Boing Boing points us to a fantastic story about how Zappos uses Mechanical Turk to fix grammar and spelling mistakes in product reviews. You see, research shows that if a product has well-written reviews, that helps sales -- even when the reviews are negative. The more well-written the reviews, the more people trust them. But, of course, on the internet, you get all sorts of grammatical and spelling errors (I should know, I make both all the time). So, to deal with that, Zappos runs its reviews through Mechanical Turk and lets the "crowd" act as its editor. There's no specific data, but apparently Zappos claims that this resulted in "substantial" revenue improvement, for a cost of a few hundred thousand dollars (across 5 million reviews). The corrections never change the actual intent of the content. They just make sure it's in proper English. I wonder what would happen if we did that for all posts and comments here...

A few years ago, when I was in Toronto, I remember being shocked when a friend there told me how difficult it was to get any sort of serious e-commerce there. Because of problems with customs and other issues, many of the big e-commerce players wouldn't ship to Canada, or made it quite difficult. This particular friend would order stuff to be shipped to a relative in the States, to be "delivered" later. It appears that Zappos has had enough. Rob Hyndman points us to the somewhat surprising news that Zappos has bailed out on Canada, saying it will no longer ship there, due to issues with customs:

We have made the difficult decision to shut down the canada.zappos.com site and stop shipping to Canada. One of our core values is to "deliver WOW through service". That means the best selection of brands and products that can meet just about every individual’s needs as well as fast, free shipping and free returns, all at competitive pricing. Our Canadian customers know that we have not lived up to these service levels.

Product selection on canada.zappos.com is limited due to distribution agreements with the brands we sell in the United States. In addition, we have struggled with general uncertainty and unpredictability of delivering orders to our Canadian customers given customs and other logistics constraints.

While this is just one e-commerce outlet (albeit a subsidiary of Amazon.com), combined with what I'd heard in the past, it really does seem like a pretty major issue for Canada. If people there can't reliably order e-commerce products, then Canadians are missing out on quite a big part of what the internet enables. You would think there would be a more concerted effort to make things right, rather than spending so much time doing things like passing laws that Hollywood wants, which will limit consumers even more.

I remember, years ago, when I was taking an organizational behavior class in college, being surprised to learn of a series of studies that suggested that happy workers were not more productive workers. The whole area of study seemed a bit questionable to me, as there were so many other variables that could play into such things, such as the type of work and what kind of "happiness" we were talking about. Also, I could see where, perhaps, in certain jobs, "happy" workers might not be any more productive than unhappy workers, but that the happy workers might be more loyal and have less turnover, which could be quite valuable as well.

Either way, I still tend to think that a happy workforce is something worth striving for -- but not everyone thinks so. The Economist recently had an article mocking companies (mainly tech companies) for trying to keep their workers happy, suggesting that once happiness became "corporate," it no longer really functions to make workers happy:

This cult of fun is driven by three of the most popular management fads of the moment: empowerment, engagement and creativity. Many companies pride themselves on devolving power to front-line workers. But surveys show that only 20% of workers are "fully engaged with their job". Even fewer are creative. Managers hope that "fun" will magically make workers more engaged and creative. But the problem is that as soon as fun becomes part of a corporate strategy it ceases to be fun and becomes its opposite--at best an empty shell and at worst a tiresome imposition.

While I think it's true that in many cases, corporate policies designed to make sure employees "have fun," can be an "empty shell" or "a tiresome imposition," I don't think it's necessarily true in all cases. I think it really does depend on the company, the culture, the people and the "fun." The writer of the Economist piece mocks some of Zappos' ideas for fun as being to coercive:

The most unpleasant thing about the fashion for fun is that it is mixed with a large dose of coercion. Companies such as Zappos don't merely celebrate wackiness. They more or less require it. Compulsory fun is nearly always cringe-making.

