Zappos Gets Zapped

Amazon has announced its acquisition of Zappos for $847MM. I have to say I am surprised Zappos never made a public offering debut. The Company has such great brand loyalty due to its fantastic customer service and really seemed to be gaining meaningful marketshare. Friends and acquaintances opted to buy through Zappos over other outlets due to its quick turnaround time and willingness to refund unwanted / flawed items. It would seem that the smart guys at Sequoia Capital opted for a bird in the hand versus two in the bush. Given the current market conditions, you can't really fault them for that although I am surprised that they didn't negotiate for more cash as they are currently getting $807MM in stock. While Amazon's stock has been a rocketship as of late, these guys are definitely taking a risk that the stock will maintain its value or continue to climb. (Falls into the Apple bucket, great earnings but hard to invest now as the Company's stock has already risen to great heights). Given the volatility in today's market, I just think you need to demand cash.

Culturally this combination seems to make a lot of sense as both Jeff Bezos (CEO, Amazon) and Tony Hsieh (CEO, Zappos) / Alfred Lin (COO / CFO, Zappos) are smart, dynamic guys who decided to take on the traditional retailers (a formidable opponent) and offer effective customer service plus provide a forum for user-generated reviews. Ultimately, I think Bezos made the right call of knocking out a competitor via acquisition while holding on to his cash; nicely done!

Barnes & Noble V. Amazon V. Sony

Welcome to Round 1 of Barnes & Noble v. Sony v. Amazon eBookstore challenge. To state the obvious Barnes & Noble had to do something. Amazon's Kindle has been out on the market since 2007 and is now in its 3rd generation (amazing that it was launched so long ago). Then Sony launched the Reader in 2008 and partnered with Borders so it was just a matter of time until Barnes & Noble was able to figure it out and develop a partnership with Plastic Logic. Here is the million dollar question: Will Amazon's early launch give it dominant market share? To be fair, the eBook market is still very nascent, but it has certainly attracted significant R&D / marketing spend from these players. To me there are several barriers to any of these companies making significant ROI:

• The price points of the devices need to get to the $100 to $200 level
• Books need to be less than $10 a piece; it is just too easy to order used books from Half.com and Amazon.com
• The target audience needs to be expanded; Right now these devices appeal to the upper echelons who take 12 hour flights and don't want to pack 12 books; The ideal entry point would be in academia, but that hasn't really taken off largely due to price point

I think ultimately Kindle could develop enough momentum to dominate the market as they have their price point down to $299 and have made inroads into universities, but only time will tell. Barnes & Noble has already seen a bump in trading since its announcement so clearly the equity markets recognize it was high time for the Company to get involved, but it will be interesting to see if the Company can turn this into a viable business. Any interesting match to be sure.