AMAZON AND ZAPPOS

Case Study #3,

12/08/2014
Vineet.P

Amazon is the biggest online retailer in the country, with incomes surpassing
$45 billion every year [1]. Its a client driven organization for three sorts of
clients: customers, dealers and ventures. The Company serves customers
through its retail sites, and concentrates on choice, cost, and comfort. It
additionally gives simple to-utilize usefulness, satisfaction and client
administration.
[Link], founded in 1999, the #1 online merchant of shoes at the
time of the arrangement, focusing on client administration. It stocks 3
million sets of shoes, satchels, attire and frill, represent considerable
authority in almost 1,000 brands that are hard to discover in standard
shopping centers. Zappos reported yearly incomes surpassing $630
million[2].
Zappos believes that merging with amazon helps it accelerate the growth
of the existing brand and culture, which it primarily focuses on and amazons
support in continuing to grow its vision as an independent entity was a
positive factor to consider merging with amazon. Key factor which led to this
tie-up was the decaying economy of the company, leading to the verge of
removal of CEO if the condition persisted for a longer time, hence to deal
with all these issues, then CEO Tony Hsieh made a bold decision to buy out
their board of directors which would cost them about $200 billion[3] but
eventually surpass this critical situation as CEO and board interests
misaligned. Hence it merged with Amazon as it not only helped deal with this
situation, but let zappos to continue to operate as an independent entity
which seems to be beneficial to build its culture, brand and business, being
free to be themselves.
Amazon believes that merging with zappos is a profitable investment in
many ways, because during that period amazon was still learning many new
things and zappos already mastered few important things to swallow the
market by delivering excellent customer service and maintaining strong
employee relationships by providing 100% of health care premiums and
giving customer service providers a great freedom. And the way zappos deal
with to find the worthy employees by paying $1000 if an employee wants to
quit a company[4]- If he quits he imply that he doesnt have the sense of
commitment the company is looking for,Hence this kind of high level of

energy in the Zappos culture made Amazon believe the strong growth
potential of Zappos and hence came forward to merge with.
Amazon would be able to purchase all of the outstanding shares,
options, and warrants from Zappos for 10 million shares of amazons
common stock which are currently worth about $807 million. In addition
Amazon will also provide $40 million in cash and restricted stock, specifically
for the Zappos employees [5]
Amazons integration with Zappos was in many ways turning out to be
a positive factor in many terms by pushing itself deeper into the apparel
business. One emerging competitive threat for Zappos and Amazon is the
new category of private sales sites [6]. Led by Gilt Groupe, Rue La
La (owned by GSI Commerce Inc.), and ideeli Inc., these sites hold flash
sales, which last a couple of days, of overstock luxury goods for registered
members, and are one of the fastest-growing sectors of e-commerce.
The companys sales of products including electronics, furniture and
apparel reached $3.51 billion in the next year of this merger, surpassing the
$3.43 billion in sales of books, CDs, and DVDs, and amazons core media
products [7].Clearly Zappos is contributing Amazons Strategy of being a
seller of products, not anymore just an online bookseller.
As time moved, Zappos made significant changes believing that by
joining forces with Amazon there is a huge opportunity to leverage each
others strengths and move even faster towards their long term vision.
Hence realizing that its not worth to run a network of warehouses just for
Zappos, In 2011 It integrated itswarehousing [8] with Amazons.
In terms of Interacting Socially, Amazon seems out of touch with the
self-titled "Twitterverse" that it even refuses to pay affiliate commissions for
shortened links to products that users promote via the service. Hence this is
not exactly the best way to embrace a new technology or social service.
Zappos, in contrast, thrives on Twitter and the customer engagement
services. As of this merger took place, the official Zappos Twitter feed has
1,022,125 followers, making it the second-largest retail presence on twitter
behind Whole Foods. More importantly, Zappos itself follows 406,641
people--factor in retweets, and Zappos could presumably contact half-amillion fans [9] with a message in seconds. This means now Amazon have a
brighter chances to reach its products to customers across the web with the
help of Zappos and at the same time Zappos can increase its visibility by
including more products across the platform

Factors effecting Merger:

