Is Zappos owned by Amazon? Why Amazon Bought Zappos?

Is Zappos owned by Amazon? Zappos is the epitome of customer service and revolutionary corporate culture. Moreover, much of it was due to one of its co-founders, Tony Hsieh, and his eccentric lifestyle.

But Hsieh was more than eccentric. His views on business made him a groundbreaking CEO, for better or for worse. After all, Zappos went from paltry sales to a giant of the e-commerce world. So, who owns Zappos? Here’s a hint, it’s the world’s biggest logistics company.

Is Zappos owned by Amazon?

Back in 1999, the idea of selling shoes online seemed preposterous. How would anyone buy a pair of sneakers before trying them on first? So, investors weren’t convinced of Nick Swinmurn’s idea.

Swinmurn was frustrated with shoe stores. They either had the model he wanted but not the size or carry sizes he needed, but with limited models. So, he decided to sell them online.

And that’s why he contacted Tony Hsieh. But, back then, buying things online was more an experiment, an adventure. Add to this that buying shoes can be an art form, so Hsieh wasn’t convinced at first. In fact, he almost turned him down, but Swinmurn lured him a solid argument.

“Footwear is a $40 billion industry in the United States, of which catalog sales make up $2 billion. E-commerce will likely continue to grow. And people will likely continue to wear shoes in the foreseeable future.”

Swinmurn had a point.

Hsieh was a visionary himself and was looking to invest. He had made his fortune when he created LinkExchange, an online advertising platform that he’d eventually sell to Microsoft for $265 million, in 1998.

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He then formed VentureFrogs, an investment firm desperate for some action right around when Swinmurn contacted him. So, eventually, he agreed to invest in ShoeSite.com in 1999.

The name evidently wasn’t catchy, so it became Zappos, after the Spanish word for shoes, Zapatos. It was short and to the point.

Zappos’ initial months weren’t easy. But Hsieh was confident enough to become the company’s CEO in 2000. That same year, Zappos increased its gross sales to $1.6 million, and the following year, they grew to $8.6 million. So, what had fueled such growth?

Zappos owned by Amazon

Changes through culture, the main reason why Amazon owns Zappos

Zappos had a lot going for it. The company survived the dot-com crash, and sales were growing. With Hsieh at the helm, the company had $70 million in sales by 2003, but it was nowhere near making a profit.

Hsieh knew there were many areas to improve, one of which was customer service, something that would become his obsession. He once told Harvard Business Review that He had many options with which to fix this problem.

He could outsource the call center to a cheaper alternative and increase the operating efficiency, but there was a big hurdle. Zappos’ customers were mostly from the US. So, the company needed US customer service. Plus, a third-party company wouldn’t have Zappos’ core values and vision.

But finding accessible customer service representatives in San Francisco, where Zappos was based, was too expensive. Obsessed with a solution, Hsieh took the company to a cheaper state, not just the call center. He moved the entire company.

This would allow Zappos to have full control of inventory, customer relations, and company values. And that’s pretty smart.

In 2004, he also managed to secure funding for Zappos from Sequoia Capital. Then, the company opened its first outlet store in Kentucky and created its first culture book. But it wasn’t an ordinary company book; employees helped write it with personal essays.

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These actions took full effect in no time, as Zappos closed that year with $184 million in gross sales. In 2005, Sequoia invested yet again, totaling $35 million, and Zappos saw $370 million in sales.

And this investment is vital. In fact, Nick Swinmurn says that, without Sequoia, there’d be no Zappos.

Now, his name doesn’t come up that much since the founder quietly left the company in 2006 because “you can only talk about shipping shoes for so long.”

But Hsieh thought the complete opposite, taking an almost obsessive view on company culture.

Zappos owned by Amazon

How Did Zappos Hire? Strange HR Techniques

On a scale from 1 to 10, how weird are you? Think about it. I’ll give you a second. That was a question Hsieh asked possible candidates.

“If you’re a 1, you’re probably a little bit too straight-laced for us. If you’re a 10, you might be too psychotic for us. It’s not so much the number; it’s more seeing how candidates react to a question.” He once told Adam Grant.

It makes sense. Caught off guard, people reacted more naturally. Hsieh, however, took it one step further with The Offer. After a week or so of hiring someone, Hsieh would approach that person and make them an offer.

They could either keep working for Zappos or quit. The answer might seem obvious, but there was a twist. If you considered quitting, Zappos would pay you up to $2000 in some cases. Why?

“If you’re willing to take the company up on The Offer, you obviously don’t have the sense of commitment they are looking for,” Hsieh said in an interview.

Weird, extreme, but it worked. The Offer purged Zappos of those who didn’t believe in it, and the company kept growing. By 2008, Zappos neared $1 BN in sales, and some companies wanted in.

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But not all his corporate culture experiments worked out. In 2013, he eliminated all company titles. Zappos would become a “holacracy,” a place without bosses. Sounds great, but when it happened, 14% of the workforce took up on that famous Offer.

Reputation: Why Amazon Bought Zappos

If you google Zappos and success, you’ll find boatloads of articles discussing how the company culture was a key to its success. But, dig into the details, and you see some atypical methods.

Besides the company culture book we mentioned, employees had open communication through “Ask Anything” newsletters once a month. The facilities have on-site libraries to encourage reading, and Zappos has even hired sessions with life coaches.

Remember all the trouble Hsieh went to optimize the call center? Well, customer service was the stuff of legends. Though a phone call isn’t essential for a company these days, Hsieh felt it was critical for the customer at the other end.

Zappos insisted that representatives fulfill the customers’ demands. In fact, the number of calls they take in a day didn’t matter. Instead, Zappos used other standards to ensure top-level service.

There are urban legends about representatives being on the line for six hours before the customer decided on which products to buy. One even helped a customer find a pizza place.

It doesn’t end there; another example is shipping. Zappos doesn’t charge for shipping, even on returned shoes.

And that’s the key. Hsieh was obsessed with customer service. Many in the media even called him the “king of Customer Service.” Think about it: how many companies do this? Not many. But not everything was perfect.

Zappos owned by Amazon

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