The Social

Whoa. This was unexpected: Amazon has agreed to a stock takeover of Zappos.com, a Las Vegas-based online retailer that has become famous for its unusual corporate culture.

While Zappos started out selling only shoes, it has since expanded to other products.

"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," a memo posted to Zappos by CEO Tony Hsieh read. "Once the exchange is done, Amazon will become the only shareholder of Zappos stock."

Until this point, Zappos was privately owned.

Amazon provided more details in an official release: The company will acquire all outstanding Zappos shares in exchange for roughly 10 million shares of Amazon common stock, which comes out to be about $807 million. Additionally, the transaction involves about $40 million in cash and restricted stock units to Zappos employees. The transaction is expected to be complete this fall.

"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," Hsieh wrote in his memo, adding that he and other Zappos executives plan to stay on board. "Amazon supports us in continuing to grow our vision as an independent entity, under the Zappos brand and with our unique culture."

Zappos.com got a new look a little over a year ago, when it broadened its offerings beyond just shoes.

Hsieh has become a regular speaker on the tech and marketing conference circuit because of his offbeat way of running a company: encouraging employees to Twitter, offering prospective hires $2,000 to turn a Zappos job offer down, and placing customer service at the top of the priority list with free shipping and returns.

"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," Hsieh wrote. "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."

Reports had circulated recently that Amazon was looking at acquiring movie rental outlet Netflix. It has a history of being quite acquisition-friendly. Last year, the company bought audiobook retailer Audible for $300 million, rare book site AbeBooks for an undisclosed amount, and book-centric networking site Shelfari (also for an undisclosed amount).

Amazon actually operates its own shoe and handbag retail site, Endless.com, which is mostly free of Amazon branding. The site launched early in 2007.

This story was last updated at 2:01 p.m. PDT.

The Onion's Baratunde Thurston gives his impression of Tony Hsieh's keynote.

(Credit: Twitter)

AUSTIN, Texas--In the dot-com world, Tony Hsieh's story is pretty much canon.

We know he got his entrepreneurial start running a pizza delivery business in college, and eventually went on to co-found LinkExchange and sell it to Microsoft for $265 million.

Then, after founding a venture firm that invested in shoe retail start-up Zappos.com, he took over the helm of the company and has been there ever since. Now nearly 10 years old, Zappos has become renowned among the digerati for its heavy investment in top-notch customer service, quirky company culture, and use of Twitter to promote corporate transparency.

"We put our 1-800 number at the top of every Web page, and we encourage our customers to call us even if it's not to make a sale," the soft-spoken Hsieh said Saturday in his keynote address here at the South by Southwest Interactive Festival. "The telephone is one of the best branding devices out there. You have the customer's undivided attention for 5 to 10 minutes."

With thousands of people filling up the Austin Convention Center's biggest ballroom and several surrounding simulcast rooms, Hsieh had a chance to really shake up the conversation in the digital-media set. Unfortunately, he didn't do it.

CEO Tony Hsieh--in a photo not from SXSW.

(Credit: Zappos.com)

He explained some of the company's idiosyncrasies: the fact that it will pay new hires $2,000 to leave the company just to make sure they're completely on board with their new jobs, the fact that customer service representatives are instructed to direct customers to better deals at competing retailers if they exist, the "Culture Book" that contains unedited contributions from every Zappos employee. Many of those in the audience probably knew most of this already. Hsieh, after all, has become a conference-circuit regular.

"The thing that ties all of these things together is really that Zappos is about delivering happiness, whether it's to customers or to employees or even to our vendors or other customers that we work with," Hsieh said.

He went through Zappos' 10 "core values," which include "build a positive team and family spirit," "do more with less," and "create fun and a little weirdness." He talked about "frameworks of happiness" and recommended some books like Timothy Ferriss' "The Four Hour Work Week" and Chip Conley's "Peak." It was a talk that would have been perfectly attuned to an audience of old-school marketers that needed to hear something totally new.

