Earlier this month, Walmart acquired Jet.com for $3 billion in cash and $300 million of Walmart shares to be paid over time. Jet.com founder Marc Lore is now in charge of the combined company's online operations, which will define success as taking market share away from Amazon. The acquisition ranks highly in the list of shortest amount of time to a $1billion + exit by a company. The total number of days from financing to exit for Jet.com was 741. Not a bad exit for serial entrepreneur Marc Lore and his Hoboken, New Jersey-based team.

So what was it about Jet.com's business model that drew in Walmart? The Jet.com platform. Let me explain why.

Walmart is mostly a linear company that resells other manufacturers' items at its brick and mortar locations. It owns and controls the value that it passes unto consumers. Jet.com is a platform business that lets third-party sellers list and sell their inventory. It doesn't have these products' costs on its balance sheet, it simply acts as a platform intermediary that facilitates the exchange of value between suppliers and consumers. Amazon and Jet.com are both platform businesses. Walmart needed an infusion of platform entrepreneurship to begin its essential transition into a platform business. Jet.com delivers that and much more.

In 2001, Walmart was the 5th most valuable company in the world with a market cap of $260 billion. Since then, it's been dethroned by platform companies, including Apple, Google, Microsoft, Amazon and Facebook, who currently are the top five most valuable companies in the world in that order. Jet.com is part of Walmart's offensive platform strategy that looks to leverage the scalability and reduced operating costs of platforms to fight a smarter fight against Amazon. Brick and mortar won't cut it for Walmart. It needed a platform to reach more consumers and scale faster than it could through brick and mortar.

Before the acquisition, Jet.com achieved a $1 billion gross merchandise run rate in a little more than a year and was adding 400,000 shoppers monthly. Jet.com customers are different from Amazon customers because the latter tend to buy singular items under the convenience of free shipping on an Amazon Prime subscription. Jet.com is more like Costco because its proprietary algorithims promise to deliver the lowest prices. Furthemore, Jet.com lets customers save more when they buy in bulk. Costco's business model is to sell bulk goods almost at cost and instead monetize through membership fees. This is why the average size of a Costco purchase is near $400. The similarities in bulk purchase behavior at Walmart and Costo signal a strong fit between Walmart and Jet.com as both their consumers are trained to buy in bulk. The potential of Jet.com emerging as the defacto bulk ordering platform could be a very strong differentiation for Walmart. Could Costco eventually start listing their products on Jet.com and paying rent to the platform to store its inventory and handle shipping and logisitics? Walmart would certainly love that.

By our own research estimations, Jet.com isn't terribly far behind Amazon in its value proposition to merchants i.e. the platform's producers. When I spoke to a friend who is a seller on Jet.com and Amazon, they provided the following data. On the Jet.com marketplace, they can generate $10k/ week, while they make 10x that amount on Amazon. The pricing algorithims Jet.com uses automatically match the price of the iterm on a competitive platform. For instance, if I'm selling a scooter for $50 and Amazon offers it at $45, Jet.com will match it at $45 for the consumer and pay the merchant $50. While Jet.com's value proposition to merchants is behind Amazon's, the delta isn't insurmountable, especially with the backing and inventory of Walmart. Regardless, Jet.com and Walmart are both pretty close in the competition for second place as a marketplace and all other marketplaces (except for Amazon) are nowwhere close to Jet.com or Walmart. However, Walmart shareholders will have to understand that merchant subsidization is part of the game and required to make the Jet.com acquisition a successful offensive tactic against Amazon.

Becoming a platform business was the only way that Walmart could effectively compete against Amazon. Jet.com delivers that and more.