#Transparency

This is a long email. Please take 30 minutes to read through the email in its entirety.

We've been operating partially under Holacracy and partially under the legacy management hierarchy in parallel for over a year now. Having one foot in one world while having the other foot in the other world has slowed down our transformation towards self-management and self-organization. While we've made decent progress on understanding the workings of the system of Holacracy and capturing work/accountabilities in Glass Frog, we haven't made fast enough progress towards self-management, self-organization, and more efficient structures to run our business. (Holacracy is just one of many tools that can help move us towards self-management and self-organization, but simply abiding by the rules of Holacracy does not equal self-management or self-organization.)

After many conversations and a lot of feedback about where we are today versus our desired state of self-organization, self-management, increased autonomy, and increased efficiency, we are going to take a "rip the BandAid" approach to accelerate progress towards becoming a Teal organization (as described in the book Reinventing Organizations).

Something key to note here is that Holacracy just happens to be our current system in place to help facilitate our move to self-organization, and is one of many tools we plan to experiment with and evolve with in the future. Our main objective is not just to do Holacracy well, but to make Zappos a fully self-organized, self-managed organization by combining a variety of different tools and processes. Reinventing Organizations calls this type of organization a Teal organization. You'll learn examples of successful Teal organizations below and in the book. Each of the companies cited below and in the book have different tools and processes to help with self-management and self-organization. We won't necessarily adopt all of them, but instead we will experiment and figure out the right tools and processes for Zappos, using Holacracy as the initial starting point and continually evolving as we dive deeper into the world of self-management and self-organization.

Our immediate plan over the next few months:

• Teal organizations attempt to minimize service provider groups and lean more towards creating self-organizing and self-managing business-centric groups instead. As of 4/30/15, in order to eliminate the legacy management hierarchy, there will be effectively be no more people managers. In addition, we will begin the process of breaking down our legacy silo'ed structure/circles of merchandising, finance, tech, marketing, and other functions and create self-organizing and self-managing business-centric circles instead by starting to fund this new model with the appropriate resources needed to flourish. Functions that were previously silo'ed will be embedded inside these business-centric circles instead — this structure will require fewer roles that primarily manage expectations and drive alignment across legacy silos. We will continue using Holacracy's systems and processes for prioritization and resource allocation, so it'll be extremely important for all of us to keep Glass Frog up to date.
• To be clear, managers were absolutely necessary and valuable to the growth of Zappos over the years under our previous structure. Without managers, we would not have gotten to where we are today. Historically at Zappos the "manager" position contained a number of different responsibilities including people management, overseeing and approving decisions, budgeting, and professional development, as well as direct work on projects and goals for the good of the team. The people management aspects of the manager role are valuable in what the book refers to as Orange and Green organizations, but do not make sense in a self-organized and self-managing Teal organization. While we know that the full role of managers will no longer be necessary in a Teal organization, we're also looking forward to seeing what new exciting contributions will come from the employees who were previously managers. All former managers who remain in good standing will still keep their salary through the end of 2015 even though their day-to-day work that formerly involved more traditional management will need to change. A new circle called Reinventing Yourself has been created to help guide former managers to new roles that might be a good match for their passions, skills, and experience. Hollie is the lead link of that new circle. (On our backend HRIS system, employees will still have "reporting" relationships solely for the purposes of maintaining compliance (e.g. SOX) requirements because we are part of a public company. This compliance requirement will be largely invisible to most employees and should not be confused with legacy reporting structures which will no longer exist.)
• Self-management and self-organization is not for everyone, and not everyone will want to move forward in the direction of the Best Customers Strategy and the strategy statements that were recently rolled out. As such, there will be a special version of "the offer" to everyone who reads Reinventing Organizations and/or meets some other criteria (outlined towards the end of this email).

Tony Hsieh then adds the full text of Frederic Laloux's 'Misperceptions of Self-Management' and Doug Kirkpatrick's 'Five Crucial Competencies of Self-Management' on Morning Star's Self-Management Institute blog. Hen then continues:

I was on a Skype call with Frederic Laloux, the author of Reinventing Organizations. During our call, he said that as we move towards a Teal, no-manager organization, there are two really important things that we should make sure we have in place to make sure employees still perform and are still accountable to the organization even though there are no more managers.

