Will Zappos Change Post Amazon? Q&A With Bill Cusick

Last Updated Jul 24, 2009 3:20 PM EDT

Two giants in online retailing are merging with the announcement that Amazon.com is buying shoe store Zappos.com in a cash and stock deal estimated at just under $928 million. A question on the minds of many loyal Zappos customers is: How will the store change? Management of both companies are saying "not much" thus far, with Zappos keeping its name, management team and Las Vegas headquarters. Vox President William Cusick, the author of the recently released book All Customers Are Irrational: Understanding What They Think, What They Feel and What Keeps Them Coming Back, which focuses on the Zappos business model, spoke with BNET Retail to weigh in on the acquisition.

BNET: What impact will this purchase have on Zappos brand?
William Cusick: It will be interesting to see. Both Jeff Bezos [Amazon's CEO] and Tony Hsieh [Zappos CEO] have gone to great lengths to try to appease people on both sides of the fence that there won't be any major changes to the Zappos brand and also that there won't be any major shifts in terms of culture at Zappos. When you look at Zappos, its culture has a lot of very unique aspects. Tony says in his letter to employees that they'll change because they always change, they're a fluid culture with core principals.

I don't sense anything disingenuous about what Tony or Jeff Bezos are saying. I think they both believe they can grow and maintain that culture and maybe get the synergies of Amazon. It will be interesting to see that play out. I don't think Amazon will necessarily influence the Zappos brand or culture immediately. But the infusion of that capital and the goal to grow quickly, would be the thing that they would have to be careful of. The very fact of that acquisition puts them in a position to grow rapidly. What damages culture potentially is that quick-growth model. And Zappos has grown quickly for who they are, but with that kind of leverage and the potential growth, that's where I think there is danger for the culture and the brand.

BNET: What are the differences in cultures at the two companies?
WC: Most people agree that Amazon is a really well-run company, and they're the 800-pound gorilla in online retail. But the way they got there was through an exceptional online experience and high-level execution. Amazon is a preeminent online company. I would describe Zappos as a preeminent company that does online transactions. That's where there distinction is. People don't see the value of Zappos based solely on its Web site. With Amazon, you could argue that it's the execution of their Web site that drives their business. The Web site is the transactional vehicle, but it's the customer service/contact center and employee culture that drives Zappos customer service. They're not tied to absolute process in terms of making some customer service decisions. For instance, if someone has a flawed experience, they go above and beyond to make it a personally positive experience. Even down to their hiring practices, Zappos goes out of its way to make sure that by the time someone is hired, they're a highly engaged employee. They'll actually do two weeks of training with someone and then offer then $2,000 to quit. Everyone's sure they really want to be there by the time their there. That will be an interesting blend of cultures if they try to blend them at all.

BNET: There is talk that Zappos considered an IPO. Was that plan a better route?
WC: I don't know their exact financial position at the moment. They were on a growth track, and the economy has not helped anyone. What it comes down to is how badly they wanted to grow. I believe what Tony Hsieh is saying, that "they have our best interests in mind." I don't even know if an IPO would have even been on the table with them. My guess is that the Amazon thing arose, they were going to get good value and there probably weren't a lot of other options.

I assume they could have waited and done an IPO. If you look at Google, they went through the IPO. Zappos whole mission is to deliver happiness, they say, to their customers, employees and vendors. Google, as you recall, is "don't be evil," which is cool. But if you look at some of the stuff around Google over the last couple of years, after the IPO was rapid, ridiculous growth. And if you read what some of the former employees said about the culture, they say it simply changed. That is the danger. I don't know if Zappos had some overriding concern that it needed capital or if it was simply an opportune moment in time when it could get high value.

BNET: Were you surprised by the acquisition price?
WC: No, and I'm not a financial expert, so I don't know what the multiples right now are working for that type of company. But my sense is that the results would have been steady over the time, and like everyone else, there are costs pressures right now. This acquisition is not cash, for the most part. Zappos was $1-billion-plus in sales, so given the market It seems like it was a good price.

BNET: How can retailers and attract and retail consumers in this tough economic environment?
WC: The thing that any retail company often forgets -- and it's more important than ever right now with the economy the way it is -- it all matters. That's where you can really hold Zappos up as a model. As an example, about a year ago, Wal-Mart decided to take the customer-service number off of its Web site. So they're drawing these lines between channels for customers. They're saying: "If you're doing something online, you're stuck with online." That's absolutely the opposite of how a company like Zappos approaches it. The only way that you're going to really win with the way the economy is and all of the pressure on price for retail is to create experiences that overall create positive perceptions for customers. Some retailers do very well online, some retailers do very well with the brick and mortar. There aren't a lot who do well with both. The customer doesn't care. You can say you're mainly this or mainly that but have several channels. The customer does not care what you're intentions are or what you business model is. They want the experience to be high level and the same no matter what. So that's really the challenge.