Adam Jewell - Search & Affiliate Marketing

It came as quite a shock to hear that Amazon.com bought Zappos.com (best known for shoes but now in a multitude of categories including apparel, electronics and outdoor gear). Amazon seems hell bent on eliminating the human touch and offering the lowest prices on everything while Zappos emphasizes the human touch, top notch customer service provided by real people and providing a great fun place to work at an ecom company. So what is going on here and what is the deal?

Let’s make some assumptions about Zappos financial performance.

In this Internet Retailer clip on Zappos, Zappos was expecting to generate 800 million in sales in 2007 and aiming for 1 billion in 2010. Midway through 2008, the economy started to crumble and it is likely that Zappos sales ae now somewhere between 800 million and 1 billion annually.

If I had to guess, I’d say Zappos reports sales as the total amount of merchandise ordered from the company before returns. Shoes have a notoriously high rate of returns especially when Zappos offers free shipping and free returns on all orders (not just shoes). For the sake or arguement, let’s say Zappos had 900 million in sales in 2008 and that this is the total amount of merchandise ordered by customers. If we assume a 35% return rate (It’s likely to be somewhere between 30% and 40%), then the amount of merchandise Zappos actually sold and shipped that it’s customers actually kept is likely to be around $585 million dollars. If these assumptions are roughly correct, then the price tag for Amazon is about a P/S (price to sales ratio) of 1.5. It’s anybodys guess what Zappos actual earnings are but I’d guess they are marginally profitable so the P/E for this valuation could be anywhere from zero (or negative) to maybe 21.5 if Zappos had a 7% net profit margin on the estimated $585 million in merchandise sales that were not returned.

While some people may exclaim that the P/S ratio on this deal is less than one, when returns are factored in it doesn’t look anywhere near that low. Zappos sales may very well be declining with the economy and they may be lowering prices as well to move more merchandise. Zappos is privately held so all we can do is speculate on the direction of sales revenue and profit at this point. Zappos did lay off about 8% of staff in December 2008 so we can assume the either anticipated growth slowed or maybe there was a decline in sales.

Zappos Culture and Amazon Culture A Clash?

Zappos has a very unique culture. It’s the human in a sea of automated systems and robots all squeezing every last bit of revenue out of consumers and pushing retail margins down to zero. Amazon seems to be one of those companies determined to put everyone else out of business by automating everything and pushing margins to next to nothing. So what do these two companies have in common? Where is the “synergy”?

As far as culture goes, maybe there isn’t any synergy. In his traditional style of rather open communications with employees and the general public, Tony Hsieh sent out a letter to employees and posted it on the CEO blog detailing the Zappos Amazon deal. It sounds like the two companies will remain pretty separate. Jeff Bezos, the head honcho at Amazon posted a video about the deal here:

So what kind of sense does this deal make?

The two companies will likely be better able to quickly ship merchandise when their warehouse space is combined.

Zappos will benefit from the Amazon technology infrastructure.

Maybe some of the Zappos.com culture will rub off on Amazon.

As an upscale retailer, Zappos.com may have been near break even or close to it as the economy tanks and open to this buyout to avoid having to seek out more investment in a tough economic environment.

Amazon takes a competitor off the table with this move and now has a “luxury” brand under its umbrella without having to build it’s own or cause confusion among its customer base in the marketplace.

Amazon is smart to keep the Zappos.com brand alive and if they can supply the technical infrastrucure and analytics to help streamline any weak points in Zappos, they can help Zappos make more money.

Amazon will also be well positioned with the Amazon discount site and the upscale Zappos brand when the economy returns to at least a moderate growth rate.

With the Zappos acquisition, Amazon also gets 6pm.com so now has three shoe sites (Endless.com developed to compete with Zappos) and of course Zapops.com and 6pm.com now.

Amazon probably found that it was tough to grow Endless.com to compete with Zappos.com and now they dont’ have to.

As the economic downturn continues don’t be surprised to see Amazon snap up more struggling retailers to build its portfolio of online brands across other top consumer retail markets.

The CJU 2009 Affiliate Marketing Conference in Santa Barbara, California is coming up fast. It seems like just yesterday the last conference ended after a great week of networking, social events, great seafood on the pier and an even a Polo Match.

This years event will be held September 15 - 17, 2009 at the usual location, the Fess Parker Double Tree hotel right along the beach. CJU is always an awesome time, the weather is always beautiful, the food is amazing (and probably the best of any conference) and the atendees are some of the best and brightest in the industry. If you are into affiliate marketing, register now for CJU 2009 and make your plans now to head out to Santa Barbara in mid September once again!

