The Marriage of Amazon and Zappos

The big news today is that Amazon.com purchased Zappos.com for the tidy sum of nearly $900 million. I'm guessing that the $40 million earmarked for Zappos employees is going to provide some nice economic stimulus to the Las Vegas and Louisville, KY economies. Zappos's culture is legendary, and it's great to see their employees rewarded for working together to create such a wonderful business.

My immediate reaction to this deal is how these two companies are both remarkably similar and remarkably different from one another. They are both obsessed with customer experience, but they go about it in very different ways. They have also both grown at break-neck speed and maintained the first-mover advantage.

Two years ago I attended a presentation by Zappos CEO Tony Hsieh where he presented his "Top 10 Lessons Learned in E-commerce." I thought it would be interesting to look at these ten lessons and see how they fit with Amazon:

1. The e-commerce business is built on repeat customers. Lifetime relationship with each customer is the goal.

You can't get much more similar than this. Amazon repeatedly talks about the fact that the margin on any individual sale is irrelevant and that the long-term relationship with the customer is most important.

2. Word of mouth really works online. With a click of a mouse, anyone can tell fifty friends how great or terrible your company is. Even small, infrequent customers (i.e., unqualified customers) can spread the word about your company.

Another checkmark in the similarity column. Both companies get it, and it shows on their sites. Amazon has long integrated user-generated content. They pioneered customer-written product reviews. Likewise, Zappos' customer-driven "how a shoe fits" feedback is excellent. Both companies have earned great reputations and are loved by their customers.

3. Don’t compete on price. Invest in service instead of low prices. Low prices do not encourage loyalty and drive repeat business. Price is not an effective differentiator – someone can always beat you on price.

Whoa, stop the presses! Tony and Jeff [Bezos] do not agree on this one at all. Low prices are one of Amazon's customer experience "pillars." Jeff's pillar is Tony's killer.

4. Make sure your inventory is 100% accurate. Don’t drop ship from manufacturers. Their inventory feeds are only 80 – 90% accurate. Customers are only thrilled when you can deliver, and they are very disappointed when you cannot.

This one hits home since I spend much of my life managing a drop ship program that fulfills orders for Amazon. Tony's point is well made. There is no doubt that drop shipping is not perfect, and if you want total control over customer experience, you have to do it yourself. However, this is much easier when you're only selling shoes and apparel.

Huge selection is another Amazon customer experience pillar, and they sell 10 million SKU's. Drop shipping is a must for Amazon. What I can say from personal experience is that Amazon is obsessed with making their drop ship programs work, and they will quickly sacrifice sales before they will sacrifice customer experience. They dedicate significant resources to keeping drop ship vendors on track.

5. Centrally locate your distribution. What happens after checkout is just as important as what happens before checkout. Quick transit time equals better service.

Yup. They both do this.

6. Customer service is an investment, not an expense. Maximizing the value of each individual transaction is not as important as maximizing the lifetime value of the customer. Customer service is not a department – it is how we do business. Send flowers.

Zappos and Amazon are much different here. Zappos is easy to reach and values personal service. Amazon cannot afford the overhead. Instead, Amazon focuses on operational excellence; they avoid mistakes, therefore reducing the customer's need for personal service. Yes, they will call you if you want them to, but their customer service is essentially impersonal. As a weekly Amazon customer, I can vouch for the fact that they do a good job, but it's no where near the scale of Zappos.

It's interesting that Tony uses the same language talking about service that Jeff uses when he talks about price: "Maximizing the value of each individual transaction is not as important as maximizing the lifetime value of the customer." Low price is an Amazon customer experience pillar, but Zappos' pillar is service. Low prices and superior customer service rarely coexist.

7. Start Small. Stay Focused. You cannot accurately predict how customers will respond to new technology investments. Add features and adjust your site incrementally. Don’t advertise loudly until you have it working right.

They seem pretty similar here. This is really common sense.

8. Don’t be secretive. Don’t worry about competitors. Share information with your suppliers. The benefits outweigh the risk that they might spill the beans to your competitors.

I'm not sure about this one. Jeff talks about being obsessed with customers, not competitors, but it's in a different context. Amazon is not just a retailer, it is a retailing platform. Tony is approaching this more from the supplier relations standpoint.

