Deal Radar 2008: Zappos Wants to be Amazon When it Grows Up

You have heard me talk about the verticalization of the web. Here’s a good example of a brand built on that premise.

Zappos.com is the #1 online footwear retailer. Apart from retailing around 1,100 well known brands of shoes, boots, sandals, and athletic footwear, it also retails accessories including socks, wallets, belts, designer handbags, and diaper bags. (It recently added clothing, a move that is quite inconsistent with its brand!)

The Company claims to have 1,095 brands, 165,722 styles, 906,874 UPCs and 2,957,471 products. Zappos is known for customer service (24-hr call centre), free shipping and its return policy (365 day).

In 2000, Zappos raised $1.1 million from Venture Frogs. It later raised two more rounds of funding, totaling $35 million, from Sequoia Capital in 2004 and 2005.

Zappos is expected to have closed 2007 with revenues in excess of $800 million. It is projected to earn over $1 billion in revenues in 2008. Zappos has over 20% market share in the online footwear market. Zappos is profitable.

Zappos.com has an Alexa traffic rank of 1,545. Compete estimates Zappos unique visitors to be over 5.1 million in December. On an average a user spends 8 minutes on Zappos and views 15 pages.

The Company is a good acquisition target but with revenues approaching $1 billion and the business being profitable, the IPO prospects are stronger.

Both Amazon and eBay would be interested in acquiring Zappos as it has built up a valuable business strong on fundamentals. I see more synergies with Amazon as it could acquire Zappos to expand its Endless.com offering. However, eBay could use its stash of cash ($5 billion) to some good use and diversify. Auctions is slowing.

IAC could also look at acquiring Zappos to grow its retail business and expand its shoebuy.com effort.

The Company wants to expand its services to sell everything and anything. An Amazon-esque strategy no doubt!

This segment is a part in the series : Deal Radar 2008