Control /Coordination: Amazon has full control of division in current
portfolio while keeping independent.
Cost: Zappos needed financial help which was can be met easily met by
Giant Amazon, and Amazon was ready to stretch itself as it didnt want to
throw money anymore in bad investments unlike its [Link] which
failed to meet its expectations.
Alternatives:
Internal Development: Internal development for either of companies
was a bad approach for various reasons; Growth would be slower though
control and coordination existed with no implementation risks[10]. But
Amazon had already failed with this approach with [Link] and they
learnt that they have to build the needed capabilities.
Alliances and outsourcing: By going with this approach not only
Growth would be slow but Control and coordination could have been effected
adversely alongside of the cost. With less implementation risk they would be
challenged to have majority control of the relationship.
Hence Acquisition was the best approach for all these above mentioned
problems, wherein significant growth can be observed alongside of
control/coordination with small implementation risk. The only challenge
faced would be integrating while keeping acquired firms brand strength. So
both the companies focused on their core values and they were never bold
enough to get diverted.
Information System concerns:
IS can focus on overall enterprise performance as the foundation for
competitiveness in a rapidly changing market. It can become the backbone
for customer management and even product delivery.
Each building within the vast Amazon network of warehouse buildings
actually has its own unique culture that is different from other buildings in
the Amazon network. Each culture includes the Amazon core values and
leadership principles, but will also include whatever twist the employees of
that warehouse decide to incorporate. Hence 2011s action of undertaking
the employees of Zappos under control of amazon can create several
different arrays of problems if they are not properly managed at the source.
IT teams from both the companies should collaborate continually structuring
and restructuring their work constantly adjusting with their adaptive

environments thereby working towards common objectives and goals with

no disruptions of anykind.
To remain competitive the IS leaders at both the ends should acquire
continued education and update related system in both companies
simultaneously such a way that one reflects as a positive path to another.

CIO should focus on technical management and cost minimization

through leveraging IS infrastructure across both the companies.

CIO should assist directions in leading, governing, investing and

managing by aligning both the companies & hence reflecting the
effects of the merger.

CIO needs to plan and scale their networks to address the security and
mobility demands their companys may face and they have to do this
in conjunction with a proper assessment of corporate policies without
disturbing their strategic values[09].

Infrastructure challenges faced by CIO include anytime, anywhere

collaboration of business strategies across both the companys internal
facilities and hence need to be monitored carefully so as to evaluate and run
the business smoothly without any distractions among the distributed
employees who have different perspective of the work to deal with, as they
were adopting unique culture and business process across their organization
before this merger took place.

Conclusion:

Core values of both the companies have not changed since the merger took
place .Though Zappos wins a long-term retail strategy and significant
investor return out of the deal apart from continuing to be separate brand;
Amazon gets a chance to see how social media and the opportunity to build
out a new social investment on the back of this Giant Venture. Zappos
moving its Headquarters to Las Vegas was for several reasons, making the
current employees happier as well as to get rid of tax- Nevada has no
income tax. As citys economy is focused on hospitality [10] and customer
service mentality hence choosing this as a right option in terms of all angles.
Then in 2009 it decided to sell ownership to Amazon which also described its
goal as being the most customer centric company in the world yet its
approach was more high tech than Zappos, by focusing on web design and
functionality to make shopping experience so easy for customers. Whereas
Zappos believes in making personal connection and it learned from Amazons
technology that now it started to track some metrics Amazon tracks and
learning how it runs warehouse operations. At the same time expanding the
products across shelves by including clothing, housewares, cosmetics and
other items.
Amazon focuses on low prices, vast selection and convenience to make
their customers happy, while Zappos does it through developing
relationships, creating personal emotional connections, and delivering high
touch customer service.
As the Resources of Zappos and Sources of value across Amazon
integrated there were endless opportunities both sides when the Extreme
loyal and happy customer base with well trained, customer focused
employees following unique rich culture in Zappos joined hands with the
Amazons renowned Processes of Logistics and distribution. Hence both
companies had a greater learning curve across their counterparts and hence
they achieved expected milestones not later than many days with the date of
announcing this merger.

Works Cited:
1. [Link]
2. CEO ARTICLE. ZAPPOS 22 july 2009,07 december 2014
[Link]
3. Tony Hsieh. why i sold zappos. [Link] june 1 2010, 07 december 2014
([Link]
4. Bill Taylor. Why Zappos Pays New Employees to QuitAnd You Should
Too. Harward Business Review 19 May 2008, 07 December 2014.
([Link]

5. Ceo Article. zappos 22 july 2009,07 december 2014

[Link]
6. Eric Engleman. Amazon and Zappos, six months later: how they're fitting
together. Tech Flash 21 May 2010, 07 December 2014
([Link]
appos_how_theyre_fitting_together.html?page=all)

7. Eric Engleman. Amazon Q1 sales, profit climb. Tech Flash22 April 2010,
08 December 2014
([Link]
es_profit_jump.html.

8. David Murphy . Amazon and Zappos: Oil and Water of Retail Culture.
PCWORLD 23 JULY 2009, 07 December 2014
[Link]

09. William [Link] Architecture & the Role of the CIO

BrainStorm Group 2014.21 november 2014.

[Link]

[Link] Tatrai. Zappos Amazon merger mgmt 721 Prezi inc 23 april2013,
08 december 2014.

[Link]