First, in the human body, there are antibodies that get activated when there's a virus or disease. We need to make sure we have the same thing in our organization. We need to figure out what the antibodies are for when a small number employees take advantage of the freedom gained from being in a no-manager organization, or else it will demoralize the other employees. He said that in general, research has shown that peer-pressure based systems work the best. For certain types of job functions where there are easy metrics to measure performance, a public leaderboard ranking will naturally create peer pressure by showing which teams are performing and which aren't. For other types of job functions where metrics are more difficult to come by, regular peer-based presentations have been shown to be really effective, where each team presents to the other teams (once a quarter) what they are working on and why it is adding value to the company, and that will create a natural peer pressure. He suggested simply asking employees for their ideas on how to create the peer pressure and to give them the antibody analogy/framework and encourage employees to figure out the antibody systems themselves rather than try to design it from the top down.

Second, as we move towards self-management and self-organization, we need to have a clear process for conflict resolution. There's already a clear system described in the book (meet 1-1, and if that doesn't work escalate to peer council, and if that doesn't work then escalate to the CEO), which seems like an easy starting point that we can adjust as we learn what works and doesn't work. However, conflict resolution starts with the expectation that employees are responsible for taking the first step and having a 1:1 conversation with whomever they are having a conflict with (instead of going to their manager for example). He said the most important thing is the need to have a strong conflict resolution process clearly communicated and clearly understood by everyone so employees know what to do.

As previously stated, self-management and self-organization is not for everyone, and not everyone will necessarily want to move forward in the direction of the Best Customers Strategy and the strategy statements that were recently rolled out. Therefore, there will be a special version of "the offer" on a company-wide scale, in which each employee will be offered at least 3 months severance (and up to 3 months of COBRA reimbursement for benefits) if he/she feels that self-management, self-organization, and our Best Customers Strategy and strategy statements as published in Glass Frog are not the right fit. (For employees that have been with Zappos for 4 or more years, the offer will be 1 month for every year worked at Zappos, along with up to 3 months of COBRA reimbursement for benefits.)

To qualify for the offer, you must:

• Be an employee in good standing
• Watch video of talk by the author of Reinventing Organizations
• Read Reinventing Organizations by 4/15/15 (here is a private link for Zappos employees only to download a digital copy) or email a statement of non-intention to read to Arun and Hollie
• Give notice of your intention to leave anytime during the month of April 2015 if you intend to take the offer (exact last day of work TBD)
• Ensure a smooth transition of your prior responsibilities and accountabilities (as approved by Arun – please note that if you are working on a critical project, a longer transition time might be required)

Arun, Fred, Hollie, and I will be doing Q&A town hall sessions about our strategy statements and our new direction on Wednesday, 3/25/15, at 12 PM-12:30 PM, 1-1:30 PM, 2-2:30 PM, and 3-3:30 PM in the Council Chambers. Please attend any of these four town halls if you have any additional questions.

We won't have all the answers to everything, and there are still plenty of important things for all of us to figure out together, including answers to the questions below (please email me any suggestions or if you'd like to be involved in helping figure out any of the areas below):

• What's the right method for implementing the advice process as described in Reinventing Organizations?
• How is the contribution of each employee assessed and what are the compensation framework/processes in this new world of no managers?
• What is not currently captured in Glass Frog that we should make sure is captured?
• Should we update our purpose statement, and if so, what should our new purpose statement be?
• In light of these changes, should we delay and/or modify the next zPrize competition? (Prize-based competition is an example of another tool that can help accelerate self-organization.)
• What are the peer-pressure "antibody" systems we want to implement for the different types of job functions?
• What is the right conflict-resolution set of processes for Zappos?
• How do we support employee development and growth as a Teal organization?
• How do we ensure that we continue to meet our financial and Super Cloud commitments to Amazon for 2015 and beyond?

