Zappos.com: Fundamentals Over Fads

I watched a spot on CNBC about Zappos.com last night (check it out here:  http://www.cnbc.com/id/19350718… the video to the left of Diddy). Strangely enough, there doesn’t seem to be a lot of buzz about Zappos.com in tech circles these days. I for one think that’s unfortunate.

It’s probably because you can’t find the word “social” or “platform” or some new fangled Flash video widget on their site. Zappos’ CEO Tony talked about their focus on customer service and culture instead. 

I admire Zappos because they’re building fundamental competitive advantage. They call it culture and customer service (see the deck here: http://blogs.zappos.com/blogs/ceo-and-coo-blog/2008/04/01/underground-4-conference). You don’t hear much about competitive advantage any more, it seems to have been supplanted with “viral”… arguably just an analogy for fad. Not to preclude a viral phenomenon from building long term value, but “viral” seems to have become a strategy as opposed to a tactic (Slide anyone?).

Facebook is the canonical $15 billion dollar virus. Web 2.0 has to give Facebook credit for taking a stab at digging a moat with it’s app platform, however that’s proven to be easy to duplicate (Disclaimer: I’m currently a consultant on MySpace’s OpenSocial platform… that took about 4 months).

  1. it’s all built on commodity technology
  2. there’s no inherent economic benefit from building an exclusive Facebook app

… and that’s just one concrete example of the macro-level problem with Web 2.0. It’s built on great technology, mostly open source, but there’s no technical IP. It’s all a commodity. Getting a user to register or someone to build a little widget has proven to be a pretty transient and marginal network effect, certainly paling in comparison to Google’s advertiser/publisher monopoly. Both those statements deserve a deeper discussion, perhaps for a later post.

Getting back to Zappos: world class customer service and cost effective fulfillment are hard to duplicate. It takes time, execution and scale. Building the foundation of a happy corporate culture that enables happy employees to offer great customer service is even harder to duplicate given our Dilbert and TPS report society. Hard to say whether or not that maps to cashflow, but it’s all about pretty charts right?