But is that true? Again, plenty of weak attempts at forcing fun on people can backfire, but if you look at what Zappos and some other companies do it's not about "coercive" fun, so much as it's about setting up the overall environment such that people just have fun. This is a key difference, which the Economist piece ignores. Yes, I think mandated moments of fun can be lame and do the reverse of the desired impact, but setting up an overall culture that embraces fun can absolutely work. I think it's one of the reasons why Zappos has had success in paying new employees to quit early on, as it gets rid of those who don't fit with the culture. And, those who stick around appear to be having legitimate fun as a part of their job, not because they suddenly had to go "do fun now," as the article implies.

It appears the real confusion by the author is in thinking that fun and work cannot mix -- and it appears that's because whoever it is (which, of course is hidden thanks to the Economists' no bylines policy) seems to think of "fun" solely in a rather antiquated manner. Fun, according to the author, is smoking, drinking and sex at work -- and if you can't do those things, it's just not fun at all:

While imposing ersatz fun on their employees, companies are battling against the real thing. Many force smokers to huddle outside like furtive criminals. Few allow their employees to drink at lunch time, let alone earlier in the day. A regiment of busybodies--from lawyers to human-resources functionaries--is waging war on office romance, particularly between people of different ranks.

Of course, some of us have no interest in doing any of those things at work, and actually prefer an environment where we get along with our coworkers in ways that actually do seem like modern fun, rather than some stereotypical fun from the 1950s. Oh, and as for the research about happy employees being good for companies? It seems those old studies I looked at in college are now being refuted by new studies.

Back when Amazon bought Zappos for a little over a billion dollars, it left a lot of people scratching their heads. Zappos had been growing like gangbusters, gettings tons of positive attention, in part due to its obsessive commitment to over delivering on customer service, as well as its unique and creative management practices. Given all of that, any acquisition was a bit of a surprise, let alone one at a price that wasn't much more than 1x revenue (even in a low margin business). At the time, the announcement from Zappos CEO Tony Hsieh definitely stunk of PR-spin, as well, which was unfortunate, coming from a guy who's usually such a straight shooter.

So it's very cool to see (via Liz Gannes) that Tony has since written up a very honest explanation for why he sold Zappos. It really comes off as a lesson in how your investors can force you into moves you really don't want to make. First he details some of the realities of operating an e-commerce business: how they had a revolving line of credit for $100 million that could be pulled pretty easily, as well as some other inventory issues that could lead to cash flow problems, even as the business itself was thriving (if you've never run a business, it's important to understand the differences between revenue and cash flow). Those cash flow problems were apparently creating tension on the board of directors, made up of some venture capitalists that Zappos had brought on late in the game (it had been financed by Tony for a while):

These issues had nothing to do with the underlying performance of our business, but they increased tensions on our board of directors. Some board members had always viewed our company culture as a pet project -- "Tony's social experiments," they called it. I disagreed. I believe that getting the culture right is the most important thing a company can do. But the board took the conventional view -- namely, that a business should focus on profitability first and then use the profits to do nice things for its employees. The board's attitude was that my "social experiments" might make for good PR but that they didn't move the overall business forward. The board wanted me, or whoever was CEO, to spend less time on worrying about employee happiness and more time selling shoes.

On some level, I was sympathetic to the board's position. The truth was that if we pulled back on the culture stuff, the immediate effect on our financials would probably have been positive. It would have reduced our expenses in the short term, and I don't think our sales would have suffered much at first. But I was pretty sure that in the long term, it would have ruined everything we had created.

By early 2009, we were at a stalemate. Because of a complicated legal structure, I effectively controlled the majority of the common shares, so that the board couldn't force a sale of the company. But on the five-person board, only two of us -- Alfred Lin, our CFO and COO, and myself -- were completely committed to Zappos's culture. This made it likely that if the economy didn't improve, the board would fire me and hire a new CEO who was concerned only with maximizing profits. The threat was never made overtly, but I could tell that was the direction things were going.

