Can Zappos recover from a massive security breach?

Paul Takahashi

Zappos CEO Tony Hsieh sent emails to customers on January 16, informing them of the security breach.

By Ken Miller (contact)

Wednesday, Jan. 18, 2012 | 1:54 p.m.

Zappos is currently one of Las Vegas’ biggest success stories, but its future is now less certain in the wake of a massive security breach with potential to shake customer confidence significantly.

On January 16. Tony Hsieh, the online retailer’s CEO, sent emails to customers informing them that more than 24 million customer records—credit or debit card information not among them—had been compromised. “We’ve spent over 12 years building our reputation, brand and trust with our customers,” Hsieh wrote. “It’s painful to see us take so many steps back due to a single incident.” In full crisis mode, Zappos expired all passwords and told customers to reset them on a dedicated page. They’re temporarily suspending all phone support so they can deal with questions solely by email, and training large numbers of their employees to help.

But will that be enough to make customers feel safe again? Other companies have bounced back from similar disasters. Sony was hacked last spring, putting 77 million customers’ information at risk. The company offered all customers a selection of downloadable content and 30 free days of its premium PlayStation Plus service, along with 30 days of additional subscription time, plus an extra day for each day the servers were down. All in all, Sony emerged from the disaster relatively unscathed.

But let’s be honest—as large as it is, Zappos is no Sony. Worse still, online options abound for products similar to those Zappos sells. Our fingers are crossed for the continued success of Zappos, but in the short term, they might be facing an uphill climb back.