Alibaba Group Holding Ltd Secretly Backing Amazon’s Would-be Rival Jet.com

Chinese online retail giant Alibaba has secretly invested in soon-to-be-launched e-commerce firm Jet.com. Founded by Marc Lore, Jet raised $140 million in February from a group of investors including Bain Capital Ventures and Accel Partners. In its announcement, Jet had mentioned an unnamed “strategic” investor. That mystery investor was none other than Alibaba, multiple sources familiar with the matter told Ryan Mac of Forbes.

Alibaba betting on the most promising challenger to Amazon

Jet.com will take on Amazon by offering products at cheaper prices than the Jeff Bezos-led behemoth. According to a regulatory filing, Jet raised another $5 million last month. In total, Lore has raised more than $225 million for his startup. It is Alibaba’s first investment in a direct U.S. rival of Amazon. The Chinese company had launched its own online marketplace 11 Main in the U.S. in June 2014, which has received a tepid response from American consumers.

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Marc Lore was the co-founder and former CEO of Quidsi, which operated multiple e-commerce sites including Diapers.com. He sold Quidsi to Amazon for $550 million in 2010, and spent a couple of years there. Jet.com is the most promising challenger to Amazon in years. Jet is expected to unveil its e-commerce website to some beta users in the next few days.

How will Jet make money?

Jet aims to have at least one million paying customers by the end of 2015 and 15 million customers by 2020. It hopes to reach a gross merchandise volume (GMV) of $20 billion within five years. Lore doesn’t expect the company to make profits by selling goods to customers. Jet will sell goods at cost to fulfill its lowest-price promise.

The company will generate profits from $50 membership charges that customers will pay to gain access to Jet’s lucrative deals. Lore says Jet’s operating margin will be in the range of 3%-3.5%. Alibaba has invested in a lot of U.S. startups including Snapchat, taxi-hailing app Lyft, TV remote app Peel, and online shopping service ShopRunner.

Alibaba shares fell 0.53% to $82.01 in pre-market trading Thursday.