Amazon buys Zappos

So the big news from yesterday is Amazon buying Zappos. Cash and stock and all that. Congrats to two of my favorite online retailers. The financials are one thing and will be debated. I believe that this will be a great deal for both companies. Also, the notion that Zappos is fun and Amazon is not is irrelevant. The real question is: Why did a Zappos deal happen when a purchase of Netflix was rumored?

First, a deal with Netflix has been speculated for many years. The overlaps are obvious. I am sure the smart people at Amazon have investigated Netflix and determined if the addition would be a fit. To be sure, there were some synergies a few years ago. Netflix had a solid customer base and fulfillment. The advent of digital video and applications like Amazon Unbox and iTunes have shown that the digital video is for real. Netflix is nice, but likely not a growth segment. Today, Amazon would have interest in the fulfillment but knows the Netflix customer base is likely to get smaller not bigger. Plus the fulfillment model is great for envelopes not for packages.

Second, Zappos is strong where Amazon’s brand struggles. Sure Amazon is trying to compete with Endless.com, but have you shopped for shoes from Amazon? Most of the product is third-party and non-Prime. Being addicted to Prime, I really have to want a product to pay for shipping in addition to the Prime membership. Zappos does do apparel and sunglasses, but these products are not truly “core” Zappos. A shoe print is on the delivery box. I have been very happy with Zappos purchases and the return policy rocks. The customer experience is key to both Zappos and Amazon. Zappos gets the great customer experience like Amazon does. Is Netflix known for great customer experience?

Third, Zappos likely realized that if Amazon turned both barrels to better compete with them, they would likely lose in the long run. The venture, Sequoia and others, likely pointed this out in gentle soothing tones. Netflix has been feeling the heat of iTunes and Unbox and digital video. They have made attempts to be in that game, but it is really not their core. Living in Seattle, the public library provides a great alternative to Netflix and I enjoy a benefit of my tax dollars.

Fourth, based on my customer experience alone, I would bet that Zappos has an impressive fulfillment model that interested Amazon — more than the Kiva robots (See earlier post). Amazon’s core is retail. Online retail requires fulfillment. Amazon wins because they are always improving fulfillment, thus customer experience. More products on Prime, better experience.

Questions:
• Will Zappos offer Prime shipping?
• Will Zappos UI improve? It could stand some improvement.
• Will Amazon ever “surprise” me with free upgraded shipping?
• Will those agencies that complained about Zappos (See earlier post) ever get any work from Amazon?

News Coverage of Amazon and Zappos:
TechCrunch: Amazon buys Zappos

TechFlash: Sequoia, Zappos and the secret to venture capital success

Thanks to Zappos for checking out the blog. You have pushed my readership to over two. Disclosure: The wife is employed by Amazon, but she does not read my blog.