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Amazon's Acquistion of Zappos: A Superb Example of Karmic Capitalism

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A is swallowing Z in a classic case of KC. Confused? In case you're just coming back from vacation, Amazon is acquiring the online shoe and apparel retailer Zappos for something between $850 and $925 million, a very handsome sum considering the depth of the recession we're in and how it's affecting all retailers.

What makes this so interesting? If you don't know much about Amazon or Zappos, take a look at this link which includes a truly unusual letter from Zappos CEO Tony Hsieh to his employees and an eight minute video from Amazon founder Jeff Bezos. This isn't just a case of some investment bankers convincing Jeff that this was a strategic purchase during a downturn. Jeff truly admires Zappos' service culture and he's in love with Tony Hsieh, a CEO who's just as obsessed with the abstract concept of "happiness" as I am. When Tony was at the South by Southwest conference in Austin earlier this year, Jeff was in the front row taking notes. The fact that this is, by far, Amazon's largest acquisition in its fourteen year history makes this all the more newsworthy.

So, what's Amazon getting for nearly $1 billion? Like Amazon, Zappos is one of those dot-coms that survived the earlier part of this decade and grew to almost a billion dollars in annual sales. They've thrived in a segment of the online retail biz that Amazon hasn't been able to crack: apparel. And, due partly to Zappos' liberal shipping policies and partly to the company's well-documented customer-centric approach to business, Zappos has evangelical customers and lots of marketplace momentum.

But, there's something even more abstract at work here that comes through in Jeff Bezos' video. Amazon is buying Zappos' unique, positive-spirited culture and letting them remain as a truly independent entity. Tony Hsieh has built a company based upon the principles of "karmic capitalism." He realizes the power of capitalism as a business model, but he thinks most companies are too focused on the short-term and that they need to take a "what goes around comes around" perspective on how the company treats its most important constituencies: its employees and customers. Jeff Bezos started Amazon with that same spirit and he can smell the intangible value in what Zappos has created in the marketplace.

I had the good fortune of spending a couple of hours with Tony at the TED Conference earlier this year. Many colleagues who'd visited Tony at Zappos' headquarters in suburban Las Vegas had told me that my book, PEAK, was prominently displayed in their lobby and that Tony regularly quoted some of my Maslovian principles. Our initial meeting and follow-up conversations have given me great confidence that there's a new generation of younger CEO's who are dedicated to focusing on doing business in a new way, focused on the higher needs of their key stakeholders. Congrats to Tony and the Zappos team. They've proven that "karmic capitalism" isn't just a catchy cliché, but it's also a very effective means to run a business and cash out at an extremely impressive return on investment. Warren Buffett must be smiling!

Chip Conley is the Founder and CEO of Joie de Vivre Hospitality and the author of PEAK: How Great Companies Get Their Mojo From Maslow.