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Delivering Happiness Tony Hsieh – CEO [email_address] Follow me on Twitter: twitter.com/ zappos SXSW Interactive March 14, 2009

A Little About Me (Tony) My Background 1994-1995: Pizza business in college 1996-1998: LinkExchange (online advertising) Sold to Microsoft for $265 millon 1999: Venture Frogs, LLC (angel investment fund) Invested in Zappos.com 1999-Today: Zappos.com

Zappos at a Glance Corporate Background Founded in 1999 1400 employees (half in Las Vegas headquarters, half in Kentucky) #23 in FORTUNE MAGAZINE’s “100 Best Companies To Work For” Highest debut for a newcomer in 2009 Zappos is “Powered by Service” Providing the best online shopping experience possible. Fast, Free Shipping. Free return shipping. 365-day return policy. Fast fulfillment. Expedited delivery. Fast, friendly & expert customer service. Best selection Over 1,000 brands, over 200,000 styles, over 900,000 unique UPCs. 4 million items in warehouse 100% of products inventoried (no drop ship). Zappos is a service company that happens to sell clothing, shoes, handbags, eyewear, watches (and eventually a bunch of other stuff).

Recent Recognition: Nice, but we pay more attention to our customers TV Stories Oprah (2008/2009) ABC Nightline (2008) 60 Minutes (2007) Fortune “100 Best Companies to Work For” #23 (2009) – Highest ranking newcomer to list Fast Company “50 Most Innovative Companies” #20 (2009) BusinessWeek Top 25 “Customer Service Champs” #7 (2009)

Customer service value proposition in action… Zappos is committed to WOWing every customer. Customers come… Over 10 million total purchasing customers Over 4 million have purchased in the last 12 months Customers come back… On any given day, about 75% of purchases from returning customers Repeat customers order >2.5x in the next 12 months Customers come back, order more and order more often… Repeat customers have higher average order size $123.86 – first time customers in Q407 $156.27 – returning customer in Q407

Power of repeat customers and word of mouth...

Customer Service: What customers first see 24/7 1-800 number on every page Free shipping Free return shipping 365-day return policy

Customer Service: What customers experience Fast, accurate fulfillment Most customers are “surprise”-upgraded to overnight shipping Create WOW Friendly, helpful “above and beyond” customer service Occasionally direct customers to competitors’ web sites

Customer Service: What we do internally No call times, no sales-based performance goals for reps. The telephone is one of the best branding devices available. Run warehouse 24/7. Inventory all product (no drop-shipping). 5 weeks of culture, core values, customer service, and warehouse training for everyone in Las Vegas office. We’ll pay you $2000 to quit. Culture Book Interviews & performance reviews are 50% based on core values & culture fit. Twitter helps build company culture.

Owning the 3 C’s C lothing C ustomer Service C ulture

Owning the 3 C’s: C lothing, C ustomer Service, C ulture C ustomer Service C lothing C ulture

Zappos Delivering Happiness (customers and employees) “ People may not remember exactly what you did or what you said, but they will always remember how you made them feel.”

CULTURE “ Committable Core Values”

Zappos Core Values Deliver WOW Through Service Embrace and Drive Change Create Fun and a Little Weirdness Be Adventurous, Creative, and Open-Minded Pursue Growth and Learning Build Open and Honest Relationships With Communication Build a Positive Team and Family Spirit Do More with Less Be Passionate and Determined Be Humble

“ That’s great for Zappos but it would never work at my company…”

It doesn’t matter what your core values are…as long as you commit to them. ALIGNMENT

7 Steps For Building A Brand that Matters

Step #1 DECIDE if you’re trying to build a long term sustainable brand Requires more patience with revenues & profits in order to lay the foundation Decide sooner rather than later

Step #2 FIGURE OUT VALUES & CULTURE

VALUES & CULTURE Figure out values & culture sooner rather than later What are your PERSONAL core values? What are the COMPANY ’s core values? Start EARLY . It is surprisingly HARDER than you think. It doesn’t MATTER what the values are. The most important thing is ALIGNMENT . … LIVE the BRAND .

Step #3 COMMIT TO TRANSPARENCY “ Be real and you have nothing to fear” Your culture is your brand Don’t try to be someone you are not

Commitment to Transparency: Examples twitter.zappos.com “ Ask Anything” newsletter Extranet for vendors Tours & reporter visits ZapposInsights.com

Step #4 VISION “ Whatever you’re thinking, think bigger.” Does the vision have meaning? Chase the vision, not the money…

VISION “ Don’t chase the paper, chase the dream.” Sean Combs aka “Puff Daddy” to rapper Biggie Smalls aka “Notorious B.I.G.” in Notorious

ENTREPRENEURS: “ What would you be passionate about doing for 10 years even if you never made a dime?”

EMPLOYEES: What’s the larger vision and greater purpose in their work beyond money or profits?