9. You need to actively manage your company culture. If you get the culture right, everything else takes care of itself. People know what to do and you won’t need to worry about having a policy and procedure for everything. Fifty percent of our performance review process is about culture.

I don't know for sure, but I'll bet there are significant differences here. I've been to Amazon's offices many times. They seem to have a good culture, but Zappos is in a different league here. Amazon is a public company, and they have probably become much more process-driven and managerial in their culture. As a private company, Zappos just doesn't have the baggage. (Now they do!)

10. Be wary of so-called experts. Experts know a little about a lot of companies, but they know a lot about very few of them. No one knows your business as well as your own people know it.

Amen. Both companies have defied the odds. The doomsayers that declared that Amazon would never turn a profit were dead wrong. Zappos' free shipping both ways is about as in-your-face as you can get with regard to conventional wisdom.

I tallied five similarities, four differences and one "I don't know." If Amazon really lets Zappos run their own show, then it doesn't matter. At the very least, this acquisition diversifies Amazon's business, helps them jettison the Endless.com operation and probably raises their margins. They also grew their top line 5% overnight.

This is the marriage of two very strong, very successful dot coms that are industry leaders. It will be interesting to see if they can make it last.

Marissa Mayer on Privacy

As TechCruch appropriately pointed out, it must be Google week on the Charlie Rose program. I just finished watching the interview with Marissa Mayer. There wasn't anything earth shattering in the interview, but it's the first time I've watched a lengthy interview with her.

Mayer has taken a beating lately, and I don't know enough to weigh in on whether or not it's deserved. All I will say is that, for its size, Google still seems like a pretty well run company that stays focused on its core business. Mayer has obviously been a part of that.

As usual during interviews with Internet execs, a question was asked about all of the information that Google has and the associated risks to our privacy. It's a valid concern, and the media should certainly ask questions about this. However, Google seems to often be the whipping boy for criticism about its database of personal information.

In their responses, most technology pros talk about the tradeoff between the usefulness of all these online tools and the information that we must share to make them useful. Mayer tows the line, but she also points out a couple other examples of places where personal information is amassed in startling depth:

Charlie Rose:
You guys have an enormous amount of data that you — you know more about people than what they buy, their email, who their friends are. It’s extraordinary phenomenon that one company would have so much knowledge about so many people.

Marissa Mayer:
It is. But there’s actually a lot of other analogies around that people don’t think about in terms of who knows what. I will say that, you know, we have a very strict privacy policy. We try to be very up front with our users, what information we have and how we’ll use it. But search engines aren’t alone. ISPs, your ISP knows a lot of what you do.

Charlie Rose:
You’re right.

Marissa Mayer:
Innocently, your credit card company knows a lot what you do. I was reading an article just the other day that said your credit card company knows two years beforehand that you’re going to get divorced with 98 percent likelihood.

Who do you trust more with all of this information: credit card companies (i.e., very large financial institutions), Internet service providers (i.e., the media giants) or Google? Of the three, Google seems just a bit more trustworthy.

Tribute to the Winter of Vomit

Gastroenteritis has been ripping through these parts at breakneck speed this winter, so much so that I declared this the Winter of Vomit a few weeks ago. In tribute, I've composed a few haiku:

Volumes of vomit
Are spewing from our children
I hope we're not next

Buckets of vomit
Fill the air with awful stench
Go easy, stomach

Here is a bucket
It is now filled with vomit
Time to do laundry

The whole family is healthy at the moment. Hopefully, we can stay that way for a while.

My Take on the Cash4Gold Smackdown

I tweeted this yesterday:

I just knew that Cash4Gold outfit seemed suspicious. This is hysterical: http://tinyurl.com/dze2od 5:53 PM Feb 9th from web

Cash4Gold posted an @reply almost immediately:

Cash4GoldInc @robmackay Here's some more info on that story: http://tinyurl.com/cdwae3 6:22 PM Feb 9th from web in reply to robmackay

The link in Cash4Gold’s reply leads to a post on their blog. In the post, Cash4Gold explains that the guy offering to pay Cockeyed.com to remove the negative review was a marketing consultant hired by Cash4Gold.

The consultant, Joe Laratro, was apparently performing reputation management services for Cash4Gold and decided on his own to reach out to Cockeyed.com. Cash4Gold quotes Mr. Laratro’s confirmation that he chose his tactics independently. Mr. Laratro backs this up with a post on his own blog further explaining his relationship with his former client.

