Why the shoes don't fit at Amazon.com

 

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 Citicorp/Travelers.

 

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 time.

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.

Comments

[Craig]

The problem i think that will inevitably come is that amazon will shoot itself in the foot and ruin part of there reputation if they try and do too much. They would be best to leave it alone and let zappos continue as is (ie keep the 2 brands seperate)

[Erik]

A sure fire way to increase your blog traffic; find a blogger who is successful and rip on them.

Maybe Laura should go the Seth Godin route and eliminate comments...
http://sethgodin.typepad.com/seths_blog/2006/06/why_i_dont_have.html

I love Al's statement that marketing takes a day to learn and a lifetime to master.
Ten years into my journey...

[Yaacov]

Laura, I like your posts but I think you fail to back yourself on this one. “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.” Says who? It wasn’t a merger, it was an acquisition. I agree that Zappos has done such a fabulous job branding itself that it should remain untouched. Hopefully, the execs at Amazon realize this as well and will take the Procter & Gamble route on it.

[Mike Honeywell]

Imagine if Amazon could somehow be inspired through its acquisition of Zappos to recapture it's once thriving cutting edge spirit. Was it not once a vibrant, whimsical, little start-up like Zappos?

I realize the likelihood of this happening is low (and I could be described as foolish for suggesting it) but imagine what Amazon could re-learn from the management team of Zappos. Could they not help breathe new life into the company?

Certainly, if its identity is swallowed, Zappos will lose everything that made it great. But maybe there is hope.

Maybe customer relationships will still be a priority for Zappos. Maybe the company will retain its "No questions asked" return policy. Maybe the Zappos team will remind Amazon where it came from.

That would be nice. Could you imagine the case study and the revolution Amazon could model for Corporate America if it was able to make this happen?

Ok...the dream is over. I'm awake again.

[Sparsh Jain]

Hi Laura,

I agree with you on this..... What I believe that a brand is nothing but a owned space in the consumer mind, what amazon is doing is trying to own the mind......

No one can own the complete mind.....

On the contrary the acquisition can prove to be good if amazon does not try to amazonise zappos...

Thanks
sparsh

[Laura Ries]

I did say in the Immutable Laws of Internet Branding that categories like shoes will prove difficult on the Internet mostly because of fit and service.

I stick by that. I don't think the majority of shoes will ever be sold over the internet.

On the other hand, I think the majority of books, music, software, travel, tickets sales will (and in many cases already are) sold over the Internet.

Zappos' success stems from its focus on shoes and excellence in customer service.

Specifically, what made people give Zappos a chance was the free shipping and free return shipping offered. They also did tremendous PR and hammered away with lots of advertising.

Most shoes will continue to be sold in real world retail stores, but as in almost any category there is also an opportunity for a focused brand on the internet.

On commenter pointed out the different core compentencies of Amazon and Zappos.

Zappos in customer service and Amazon in distribution.

I couldn't agree more each is very different. But that is exactly why the two should remain separate.

Amazon should not add customer service, they should continue to focus on books which don't require a lot of service.

And Zappos should continue to focus on shoes which do require a lot of service.

Amazon should buy companies and launch other brands that will benefit from its distribution skills and where the Internet will be the dominate distribution channel.

Companies should always maximize focus when growing not push into totally dissimilar industries.

[Bone]

LR: "To think Amazon will buy Zappos and leave it alone so that Zappos remains the same and as vibrant, cutting edge and whimsical as ever is foolish."

Foolish... Yes, condescension is always a great way to engage people.

So I am foolish to believe what Tony wrote in his letter. Someone who is so passionate about a company he was instrumental in building would write such a letter just to fool us.

What's worse is you are effectively calling the dedicated Zappos employees FOOLISH. These are employees who have embraced and trusted a man who put Zappos in this enviable position. And you call them foolish to believe him?

Great work Laura.

LR: "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."

It will never happen. How could you possibly KNOW this? You haven't done a lick of research on this deal - or the company for that matter.

And how do I KNOW this?

You provide this little nugget:
"Another key to Zappos success is the incredible PR the founder does."

Yes, Tony is a master of PR but he's not the founder. He became an investor 2 months after Zappos was founded as shoesite.com by Nick Swinmurn, then moved into the role of CEO the following year.

Here you are not unlike tech analyst Rob Enderle who went on CNBC yesterday to say "he expected great results from Microsoft" which later posted earnings the fell $1 billion below projections. He went on to say, “They brought out a solid advertising campaign. Microsoft has always been under-marketing and now they’re marketing well.” (Sounds like you two should get together.)

Call me foolish, but open the windows on your ivory tower and look outside once in a while. From up there it's easy to postulate what might happen and call it gospel. It's another to know it. And I think based on the trust that Tony and Jeff (those who do know) have built in their respective brands, it's wise to heed what they say about the matter.

