Amazon Acquires Zappos; Zappos Pretends It's Not Really An Acquisition

from the hello...-reality dept

Wed, Jul 22nd 2009 2:12pm — Mike Masnick

In the last few years, Zappos has definitely come on strong as an e-commerce brand -- perhaps the first online brand ever to have a real shot at unseating Amazon in terms of serious customer loyalty. Obviously, this did not go unnoticed by Amazon. The key to Zappos' success has been their focus on overdelivering on the customer service front (sometimes to hilarious levels). Zappos execs realized a key point that many more companies really ought to understand: customer service is marketing. Customer service is where many of the interactions occur with your customers. Companies that view customer service as a cost center will discover that they end up driving away customers. Zappos, on the other hand, would bend over backwards to keep customers happy -- and because of that, customers were very loyal to the company.

While still a lot smaller than Amazon, there was definitely a lot of attention getting paid to a potential world where Zappos had a brand presence that rivaled Amazon. It's no surprise, then, that the two companies have probably discussed an acquisition, and it looks like those plans have finally come together, as Amazon is buying Zappos. The link there is to the letter announcing the deal from Zappos' CEO Tony Hsieh. I like Tony and like what he's done with Zappos, but have to admit the letter is a bit silly, as he tries to redefine the acquisition as not being an acquisition:

This morning, our board approved and we signed what's known as a "definitive agreement", in which all of the existing shareholders and investors of Zappos (there are over 100) will be exchanging their Zappos stock for Amazon stock. Once the exchange is done, Amazon will become the only shareholder of Zappos stock.

Over the next few days, you will probably read headlines that say "Amazon acquires Zappos" or "Zappos sells to Amazon". While those headlines are technically correct, they don't really properly convey the spirit of the transaction. (I personally would prefer the headline "Zappos and Amazon sitting in a tree...")

We plan to continue to run Zappos the way we have always run Zappos -- continuing to do what we believe is best for our brand, our culture, and our business. From a practical point of view, it will be as if we are switching out our current shareholders and board of directors for a new one, even though the technical legal structure may be different.

If I had a dollar for every time an acquired company insisted that the acquirer was going to keep them running exactly the same as before, I'd be a lot wealthier. And if I had to give back that dollar for every time that wasn't true, I'd be giving all that money back. This is an acquisition, no matter how Zappos is trying to paint it. It's great (and, I believe, smart) that Amazon plans to keep Zappos running as a subsidiary, rather than fully integrate the two, but that doesn't make this any less of an acquisition -- and Zappos' attempt to paint it as something "different" is a bit disingenuous. Yes, the company always likes to present what it does as being different and unique, but an acquisition is an acquisition.

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Filed Under: acquisition, deals, tony hsieh
Companies: amazon, zappos

13 Comments

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Dark Helmet (profile), 22 Jul 2009 @ 2:38pm

Er...
"We plan to continue to run Zappos the way we have always run Zappos -- continuing to do what we believe is best for our brand, our culture, and our business"

Outstanding sentiment, though meaningless. You may be directly running Zappos, but Amazon is directly running you. Ergo, Amazon is running Zapos and if you think they don't have plans for you, oooooooh boy are you gonna be pissed. So plan away, you sweet silver-tongued liar. I'll see you in a few years when you've been ousted by the Amazon "board" and are starting your NEXT Amazon competitor, claining Amazon ran the Zappos name into the ground.

"but an acquisition is an acquisition"

And a toll is a toll, and a roll is a roll, and if we don't get no tolls, then we don't get no rolls. I wrote that me-self...
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- BullJustin (profile), 22 Jul 2009 @ 2:49pm
  
  Re: Er...
  "And a toll is a toll, and a roll is a roll, and if we don't get no tolls, then we don't get no rolls."
  
  Three cheers for your masterful use of the English language: Huzzah! Huzzah! Huzzah!
  
  Course, now I'm hungry...
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Anonymous Coward, 22 Jul 2009 @ 2:56pm

Proof that marketers are prone to not telling all the truth. Makes me wonder what else these guys have been creatively not mentioning.
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- Anonymous Coward, 22 Jul 2009 @ 3:13pm
  
  Re:
  Oh, I'm more than certain that they've failed to disclose plenty of things. Which is fine, really. As long as the customer doesn't care about that hidden information, and has absolutely no reason to care, corporate secrecy is just fine and dandy.
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Michael Kirkland, 22 Jul 2009 @ 4:08pm

You're probably right, but given Amazon's modular structure there's no reason they *couldn't* let Zappos run off on their own and still integrate them with the Amazonosphere.
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David E Y Sarna, 22 Jul 2009 @ 7:25pm

Zappos Merger
It's a merger. It's not a merger of equals. And Zappos may have negotiated some independence contractrually. According to the 8-K filing, "in connection with the proposed merger, Amazon.com will file a registration statement on Form S-4 with the Securities and Exchange Commission that will contain a consent solicitation/prospectus. Zappos’ shareholders and investors are urged to carefully read the consent solicitation/prospectus when it becomes available and other relevant documents filed with the Securities and Exchange Commission regarding the proposed merger because they contain important information about Amazon.com, Zappos and the proposed merger. Shareholders and investors will be able to obtain the consent solicitation/prospectus when it becomes available at www.sec.gov or www.amazon.com/ir."
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Mike, 22 Jul 2009 @ 7:30pm

Special on shipping!
This is fantastic news for handbag connoisseurs!

http://couture.zappos.com/bags.zhtml
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Anonymous Coward, 22 Jul 2009 @ 7:51pm

One example...
...is Berkshire Hathaway. All of the 75+ acquisitions have been left completely alone, with the exception of huge capital projects which need approval.
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Pip, 23 Jul 2009 @ 9:59am

Amazon may have enviable customer loyalty, but their customer service is worse than crap, about as bad as Google's. If I were a fan of Zappos that's what I'd be looking out for going forward
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Anonymous Coward, 23 Jul 2009 @ 11:26am

So I guess those of us in WA state will now pay tax on zappos orders?

Time to find another online shoe retailer.
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Laron Butler, 23 Jul 2009 @ 11:33am

nice....
This is such a good site to see...!!!
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Matt (profile), 23 Jul 2009 @ 12:12pm

VC's work
Reports are coming out that this is the work of the VC firm that funded most of the company. The CEO wanted to stay independent.

http://www.bizjournals.com/sanfrancisco/stories/2009/07/20/daily56.html
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Anonymous Coward, 23 Jul 2009 @ 12:44pm

In every corporate acquisition I have ever dealt with the "acquiring" company and the "acquired" company all release PR notices professing that the company being acquired will continue its operations unabated and without interferenced from the "acquirer".

Once the dust has settled and the acquisition completed, reality sets in as the acquired company comes to realize that its "culture" is expected to conform to the purchaser's "culture". At the same time Boardroom and Senior Executive antics begin as the purchaser's execs begin to strategize how best to preserve their jobs at the expense of the other company's execs.

Assuming the purchase actually is completed, the real fun (I use this word with a sense of sadness) begins behind closed doors as people jockey for positions of control.

I still remember the "merger of equals" between Daimler-Benz and Chrysler. It took about a year, but the DB "culture" took over and the DB execs took control. So much for being "equals".

As an unrelated aside, it seems appropriate to note that DB did not spend much time deciding that Chrysler was a losing proposition and unloaded it. Apparently DB knew something that is largely lost on the current federal administration that has picked up where DB left off. I wonder how long it will take for it to sink in in DC that DB knew what it was doing when it cut its ties with Chrysler.
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