After reading all of this, especially Mr. Laratro’s explanation, I am convinced that his activity was an example of a questionable, but relatively innocuous incident that exploded once it hit the blogosphere. But why did this happen? What sucked me into the fray and led me to conclude that Cash4Gold was slimy? Here are my takeaways from this whole thing:

First, bravo to Cash4Gold for monitoring their reputation and especially listening on Twitter. Whether from a company employee or another consultant, their @reply was quick and got my attention. (Ultimately, it led me to post this on my blog, which doesn’t happen too often.) They certainly get an "A" for damage control, and it immediately elevated their reputation in my mind.

Second, my only exposure to Cash4Gold, prior to yesterday when I read the Consumerist and BoingBoing posts (via SmartBrief), was their television advertising. I began seeing their ads a few weeks ago, and then, like half the country, I saw their S___r Bowl ad. Quite frankly, I was not impressed.

I certainly understood what they were selling -- the ads do a good job telling their story. But the 1979ish presentation left me wondering if this was a company using retro humor to generate buzz or just a questionable operator that thinks people will fall for this. I went with the reading on my sleaze meter and decided that Cash4Gold was a suspect outfit that would soon be in the advertising hall of shame with Miss Cleo.

Sorry, guys, that's just my honest impression of your ads. Maybe I'm not your target market, so it would not normally matter. Unfortunately, the online flare up simply reinforced the first impression I had from the TV campaign and led me to tweet about it. Bottom line: first impressions count, and humor is a risky way to generate a first impression. Not everyone will get the joke. Usually, I do. This time I didn't.

Third, this reminds me to be very careful what I let consultants do for my company online. We moderate our own reviews because we don't trust anyone else to speak for us on this. We also want our reviews to be a direct conduit to the people who design, manufacture and sell our products, and an outsider wouldn't be able to do this as well. We're in the process of stepping into the world of professional reputartion monitoring, and I need to be careful before we decide to let someone else manage our reputation. It might be best to keep the latter in house.

It's funny how things like this happen. As scores of experts have pointed out, the Internet has created an entirely new world where the consumer controls the message. This creates new opportunities and new risks. While I'll probably never do business with Cash4Gold, their reputation won't be the reason. I'm just not in the market to sell any gold. And I still don't like their ads.

Perfect Summary of Consumer Sentiment

I continue to be amazed at the suddenness of the economic slowdown. Watching business screech to a halt in literally a few days time is probably the most shocking event in the 24 years I've been in the consumer products business. I read this statement on someone's Facebook status this morning, and I think it perfectly sums up the consumer mindset right now:

"I have to admit my gas guzzling SUV went from [$]80 a tank to 40. That is helping the Christmas present cause...I just hope I have a job seven months from now."

Your Site is Part of Your Company

Nice entry at Six Pixels of Separation (via Chris Brogan on Twitter) regarding the way big retailers' stores are often disconnected from their online operations and merchandising.

I explained that none of this would have happened had the website been correct, to which he replied, "it's the website... that's not our problem... we're the store."

He wasn't being rude. He wasn't treating me poorly. He simply said what we all know (but don't want to admit): "the Website is not the same as the store, it's always different from the store, and even I don't know who to call when something like this happens."

No, he didn't say that line exactly, but I'm paraphrasing the overall sentiment of the dialogue.

The writer makes some great points and is absolutely correct that a retailer needs to treat its web site as part of what it does, not something separate. Many retailers have made tremendous improvements at this over the past few years. For example, look no further that Wal-Mart's colossal Site-to-Store program. Wal-Mart has managed to harness its greatest strength (i.e., the scale of nearly 4,000 stores) to attract more consumers to its web site.

The real issue here is that legacy policies and systems prevent retailers from being able to fully tie their online and offline worlds together. Keeping inventory information accurate in real time is excruciatingly difficult and a struggle for virtually every retailer. Pricing is another problem. Margin requirements and competition vary from one channel to the next, and retailers face a significant challenge in deciding whether or not they can honor online prices in their stores.

One thing is certain. Retailers need to understand that their customers are asking new questions these days, and they need to equip their store employees with the right answers.

