Thoughts on Amazon Buying Zappos

The web is on fire this afternoon with the news that Amazon is buying Zappos. The deal is reportedly worth more than $800 million in cash and stock.

From the Zappos perspective, the deal makes a lot of sense, at least in the short term. I expect the recession has been hard on Zappos, and things probably haven’t been comfortable there since before their layoffs last November. The backing of a behemoth like Amazon would certainly be welcomed. And as long as they are allowed to operate as an independent entity (which will certainly change at some point), the day-to-day impact should be reasonable.

It’s unclear what Amazon gets out of the deal, however. They already have their own shoe store under the name

Details on Zappos revenue are a bit hazy. They revealed in a press release celebrating their ten year anniversary that they reached the $1 billion mark in revenue in 2008.

Amazon (NASDAQ:AMZN) had $19.92 billion in revenue for the trailing twelve months. While Zappos provides only about a 5% uplift in revenue, they got Zappos at around a 4:5 price to revenue ratio. That’s not too horrible.

I think the biggest concerns are cultural.

Zappos is famous for its world-class customer service, while Amazon would like nothing more than to never, ever talk to a customer. They’d rather it all be handled online.

At some point, these conflicting goals will have to be reconciled.

I expect that free shipping and surprise shipping upgrades will go away at that time, if they haven’t already.

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