Amazon Buys Zappos

In 2007, Amazon launched Endless.com, which sells shoes and handbags, but that site gets less than one quarter of the visitors that Zappos.com does.

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appos, the online retailer and super-speedy deliverer of shoes and other clothing was sold to Amazon late last month, for a hefty price of approximately $888 million, based on a 45-day estimate of its share price. Additionally, Zappos employees will get $40 million in cash and restricted stock, which brings the deal's worth to $928 million. It's a nearly perfect exit strategy for Zappos' investors, who put in about $60 million over seven rounds of funding.

Still, both companies are saying it's less an acquisition and more of a "swap in shareholders." Zappos' CEO, Tony Hsieh, reassured his employees, writing in a memo that read, "We plan to continue to run Zappos the way we have always run Zappos—continuing to do what we believe is best for our brand, our culture, and our business. From a practical point of view, it will be as if we are switching out our current shareholders and board of directors for a new one, even though the technical legal structure may be different."

Tony Hsieh, Zappos.com CEO.

Sources close to the deal describe it as being the best for both companies—Zappos has long expressed an interest in building a company for long-term survival, while Amazon's capital can help with that while also benefitting from Zappos' popularity and sales numbers, especially since Amazon has tried unsuccessfully to compete with Zappos' shoe offerings. In 2007, Amazon even launched Endless.com, to sell shoes and handbags, but while Zappos had 4.5 million visitors in June this year, Endless.com had a paltry 777,000.

Sucharita Mulpuru, an analyst at Forrester, said, "People will go to Amazon to purchase a lot of their core media products and consumer electronics. But it is not thought of in the same light when shopping for apparel, accessories, and footwear" the way Zappos is. Zappos is "one of the few sites out there that people think of first when they think of footwear," she said.

Zappos' management team will remain intact, and the company will continue to operate as an independent division of Amazon from its offices in Nevada.