While I hope that there will be a lot of reflection around this email and our upcoming changes, we will still need to continue to execute on our Best Customers Strategy and honor our financial and Super Cloud commitments for 2015 and beyond. We still need to execute, so it will feel somewhat like trying to upgrade an airplane while we're still flying in the air.

This is a new, exciting, and bold move for Zappos. Like all the bold steps we've done in the past, it feels a little scary, but it also feels like exactly the type of thing that only a company such as Zappos would dare to attempt at this scale. With our core values and culture as the foundation for everything we do, I'm personally excited about all the potential creativity and energy of our employees that are just waiting for the right environment and structure to be unlocked and unleashed.

I can't wait to see how we reinvent ourselves, and I can't wait to see what unfolds next.

-Tony

To all Zappos employees:

Today has been a tough, emotional day for everyone at Zappos. We made the hard choice of laying off about 8% of our employees. The layoffs will affect almost every single department at Zappos. In addition, we are also looking at closing some of our brick and mortar outlet stores in Nevada and Kentucky.

This is one of the hardest decisions we've had to make over the past 9.5 years, but we believe that it is the right decision for the long term health of the company. The rest of this email will explain why...

We feel fortunate that we have Sequoia Capital as an investor who had the foresight to see the ramifications of the tough economic times that lie ahead for all of us. On October 7, Sequoia held a meeting for all of their portfolio companies (including Zappos), with one very clear message: Cut expenses as much as possible and get to profitability and cash flow positive as soon as possible.

Here is a link to an article that talks about the Sequoia meeting:

http://gigaom.com/2008/10/08/sequoia-rings-the-alarm-bell-silicon-valley-in-trouble/

Jason Calacanis also has a well-written email that talks about avoiding the "death spiral", which I highly recommend reading:

http://calacanis.com/2008/10/28/good-news-for-people-who-hate-bad-news/

Fortunately for Zappos, we're in a much better position than many other companies. Unlike many other companies, we are still growing and already profitable and cash flow positive.

And we are also fortunate that we have a revolving line of credit from Wells Fargo, US Bank, and Keybank. This line of credit has given us a lot of financial flexibility. However, given the current economic uncertainty, we believe it's prudent to reduce our reliance on debt financing.

We've decided the right thing to do for the company is to be proactive instead of reactive. We are proactively cutting back some of our expenses today so that we can take care of our employees properly, instead of being reactive and waiting until we are forced to cut expenses.

Because we are still growing and are already profitable, we do not have to take as drastic of a step as most other companies of our size. Last year, we did $840 mm in gross merchandise sales, and this year we are forecasting to do about $1 billion in gross merchandise sales. However, when we first put together our 2008 plan at the end of 2007, we were expecting our gross merchandise sales to be even higher than $1 billion.

Because of all this, we are reducing our staff by 8%, but because we are being proactive instead of reactive about it, we are able to take care of our employees and offer them more than the standard 2 weeks severance (or no severance) that most other companies are giving.

We are offering to pay each laid-off employee through the end of the year (about 2 months), and offering an additional amount for employees that have been with us for 3 or more years.

In addition, because our regular health benefits cover 100% medical, dental, and vision for employees and 50% for spouses and dependents, we decided to offer to reimburse laid-off employees for up to 6 months of COBRA payments.

In doing all of this to take care of laid-off employees, we expect that it will actually increase, not decrease, our costs for 2008, but we feel this is the right thing to do for our employees. It will put us in the position of having a lot more financial flexibility in being able to respond to potential changes in the economy in 2009.

Ecommerce growth has slowed compared to its growth rate a year ago, but the good news is that even in this tough economic environment, ecommerce overall is still growing.

Within the footwear category, we are the online market leader. When times are tough, the strongest players in any market have an opportunity to gain even more market share, even if overall growth may be slower. Historically, we have actually grown faster than the overall ecommerce market, and we anticipate for that to continue in 2009.

For the rest of 2008 as well as for 2009, we anticipate continuing to grow year over year. Our current forecasts are that we will continue to be profitable and cash flow positive, as long as we are proactive instead of reactive in managing our business and financials.

