This is a live post of Tony Hsieh’s fireside chat at DOMAINfest…updating.
Tony Hsieh, CEO of Zappos.com gave a keynote fireside chat with Oversee.net CEO Jeff Kupietzky.
Hsieh founded LinkExchange, which he sold to Microsoft. He then invested in and joined Zappos.com, which he sold to Amazon.com. He’s a 36 year old Harvard graduate.
He ran a pizza business in college, where he met Alfred Lin, who is now the CFO at Zappos now. Alfred would buy pizzas from them, and sell it by the slice.
LinkExchange’s reach was more than Yahoo or any other internet property back then. They had about a million web sites in their network. The sixteenth web site on their network was what became eBay. They sold the company because it stopped being a fun place to work anymore. They didn’t pay attention to company culture. Even Hsieh didn’t enjoy coming to work anymore.
They (Lin and Hsieh) used the money from selling the company to invest in OpenTable and many other startups, but they passed on PayPal.
“The original business idea never works out the way you” think it will. So they should have invested in the team behind PayPal, not the original idea (PayPal was supposed to send money over Palm Pilots).
They got the investment pitch for Zappos, and they almost passed. But the founder gave stats about the state of the shoe business, so they realized the web could take over the 5% of shoes sold via mail order. At first it was going to be a dropship business. They did that for the first couple years (100% dropship). Then they realized there were some brands that didn’t have the ability to dropship. They moved to a hybrid model. It was OK, but not a great customer experience. So they decided to become a ‘customer service’ company.
Overnight, they dropped the dropshipping business, which was 25% of their business.
Original name of site was ShoeSite.com. They based name on Spanish word for shoes. The name Zappos.com was available. Some people thought it was “Zappo’s”, and people went to Zappo.com. They ended up buying the domain for hundreds of thousands of dollars later.
He bought BBQ.com for something like $25,000. He bought Drugs.com at the height of the dotcom bubble, he bought through GreatDomains. He paid $823,456, which were the first six digits of his cell phone number, which he set up as his max bid. Then .com crash happened, and he was betting on Zappos, he sold Drugs.com for the same amount a couple years later. He put that money into Zappos.com.
They view phone calls as a branding experience, rather than a cost to be minimized. Although 99% of sales are on the web, most customers will call at some point. They don’t have phone scripts, they just ask reps to connect with the customers. Reps use their personality.
Spending money on offline ads improves ROI of online ads.
Idealab had the domain Clothes.com and sold it to Zappos. It was at the time they were focused on shoes and thought their next category would be apparel. It seemed like “there’s only one clothes.com”.
Tony had no idea that domain names was an industry before hearing about this conference.
Amazon.com approached Zappos five years ago, and Zappos wasn’t interested. Then Amazon launched Endless.com, which didn’t gain a lot of traction. Then Amazon came back and realized that what makes Zappos special is its culture, so it acquired Zappos but kept it as a separate organization.