From there, Tony and Alfred decided the best way to get out from under the threat of board revolt was to buy out the board, and that led them to go looking for a partner to help make that possible. That eventually resulted in knocking on Amazon's door, which turned into a discussion about a full acquisition -- which Tony agreed to once he felt clear that Bezos and Amazon understood the culture aspect that he felt was so important, and agreed to let Zappos operate independently and continue that tradition.

Now, times may change, and situations may change. Tony may end up leaving. Amazon may not like how things are going at Zappos at some point. Or Amazon may come under more financial pressure from its own shareholders (though, to be fair, for many years Bezos did an amazing job resisting calls from Wall Street to focus on short term profits over long term results -- if no one has done a case study on this, someone should...). However, to some extent, this really is a story that touches on our recent discussion on motivation and monetary rewards. Hsieh and Lin certainly made out very nicely in the Amazon acquisition. If I remember correctly they each ended up with hundreds of millions of dollars. But at the rate the company was growing, many thought they could have done much, much better by hanging on and waiting for an IPO. However, there are motivators other than "more money" -- especially when you already have plenty of it. And, in this case, that seemed to work out for Zappos.

Either way, the clear honesty of what was happening behind the scenes that resulted in the sale is nice to see. You usually don't hear that at all (other than random rumors). Lots of things happen behind the scenes in various business deals, much of which never gets talked about. It's always nice to get a peek into the details of some of those situations.

For many years we've seen stories of companies making pricing mistakes at e-commerce stores. The news of those mistakes tends to spread very quickly, with lots of people piling on to order something for way less than it cost. Inevitably, the company realizes the mistake, and usually contacts everyone who ordered to let them know the order won't be fulfilled because it was a mistake. I actually have no problem with this, though some people think it's horribly evil. Either way, what seems to almost always happen is that the negative publicity that follows leads the company to change its mind and honor the original price. Sometimes, it actually takes a lawsuit to make that happen.

However, this weekend, it looks like Zappos had a pretty massive pricing glitch on its sister site 6pm.com. It lasted a few hours. But what's different this time is that once Zappos fixed things, it immediately decided that it would still honor the wrong prices, even though the mistakes would end up costing the company (now owned by Amazon) $1.6 million. Now, between Amazon and Zappos, the two companies have a ton of money, and continue making a lot of money every day. But, no matter what, a $1.6 million pricing error is still a big deal. Big enough that you would think that the company could potentially withstand any sort of PR hit to trying to not honor those prices (perhaps offering up some sort of gift certificate or benefit to those impacted, instead). However, for a company that bases its entire reputation on bending over backwards to make customers happy, it appears they quickly decided that it was best for their overall reputation to just eat the $1.6 million, and keep (or even boost) that customer service reputation.

In the last few years, Zappos has definitely come on strong as an e-commerce brand -- perhaps the first online brand ever to have a real shot at unseating Amazon in terms of serious customer loyalty. Obviously, this did not go unnoticed by Amazon. The key to Zappos' success has been their focus on overdelivering on the customer service front (sometimes to hilarious levels). Zappos execs realized a key point that many more companies really ought to understand: customer service is marketing. Customer service is where many of the interactions occur with your customers. Companies that view customer service as a cost center will discover that they end up driving away customers. Zappos, on the other hand, would bend over backwards to keep customers happy -- and because of that, customers were very loyal to the company.

While still a lot smaller than Amazon, there was definitely a lot of attention getting paid to a potential world where Zappos had a brand presence that rivaled Amazon. It's no surprise, then, that the two companies have probably discussed an acquisition, and it looks like those plans have finally come together, as Amazon is buying Zappos. The link there is to the letter announcing the deal from Zappos' CEO Tony Hsieh. I like Tony and like what he's done with Zappos, but have to admit the letter is a bit silly, as he tries to redefine the acquisition as not being an acquisition:

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.