I know that many tears were shed today, both by laid-off and non-laid-off employees alike. Given our family culture, our layoffs are much tougher emotionally than they would be at many other companies.

I've been asked by some employees whether it's okay to twitter about what's going on. Our Twitter policy remains the same as it's always been: just be real, and use your best judgement.

These are tough times for everyone, and I'm sure there will be many follow up questions to this email. If you have any questions about your specific job or department, please talk to your department manager. For all other questions, comments, or thoughts, please feel free to email me.

-Tony

Please set aside 20 minutes to carefully read this entire email. (My apologies for the occasional use of formal-sounding language, as parts of it are written in a particular way for legal reasons.)

Today is a big day in Zappos history.

This morning, our board approved and we signed what’s known as a “definitive agreement”, in which all of the existing shareholders and investors of Zappos (there are over 100) will be exchanging their Zappos stock for Amazon stock. Once the exchange is done, Amazon will become the only shareholder of Zappos stock.

Over the next few days, you will probably read headlines that say "Amazon acquires Zappos" or "Zappos sells to Amazon". While those headlines are technically correct, they don't really properly convey the spirit of the transaction. (I personally would prefer the headline “Zappos and Amazon sitting in a tree…”)

We plan to continue to run Zappos the way we have always run Zappos -- continuing to do what we believe is best for our brand, our culture, and our business. From a practical point of view, it will be as if we are switching out our current shareholders and board of directors for a new one, even though the technical legal structure may be different.

We think that now is the right time to join forces with Amazon because there is a huge opportunity to leverage each other's strengths and move even faster towards our long term vision. For Zappos, our vision remains the same: delivering happiness to customers, employees, and vendors. We just want to get there faster.

We are excited about doing this for 3 main reasons:

1. We think that there is a huge opportunity for us to really accelerate the growth of the Zappos brand and culture, and we believe that Amazon is the best partner to help us get there faster.
2. Amazon supports us in continuing to grow our vision as an independent entity, under the Zappos brand and with our unique culture.
3. We want to align ourselves with a shareholder and partner that thinks really long term (like we do at Zappos), as well as do what’s in the best interest of our existing shareholders and investors.

I will go through each of the above points in more detail below, but first, let me get to the top 3 burning questions that I'm guessing many of you will have

TOP 3 BURNING QUESTIONS

Q: Will I still have a job?

As mentioned above, we plan to continue to run Zappos as an independent entity. In legal terminology, Zappos will be a "wholly-owned subsidiary" of Amazon. Your job is just as secure as it was a month ago.

Q: Will the Zappos culture change?

Our culture at Zappos is unique and always evolving and changing, because one of our core values is to Embrace and Drive Change. What happens to our culture is up to us, which has always been true. Just like before, we are in control of our destiny and how our culture evolves.

A big part of the reason why Amazon is interested in us is because they recognize the value of our culture, our people, and our brand. Their desire is for us to continue to grow and develop our culture (and perhaps even a little bit of our culture may rub off on them).

They are not looking to have their folks come in and run Zappos unless we ask them to. That being said, they have a lot of experience and expertise in a lot of areas, so we're very excited about the opportunities to tap into their knowledge, expertise, and resources, especially on the technology side. This is about making the Zappos brand, culture, and business even stronger than it is today.

Q: Are Tony, Alfred, or Fred leaving?

No, we have no plans to leave. We believe that we are at the very beginning of what's possible for Zappos and are very excited about the future and what we can accomplish for Zappos with Amazon as our new partner. Part of the reason for doing this is so that we can get a lot more done more quickly.

There is an additional Q&A section at the end of this email, but I wanted to make sure we got the top 3 burning questions out of the way first. Now that we've covered those questions, I wanted to share in more detail our thinking behind the scenes that led us to this decision.

First, I want to apologize for the suddenness of this announcement. As you know, one of our core values is to Build Open and Honest Relationships With Communication, and if I could have it my way, I would have shared much earlier that we were in discussions with Amazon so that all employees could be involved in the decision process that we went through along the way. Unfortunately, because Amazon is a public company, there are securities laws that prevented us from talking about this to most of our employees until today.

