Amazon said Wednesday that it is acquiring Zappos in a deal worth $847 million. The CEOs of both companies portrayed the deal as an e-commerce learning adventure where both sides can learn from each other and leverage strengths.
The combination is an interesting one. Zappos.com, which primarily peddles shoes, has a strong following among customers. The company had plans to expand into new markets, and at some point, would compete with Amazon in more categories. Amazon's answer: just buy Zappos.
Under the terms of the deal, Amazon will fork over 10 million shares for Zappos worth $807 million. Amazon will also toss in $40 million in cash and restricted stock units for Zappos employees. Zappos has revenue of about $1 billion per year.
In a statement, Amazon chief Jeff Bezos said the companies "see great opportunities for both companies to learn from each other."
In a letter to employees, Zappos CEO Tony Hsieh said that Amazon reached out to the company several months ago to "accelerate the growth of our business, our brand, and our culture."
"We realized that we are both very customer-focused companies -- we just focus on different ways of making our customers happy," Hsieh said.Indeed, the Amazon-Zappos combination could be very interesting to watch. Zappos is one of the more innovative retailers around, especially when it comes to using social media. We recently documented how social media fits into Zappos game plan in a case study. Zappos can teach Amazon a bit about integrating social features into the e-tailer's service.
Amazon added that Zappos' management will remain. Zappos will operate as an independent unit based in Las Vegas, albeit with fewer worries about expanding distribution and fulfillment operations.
We are joining forces with Amazon because there is a huge opportunity to utilize each other’s strengths and move even faster towards our vision of delivering happiness to customers, employees and vendors. We will continue to build the Zappos brand and culture in our own unique way, and we believe Amazon is the best partner to help us do this over the long term.
And in his letter to employees he added:
Today is a big day in Zappos history.
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.
We think that now is the right time to join forces with Amazon because there is a huge opportunity to leverage each other's strengths and move even faster towards our long term vision. For Zappos, our vision remains the same: delivering happiness to customers, employees, and vendors. We just want to get there faster.
The only quibble about the Zappos purchase would be the price. Amazon is paying less than 1x revenue for a company that's growing at a rapid clip.
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