[Alex]

I think you may be too focused on the products each company sells rather than the core competencies of each company. Zappos happens to be a customer service company that happens to sell shoes. They have also have the proven ability to scale massively - way beyond where niche retailers have tried and failed. Amazon on the other hand provides little or no customer support - just an easy way to send stuff back. Their core competency is in selling & distribution. While I'm not sure of if $847 was the right price (they did over a billion in sales in 2008) I think each company stands to benefit greatly.

[Dr Wright]

I can see why she says it does not fit, perhaps Amazon is flexible enough to learn from Zappos and make it work. Time will tell, if they ruin, we will know it's Amazons fault

Dr. Letitia Wright
The Wright Place TV Show
http://wrightplacetv.com
www.twitter.com/drwright1

[Kamil]

Laura i have an important and an unrgent question

You an Al write in your book 22 immutable law of internt branding that FASHION business cannot be sucessful online.
Zappos is in fashion (shoes) business..

How it was successful? ofcourse it was firstin the category...but even then how it was a good idea to launch this brand??

In fashion business customer wants to try things before buying

(I'll appreciate if anyone alse can answer..please go ahead)
waiting.......

[Sunil S Chiplunkar]

Laura has raised a good point and a concern in her capacity as a marketing and brand expert. That is really nice.

Surely if the new brand owners keep Zappos a separate functional entity, the pep will continue. However, one should state that it is important to involve third party brand experts every now and then for a brand health audit and ensure that the best is done to brands. Third party brand marketing experts invariably bring in fresh perspectives and a global knowledge.

[Jay Godse]

Interesting points Laura.

You are right that Amazon is a strong brand in books and Zappos is a strong brand in shoes.

The point you missed is that Amazon is also a company that has a portfolio of businesses and strong brands, not unlike GE. For example, Amazon Web Services which is enables customers to use Amazon's computing infrastructure at great rates. Amazon has also established itself as a provider of shipping and order fulfillment services, using the same infrastructure used by its book business. From that point of view, Zappo's will become another business in its portfolio of good brands.

A fair question to ask is whether Zappos will be absorbed by the "Borg" that is Amazon. Time will tell, but it's too early to tell for sure.

I know we would hate to see the Zappo's brand blurred because of Amazon or vice versa. But that is not necessarily inevitable.

[Erik]

Great post. Everyone is talking about the culture, service, and the people at Zappos but nobody is talking about the shoes! Unbelievable. And Amazon wants Zappos to remain a separate company?

Speaking of management vs marketing...I was conversing with Aloqa and its newly appointed CEO: Sanjeev Agrawal, former Global Head of Google Product Marketing. Aloqa has a great new mobile product BUT a terrible name and no category to fill. I can't even pronounce it. He admitted they had a long debate about the name, clearly management won.

The great product..instead of "seaching" on a mobile device a person will be "notified." A great product alone rarely wins. My suggestion to Sanjeev was the following..

category- mobile notification
brand name- Notifly
tag line- Notifications on the fly

Since they just launched I understand the hesitation for a name change so quickly. But if you have a bad name, change it. The sooner the better.

Management seems to win to many wars in the boardroom. How can anyone argue with Al and Laura?

[Laura Ries]

To think Amazon will buy Zappos and leave it alone so that Zappos remains the same and as vibrant, cutting edge and whimsical as ever 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.

Another key to Zappos success is the incredible PR the founder does. He is unlikely to stay around very long, even if he says he will.

But the key point is that I love both these brands. Each is a fantastic company that dominates a powerful category. I just think the combination does not make sense.

I think Amazon would be a stronger brand more profitable company if it stuck to books and related electronics worldwide. Selling all things to everybody eventually leaves you with a meaningless brand like Chevrolet. (Wal-Mart sells all things to everybody but is focused on low price and has been very unsuccessful in anything fashionable)

I think Zappos would be a stronger brand and more profitable company if it stayed independent, perhaps went public, definitely went global and stuck to shoes.

- Laura

[Bone]

You are throwing opinions around about this acquisition without even purporting to know the details.

But that's the M.O. of pundits - spout opinions without even basic research or understanding of the situation.

I don't know all the details - only a handful do - but a simple read of Tony Hsieh's letter states that amazon now OWNS Zappos and that Zappos WILL REMAIN Zappos.

Nowhere does it describe scenario you are imagining is actually taking place.

[Patrick Sullivan Jr.]

From Tony Hsieh's blog post:

"Several months ago, [Amazon] reached out to us and said they wanted to join forces with us so that we could accelerate the growth of our business, our brand, and our culture. When they said they wanted us to continue to build the Zappos brand (as opposed to folding us into Amazon), we decided it was worth exploring what a partnership would look like."

http://blogs.zappos.com/ceoletter

If they *really* do keep the brands separate AND zappos.com can now legally use Amazon's patented 1-click purchase, I'd say it's a big win for Zappos.

[Federico Munoa]

Hi Laura,

How you think this will affect Zappos.com rather than Amazon.com? Tony said on his twitter account that things will be the same.

Thanks for sharing your thoughts.