25 July 2009

Video: Here’s Why Amazon Bought Zappos

24 07 2009 - The deal is done, and we’re still digesting the news: Amazon has acquired Zappos for $850 million. The acquisition, confirmed by both sides, places the popular online apparel and footwear company squarely in the control of Amazon and its founder, Jeff Bezos.

image But Amazon’s already the master of online product distribution – they take online orders faster, ship goods cheaper, and trounce their competition. What could Zappos bring to the table that Amazon hasn’t already figured out? Like you, we wanted to figure out exactly why Amazon put down close to a billion dollars for Zappos (if you’re unfamiliar with Zappos, we suggest reading The New Social Engagement: A Visit to Zappos).

image While we’re still sifting through all of the details, several interesting tidbits have already emerged. So, here are the facts behind the acquisition and why we think both companies decided to tie the knot:


The Terms of the Deal

Here’s the summary of the deal: Amazon will purchase all of the outstanding shares, options, and warrants from Zappos for 10 million shares of Amazon’s common stock – currently worth about $807 million. In addition, Amazon will also provide $40 million in cash and restricted stock, specifically for the Zappos employees. Zappos will still operate in Las Vegas, NV and the management team will not be replaced.

The announcement from the Zappos side came from Tony Hsieh, the Zappos CEO, in an open letter to employees. The information is generally the same, although it deals more with why Zappos is excited about the deal and whether Zappos employees will still have a job (the answer: “Your job is just as secure as it was a month ago.”) Still, Tony confirms that none of the leadership (Tony Hsieh, Alfred Lin, and Fred Mossler) are leaving.

But if you’re curious as to how the deal came to be, these three paragraphs from the Zappos letter are most enlightening:

“Several months ago, they reached out to us and said they wanted to join forces with us so that we could accelerate the growth of our business, our brand, and our culture. When they said they wanted us to continue to build the Zappos brand (as opposed to folding us into Amazon), we decided it was worth exploring what a partnership would look like.

We learned that they truly wanted us to continue to build the Zappos brand and continue to build the Zappos culture in our own unique way. I think “unique” was their way of saying “fun and a little weird.”

Over the past several months, as we got to know each other better, both sides became more and more excited about the possibilities for leveraging each other’s strengths. We realized that we are both very customer-focused companies — we just focus on different ways of making our customers happy.”

Despite the holding-hands rhetoric, the basic summary is this: Amazon reached out to them, and eventually the terms of the deal were too good to turn down.

The deal isn’t done yet though, and probably won’t close until the fall. The other big takeaway from the letter is the emphasis that Zappos is still a separate brand that will retain its own staff and culture.

Why the Deal Took Place

Now that we know how the deal went down, let’s talk about why it happened at all. Here’s what Amazon says about it:

The acquisition brings together two companies who share a passion for serving customers and whose customers benefit from cultures of innovation and long term thinking.

“Zappos is a customer focused company,” said Jeff Bezos, Founder and CEO of “We see great opportunities for both companies to learn from each other and create even better experiences for our customers.”

And while Zappos had a lot more to say about the matter, this section of the CEO letter sums up their thoughts:

We are excited about doing this for 3 main reasons:

1) We think that there is a huge opportunity for us to really accelerate the growth of the Zappos brand and culture, and we believe that Amazon is the best partner to help us get there faster.

2) Amazon supports us in continuing to grow our vision as an independent entity, under the Zappos brand and with our unique culture.

3) We want to align ourselves with a shareholder and partner that thinks really long term (like we do at Zappos), as well as do what’s in the best interest of our existing shareholders and investors.

This information is good, but it doesn’t dig into the meat of why Amazon really put down $850 million for Zappos. To figure out the real reasons, we have to read between the lines, and more importantly, go to another source. The source I’m referring to is a video that Amazon founder Jeff Bezos recorded for Zappos employees that we have embedded above. Here are three quotes that struck us while analyzing his presentation:

1. “Zappos has a customer obsession which is so easy for me to admire. It is the starting point for Zappos. It is the place where Zappos begins and ends. And that is a very key factor for me. I get all weak-kneed when I see a customer-obsessed company, and Zappos certainly is that.

Zappos also has a totally unique culture. I’ve seen a lot of companies, and I have never seen a company with a culture like Zappos’. And I think that kind of unique culture is a very significant asset.”

2. “You’re in such great hands with Fred, Alfred, and Tony. That’s a really big deal. I’ve seen a lot of leaders of companies too, and I haven’t seen peopel better than those three.”

3. “There’s a lot of growth ahead of Zappos.”

Why did Amazon acquire Zappos? We’ve thought about this, and narrowed it down to four primary reasons:

1. Zappos has a lot of growth potential

2. Zappos has a one-of-a-kind culture that has bred it’s success. It’s also one that no company, even Amazon, can easily replicate.

3. Zappos is known for its legendary customer service. Amazon thinks this is an asset in the future.

4. Amazon is buying Zappos for its people – its leadership and its employees.

It’s going to be an interesting next few months. While Zappos will remain independent, it’s a guarantee that Amazon will find ways to integrate the Zappos product, brand, and culture into their business. There are still many questions that require answers, but for today, both sides are celebrating.


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