Amazon bought zappos because zappos is a top notch shipping, fulfillment, and logistics company. That happens to sell shoes but they can easily transition to something else like how they experimented with accessories and even computer goods. Amazon made a cheap deal to buy a younger smaller amazon to add to their existing expertise.
Tony Hseih is amazing to me. LinkExhange sold to Microsoft when he was in his mid 20's and now this. Amazing.
Amazon bought zappos because zappos is a top notch shipping, fulfillment, and logistics company.
But so is Amazon, and they even already resell this as a service.
Honestly, I thought Amazon and Zappos were the same company for a while. They both fulfill orders reliably, they both have good customer service, and their pages look a lot alike. Now they are, so technically I was just predicting the future. (Now to get a blog!)
Yeah, I predicted this to happen in some blog comment two years ago. Amazon is great in doing what they do, I think what they would pursue now will be companies like them that are already well represented and branded in a certain segment and niche.
Shoes are a good segment and niche. It doesn't spoil so it can be inventoried, it's fashionable so it can garner high markups, and it's compact and not hard to handle.
This was a cheap buy to pick up a brand, marketing, warehouses, labor, and management talent. I think a real game changer would be if Amazon bought Newegg.
Uhm, fashion is one of the hardest things to deal with. Fashion inventory is almost worthless a season or two after it launches.
What zappos sells are what are labeled FMCG - fast moving consumer goods. In this instance, you want almost no inventory, but extremely effective supplier partnerships and delivery cycles. What they have is a really engaged consumer community who can help them predict what they might want to buy soon.
If they use the metrics efficiently enough, they can stock the really popular lines and get-the-numbers-right on the slower but better margined products.
If you could run zappos/amazon scale and drop ship from manufacturer... well - that's the goal. (See timbuk2 et al for more).
Are shoes "fashion"? I would not be able to tell the difference between a shoe from 10 years ago versus one from today (and somehow, I've accumulated a lot of shoes; running, cycling, sneakers, sandals...). I am sure some of Zappos' customers care about the latest and greatest, but many probably don't.
Admittedly, Newegg is the first thing that comes to mind when I want computing hardware (i.e., a motherboard or something), but Amazon apparently has all that stuff too. I just did a search and found that most of what I would need to build a computer is available via Amazon Prime.
The massive supplier relationships and pricing information and logistics and the west coast / east coast warehouses / fulfillment centers that rivals Amazon's operations.
It would become even harder for Amazon to claim they have no duty to collect sales taxes on sales to California addresses if they owned California-based NewEgg.
actually i would suspect that Amazon partnered with zappos because zappos has a great company culture and brand, and amazon are having problems retaining theirs as they get bigger.
I am sure amazon doesn't need help doing supply chain - in fact I am certain there'd be significant savings to have amazon fulfill zappos' orders.
Amazon could definitely use Zappos' brand recognition in the shoes/fashion market. Amazon tried entering that market under its "Endless.com" brand: http://www.endless.com/ (I don't know how successful it's been.)
Amazon would love to grow into every vertical market, but in branding terms many people still think of them as selling books and media, and maybe electronics. Buying a recognized brand is a significant shortcut, especially if that company can benefit in turn from Amazon's technical infrastructure.
Full disclosure: I worked for Amazon from 2005 - 2008.
This deal feels right. Both companies seem to be committed to customer service as their number one goal. Based on what I've been reading about Zappos, Tony & Co deserver this. Great company, great management, great culture, great news!
Doesn't it feel like a pretty low-ball deal for Zappos? Only $40M in cash and only $850M overall. I get that they're a lower margin business, but still... I'm SHOCKED that they didn't get more out of it.
Except for that whole deleting e-books of customers' Kindles without telling them thing, I agree.
EDIT: I'm curious about the downvotes. I think deleting books of customers' Kindles is in direct opposition to customer service being their number one goal. I have a feeling Amazon isn't all that interested in customer service and I don't remember any super positive things about Amazon culture. What am I missing?
Yes, in the short term it sucks that they deleted e-books, but they are doing it to make sure that in the long term, they can continue to provide a wide variety of e-books to their customers. They have to keep the publishers happy to do this.
It was a horrible mistake. But they have said that they will never do it again. Looks like they have learned their lesson. You can give them a pass for now ?
It seems a good fit, but I always do worry when great grassroots-type great-culture great-customer-service company gets acquired by a much larger company (even if it's Amazon, which is much better than others - I worked there, I know). It's very hard to avoid the intermixing, and the bad things flow much better than the good.
I wonder what the profit is like over at Zappos. We know that they did $1.1ish Billion in revenues but profit figures may be much lower (I've heard as low as $50M pre-tax). My guess though is that Amazon's shipping chain will allow Zappos to lower their costs, increasing EBIT. Still though, does not seem like a cheap deal.
At least Amazon will be able to leverage the Zappos brand should they decide to expand more into Apparel. This would probably work out well in the long term.
I recommend zappos to everyone. I haven't bought footwear anywhere else for at least the past 5 years.
It seems bizarre it took so long for an online retailer to figure out a great barrier for online shoppers is the return shipping if the item doesn't work out.
They got my loyalty based on that even though their prices aren't the absolute cheapest on the net.
