I had been asked a few times over the last week about my thoughts on the Zappos transaction. I think this is a great story for innovation and startups. Zappos started in a space many believed you could not transact online: selling shoes without people trying them on… Of course, as the world has grown increasingly comfortable transacting on the Web, that changed pretty quickly and Zappos took off. With their focus on customer service and company culture (can watch a video by Tony Hsieh on that here), they were able to build sustaining brand advantage.
Ultimately, I think Zappos could have gone public, but Amazon stepped in and paid over 20x+ reported EBITDA of Zappos. That’s a serious multiple, healthier than the public markets now. And of course, in an online business at this scale there are significant capex cost, so I’m sure if you looked at cash flow, you get an even bigger premium. Zappos built a dominant brand in a category, and Amazon stepped up and paid a premium to get the company. To me, that’s a textbook entrepreneurial story. I think you will continue to find next generation e-retailing companies thrive, but with an innovative new spin. Gilt just raised money at a reported $400MM valuation, and had multiple bidders competing to get in. There are a whole generation of companies pushing the ‘mass customization’ or ‘personalization’ theme, and doing well. It’s all about finding a novel approach, attacking it quickly, and building scale at a brand level before someone can catch up.