Recently, the online retailer Zappos (www.zappos.com) decided to hire an agency. They put out an RFP to 16 agencies. Even 16 agencies seems like a lot. When word got out that Zappos was searching for an agency, lots of other agencies wanted the chance to pitch. In the end< Zappos said sure, why not and opened the pitch to more than 100 agencies. Apparently one of them (Ignited) was upset that Zappos did not seem to spend much time reviewing the pitch.

To evaluate even four agencies takes a lot of time, let alone more than 100! There is no possible way that anyone (or at least the add-on) agencies beyond the original 16 should really have expected to get serious consideration. In a process like this, it is just not practical for a company to go through that many proposals in any kind of detail.

In pitches I’ve been involved in, there are usually at most 5 agencies in the consideration set who may receive serious consideration from a client. From an agency perspective, how woud anyone think it made sense to be one of 100 agencies to pitch Zappos or most any other business for that matter? Granted, times are tough and if the agency has excess capacity, then maybe it makes sense to put some resources toward this pitch, however, pitching Zappos is likely to be unlike pitching most other accounts. Zappos has a unique culture, a unique way of operating and is extremely savvy in the socaial media space. They’ve run a huge affiliate program for years and have built one hell of a brand seemingly without to much outside help.

(Prospective) clients almost always get a great deal during the pitch proces cause they get some many cool new concepts and ideas. That just how the whole pitch process works. If they had sent out an RFP to 100+ agencies and not made that clear to all who received the RFP, then maybe the agencies would have a legitimate gripe about not getting as much attention as they would have liked. It sounds like the agencies all requested to be part of the selection process, to which Zappos agreed and informed the agencies of the tight turnaround time and the stiff competition.

Unless your company is going to spend a year evaluating agencies, there is no way it is worth trying to take the time to view proposals from 100+ agencies and even 16 may be a bit much. If you are an agency, chances are it is not worth your time to throw your hat in the ring when 100 other agencies are pitching for the same business unless it is to get your employees experience in developing pitch materials.

Finally, in ANY pitch in ANY business, the client is usually thinking WIIFM - What’s In In For Me? If that is not clear in the first few pages (or even first page) of a proposal or RFP response then the client will probably not continue through the proposal especially if there are 99 more of them to go through.

The US is apparently going to have a deficit of over 1 TRILLION dollars this year. That is a deficit, not the debt which is much, much greater than the deficit for a single year. This will bring the national debt to something like 11.5 TRILLION dollars. Eleven and half TRILLION dollars is $11,500,000,000,000. The population of the US is about 303,824,640 (that’s about 304 MILLION people). If every person in the US had to chip in an equal amount of money today to pay off the US national debt tomorrow, that would be $37,850.78 for each and every person in the United States. You’ve got an extra $38,000 laying around right?

By any measure, that is a staggering amount of money and the amount is growing daily. At an annual interest rate of 5%, we are racking up $575,000,000,000 in interest alone. That is 575 BILLION dollars per year in interest. For each person in the US that is about $2,000 per year in interest we will eventually have to pay back.

You’ve probably heard about all the bailouts given to the banks, the automakers and everyone else who was irresponsible and gambled like someone smashed out of their minds at the roulette wheel in Vegas. The banks are broke, the government is broke, some of the states, most notably California is broke and a big chunk of US citizens are broke. Many gambled and got caught up in the housing frenzy and frankly deserve to lose while many other who behaved responsibly have been snared by job loss, personal bankruptcy due to health care costs or other unfortunate situations in life.

The stock market peaked on Monday, October 1, 2007 at 14,087.55. By March 6th, 2009, the DOW bottomed at 6,443.27, a drop of about 54.3%. Since then it has bounced back to 8,816 on July 15, 2009 after a nice pop following record earnings anounce by Goldman Sachs (GS). Not long ago, Goldman was going hat in hand to the US government for a bailout to stave off financial collapse. It seems rather ironic that all of a sudden, Goldman was able to
turn a profit of 3.22 BILLION in the previous quarter. Where did that proft come from?

The markets didn’t really seem to care. “Good news” from Intel added a little fuel to the rally and the DOW ended up 257 points or 3.07%. While the markets are still way down from the October 1, 2007 highs, they are up significantly from the March 6th, 2009 lows.

