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

from the hello...-reality dept

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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Is eBay Warming Up The Skype Billion-Dollar Buyout Plan?

from the round-two dept

Back in 2005, we marveled at the success that Skype backers had in talking up the price of the company, eventually suckering convincing eBay to put together a $4 billion deal for it. This was what we dubbed the "Skype Billion-Dollar Buyout Plan" in which companies used press hype to create valuations far above their actual worth (see YouTube and Facebook for a couple of examples). Of course, what eBay was never really clear on was how it planned to make money from Skype, and it later went back and forth on whether it had given up on looking for the mythical "synergies" between Skype and its core auction business. Last week, eBay's CEO conceded that those synergies were "minimal" -- leading to more speculation that eBay might spin Skype off.

And thus the cycle begins again, with a figure of $900 million to $1.2 billion tossed out there as a potential starting point for the second version of the Skype Billion-Dollar Buyout Plan. What's interesting is that just like four years ago, Skype's financials are murky, as Om Malik points out. The company also still faces the same big problem: monetization. As Skype gets bigger, that problem could become even more difficult. After all, if Skype continues to garner more and more users, more and more calls will shift from the paid SkypeOut service to free Skype-to-Skype calls. Skype is said to be profitable (although there's no indication of how profitable), but it seems pretty clear that it hasn't been the runaway success that would have justified its $4 billion price tag. While it's possible that any current sale could carry a more realistic price, somehow we imagine that eBay will try to use the same tactic that drove up its price for Skype to drive up the next buyer's price.

Carlo Longino is an expert at the Insight Community. To get insight and analysis from Carlo Longino and other experts on challenges your company faces, click here.

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