"A company's culture and a company's brand are just two sides of the same coin," Hsieh insisted. OK. But that's nothing that anyone who's been involved in the business of the Web hasn't heard before, many times. This is the sort of thing that unfortunately became a hallmark of the dot-com bust when companies invested too heavily in foosball tables and not enough in revenue models. Then, of course, there's Google and all things "Googly."

What Hsieh could have addressed was the fact that while so many of the nodding heads in the audience claim they fully grasp the admirable values that power Zappos, in reality there's a whole lot of hypocrisy out there--not to mention uncertainty. He talked about both the importance of personal branding and his distaste for egomania, two things that some people in the audience might find mutually exclusive. He mentioned "doing more with less" as a core value of Zappos, but not once even made reference to the dire financial climate. How, for example, do we have to try differently to focus on happiness these days?

Hsieh has the enormous respect of an industry. But if he's going to live up to the visionary hype, he's going to have to do more than just talk about what his company's done right and recommending a few business books.

A class action lawsuit filed earlier this week targets Facebook and eight of the participants in Beacon, its ill-fated advertising product that shared information about third-party site activity with the social network. The set of 20 plaintiffs, mostly residents of Texas, filed the suit in the U.S. District Court for the Northern District of California on Tuesday. Named as defendants are Facebook, as well as current or former Beacon participants Blockbuster, Fandango (owned by Comcast), Overstock.com, STA Travel, Zappos, Hotwire (owned by IAC/InterActiveCorp), and GameFly.

A Facebook representative told CNET News on Thursday that the company had not yet actually been served with the lawsuit, and that its legal team consequently did not have a formal statement at the time. STA Travel, Gamefly, and Overstock all declined to comment; none of the other defendants could be immediately reached.

"Until we're served, we're not being sued, so we don't have any comment," Overstock general counsel Mark Griffin told CNET News.

Beacon gained almost immediate notoriety when Facebook unveiled it as part of its Facebook Ads announcement last fall. Privacy advocates, most notably liberal activist group MoveOn.org, lambasted the program for not allowing users to disable it easily. Facebook has since modified the program and the controversy has wound down. But in the lawsuit, the plaintiffs point to the window of time before Facebook instituted the new controls--between November 7 and December 5 of last year--and claims that the social network still has access to a large amount of user data that was gathered in that period.

"If the user was not a member (of Facebook), Facebook still obtained the notification from the Facebook Beacon Activated Affiliate," the filing for Lane et al v. Facebook, Inc. read. "Information regarding user activities was sent in real time to a third party Web site--one which was not open or active in the user's browser, and one which, in many cases, the user may never even have visited or heard of."

There's one odd law that may make the plaintiffs' case stronger: the Video Privacy Protection Act of 1988. The law was passed amid the fracas surrounding Robert Bork's controversial nomination to the U.S. Supreme Court, when a journalist obtained Bork's movie rental record from a local video store and published it.

That's why there's already been a suit involving Beacon that specifically targeted Blockbuster for participating in such a program: a Texas woman filed suit against Blockbuster in April, claiming that the VPPA bars it from Beacon. Facebook was not named as a defendant in that suit, and though the plaintiff sought class action status for her case, she does not appear to have any involvement in this week's suit.

The defendants named in the suit don't encompass all of Facebook's original Beacon partners, but several of them could tie into VPPA protections: GameFly rents video games, Fandango sells movie tickets, Hotwire and STA deal with travel bookings, and Zappos and Overstock are both online retailers with a large scope (Overstock sells DVDs, for example). The suit also names the California Computer Crime Law and the Electronic Communications Privacy Act as grounds for the suit.

One of the plaintiffs, Sean Lane of Waltham, Mass., was immortalized in a Washington Post story about Beacon: He's the guy who bought his wife a diamond ring on Overstock.com, only to have her spot the purchase in a Facebook news feed, spoiling the surprise.

Guess he's still irritated.