Why did Amazon want to buy Zappos? To what length did Amazon go to get what they wanted? Why did Zappos finally decide to sell to Amazon?
In 2005, Zappos was well-known for its online, shoe selling business and Amazon wanted a part of it. Zappos wanted to remain independent but when Amazon sets its sights on an acquisition they always get what they want.
Continue reading to learn all about the war between Amazon and Zappos.
Amazon vs. Zappos
August 2005: Amazon and Zappos meet up and execs (Tony Hsieh, Alfred Lin, Michael Moritz, Nick Swinmurn) announce the intention of acquiring Zappos.
- Zappos has become synonymous with buying footwear online. It boasts sales growing from $8.6 million in 2001 to $70 million in 2003 and $370 million in 2005.
- Amazon has not done this well in footwear. Zappos has built strong relationships with brands like Nike, which fear Amazon for being a discounter and brand destroyer. Amazon’s website also is not suited for listing variations among a single good – it lists different colors, sizes, and widths all as separate items with separate web pages.
- The cultures between the two companies are somewhat similar.
- Zappos is obsessive about customer experience, promising free 5-7 day delivery and trying to meet 2-day delivery. Customers can return items up to a year after the purchase. Customer center calls can take as long as needed, and customers sometimes enjoy hours-long calls.
- Hsieh believes that everyone should take below-market compensation to work at Zappos because of the great internal culture.
- Amazon execs believe Zappos could be acquired for $500 million, but Bezos imagines paying just a fraction of this.
- Zappos desires to remain independent. Bezos goes to war, building Endless.com as a separate site dedicated to shoes and handbags.
- This is the same time Amazon is spending heavily on the Kindle and AWS, so the board is wary of Amazon spreading itself thin and overspending.
- Amazon CFO: “How much money do you want to spend on this?” Bezos: “How much do you have?”
Amazon Launches Endless.com
December 2006: Endless.com launches as the Zappos competitor. They compete with Endless on pricing and customer service.
- Endless offers free overnight shipping and free returns, clearly losing money but designed to make Zappos bleed. Zappos matches Amazon’s free overnight shipping.
- Recall that shoe manufacturers were wary of working with Amazon, fearing that they would ruthlessly discount their shoes. Amazon is in an awkward position, trying to undercut Zappos with price while promising brand name companies they won’t cut prices too much.
- Amazon adds a $5 bonus to free overnight shipping.
- Zappos places advertisements on the plastic shoe bins in airport security. Bezos is alarmed: “They are outthinking us!”
- Despite Amazon’s volleys, Zappos grows further up to $1 billion in sales over the next few years, but the financial crisis hits them, making fundraising harder and lowering consumer spending.
Amazon Acquires Zappos
July 2009: Amazon announces the acquisition of Zappos for $900 million.
- After a long and painful war of attrition, Zappos ultimately loses.
- Zappos investor Michael Moritz had watched Amazon destroy eToys a decade earlier and knew what it takes to compete with Amazon. Zappos doesn’t have it. “The hiring was too slow, the engineering department was not good enough.” Zappos’s Las Vegas location made recruiting difficult.
- Zappos founders Hsieh and Lin also see that many Zappos employees had lost their wealth in the housing crisis, and the only thing of value they hold is Zappos stock. An exit would give them a payout, so the founders feel emotional pressure to sell at that time.
- In a welcome video to Zappos employees, Bezos records an 8-minute video introducing Amazon. Ironically, he says “we pay attention to what our competitors do, but it’s not where we get our energy or motivation.”