With its purchase of Zappos for $847 million, Amazon will get free
shipping but is it the right acquisition for the e-commerce giant?
Zappos is a tremendous brand. With its unique and memorable name and its focus
on footwear, Zappos has become the #1 seller of shoes on the Internet with
sales of $840 million and a 40% one-year sales growth rate, as reported in 2007.
Zappos is a classic success story.
Founded in 1999, the Las Vegas-based company got into the mind first. Zappos
focused on footwear with a simple offer of free shipping and free return
shipping on all orders. Much like Amazon did with a focus on books, a memorable
name and a discount of 30% on all books.
There is a great advantage to being first in the mind. You gain
credibility, generate PR and establish authenticity. Amazon did it books.
Zappos did it in shoes. eBay did it in auctions. YouTube did it in video.
When you are first in the mind, any company that tries to copy your
success faces an uphill battle. The second, third or fourth brand in a category
has little news value, little credibility and is never seen as the real thing.
For years, Amazon has tried to break into the shoe business with its
Endless.com brand with dismal results. A me-too brand launched by even the best
company in the world has little chance for success. Just ask Coca-Cola about
the failures of its me-too brands like Fruitopia, KMX, Mr. Pibb, and Surge, to
name a few.
In general, acquisitions can be a great thing for a company that wants to
intensity its focus and its domination of a category. Buying another company
and then merging its business into your own business results in a stronger
brand with greater market share. It’s what happened to Chemical Bank did when
it bought Chase. They even changed the merged company’s name to Chase since it
was the stronger of the two brands.
A company can also buy another brand to give it distinctive multiple
brands in one category. Coca-Cola bought Glaceau to get its hands on Smartwater
and Vitaminwater to go along with its Dasani brand.
Acquisitions or mergers, on the other hand, can be dangerous when they
are used to expand a company into a different industry in which it doesn’t have
experience or credibility. Some examples are AOL/TimeWarner and
I believe the Zappos acquisition is the wrong move for the book giant.
Amazon is the Earth’s biggest bookstore, a position it owns in the mind. But
since its incredible success in books, Amazon has expanded into many other
categories and tried to become Earth’s biggest-anything store. This strategy
rarely works with consumers.
Consumers buy specific things like books, computers, shoes, drugs and
toys. Consumers don’t sit down to buy anything.
Despite expanding to sell everything from auto parts to home furnishings
to apparel to drugs and to groceries, Amazon still gets the majority its $19
billion in sales from books/music/movies.
Amazon has had great PR with its Kindle book reader and should continue
to pioneer other concepts connected to its core position.
The Zappos purchase goes in exactly the opposite direction.
Books/electronics are quite different from shoes/fashion. One brand that does
both, or one company that tries to conquer both, is likely to have a tough
To think Amazon can buy Zappos and leave it alone so that it remains vibrant, cutting edge and whimsical is foolish. It will never happen. Amazon might keep the Zappos name, but they will fold it into the Amazon way and system thereby losing that special Zapponess. Did Toys R Us feel like Toys R Us under Amazon? I think not.
Amazon should keep both its feet books and electronics. Too many feet in
too many shoes isn’t a good thing for any brand.