6 Start-Ups Gunning for Amazon: Do Any of Them Stand a Chance?
E-commerce is on the rise, growing at 15% annually according to comScore, so it's no surprise that plenty of entrepreneurs are trying to get a piece of the pie. But in a world dominated by the behemoth that is Amazon (AMZN) - Get Report , do any of these startups stand a chance?
Very few are trying to tackle Amazon in its entirety, and instead are focusing on a specific market and audience. "The rules of the game have changed so much that to really gain traction it's going to be harder; the battlefield's a lot more intense," said Lincoln Merrihew, senior vice president of client services and operations at Millward Brown Digital. "For any of these to really succeed, the selection is going to have to be great, the user experience [has to be great], and they're going to have to have some Prime-like lure or bait."
We spoke to analysts and experts to get their take on which e-commerce startups show potential and which may be heading towards troubled waters.
1. Jet
Jet has received a ton of attention and $720 million in funding since CEO Marc Lore first announced the startup in 2014.
Jet is one of the few startups that is tackling e-commerce at large, trying to achieve scale across all categories. Jet's differentiating factor is its algorithm that reduces prices when products come from the same fulfillment center (which means cheaper logistics costs for the retailer).
"There's a conceptual notion that they could succeed -- because they have some very clever algorithms and far less cluttered website," said Paula Rosenblum, an analyst at RSR Research. "But I continue to hear mutterings about shipping -- timing, quality of packaging, etc."
Mulpuru-Kodali also pointed to Jet as a promising startup in the industry, but noted that they'll have to figure out a profit model. "If they can find ways to pay their bills and drive cash they'll be in good shape." The company recently decided to forgo its original plan of requiring membership fees going instead with the traditional e-commerce model, which requires them to make enough off the sales themselves.
2. Boxed
Boxed delivers bulk goods such as paper towels and cereal, mimicking Costco (COST) - Get Report in a digital form without the membership fee. It offers free three-day delivery on orders of at least $50.
With more than $30 million in funding, Boxed is aiming for a similar goal as Jet, though it hasn't received quite as much attention. The company has also reportedly been talking to Alibaba about an investment of as much as $80 million. Boxed has not shared any details on traction yet but has said that millions of people have tried the app.
"Boxed.com is a market disruptor," said Supriya Chaudhury, CMO of Clavis Insight, an e-commerce analytics provider. "It's a great idea -- having club store packs delivered to your home."
But Chaudhury notes that the company has some major problems to solve, especially around awareness. "People don't know about them and it takes time to understand what they do and how it will benefit a consumer," she said.
3. Minted
Minted is a marketplace for stationery, art, and other crafty products. It sells work from independent artists that wouldn't be found at traditional retailers, and recently said it was bringing in more than $100 million in sales and would be expanding into new categories such as home decor.
The company has raised $89.1 million from investors like Benchmark, Menlo Ventures, and Yahoo CEO Marissa Mayer.
"I have so much respect for the team at Minted," said Sucharita Mulpuru-Kodali, a Forrester analyst. "They've got some unique and innovative things."
But, she warned, they'll probably have to expand into more categories if they really want to stand a chance. "They're heads and shoulders above their competitors, but I don't know how much growth that particular space has ahead of it," she said. "They will likely have to discover new product categories to continue to grow."
4. Instacart
Instacart most closely competes with Amazon Prime Now, offering consumers fast delivery on groceries. The startup charges either a yearly membership of $99 a year for unlimited deliveries or $3.99 for two-hour delivery and $5.99 for one-hour delivery.
While there are a number of players trying to get into the instant delivery game, Instacart is off to a good start. The start-up has $274.8 million in funding from investors like Andreessen Horowitz, Sequoia Capital, and Khosla Ventures. The company has yet to announce whether it's profitable or not, but according to The New York Times, its revenue for 2014 surpassed $100 million. Since launching in San Francisco in 2012, the startup has expanded to 18 metro areas, and in January 2015 Forbes named it "America's Most Promising Company."
"Instacart is filling an important void in the retail ecosystem by bridging the local presence of storefront retail and the convenience of same-day delivery," said James Keller, executive partner at Bulger Partners. "A lot of players die in this space and many others are still trying to go after it, but Instacart appears to be carving out a nice business."
Keller pointed to Instacart's partnerships with retailers Whole Foods, CVS, and Costco as positive signs for the company's future.
"Instacart is currently limited geographically, but if it can continue gaining footholds in large cities across the country, it can put pressure on Amazon to commit more money and employees to doing the same," said Tom Caporaso, CEO of Clarus Marketing Group, an e-commerce solutions provider.
5. Shoprunner
Shoprunner is going up against Amazon Prime with its own shipping program. For $79 a year, consumers can get free two-day shipping at retailers like Toys R Us, Neiman Marcus, and Calvin Klein.
The startup makes money by taking a 2% to 5% cut of the purchases made through the program. It's backed by companies such as Alibaba (BABA) - Get Report and American Express (AXP) - Get Report and in the past year, Shoprunner more than doubled its users to a total of 2.4 million, according to Reuters. But it still faces significant challenges.
"Shoprunner has positioned itself to compete with Amazon's free two-day Prime shipping, but the company has struggled with establishing a marketing foothold and with being truly merchant-friendly," said Keller. "ShopRunner's value proposition has not been sufficiently compelling in either the customer or merchant direction, and it does not appear to be approaching escape velocity."
6. Shyp
Shyp isn't exactly tackling Amazon in the traditional sense, but it is trying to innovate in the logistics space which could in turn help traditional retailers fight against Amazon.
For $5, the San Francisco-based startup will send a courier to pick up items, package them, and ship them, without the user having to step out of the apartment.
Shyp has amassed $62.1 million in funding from investors like Kleiner Perkins Caufield & Byers and Kevin Rose. The company has been seeing its user base grow about 20% every month, and from August 2014 to August 2015 shipments have increased 600%, according to USA Today.
"While Shyp is primarily in the delivery business, it could help other retailers compete with Amazon in the fulfillment area," said Clarus Marketing Group's Caporaso. "It will need to expand its delivery area significantly before it can help smaller retailers compete with Amazon, but it's an example of the breadth of start-up opportunities available in e-commerce -- not to mention the advantage that Amazon has over so many competitors."