Jet was founded by Marc Lore, the same founder of diapers.com and soap.com, which sold to Amazon a while back. Due to some tactics used by Jeff Bezos and the Amazon team (some might call them dirty and others might call them capitalistic) in acquiring diapers.com and soap.com, in addition to personality differences, Marc Lore has serious beef with Jeff Bezos.

As soon as his non-compete expires Marc Lore raises a couple hundred million dollars from Bain Capital to launch Jet, a pure-play e-commerce site that focuses on Consumables products and dynamic pricing (the more you buy the more you save). It is a classic e-commerce company that grows sales quickly (some rumors put year one sales around $700 million) and bleeds cash profusely.

Walmart.com launched around 20 years ago and in spite of poor search functionality and lackadaisical fulfillment capabilities it is the second largest e-commerce site in the United States (though it is a very distant second to Amazon). The Walmart CEO, Doug McMillon, knows multi-channel retail is the future and hasn't been able to inspire meaningful sales growth out of walmart.com, and he has a large amount of cash on hand to make a large acquisition.

What is good about the acquisition? First, it gives Walmart some top-tier e-commerce talent. Marc Lore now runs all of Walmart Global E-commerce (he is a direct report to Doug), and other Jet leadership has moved into Walmart Global E-commerce leadership. Second, Jet's core customer base is very complementary to Walmart's customer base. It targets urban Millennials, which historically have not been very receptive to the Walmart brand. Lastly, as someone mentioned already, Walmart was buying some of Jet's technology. Walmart.com's checkout process is now easier, and other technologies are being incorporated on the back end.

Why did Walmart pay too much? The purchase price was $3.3 billion. Rumored sales at Jet were $700 million. Jet was bleeding cash and nowhere near profitability. Obviously the purchase price was so high because of the assumed synergies to walmart.com; however, sales at walmart.com are only $12 billion. Walmart will have to continue to fund Jet's losses, and these aren't even factored into the purchase price. There was an article that stated Walmart was the only suitor that inquired seriously about acquiring Jet. During the courtship Doug (Walmart CEO) and Marc (Jet CEO) grew close due to similar views on the retail landscape and what to do to be successful. Doug was desperate to get someone to help him fix his e-commerce problem, and he was a lightweight negotiator.

In spite of the purchase price I am optimistic about the acquisition. Last quarter Walmart Global E-commerce posted a 63% sales growth, which is higher than anything in recent memory. Walmart marketplace is growing, which is one of the few ways to make money in e-commerce. Walmart has a core e-commerce strategy, which it is actively pursuing and executing through acquisition and other channels.

Walmart.com will never beat Amazon in pure-play e-commerce, but it doesn't need to. There are lots of multi-channel models that are being fleshed out, and that is where Walmart can win.