If I had a dollar for every time an acquired company insisted that the acquirer was going to keep them running exactly the same as before, I'd be a lot wealthier. And if I had to give back that dollar for every time that wasn't true, I'd be giving all that money back. This is an acquisition, no matter how Zappos is trying to paint it. It's great (and, I believe, smart) that Amazon plans to keep Zappos running as a subsidiary, rather than fully integrate the two, but that doesn't make this any less of an acquisition -- and Zappos' attempt to paint it as something "different" is a bit disingenuous. Yes, the company always likes to present what it does as being different and unique, but an acquisition is an acquisition.

I'm writing up the beginning of this post while on an airplane, flying from New York to San Francisco. By the time you've read it, I'll have added some stuff to it after I landed. The issue is one of customer service and sounding human. Late last week, I saw this amusing online customer service chat transcript between a Zappos customer service representative and a guy who wanted to see if their customer service really was as good as advertised. Zappos is famous for its hiring and training practices (including paying people to quit after a month). With the customer service team, there are no scripts and reps aren't measured on how many calls they get through like many other customer service centers, but on how well they help customers. That is really evident in the transcript. Here's an excerpt, though you should read the whole thing:

You are now chatting with Jonathan
Jonathan: Hello Timmy. How can I help you?
Timmy: do you know how wide the G-Shock Atomic Solar - AWG101 SKU #7403774 is?
Timmy: i mean, how big a wrist it would fit?
Timmy: Timmy has a big fat wrist
Timmy: Timmy need watch grande
Jonathan: I'll see what I can find out for Timmy.
Timmy: awesome. and can we please continue to talk about Timmy in the 3rd person? Timmy likes to boost Timmy's ego by talking about Timmy that way
Jonathan: Jonathan would be happy to neglect the use of pronouns for the duration of this conversation.
Timmy: Jonathan and Timmy shall get along just fine
Jonathan: Will Timmy be able to measure Timmy's wrist?
Timmy: Timmy's wrist is big, but not Biggie-Smalls big. Timmy doesn't have the required measurement instruments.
Timmy: Timmy is 6'4" 220lbs if that helps Jonathan
Jonathan: Luckily, that is roughly the size of Jonathan's brother, so that does help.

Now, as I mentioned, I'm writing this from an airplane, where I had hoped to have in-flight internet access. I had it last week on the flight from San Francisco to NY and it was fabulous. And, yes, I've seen the wonderful and enlightening Louis CK bit where he talks about how ridiculous it is that anyone would complain that in-flight WiFi broke, because just think of how amazing it is (by the way, in later interviews, Louis admitted that it wasn't the guy sitting next to him who complained -- but he was really discussing his own reaction to the WiFi breaking). I'm not at all upset that the WiFi broke. It would have been cool (and useful in terms of productivity), but I am amazed that it could work at all, and I know it's new so bound to have some hiccups. That's fine. This post isn't about the fact that the WiFi broke. It's about the way Aircell/GoGo handled it.

It's not at all clear what the problem was exactly. When I first opened up the browser, the proxy server page wouldn't load at all. After a few minutes it did load, and at the top it said: "click buy to get started." Only problem? There was no "buy" to click. Just a big empty white box. However, there was a link to sign in if you already had an account -- which, thanks to my flight last week, I did. So I clicked that, and put in my username/password, and was told that it couldn't authenticate it. I checked my email to confirm the username, and even though I'm sure of the password, tried to go to "recover forgotten password" just in case... and was told it didn't recognize my username or the email address. Fine. It seemed pretty clear that their authentication system had broken down, too. I tried to go back to the main page, but it told me I couldn't until I had purchased my account...

However, I did notice a link to "contact customer service" and discovered that even though I couldn't connect to the full internet, I could have a "live chat" with a customer service rep on the ground named "Georgia." I'm asked my name, and I give it (even though it should have been obvious from the email address I had to give to login to the chat). After Georgia asked for my name and I gave it, it took about 2 minutes for a reply. No problem... I'm sure Georgia is dealing with others as well. But I'm not even sure if she's still there. Then I'm asked the problem, which I describe and am told:

"I apologize for the inconvenience and I'll be glad to help you with that."

