Is this just a story of a big online shopping mall buying up a hot little online shoe store? Taking a closer look at the offline supply chain of each company indicates that there may be more to this deal. Some supply chain analysts believe that the two companies are actually radically different, but complementary, and their union could help Amazon both change the way it relates to its customers and reach a whole new group of customers willing to pay more for a high-quality user experience. This is a story of two different ways of selling things on the internet and delivering them to your door.

Amazon is a master of the supply chain. It's got so much capacity, for example, that the company last year opened up a "supply chain as a service" business, just like it created a surplus cloud computing as a service business years earlier. (Amazon's Newest Web Service: Shipping Center APIs)

Zappos is no slouch at rushing goods to your house either, though. (Just last week their elves delivered a new pair of shoes to my house the next morning after I ordered them late at night!)

It appears that Amazon will leverage at least some of the existing Zappos supply chain; Zappos CEO Tony Hsieh wrote today that Amazon doesn't have any warehouses as close to the UPS Worldport hub in Louisville, Kentucky as the shoe company does and will likely store some Amazon inventory there, for example.

Amazon could also remove a substantial amount of the Zappos distribution infrastructure that now becomes redundant and isn't scaled as well. That would mean lower overhead for the Zappos subsidiary and increased profits for Amazon.

That might make sense from a short term bottom-line perspective, but even in terms of the supply chain it may not be the whole story. "Amazon might go to shareholders and say that's the plan," procurement analyst Jason Busch of SpendMatters told us. "But what you tell Wall Street and the reasons why you do this kind of deal are often very different."

Not All Supply Chains Are The Same

Busch argues that the two companies have very different, and possibly complementary, kinds of supply chains.

Amazon has innovated around warehousing and operational efficiency. Busch says the company has acquired software makers that specialize in processes like high efficiency inventory picking and inventory tracking.

Zappos, on the other hand, has built up a different kind of supply chain. "From keeping diverse inventory in stock to very high-touch order fulfillment, the Zappos customer experience is seamless and integrated," Busch says.

"Amazon would never upgrade shipping to overnight for example, as Zappos does, except through the Amazon Prime program. Amazon's warehouse is very innovative, but Amazon is focused on warehousing and lowering costs. Zappos has learned it's about more than just cost, it's about user experience and people are willing to pay for that. It's not surprising that Amazon realized they can acquire the skills and knowledge that Zappos has developed, in addition to the business side where they were not a major player in apparel.

Amazon may be reconsidering how they serve customers, so they may choose to keep some of the redundant Zappos infrastructure.

-Jason Busch, SpendMatters

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Lora Cecere, Vice President of Value Chain Services at AMR Research, says she agrees with Busch. "It's now a multi channel play," she told us. "Zappos deals with quick cycles, Amazon has longer cycles and is warehouse centric. They are really dealing with different supply chains. I wonder if it wasn't a preemptive move to block another competitor from acquiring Zappos."

Zappos had been talking lately about moving into the home electronics business, something Amazon excels at. Now the two companies won't have to compete, but will aim to gain from each other's different experiences and resources in order to target different types of customers seeking different shopping experiences. Some sources say that Zappos didn't want to sell itself, but was pressured by its investors. The value to Amazon seems clear on several levels.

Bringing Zappos into the tent could make Amazon an even more interesting company. That's something that could very well be worth giving up almost a billion dollars in stock for.

We've embedded the video at the end of this post, but these are a few of the highlights.

Great customer service is not something offered by the majority of companies and Hsieh suspects a lot of people are frustrated by this. "In the long run, customer service is just good business," he says. "The problem, however, is that the payoff is usually two or three years down the line."

Given the company made over a billion dollars in gross merchandise sales in 2008 after starting with almost nothing in 1999, and that repeat customers and word of mouth were the main drivers of that growth, we can see how many businesses are trying to model themselves on the force that is Zappos.

So what is different about Zappos?

• The company provides free shipping both ways
• Zappos has a 365 day return policy
• Only products available in the warehouse are placed on the site
• The warehouse is open 24 hours a day
• The company is contactable 24 hours a day, 7 days a week
• The 1800 contact number is prominently placed on every page of the site
• The company trusts in its reps; sales staff don't have scripts
• If products are unavailable, sales staff direct customers to competitors

While some of these ideas are extraordinary, like the 365 day return policy, others are quite easy to implement - putting your telephone number on every page of your Website. Clearly this is only a sampling of the alternative methods implemented by the company and some of them are certainly not efficient to the company's bottom line, but Hsieh firmly believes creating a 'wow' experience for the customer and investing in a corporate culture that allows employees freedom and space is the essence of what makes Zappos so successful.

"If you get the culture right, then most of the other stuff, like great customer service or building a brand will just happen naturally." Hsieh says.

