trade sports collectibles like shares of stock. He sold the business to the Topps trading card company in 2001 for a modest $5.7 million, less than 12 months after starting it. Lore moved to Seattle to run a division of Topps, which is why, a few years later, he found himself at a picnic for his daughter’s private school, hobnobbing with another school parent: Jeff Bezos.

Lore had just started Quidsi, then called 1800Diapers, and at the barbecue he joked to Bezos, “I hope to give you a run for your money.” Bezos didn’t seem to remember that encounter years later, when they met again after Amazon acquired Quidsi.

Lore says he has “no bad feelings toward Jeff and Amazon.” But in many ways he has conceived of Jet.com’s culture as the antithesis of Amazon’s, which is known for its confrontational style, internal secrecy, and deliberate avoidance of friendly consensus. It also requires employees to sign noncompete agreements and, in fact, locked Lore into one that expires early this year.

“If someone is unhappy here and doesn’t see an opportunity for growth, OK, good luck, go to Wal-Mart”

At Jet, there will be no annual performance reviews, because Lore thinks feedback should be immediate and civil. Board presentations are posted online for the entire company to see. And Lore isn’t making any of his employees sign noncompetes; he says that “what goes around comes around,” and that without such stipulations “there’s more loyalty and trust that is built.”

“If someone is unhappy here and doesn’t see an opportunity for growth, OK, good luck, go to Wal-Mart,” he says. “I want to prove to myself that a different kind of culture can work and that you don’t have to be like that to be successful.”

The implicit criticism of Amazon, the company that nearly drove Quidsi out of business but eventually made Lore wealthy, isn’t lost on some outside observers. “There’s definitely a history of folks being acquired by Amazon, living inside it, learning from it, and coming out with a bit of a chip on their shoulder,” says Scot Wingo, who’s CEO ofChannelAdvisor, a company that helps other retailers sell online and has been briefed on Jet. “They go inside, and it creates a bit of animosity when they come out.”


Jet is building new offices in Hoboken, on the Hudson River overlooking the Manhattan skyline, which should be ready shortly after the site goes nationwide in March. The floor plan will be completely open. Lore himself won’t have a desk; he says he’ll roam between meetings.

The startup’s success is hardly assured. Sellers won’t come to the service until it’s got customers, and to get those it has to persuade many online shoppers, who are quite satisfied hunting for bargains at Wal-Mart, EBay, and Amazon, to try something new and pony up $50 for the privilege. (Jet.com plans to use much of its seed money on a massive branding campaign that will feature television, radio, and outdoor advertising.) “It’s extremely hard to change people’s behavior, though they proved with Diapers.com that they could get millions of people to buy diapers from them,” says Wingo.

There’s also the possibility that Lore’s powerful competitors will see Jet’s price cuts and respond by going even lower. Amazon did that before and drove Diapers.com into the red. Lore is betting in part that, this time, Amazon simply has its hands full. Bezos’s company is spending billions to expand in India and China while continuing expensive forays into cloud computing and hardware such as its Kindle Fire phones. Bezos could cut prices, but that would exacerbate Amazon’s losses at a time when investors are already showing impatience: Amazon stock fell 21 percent in 2014.

Either way, Lore will probably need a lot more capital. He’s talking to Google Ventures and other investors about raising a second round of funding. He may also find interest abroad—China’s Alibaba and Japan’s Rakuten are both looking for ways to enter the U.S. market. “He has the ability to raise capital like no one I’ve ever seen,” says Bharara of his friend. “I mean that in the best way. He sells using math together with a big vision and the ability to execute it. It’s a very powerful combination.”

Lore’s investors, many of whom hit it big on Quidsi, seem almost giddy about the size and risks of the bet. “All of us in the investment syndicate realized that if this was going to succeed, it needed to have significant resources,” says Accel’s Gandhi. “It’s the kind of thing we all like to do: very ambitious and full of things that can go wrong.”

Instacart Rings Up $220 Million More for its Grocery Delivery Service

 

Instacart, the fast-growing online grocery delivery startup that can get groceries to your doorstep within an hour, is growing some more. The three-year-old company just announced it has raised $220 million in a funding round led by the venture capital firm Kleiner Perkins Caufield & Byers.

Other investors include Comcast Ventures, the Dragoneer Investment Group, Thrive Capital, Valiant Capital, and Instacart's previous backers, Andreessen Horowitz, Khosla Ventures, and Sequoia Capital. A person familiar with the investment round who wasn't authorized to discuss it publicly confirms earlier reports that the funding round valued the startup at $2 billion.

We first wrote about Instacart in 2013, when it had only 10 full-time employees and the germ of an idea: that groceries could be plucked and quickly delivered to people's doorsteps from the shelves of existing supermarkets, rather than from refrigerated fulfillment centers outside major metropolitan areas. Like Uber and Lyft, Instacart relies on an army of smartphone-toting independent contractors, who scour store shelves and transport goods to people's homes using personal cars. The concept first attracted attention from veteran investors such as Sequoia's Mike Moritz, who previously belly-flopped into the first wave of failed food delivery startups like Webvan.

Instacart founder Apoorva Mehta, a former Amazon engineer, said in 2013 that Instacart's "secret sauce" was its software, which tracked inventory across multiple supermarkets and allowed its contractors to efficiently select items from different orders placed at different times as they walk through store aisles. Customers assemble their orders via lengthy drop-down menus on the service's website or app.

Instacart appears to be a hit. It is available in 15 cities and allows customers to shop at such stores as Whole Foods, Trader Joe's, Costco, Kroger, Safeway, and other chains. The company says its revenue grew tenfold in 2014 and doubled in the fourth quarter alone. It has more than 100 employees and an army of 4,000 green-shirted "personal shoppers."

The site has also attracted some criticism, particularly over its opaque pricing strategy. On its Twitter page, Instacart discloses that "sometimes, our prices are lower or higher than the stores' prices, sometimes they are the same." That makes it difficult for customers to tell what kind of premium they are paying as they sit at home awaiting delivery.

The company has built a huge war chest and apparently plans to expand not only into new cities, but new categories of retail as well. “We’ve got robust processes in place to support category and geographic expansion," Mehta said in a statement. "Our vision is to help all types of local retailers get online and offer their customers one-hour delivery. This financing round will help us accelerate and scale those efforts.”

He added via e-mail that it takes only two weeks for Instacart to set up its service in a new city. As to whether it will be easy to get into product categories beyond groceries, he wrote: "All I can say is that picking avocados or delivering ice cream is tougher than delivering most other things."