Can Jet.com's Wall Street programmers outwit Amazon and Walmart?

The Internet offers personalized news, personalized playlists and, now, personalized prices. That's the promise of the new online shopping destination Jet.com, which opens to the public on Tuesday.

Dreamed up by former Wall Streeter Marc Lore and backed by $225 million from investors, Jet offers millions of items for sale at its web site, from toilet paper to laptops, just like competitors Amazon (AMZN) and Walmart (WMT). But Lore promises Jet will sell its merchandise at prices 10% or more below those competitors to consumers who pay a $50 annual membership fee, bringing the warehouse club model online.

While competitors focus on faster shipping, media offerings and better service, Jet is focusing on lower prices. "There are certainly people out there willing to pay a premium for higher service," Lore says. "The greater opportunity is for people wanting to save money."

And shopping at Jet is nothing like shopping at any other e-commerce portal. At Jet, each choice a consumer makes instantly changes the prices of thousands of other items. Place one item in the Jet app's shopping cart -- say, a bottle of Tide detergent -- and the prices of all sorts of other items start tumbling in an animated display reminiscent of a Vegas slot machine.

Jet's prices start low, Lore says, because the company is making all its profit from the annual membership fees, not from the usual mark-up on every item for sale. And the added savings in the real-time price cuts come from encouraging consumers to buy items that can be shipped together, a little bonus for improving the retailer's logistical efficiency. Customers can also save by choosing to pay with a debit card instead of a credit card or by agreeing to forgo the right to return -- both choices, again, lowering costs for the retailer.

It's all enabled by software that's very different from the programs underlying other big retail sites. Written by former Wall Street and hedge fund programmers, Jet's site runs more like a vast stock exchange than a digital shopping mall. To reset prices on a customer-by-customer basis in real time can require processing billions of transactions at a time.

The core programming engine can make billions of calculations per second "continually trying to find the best permutations of offers for the consumer," says chief technology officer Mike Hanrahan. It's analogous in some ways to programs that seek to match buy and sell orders among thousands of traders in bond and stock markets. The number of calculations would quickly overwhelm a standard e-commerce platform and generates even more volume than some of the most complex real-time trading systems on Wall Street, which deal with thousands of securities, not millions of items for sale, he says.

The system works by incorporating rules from each of the thousands of partner sellers offering merchandise on Jet's site. A Pennsylvania seller might want to offer lower prices to customers on the East Coast. A retailer overwhelmed by online orders on Mondays and Tuesdays might offer a cut to customers willing to wait a few more days for delivery. All of the rules have to be accounted for as each individual Jet customer places different items in their shopping basket.

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Resumes from the company's employees read like a who's who of once and former Wall Street firms, from departed legends like Bear Stearns and Merrill Lynch to current stalwarts Goldman Sachs and Credit Suisse. One lead engineer used to design software for Citibank's interest rate traders and another for Ziff Brothers Investments. A top recruiter used to hire programmers for the biggest hedge fund in the world, Ray Dalio's Bridgewater Associates.

Jet CEO Lore got his start at Bankers Trust and Credit Suisse before going on to found Quidsi, the parent of Diapers.com that he sold to Amazon in 2010 for $550 million. He worked for Amazon CEO Jeff Bezos for a short time, before striking out on his own again with Jet.

Skepticism abounds

Along with the publicity and fundraising, Jet has also attracted its share of critics. The Wall Street Journal this week compared the startup to famed Internet bubble flag bearer Pets.com and reported that the company was losing $242 on a sample 12-item order costing $518.

CEO Lore says such losses are typical of a startup business as it gains scale and that the company's business plan accounts for early deficits. Jet's entire software system runs on Microsoft's (MSFT) Azure cloud platform, so that it can start small (and less expensive) and then scale as the company grows.

"Yes, we are taking a loss on many transactions today to make sure the customer has an amazing experience on day one," Lore says. "The amount of capital we'll need is small in relation to the scale of business we can create when we get there."

Jet aims to scale quickly, reaching profitability in five years at $20 billion of sales. Obviously, in a much earlier era, Amazon had only $2.8 billion of sales in 2000, its fifth year, and didn't exceed $20 billion until 2009. The market is much bigger and more mature now, however. Fewer than 44 million households were online in 2000 compared with 87 million in 2013, according to the U.S. Census Bureau. And U.S. e-commerce sales leapt to $300 billion last year from $27 billion in 2000.

But some e-commerce experts question whether Jet's business plan to copy the warehouse club model can work in an online environment. Costco (COST) attracts customers by offering lower prices than typical supermarkets and department stores, which rely on big mark-ups. But Jet is competing against online giants already known for relatively low prices, says Rafi Mohammed, a leading pricing consultant and author of "The Art of Pricing."

"Jet can't be like Costco in the sense that it is going up against very low-priced competition," Mohammed says. Walmart and Amazon, "aren't going to roll over as my local Stop & Shop did when they were going up against Costco."

Lore says Jet will be offering its supplying retailers, such as Barnes & Noble and Newegg.com, better underlying economics with the dynamic pricing model encouraging consumers to place more efficient orders. And he thinks Amazon and Walmart won't be willing to lose the billions of dollars necessary to compete with him on price -- the two giants have much more at stake with their larger existing customer bases.

If the model does work, competitors may move to copy the strategy. Some retailers are, in effect, offering lower prices in return for similar trade-offs, "but none are as explicit about it as Jet.com seems to be," says Nikki Baird, a longtime retail industry analyst and managing partner at Retail Systems Research. "A lot of retailers will be watching those kinds of discounts too, to see if it does incent consumer behavior, especially around shipping."

Others question whether there really is a big opportunity catering to the most price-conscious consumers. "There will be a niche of consumers -- like those people who clip the heck out of coupons -- but I'm not sure how big that niche will be," says Larry Compeau, a professor of consumer and organizational studies at Clarkson University who focuses on pricing and shopping behavior. "Just low prices alone frequently won't support a market leader."

Many retailers and manufacturers also are wary of selling at the lowest cost, Compeau says, making it difficult for Jet to offer a wide array of products. "Some firms simply are not going to want their brands associated with the lowest price retailer on the Internet," he says.

Despite the critics, VC firms including Google Ventures, Bain Capital and General Catalyst Partners have invested $200 million in Jet over the past year. Jet raised another $25 million of debt, as well.

The swelling coffers helped prompt the comparisons to some of the wild flameouts of the Internet bubble era. But the money will also fuel a $100 million mass marketing campaign and cover expected substantial losses in the early years.

The solid backing is also obvious on a visit to Jet's brand new headquarters in Hoboken, N.J., overlooking the Hudson River and the Manhattan skyline. Along with a purple pool table and open kitchen with free snacks, employees can choose from water flavored by freshly sliced lemons or cucumbers.

Lore is eager to get started. "I've been in e-commerce now for about a decade," he says. "I've learned a lot about what customers get most excited about."