VISION MOTIVATION vs. INSPIRATION

Step #5 BUILD RELATIONSHIPS (not networking) Be INTERESTED rather than trying to be INTERESTING

Step #6 BUILD YOUR TEAM “ If you want to go quickly, go alone. If you want to go far, go together.” (Al Gore quoting African proverb) Hire slowly Fire quickly

Step #7 THINK LONG TERM Repeat customers Customer service There is no “get rich quick” formula “ Overnight” successes are years in the making (both personally and in business)

TAKE A STEP BACK What is your goal in life?

WHAT IS YOUR GOAL IN LIFE? Grow Company Get a Great Job Boyfriend / Girlfriend Be Healthy Retire Early Make Money Find Soul Mate Run Faster Spend Time w/ Family Buy A Home Get Married Run A Marathon why? why? why? why? why? why? why? why? HAPPINESS why? why? why? why?

RESEARCH HAS SHOWN: HAPPINESS People are very bad at predicting what will bring them sustained happiness. “ When I get ___, I will be happy.” “ When I achieve ___, I will be happy.”

HAPPINESS: There is a SCIENCE behind many aspects of business including: conversion psychology of buying direct marketing customer acquisition metrics repeat customer behavior, etc. What if you spent just 10% of your time studying and learning the SCIENCE of HAPPINESS ? How much HAPPIER could you be?

A Few Different Frameworks of HAPPINESS

Perceived Control Perceived Progress Connectedness Vision / Meaning (Being part of something bigger than yourself) A FEW DIFFERENT FRAMEWORKS ON HAPPINESS:

Rock Star (Pleasure – chasing the next high) Flow (Engagement – time flies) Meaning /Higher Purpose (Being part of something bigger than yourself) 3 TYPES OF HAPPINESS time time time

RECOMMENDED BOOKS: PEAK Chip Conley TRIBAL LEADERSHIP Dave Logan, John King & Halee Fischer-Wright FOUR HOUR WORK WEEK Tim Ferriss HAPPINESS HYPOTHESIS Jonathan Haidt

What % of your time do you want to spend learning about the SCIENCE of HAPPINESS? How can the SCIENCE of HAPPINESS help your business, your brand, and yourself?

If the research shows that vision / meaning / higher purpose leads to happiness… What is your company’s higher purpose? What is your higher purpose?

Put a little Zappos in your day… …some links to check out… Follow me on Twitter: @zappos http://twitter.com/zappos http://twitter.zappos.com (public mentions, employees) http://bit.ly/twitterbetter - “How Twitter Can Make You a Better (And Happier) Person” http://blogs.zappos.com (photos & videos of culture) http://about.zappos.com (more information about us & core values) http://www.zapposinsights.com (video Q&A, book recommendations) http://jobs.zappos.com (job opportunities)

Put a little Zappos in your day… …to contact me or get a tour… Email [email_address] for: A copy of this presentation Copies of our culture book (need physical mailing address) Email [email_address] for: Tour of our offices when you’re next in Las Vegas (takes about 45-60 minutes) We’ll pick you up from the airport or your hotel in a Zappos Shuttle!

Go to: zappos.com/zappos5 for details. We are giving away: A 4-day trip to Las Vegas and a tour of Zappos 100 Zappos backpacks 100 Zappos Monopoly Boards

Legal and Financial Disclaimer P.S. You might be wondering why we need to have a legal and financial disclaimer in this presentation, but you are still reading, so our lawyers, auditors and accountants would really like to make sure we make the following clarifications. Although an audit was underway and almost done, the financial information presented in this slide show was unaudited. We made every effort to present the best information we had at the time. Gross merchandise sales is a non-GAAP metric. We use it to express the total demand across all of our web sites and stores. This number measures the dollar value of the orders placed in the year before accruing for certain items such as returns, and it ignores certain timing cut-offs that are required by GAAP for revenue recognition purposes. If we were a public company, we would have to reconcile gross merchandise sales to the nearest GAAP metric (net sales), but we are currently a private company so the gross merchandise sales number should be viewed just as an interesting number that we want to share with our friends. This presentation contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they ever materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by the forward-looking statements and assumptions. These risks and uncertainties include, but are not limited to, the risk of economic slowdown, the risk of over or underbuying, the risk of consumers not shopping online or at our web site at the rate we expected, the risk of supplier shortages, the risk of new or growing competition, the risk of a natural or some other type of disaster affecting our fulfillment operations or web servers, and the risk of the world generally coming to an end. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including statements of expectation or belief; and any statement of assumptions underlying any of the foregoing. Zappos.com assumes no obligation and does not intend to update these forward-looking statements. Congratulations on making it through all the fine print. If you enjoy fine print, look for openings on our legal and finance team at jobs.zappos.com .

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Zappos Tony Hsieh

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