Learning from Scrabulous

Richard Gottlieb, a blogger at Playthings magazine, posted on Monday about the Scrabulous situation. In short, a couple guys from India created a Facebook app that's a game remarkably similar to Scrabble. It's no surprise that Hasbro, owner of Scrabble, was a little upset about the blatant infringement of their intellectual property rights. Hasbro recently took legal action that led Scrabulous' owners to change the product significantly. The fans don't like the changes and are quite irritated with Hasbro.

Gottlieb starts by saying that "Hasbro has managed the Scrabulous challenge about as well as can be expected." Well, I agree that Hasbro has every legal right to protect their IP, but to say that they handled this as well as can be expected is a bit dubious. I am not suggesting that Hasbro handled this poorly, but the reality is that their actions created a risk for their brand. As one commenter noted:

I no longer play any version of Scrabble online and I also eliminated a planned purchase of the traditional board game as I was going to introduce the game to my kids. My friends have done the same. They took a million fans of the game and thew [sic] them in the trash, hopefully it's just the beginning of more failure for this poorly managed company.

To say that Scrabulous fans will "get over it" is short sighted. Time will tell if Hasbro's attempt to "take pee out of the swimming pool" is positive or negative for their brand.

The second half of Gottlieb's post is terrific. He's absolutely right. Toy companies need to be much more in tune with the increasing number of Gen X and Gen Y moms and dads who live their lives online in ways that much of upper management just just doesn't understand.

Just think... what if Hasbro had reacted to Scrabulous by immediately introducing an official and better Scrabble Facebook app of their own? They could have trumped the imposter or at least slowed them down enough to make Scrabble appear genuine and Scrabulous as a cheap knockoff. We'll never know if the thought even crossed their minds. In fact, I wonder how long it took someone in a position of authority to even notice what was going on.

The Great Equalizer

Seth Godin has a great post today about how he was treated by an Amazon merchant. He's right, the Web really is the great equalizer. Small businesses have an opportunity to shine online, but sometimes they still rest on their weaknesses. It's impossible to beat the big guys on price, so when someone gives you a shot, give them a reason to come back. It may be the only chance you'll get to create a long-term customer.

JR's Renegade Direct Marketing Tactics

I just received my new JR Cigar catalog. These guys really know how to entertain customers. Selling cigars is pretty unromantic, and most of other cigar catalogs take a somewhat "Crazy Eddy" approach with lots of hyperbole, obnoxious sales gimmicks and cluttered catalogs.

JR Cigar's new catalog is hugeJR really stands out from the crowd. First of all, the new catalog is huge. It measures 10.5" by 12". This giant, almost square catalog must have cost a fortune to mail. It's as if they are flouting the ever-increasing postage rates on flats. While other catalogers are crying in their beer and sending slim jims to keep costs down, JR is
Click to enlargedifferentiating themselves with a catalog that demands to be read. It also probably creates a handling challenge for the post office, JR's way of sticking it to the man.

JR also writes hysterical copy. It's sarcastic as heck and very entertaining. This paragraph had me busting a gut and is typical of their style.

The cigar business can't be what it was during the boom of the 90's, but JR seems to be doing just fine. They are very consistent in their message, and every now and then they surprise me with something really out of the ordinary like they did this week.

Blogging about Play

Our new blog went live about a week ago. It's called CreativePlayPlus.com, and it includes all kinds of information about the importance of play in child development. It's written to be an easy-to-read resource for parents, grandparents and child care professionals.

There are many sites that talk about toys and products for children, and there are even more that cover the joys and travails of parenting. Creative Play Plus takes a different approach by focusing on the benefits of play in general. It provides a wealth of practical information and links to articles that give insight into how play shapes children's lives and helps them grow their gray matter.

Much of the content is provided by some terrific people at the Schubert Center for Child Studies at Case Western Reserve University. Believe it or not, right in our own backyard, the folks at the Schubert Center are among the elite when it comes to studying play. We learned about them from Optiem, our interactive agency, and we spent several months drawing up plans for the blog.

Sure, we hope to sell more toys as a result of this new site, but that's secondary. There's really a dearth of good information on play, and parents need to connect the dots between the products they buy and how their children learn. If we are able to help them make better choices for their children, then everyone wins. That's doing it right for the community, and that's part of our purpose at Step2.

Our local NBC affiliate ran a great segment about the new blog. Education reporter Kim Wheeler provided a good overview of the project.