We've been on friendly terms with Amazon for many years, as they have always been interested in Zappos and have always had a great respect for our brand.

Several months ago, they reached out to us and said they wanted to join forces with us so that we could accelerate the growth of our business, our brand, and our culture. When they said they wanted us to continue to build the Zappos brand (as opposed to folding us into Amazon), we decided it was worth exploring what a partnership would look like.

We learned that they truly wanted us to continue to build the Zappos brand and continue to build the Zappos culture in our own unique way. I think "unique" was their way of saying "fun and a little weird." :)

Over the past several months, as we got to know each other better, both sides became more and more excited about the possibilities for leveraging each other's strengths. We realized that we are both very customer-focused companies—we just focus on different ways of making our customers happy.

Amazon focuses on low prices, vast selection and convenience to make their customers happy, while Zappos does it through developing relationships, creating personal emotional connections, and delivering high touch ("WOW") customer service.

We realized that Amazon's resources, technology, and operational experience had the potential to greatly accelerate our growth so that we could grow the Zappos brand and culture even faster. On the flip side, through the process Amazon realized that it really was the case that our culture is the platform that enables us to deliver the Zappos experience to our customers. Jeff Bezos (CEO of Amazon) made it clear that he had a great deal of respect for our culture and that Amazon would look to protect it.

We asked our board members what they thought of the opportunity. Michael Moritz, who represents Sequoia Capital (one of our investors and board members), wrote the following: "You now have the opportunity to accelerate Zappos' progress and to make the name and the brand and everything associated with it an enduring, permanent part of peoples' lives... You are now free to let your imagination roam - and to contemplate initiatives and undertakings that today, in our more constrained setting, we could not take on."

One of the great things about Amazon is that they are very long term thinkers, just like we are at Zappos. Alignment in very long term thinking is hard to find in a partner or investor, and we felt very lucky and excited to learn that both Amazon and Zappos shared this same philosophy.

All this being said, this was not an easy decision. Over the past several months, we had to weigh all the pros and cons along with all the potential benefits and risks. At the end of the day, we realized that, once it was determined that this was in the best interests of our shareholders, it basically all boiled down to asking ourselves 2 questions:

1. Do we believe that this will accelerate the growth of the Zappos brand and help us fulfill our mission of delivering happiness faster?
2. Do we believe that we will continue to be in control of our own destiny so that we can continue to grow our unique culture?

After spending a lot of time with Amazon and getting to know them and understanding their intentions better, we reached the conclusion that the answers to these 2 questions are YES and YES.

The Zappos brand will continue to be separate from the Amazon brand. Although we'll have access to many of Amazon’s resources, we need to continue to build our brand and our culture just as we always have. Our mission remains the same: delivering happiness to all of our stakeholders, including our employees, our customers, and our vendors. (As a side note, we plan to continue to maintain the relationships that we have with our vendors ourselves, and Amazon will continue to maintain the relationships that they have with their vendors.)

We will be holding an all hands meeting soon to go over all of this in more detail. Please email me any questions that you may have so that we can cover as many as possible during the all hands meeting and/or a follow-up email.

We signed what's known as the "definitive agreement" today, but we still need to go through the process of getting government approval, so we are anticipating that this transaction actually won't officially close for at least a few months. We are legally required by the SEC to be in what's known as a "quiet period", so if you get any questions related to the transaction from anyone including customers, vendors, or the media, please let them know that we are in a quiet period mandated by law and have them email tree@zappos.com, which is a special email account that Alfred and I will be monitoring.

Alfred and I would like to say thanks to the small group of folks on our finance and legal teams and from our advisors at Morgan Stanley, Fenwick & West, and PricewaterhouseCoopers who have been working really hard, around the clock, and behind the scenes over the last several months to help make all this possible.

Before getting to the Q&A section, I'd also like to thank everyone for taking the time to read this long email and for helping us get to where we are today.

It’s definitely an emotional day for me. The feelings I’m experiencing are similar to what I felt in college on graduation day: excitement about the future mixed with fond memories of the past. The last 10 years were an incredible ride, and I'm excited about what we will accomplish together over the next 10 years as we continue to grow Zappos!

