The news that Zappos, "a service company that just happens to sell shoes," would be purchased by Amazon.com
Part of me was happy for Zappos CEO Tony Hsieh, who has built a service monopoly from essentially the soles up, growing sales from $1.6 million in 2000 to more than $1 billion in 2008. Part of me was sad to see Zappos fall as an independent, private company -- quashing my dream of watching the biggest corporate experiment in customer happiness eventually go public. Nonetheless, I believe Amazon's biggest purchase to date will prove more significant than anyone currently imagines.
Sequoia gets the boot
Hsieh didn't need the money. At age 24, he sold his Internet advertiser network, LinkExchange, to Microsoft
Citing two unnamed sources close to the company, the private equity news blog PEHub.com reported that lead VC investor Sequoia Capital was pushing for a sale, while Hsieh desired to stay independent. Tension in the relationship became apparent when Sequoia demanded that every one of its portfolio companies cut expenses and become cash flow-positive; to comply, Zappos subsequently laid off 8% of its employees. Hsieh was clearly not pleased with such mandates.
"We want to align ourselves," Hsieh said in explaining the sale, "with a shareholder and partner that thinks really long term (like we do at Zappos), as well as do what's in the best interest of our existing shareholders and investors."
In short, it seems that Sequoia's impatience has become Amazon.com's gain. Amazon, Zappos, and Netflix
Let's just hope the Amazon-Zappos alliance turns out better than eBay's
Amazon is not eBay, but public companies do have a way of disappointing partners and breaking promises. Berkshire Hathaway
Still, Hsieh is no dummy, and I doubt he'd agree to such a deal without a certain degree of confidence in his own company's future. Most people may mistakenly overlook this purchase, but I think it's a game-changer for e-commerce, and a reaffirmation that customer service can be a real competitive advantage. In short, my shoes are off to Zappos and Amazon alike.
Fool contributor Andy Louis-Charles owns shares of none of the companies mentioned, but has a new pair of Zappos shoes waiting on him at home. Google is a Motley Fool Rule Breakers pick. Apple, Amazon.com, eBay, and Netflix are Motley Fool Stock Advisor recommendations. eBay and Microsoft are Motley Fool Inside Value recommendations. The Fool has a well-heeled disclosure policy.
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