Why I sold to Amazon: 3 startups' stories

By Julianne Pepitone, staff reporter

NEW YORK (CNNMoney) -- For more than a decade, Amazon has been one of the tech industry's marquee buyers of innovative startups. In the past year alone, it's snapped up at least half a dozen companies.

The e-commerce giant sometimes grabs retailers, like shoe merchant Zappos and daily-deal site Woot.com, but it also scouts new ventures for tech talent and engineering breakthroughs. Its purchases last year included a very under-the-radar buy of touch-screen display company Touchco, which became part of Amazon's Kindle engineering team.

Amazon (AMZN, Fortune 500) handles each of its purchases differently. Some are entirely digested by the mothership, others are bought and then killed off, and a few are allowed to maintain a great deal of independence.

Here are three entrepreneurs who shared their stories about what it's like to be bought by Amazon -- and how their businesses changed. (Amazon declined to comment for this story.)

Snapped up in the dot-com heyday: Back in the late '90s, Amazon's platform did not include third-party sellers -- it sold all its books, music and videos itself. To expand its offerings, it got busy buying dot-coms selling all kinds of merchandise.

One of its 1999 purchases, Cambridge, Mass.-based Exchange.com, helped launch Amazon's marketplace as we know it today.

Exchange.com had been around less than a year, but its two websites were already hot: Bibliofind had 7 million books in its database, and MusicFile was gaining popularity among rare music collectors.

"It all happened really fast," says Barnaby Dorfman, who was the general manager of Bibliofind at that time. "We were new, and already on top of the world. It was such an intense, crazily exciting time on the Web."

The Exchange deal was one of three all-stock deals Amazon did in a quick sweep, which also included e-commerce software developer Accept.com and traffic metrics site Alexa.com. Amazon didn't break out the financial terms of each deal, but it said that it collectively shelled out stock then valued at $645 million.

Amazon's stock closed at $103.59 on April 26, 1999, the day it announced the Exchange deal. (That figure is adjusted for a stock split Amazon made later.) Shares have risen in the decade since, and ended trading Friday at $186.50.

Most of the Exchange's 30 employees accepted Amazon's offer of jobs at its Seattle headquarters, Dorfman says.

"We weren't really clear on whether we'd be fully absorbed into Amazon, which is what ended up happening," Dorfman says. "It was kind of a landgrab -- eBay was seen as a really big competitor then, so Amazon wanted to build internally."

Dorfman stayed at Amazon for seven years, bouncing between different departments, before striking out on his own in 2006 to start food blog Foodista -- in which Amazon is now an investor.

"Looking back, our experience was the polar opposite of what happens with acquisitions these days. They're kept small and nimble, which can be great," Dorfman says.

"But we were happy to be swallowed up," he remembers. "[Amazon CEO] Jeff Bezos named was Time's person of the year just a few months later, and it was an exciting time to join the company."

Making music social: AmieStreet.com was an online music store with a social twist: Artists uploaded songs, and the site sold them at prices that varied according to demand. The more downloads, the more a song cost (up to 99 cents). Users were able to add each other as friends and recommend songs to each other.

Founded in 2006 by three students at Brown University, AmieStreet.com attracted buzz soon after its creation thanks to a positive write-up in TechCrunch.

Positive reviews rolled in from Rolling Stone, NPR and others -- and Amazon wanted in. Amie Street co-founder and CEO Elias Roman, along with his two partners, flew out to Seattle to meet with Bezos. In 2007, Amazon became a Series A investor in the company.

"They were looking to get into music, and we were considering selling the site," Roman says. "We thought we were revolutionizing online music, and they seemed to agree."

With financial backing, AmieStreet.com grew even larger over the years. The site launched a Facebook app, threw charity fundraisers and scored a PR coup when its catalog featured songs from Ashley Alexandra Dupre (the call girl at the center of the Eliot Spitzer scandal).

A few years later, Amazon decided it wanted more than just an investment. Amie Street, Inc., sold AmieStreet.com to Amazon in late 2010, when the site had unique visitors "in the six figures," Roman says.

In September, immediately after the acquisition, Amazon announced it was shutting down AmieStreet.com and redirecting its users to Amazon.com. Users' downloaded songs were ported over to Amazon, but that was the end of the demand-based pricing -- and the AmieStreet.com business model.

"There was no understanding or guarantee as far as a go-forward plan," Roman says. "We didn't know what they were going to do, and we didn't have anything to do with the day-to-day anymore."

Amie Street, Inc., still exists and Amazon remains an investor and board member of the company. Without its namesake site, Amie Street now focuses on Songza, a music-streaming service the company acquired in 2008.

"We never hear the word 'Amazon'": Online shoe retailer Zappos was Amazon's priciest acquisition. As usual, the company did the deal almost entirely in stock: It paid $40 million in cash and offered up shares then valued at just over $800 million.

Amazon nabbed Zappos in 2009 -- after the company had already turned down one bid.

Bezos came calling with an offer in 2005, Zappos CEO Tony Hsieh revealed last year in an Inc. magazine article.

Hsieh didn't give the offer much thought, he said: "I realized that to Amazon, we were just a leading shoe company. If we sold, we'd probably be folded into their operations, and our brand and culture would be at risk of disappearing."

Zappos kept growing, though, and Amazon came calling again. Hsieh said he felt pressure from Zappos' board of directors and he feared he would be forced out if he chose not to sell.

In his letter to Zappos staff about the takeover, Hsieh made it clear that company culture was paramount: "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.'"

At the Web 2.0 Conference in San Francisco in November, Hsieh stressed that Zappos' independent streak hasn't wavered. The company is still based in Henderson, Nev., more than 1,000 miles away from the Amazon mothership.

"If you go to our offices, there is no sign of the word 'Amazon,'" Hsieh said. "I see Jeff Bezos for two hours a quarter at the shareholders meeting. Honestly, it's like nothing's changed except swapping out our board of directors."

Anyone looking to join the Zappos team goes through a unique hiring process. The company does a "typical" set of interviews, and then another based on "culture fit." They'll pass on people who don't make the culture cut.

Those who are hired take a week-long class to learn about the company -- and then they're offered $2,000 to leave free and clear. If that doesn't work, they're offered $3,000 to quit. Every year about 2% to 3% of people take the money and run, Hsieh said.

Finally, every new hire goes through the same four-week training program. They get on the phone to take calls from real customers; they deal with complaints; they spent a week in Kentucky at the company warehouse. That's crucial in making a big company feel like a small team, Hsieh said.

"If we're really all about the best customer service, you can't simply make that one department," Hsieh said. "It needs to be about the whole company. And we aren't going to let anyone change that." To top of page

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