-Tony Hsieh
CEO - Zappos.com

Q&A

Q: Will we still continue to grow our headquarters out of Vegas?

Yes! Just like before, we plan to continue to grow our Las Vegas operations as long as we can continue to attract the right talent for each of our departments. We do not have any plans to move any departments, nor does Amazon want us to because they recognize that our culture is what makes the Zappos brand special.

Q: What will happen to our warehouse in Kentucky?

As many of you know, we were strategic in choosing our warehouse location due to its proximity to the UPS Worldport hub in Louisville. Amazon does not have any warehouse locations that are closer to the Worldport hub. There is the possibility that they may want to store some of their inventory in our warehouse or vice-versa. Right now, both Zappos and Amazon believe that the best customer experience is to continue running our warehouse in Kentucky at its current location.

Q: Will we be reducing staff in order to gain operational efficiency?

There are no plans to do so at this time. Both Zappos and Amazon are focused on growth, which means we will need to hire more people to help us grow.

Q: Will we get a discount at Amazon?

No, because we are planning on continuing to run Zappos as a separate company with our own culture and core values. And we're not going to be giving the Zappos discount to Amazon employees either, unless they bake us cookies and deliver them in person.

Q: Will our benefits change?

No, we are not planning on making any changes (outside of the normal course of business) to our benefit packages.

Q: Do we keep our core values?

Yes, we will keep our core values, and Amazon will keep their core values.

Q: Will our training/pipeline programs or progression plans change? Will there still be more growth opportunities?

We will continue building out our pipeline and progression as planned. The whole point of this combination is to accelerate our growth, so if anything, we are actually anticipating more growth opportunities for everyone.

Q: Will we continue to do the special things we do for our customers? Are our customer service policies going to change?

Just like before, that's completely up to us to decide.

Q: Can you tell me a bit more about Jeff Bezos (Amazon CEO)? What is he like?

We’d like to show an 8-minute video of Jeff Bezos that will give you some insight into his personality and way of thinking. He shares some of what he’s learned as an entrepreneur, as well as some of the mistakes he’s made.

You can view the video here.

Q: I'm a business/financial reporter. Can you talk like a banker and use fancy-sounding language that we can print in a business publication?

Zappos is an online footwear category leader and Amazon believes Zappos is the right team with a unique culture, proven track record, and the experience to become a leading soft goods company; Zappos' customer service obsession reinforces Amazon’s mission to be the earth's most customer-centric company; Great brand, strong vendor relationships, broad selection, large active and repeat customer base; Amazon believes Zappos is a great business -- growing, profitable and positive cash flow; Accelerate combined companies' scale and growth trajectory in the shoe, apparel and accessories space; Significant synergy opportunities, including technology, marketing, and possible international expansion.

Q: What is the purchase price?

This is not a cash transaction. This is a stock exchange. Our shareholders and option holders will be issued approximately 10 million Amazon shares on a fully converted basis. The details of the deal terms and how the shares will be distributed will be filed with the SEC on Form S-4 and will be publicly available when it is filed.

Q: Can you talk like a lawyer now?

This email was sent on July 22, 2009. In connection with the proposed merger, Amazon.com will file a registration statement on Form S-4 with the Securities and Exchange Commission that will contain a consent solicitation/prospectus. Zappos' shareholders and investors are urged to carefully read the consent solicitation/prospectus when it becomes available and other relevant documents filed with the Securities and Exchange Commission regarding the proposed merger because they contain important information about Amazon.com, Zappos and the proposed merger. Shareholders and investors will be able to obtain the consent solicitation/prospectus when it becomes available at www.sec.gov or www.amazon.com/ir.

Certain statements contained in this email are not statements of historical fact and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect current expectations, are inherently uncertain and are subject to known and unknown risks, uncertainties and other factors. Factors that could cause future results to differ materially from expected results include those set forth in Amazon.com's Current Report on Form 8-K, dated July 22, 2009.

Q: Can you please stop?

okthxbye