Amazon.com Acquires Shoe E-tailer Zappos
Posted on July 22, 2009 |
In its largest acquisition to date, Amazon.com just bought Zappos.com, the celebrated online shoe store, for stock worth $807 million plus $40 million in cash and restricted stock to Zappos employees. Ten-year-old Zappos will continue to operate independently, with current management in place in its Las Vegas headquarters. (Update: At Amazon's closing price today, the total deal approaches $930 million.)
The combination makes a lot of sense, most of all for one reason: Both companies have a genuine focus on customer service, one that is apparent to anyone who has shopped both stores. They're not perfect, but it's obvious that "customer focus" isn't just a platitude with these folks.
So I can see why Amazon.com CEO Jeff Bezos decided to spend more than he ever has for a company. And so can you, in the video above that Bezos sent to Zappos employees. It doesn't reveal much about the deal except that, no surprise, Zappos' "customer obsession" was key, along with its company culture.
As for Zappos, I'm not privy just yet to why it decided to sell out. Of course, an $850 million-plus exit surely looks pretty good to Zappos management and its backers, Sequoia Capital, Draper Richards, Venture Frogs, and angel investor Scott Bannister. (Update: Sarah Lacy at TechCrunch reports that Draper Richards actually was just an early lender, so it's not benefiting here.) Despite some signs of a thaw in initial public offerings, they remain a rarity. Zappos CEO Tony Hsieh has a lot more to say in a letter to employees, after the jump.
Still, Amazon's paying less than Zappos' annual gross revenues of $1 billion last year for a company that's growing 20%. Zappos management and backers must have figured that staying independent wasn't going to pay off as big as selling out. I would have thought that a Zappos IPO would get at least as good a reception as, say, OpenTable, which went public recently. But perhaps the always-thin margins in retail weighed against the likelihood of persuading public investors to pony up as much as Amazon did.
(Update: Mystery solved. Sources tell peHUB that Hsieh didn't want to sell out but relented under pressure from Sequoia. Or, maybe not. Hsieh says he got the best of both worlds: run independently without the hassles of running a public company.)
I also wonder what will happen with Amazon's Endless.com shoe site, which couldn't overlap more with Zappos. Amazon tells me it's not going to shut down any of its stores and will continue to invest in Endless, which also sells handbags. But it's hard to figure out why it would continue a parallel operation like that.