Sounds great. So I wait. And wait. And wait. And then start wondering... am I supposed to do anything? I assume it's being looked into, but it's not at all clear. I wasn't told to wait. I was just told that she can help. But is she? So after about 5 minutes of nothing, I say "Hello?" and get a quick apology followed by a statement that they are aware of a problem on my flight and will be monitoring it, and if I'm unable to connect, they'll send me a gift code for future flights. Ok. That's fine again... but what does that mean directly for me. I ask "so should I just try again later?" and am told "I would suggest you reboot and try again."

Wait... what? I was just told the problem was with GoGo's system, so why would it make sense to tell me to reboot? I point this out in a polite manner, and am told: "It may help, yet it may not be resolved until after your flight is over." Beyond the odd use of pronouns (first "it" refers to rebooting, second "it" refers to the problem with their system), this again sounds like someone with a script, rather than anyone trying to sound human or recognize how silly it is for me to reboot after she's already admitted the problem is on her end.

Given that I was clearly communicating with someone on the ground, I figured it was worth asking if there was some way around the authentication issue, since clearly I could connect to a very limited subset of the internet on the ground. I'm then told "all ways to sign in and sign up are not properly working." Aha, so it really is a problem with their system, and not my own, but why couldn't they have just explained that problem initially so that I understood? I tell her that I'll just try to sign on later, and am asked "Is there anything else I can help you with?" Now, I understand this is rather standard closing question... but it seems rather silly in this context. Considering there's no connectivity and that's the only thing this company provides, I'm not sure what else I could possibly be helped with.

Now, this wasn't a bad customer service experience (even if it didn't resolve the problem, though that wasn't "Georgia's fault"). But it was striking to me the contrast between what I had just read with the Zappos transcript and this one. Is it really that difficult for customer service reps to sound human?

Let me admit upfront that when Zappos first came along, I didn't think much of it. The founder had done amazingly well for himself in selling LinkExchange to Microsoft during the bubble years, and had then started a incubator called Venture Frogs -- with (I kid you not) a corresponding restaurant (also called Venture Frogs). The restaurant wasn't bad, even if all the dishes were named after dot com companies. I remember eating there (I think I got the CNET Curried Chicken) one day and seeing huge signs all over the restaurant for Zappos -- an online shoe store. This was pretty much near the bottom of the downswing after the dot com bubble had burst, so it was quite surprising to see someone opening up a pure e-commerce startup, especially one in a category that had failed miserably in the past. E-commerce for shoes seemed exceptionally difficult, due to the fact that shoe sales (even more than other clothing) really depend on the unique fit of each item. However, over the years, Zappos overcame all of the concerns by lowering the barriers (super fast free shipping and free returns on anything that you don't like) and an almost maniacal focus on customer service. In doing so, it's built up a hugely loyal set of customers -- including me.

Of course, to do that right, it's meant treating customer service not as a "cost center," like almost all companies these days, but as an integral part of making happy, committed customers who also act as evangelists. A good company recognizes that customer service isn't a cost center at all, but the best way to build a loyal customer base and to learn from your customers as well. Of course, in order to do that, you need to have a loyal, committed customer service staff as well -- and Zappos has done some unique things there that are worth understanding. It doesn't do many of the typical call center things: no scripts, no time limits on calls and no limits on what the customer service reps can do to make customers happy. But, in a post on a Harvard Business blog, it's explained that Zappos also offers to pay each new employee $1,000 to quit, one month after they've joined. Basically, it's offering any employee who's not truly committed to the way the company does business an easy "out" after one month. Thus, those who stick around are even more committed to living up to the service ideals the company has set. It's nice to see in an era where "good customer service" seems so rare.

Apparently about 10% of folks take the money and scram. While traditional HR metrics might think this is terrible, as the cost of recruiting, hiring and training new employees is quite high, the long term benefits of having a more strongly committed staff cannot be overstated. Basically, the company has realized that a little cost upfront can help it make a lot more on the backend.

