I was very interested to hear the news yesterday that Amazon had acquired Zappos for $847 million in cash and stock. Since Zappos founder Tony Hsieh asked and answered some of his own questions about the deal in a letter to employees so I thought it’d be useful to engage in a Q&A with myself about the deal.

1. Why did Amazon buy Zappos?
A: Two numbers answer that succinctly: About 5 percent of Amazon’s sales are apparel/footwear sales, compared with 97 percent of Zappos’ sales (according to June 2009 data from our retail tracking service). Simply put, Amazon has not dominated apparel sales as it has most other categories online. While Zappos isn’t biggest seller of apparel/footwear on the Web, it is the largest of Internet pure play retailers. More importantly, Zappos has developed a reputation for customer service (Amazon’s priority one according to founder Jeff Bezos) that will only improve Amazon’s already strong standing amongst online shoppers. More than 1 million people follow Zappos on Twitter (a cornerstone of their customer service), far beyond any Twitter account managed by Amazon.

2: Did Amazon pay too much?
A: I’m not a financial analyst, but the online apparel category is the largest online merchandise category, expected to grow to $41.8 by 2012. For Amazon not be a formidable player in this space is nearly unthinkable for the company that sees itself as the World’s Biggest Store. Amazon has tried to answer Zappos with the launch of shoe and handbag site Endless.com, but was never able to materially chip away at Zappos’ dominant position. Endless.com registered about one fourth the traffic that Zappos did in June 2009.

3: Why didn’t a company like Wal-Mart or Target buy Zappos?
A: Wow, another great question, Ken! I’m sure that this notion was entertained by the big brick-and-mortar retailers, but the reality is that companies like Wal-Mart and Target have their best online opportunities run through their stores. The fact that they have thousands of stores throughout the country is a huge asset to their online businesses that a big pure play purchase such as Zappos might be distracting to their longer term success. I do wonder, though, if Amazon’s decision to buy Zappos could have been at least partly driven by a fear that this might happen.

4: Beyond merchandise sales, how do Amazon and Zappos fit together?
A: Amazon and Zappos have relatively similar customer bases, although Amazons’ is substantially larger (60M uniques per month vs. 4.1M uniques for Zappos in June 2009). Zappos’ customer base does skew a bit more female (69% compared with Amazon’s 55%) and a little younger, largely a function of the merchandise offered by Zappos. The most telling statistic is that in June of 2009, 77 percent of Zappos shoppers also shopped at Amazon.

5: Amazon has said that it will run Zappos as a separate brand. Is this smart? What do you think that Amazon should do in the longer term?
A: Zappos elicits more passion from its customers than any other brand that I can think of, online or offline, something my colleague Pete Blackshaw has documented for some time. Amazon would have been insane to scuttle the brand. In the long run, it becomes more interesting. I think that Amazon will benefit from the Zappos halo, and vice versa. Amazon can learn from Zappos’ innovation around customer service and marketing. Zappos can learn from Amazon’s technology and database marketing. In five years, I’d say that it’s even money that Amazon looks more like Zappos than the other way around. As to how they brand it, I’m not willing to lay odds either way.

Patrick Doyle, President, Domino’s U.S.A., thanked the online community for the tip in his video and the brand also created a twitter account @dpzinfo to communicate.

Another major brand, Amazon, also drew some social media heat recently when gay and lesbian titles were dropped from Amazon’s sales rankings. This prompted an outcry and the creation of an #amazonfail tag on Twitter. Amazon issued a statement claiming it was merely a computer glitch and “ham-fisted cataloging error.”

Comparatively, the Amazon story spiked a bit higher than the Domino’s one, but neither registerd buzz as high as British singer Susan Boyle, whose performance on “Britain’s Got Talent” became an online smash.

But what’s important here is not the amount of chatter, but the emotion, intensity and negativity associated with a brand in a crisis. Words like “disgusting,” and “snot” hounded Dominos. The word “Motrin” also found its way into the conversation, echoing the PR backache that brand had with an ad that went negatively viral.

View a Brand Association Map of the Domino’s brand before and after the crisis.

Similarly, tags like “#glitchmyass” cropped up on Twitter relative to Amazon. When negative (tag) clouds hover over your brand, it’s critical to be able to track online threats and respond immediately using social media.

Learn more about Nielsen Online’s tracking tools here.

“Even with the weakening economy, an unstable stock market and a rising unemployment rate, Black Friday traffic to online retail sites grew at a double digit rate this year,” said Ken Cassar, vice president, industry insights, Nielsen Online.

Black Friday Online Conversations and Consumer Perceptions

• Not surprisingly, shopping incentives were a key part of Black Friday discussions. The terms “deals,” “sales,” and “doorbusters,” referring to deep discounts intended to get shoppers in the door, were all closely associated with Black Friday.
• Specific retailers were also mentioned in relation to Black Friday, including Sears, CVS, Wal-Mart, JCPenney, Staples and Circuit City, among others.
• Consumers discussed specific products and gift ideas, including high definition televisions, video games, laptops and toys.

See Nielsen Online’s Black Friday BAM here.

The Nielsen Online Holiday eShopping Index is comprised of over 120 representative online retailers across twelve categories, and acts as a barometer to gauge the level of activity at online shopping destinations during the holiday season. The Index illustrates increased shopping activity through category growth.

View the complete report.

Read coverage of Nielsen’s findings in TIME, the Financial Times, by the Associated Press and Bloomberg, and on CNET.com, NPR.org, and Digital Daily.

According to Nielsen Online, 78% of adult online consumers in the U.S. made a purchase via the Web within the previous six months.

Travel-related transactions were most common, with 38% of adult online consumers making at least one travel purchase on the Web in the previous six months.

Large percentages of online consumers also went online to manage their credit card accounts (36%) and conduct personal banking transactions (35%).

Nielsen’s findings are based on data from @Plan, a quarterly survey of approximately 36,000 U.S. Internet users age 18 and older.

In October, eBay and Amazon were the top two online retailers, drawing 49.2 million and 48.3 million unique visitors, respectively.  Wal-Mart, Target, and Netflix rounded out the top five.

“The challenge for retailers is no longer how to lure shoppers online, but how to differentiate their brand among all others,” Nachi Lolla, research director, commerce, Nielsen Online, noted.  “Heading into this competitive holiday shopping season, selection, price, and customer service are the key areas in which retailers can shine.”

View the full press release.

Read coverage of Nielsen’s findings on Digital Media Wire and in Brandweek and BizReport.com.