While the company has formalized the definition of its culture into ten core values and people are hired and fired based on those values, Hsieh believes the company culture is different because it is not driven by him, but the employees who themselves determine how they want the culture to evolve.

"We've actually passed on a lot of really talented people that we know would make an impact to our top or bottom line," says Hsieh, "but if you know they're not a culture fit we won't hire them. Similarly, he explains the company will fire people even if they're doing their job perfectly if they're bad for the culture.

The Culture Book, a book Zappos puts out every year, consists of thoughts from all Zappos employees about what the Zappos culture means to them. But for typos, it's unedited. Hsieh offers the book freely to anyone who wants a copy.

Ultimately, Hsieh believes that every company needs to determine its core values, and rather than have a vague sense of what those ideas should be, he insists it is important to select 'committable' core values. "By committable, you must be willing to hire and fire based on them" he explains.

So next time you're in Las Vegas, remember that Zappos offers tours every weekday; Hsieh suggests Mondays or Thursdays are best. "Just e-mail me and we'll pick you up in the Zappos shuttle, give you a tour and drop you off at your hotel." That's a fairly impressive offer, and one not many companies are likely to make.

If you truly want to get a feel for the young bright Zappos CEO, watch the video below, and perhaps you'll get a glimpse into why this company is wowing the social media set.

Of all the different types of social media the company uses, none are as interesting as its use of Twitter. Twitter may sound cliche, but it's not just about Twitter as one single service. Twitter is symbolic of rapid, short, synchronous and public conversations. Zappos has bitten off a big chunk of that paradigm.

The most remarkable of all the social media efforts underway at Zappos is the company's use of Twitter. Zappos has a dedicated page for Twitter on its site that's linked to from every other page on the site with the words What are Zappos employees doing right now?

There you'll find all 198 of the Twittering Zappos employees' most recent messages. Employees tweet about what they are doing at work and about interesting resources on and off the Zappos site.

Traditional Concerns

It's a daring step for a brand to take; you never know when someone is going to post a message like "I <3 clubbing baby seals. =) " on your company website. Zappos employees also drink a lot, but always in moderation - a Tweetscan search finds that no one inside or outside the company has ever tweeted the words Zappos and "drunk" in the same message! I'd have thought excessive drinking would lead to shoe loss and thus replacement but apparently the company is taking a longer-term approach to its social media strategy.

Instead, the aggregation site highlights words throughout the page that link back to search results pages in the Zappos catalog. Could this really drive sales? Conceivably, I suppose.

Leadership, Twitter Style

There's also an employee leaderboard that shows who's on Twitter and how many followers they have. Tony the CEO has five times as many followers as anyone else, perhaps because there's a link on every page encouraging people to follow him and perhaps because CEOs are always the most interesting people at any company (sarcasm). Notably, Tony has taken the time to follow even more people than are following him - he's got 2800+ followers and 3200+ friends.

Tony's also penned a prominently placed introduction to using Twitter. Check out the intro paragraph:

Remember back when sending SMS text messages on your cell phone was a new thing, and it seemed kind of strange to use your cell phone to do that? And today, you probably wonder how you ever lived without text messaging.

Well, Twitter is the same way. It's going to seem a little weird at first, but I promise you if you can talk your friends into joining it and you all use it for 2 weeks, it will change your life. You will wonder how you ever lived without it.

Talk about drinking the kool-aid! The introduction is actually one of the most accessible introductions to Twitter I've seen and something that anyone interested in getting started could learn from.

Transparent Brand Tracking

Additionally, there's a page that aggregates all the public mentions of Zappos from Twitter users at large. This is a great example of openness and transparency - something the company would probably be less inclined to do had they not already developed a wildly loyal customer base thanks to their famous customer service.

Who wouldn't like to have messages like this on their website, though, without exercising any control over what appears there?

Now if there were shoe factory employees in China or Indonesia tweeting in English about their working conditions making shoes that will be sold on Zappos ("carpal tunnel for dollars an hour pays rent on hovel-like family dorm in company compound. damn these shoes. pic: tinyurl.com/...") - that might not be so desirable. Luckily for the brand, like people say - Twitter isn't mainstream yet.

Celebrating Your Super Fans

Finally, Zappos has set up special Twitter tracking pages for some of its favorite outside fans. Check out this page for the super charming WineLibrary.TV founder Gary Vaynerchuk, and this page for author and social media consultant Tara Hunt. That's a great little way to say thanks to Twitter savvy brand super fans.

There are lots of companies using Twitter these days. Not because it's a reaching a mass audience but because it's reaching an early-adopter, tech-savvy, presumed-influencer audience. We wrote about many others last month in a post about customer service via Twitter. If the spammiest business Twitter users are on one end of the spectrum, that's the heavy side, unfortunately. The air is clearer and the examples are sparser on the high end of the Twitter engagement spectrum. Zappos is a great model for other companies seeking to get engaged.