There doesn’t seem to be any logic to the recent jump in stock prices. The US economy continues to fall apart and lose jobs at an alarming rate. The housing crisis is still not finished by a long shot as liar loans (Option ARMs) and pick your payment (Alt-A) loans continue to reset en masse through early 2012. We’ve go 2 more years of home mortgage resets to go. So we’ll have at least 3 more years of steady or increasing foreclosures. The commercial real estate market will be another troublesome area as well. Maybe sometime in 2013 or 2014 this mess will have worked its way through the economy.

While the media continues to put a positive spin on the economy and various government people claim all is good and the stimulus is starting to take hold, the bottom line is that this country, the financial institutions, the states and many of the peopel are simply broke. If anything was still made in this country, the stimulus package might have a positive effect. Unfortunately not much is made in this country and borring money at the federal level to give people to spend may delay housing losses and bankruptcies, it is only a temporary and (probably empty) fix. We’re simply getting money to spend on products that come from overseas.

So what is a person to do?

Stop wasting money. This could be on toys, clothes, eating out, cable television, iPhone cell plans and other luxuries.

Don’t put any money in the stock market you will need in the next 3-4 years. There is nothing supporting the stock market and the economy is going to get worse, possibly much. Now that the markets are off their lows, the temptation is to chase them up. Bad move! We’ll retest the 2007 lows at some point in the next couple years. If you have a 401K and you may have to draw on that if you lose your job, you may want to watch the markets. If we get back to a 10,000 DOW, you might want to move your 401K funds into a money market or very conservative bond fund to preserve capital in case you will need to make a withdrawl.

Cut your fixed expenses. Cars and houses/apartments are generally the two biggest expenses you have. Can you refinance them or sell them now if you need to before the value drops further?

Start shopping smart! Look for bargains online. Ditch the department stores and find discounters. Go to the warehouse shopping clubs to save money and stock up on necessities. Try grocery stores like ALDI.

Know what government benefits are available to you in different situations.

If you get laid off and have employer health insurance, apply for COBRA. You’ll get it for 65% off for up to 9 months and can maintain the same health insurance plan for 18 months.

If you decide to buy a house and you are a first time homebuyer, take advantage of the 2009 $8,000 homebuyer credit. You’ll need to make less than $75,000 (single) to qualify for it and may get a partial tax credit if you make more than that but it phases out rather quickly.

Keep a positive attitude but anticipate that the economy is going to get worse and develop a plan if you lose your job. Can you get your expenses down to the point where you could live on unemployment? It’s generally around $2,000 per month give or take a little bit. That’s not much to live on but if you cut back to basics and have low car and housing payments, it can be done especially if you are single.

If you think you might get laid off and you’ve been at the job for a while, you might want to stick it out till you do get laid off unless you get a really good offer from another company you think will offer stable long term employment. A severance package from an employer you’ve been at for a long time will be better than somewhere you only spend a few months.

If you are considering a new job, do the math on the real costs (or cost savings) of the new job. Will you have to move? Will your housing costs go up? Will you have to sell a house? Will your commuting costs and time go up or down? Will you have to pay more in local taxes?

Be content with the low rates of return on savings for now. If you want to take a little risk then consider municipal bond funds in with any taxable accounts. You may be able to pull in a 4% tax free yield. It’s not much but its better than most savings of money market accounts.

Stockpile some cash. Six months would be great, but anything you can save will help!

The economy is going to get worse (maybe much) before it gets better so get smart now and get prepared to make it through the current turbulent times. Don’t forget to go out and get some exercise too. It’s a great way to burn off stress and hopefully sleep better at night!

The summer is flying by and it is time to start thinking about WebmasterWorld PubCon Vegas 2009 already! Early registration for PubCon Vegas 2009 just opened today and if you register before July 30, 2009 you can get the full access pass for only $599.00 whereas if you wait to buy on site, it will cost $1,299 so book now and save a whopping $700.00!

It’s no secret Vegas is hurting. You can often do cartwheels down the Las Vegas strip in the traditionally busy evenings and not run into a soul. Combine the early registration discount with a town practically giving away hotel rooms (and probably show tickets and meal discounts) in an effort to get you to gamble and you can go to one of the best online marketing and social media conferences around on a shoestring, even if you can’t get company funding for it.

While you are there get discount Las Vegas show tickets at Tix4Tonight.com, go hit some great restaurants and maybe even try your hand at a hand of black jack or two. When you book your trip, the best deals can often be found on an Orbitz flight and hotel package. Make sure to look for Orbitz coupons as well. You can usually knock another $75 - $100 off your room and flight total with an Orbitz coupon. Get your bags packed and get ready to head out to Vegas for WebmasterWorld PubCon 2009, November 10-13, 2009!