There's an interesting lawsuit coming out concerning the popular online shoe store, Zappos, that has built up a large business in part by being extremely focused on providing an excellent customer experience. DSW is a large shoe retailer with many brick and mortar stores and also (not surprisingly) an e-commerce operation (Update: the e-commerce part just launched recently, which has many thinking that this whole event appears to be something of a reverse Streisand Effect situation, where it's suing Zappos to get media attention). Late yesterday, DSW filed a lawsuit against Zappos, charging the company with infringing on DSW intellectual property. What was odd, though, was that DSW never contacted Zappos at all -- preferring to inform it of the lawsuit via press release. Zappos CEO, Tony Hsieh, explained all of this via Twitter, which he's used (quite successfully) to connect and communicate with fans of Zappos.

What came next is quite interesting. Various Twitter followers began investigating the matter, and noticed that a guy using the Twitter name SEOColumbus was defending DSW for filing the lawsuit, while also raving about how much better DSW was than Zappos. Carlo Longino responded to those claims, and then did a quick search discovering that the LinkedIn page of the guy said that he just happened to be DSW's E-Commerce Operations Manager -- something he declined to mention. Soon after Carlo called him on it, though, Carlo noticed that he deleted his LinkedIn profile. The guy claims that he just contracted at DSW for a few months -- but it still seems like he should have disclosed that while bashing Zappos and praising DSW. Update: This part of the story is getting even more bizarre, with claims that the SEOColumbus Twitter account is actually controlled by someone else (which doesn't make much sense, given what the accountholder was saying). And, on top of that, the SEOColubmus Twitter account has now been shut down (temporarily?). Update 2: I've removed the guy's name from this post following a polite request, claiming that the Twitter account really was controlled by someone else. There are numerous inconsistencies in his story that are hard to square up, but at this point we'll take him at his word and thus have removed his name.

As for the lawsuit itself, from the information provided by whoever owns the Twitter account, it seems like it's not due to any actions by Zappos, but by a Zappos affiliate. Just like many e-commerce companies, Zappos lets affiliates sign up and basically drive traffic to Zappos. One of those affiliates set up a site called dsw-shoes.net -- which pretty clearly does infringe on the DSW trademark (which, again, is really about consumer protection, not ownership). It seems reasonable to think that dsw-shoes.net could create some confusion in the customer's mind, even though it has (in tiny print, at the bottom of the page) a note claiming it's not affiliated with DSW. It does, however, link to Zappos using an affiliate code. Given the various safe harbors out there, it certainly seems like DSW went after the wrong target. The complaint should be against whoever operates the affiliate -- not Zappos. An affiliate linking to Zappos should not create liability for Zappos itself. It appears that in DSW's rush to sue Zappos, it didn't bother to understand Zappos is protected against the actions of its affiliates, as it most certainly was not encouraging them to pretend to be DSW. A quick call or letter to Zappos probably would have educated them on this (though, honestly, it should have been obvious from the website in question), but instead, DSW just rushed into a lawsuit, informing Zappos by press release.

Although it may not get that much hype, Zappos has built up an impressive and successful online shoe retailer. While shipping costs are often the bane of online retailers, Zappos has thrived, not only by offering free shipping, but by offering free return shipping as welll (via Knowledge Problem). Obviously, shipping is expensive, but by subsidizing product returns, the company has removed the risk of buying shoes online. Customers don't have to worry about a pair of shoes not fitting right, because they can always send them back at no cost. In fact, the company approves of customers that buy multiple pairs, just to see which pair fits, while sending the others back. Of course this cuts into its margins to some extent, but the alternative is for customers to buy shoes at traditional stores. The basic lesson is one that plenty of retailers recognize: making it easier to return items will make customers more comfortable with purchasing them. But it's the application of this lesson online, to such an extreme degree, that has separated Zappos from the pack.