Alice.com Proves Not Making Money Can Be a Winning Strategy

by Ric Merrifield

It doesn't happen very often, but sometimes I hear about a new company or a new innovation and slap my forehead wondering why I didn't think of it first. Netflix was a little bit like that, but I heard about alice.com today and that one in particular bugs me because I have been writing about the basic idea behind Alice for nearly three years, I just hadn't thought to turn it into an actual Web storefront.

So what is Alice and why is it such an a great idea? Well, Alice (named for the Brady Bunch character - good move), is a site that sells consumer goods over the internet. Things like soap, toilet paper, laundry detergent, and so on. The clever part about their model is that they don't make any money selling the products that they offer. They make their money selling advertising on the site, and selling purchase data back to the manufacturers (which the manufacturers have wanted, but lacked forever). Data is king in the world of sales, and Alice is positioning itself to be the impartial third party that sits between the customer and the manufacturer. As long as Alice doesn't compromise the identities of their customers, I don't see how they can lose. Customers value price and manufacturers value richer customer data (what they buy and what causes them to buy), and everyone wins.

This model is in some respects like Costco in the sense that they also don't try to make any money selling the products in their stores. It's no secret that Costco's profits come from their membership dues and that model has served them (and their shareholders) very well for a long, long time. Counter intuitive, but brilliant in retrospect.

I love the spin that Alice is putting on this, and with such a great name, the only way they can fail is in execution, and with two seasoned leaders, that seems pretty unlikely.

This is the kind of rethinking other organizations need to be doing right now. Instead of just optimizing business models that are based on the old fashioned brick and mortar models (like narrow margins on markup), there are so many opportunities to solve age old problems (like manufacturers not getting good data on who is buying their products - and what advertising actually causes customers to buy their products). People need to figure them out like Alice.

I am half tempted to start a site that sells meat at cost and call it Sam (after Alice's boyfriend, the butcher), but meat's a very different animal, if you will.


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Ric Merrifield is known at the "Business Scientist" at Microsoft Corporation in Redmond, WA and is the author of "Rethink". He blogs about ways to rethink through getting out of what he calls "the 'how' trap".

Get on the Bus to Flexibility

Snow in Seattle today. It will be interesting to see how many of my current clients make it to their office today. I for one am taking the bus and despite it being a bendy bus, it looks like it will manage to make it downtown. It had to go out and around a jack-knifed bus to make it up and over the bridge out of my neighborhood, but it made it.

Forecasters were sure we would get snow Tuesday night, but we didn't, nor did we get snow yesterday despite their predictions all day that we would. Snow didn't come to Seattle until last night. Most schools even announced closures based on these forecasts rather than waking up early to see if it had actually snowed. Forecasters blamed it on a "donut effect" meaning that the mountains to the west and east of Seattle took all the snow.

This Seattle snow fiasco is a good lesson in risk management. Is there really such a thing as 100% probability? While it is important to have a risk management strategy to protect yourself against events of low probability and high impact and every other combination, the key aspect of any such strategy is flexibility.

What if Costco or Nordstrom's had decided to close all of their stores based purely on the weather forecast? What would the unnecessary financial losses have been?

Flexibility is key. Flexibility in everything you do, from human resources to manufacturing to risk management. Without flexibility any strategy, policy, or process is doomed to have some snowless "snow" days.

Look at GM. Underinvestment in flexibility when times were good has left GM on life support and begging for money from the federal goverment because they only are capable of producing cars people don't want at a cost structure they can't sustain.

So when you are building any business or policy or process, look at whether or not you are designing it with the necessary flexibility.

After all nobody wants to get snowed under.

What do you think?

@innovate

Second Unnovation Award Winner - HP and Costco

I'm in the middle of trying to buy an HP Pavillion dv6700t Special Edition. I tried to buy it from Costco because you can configure it at costco.com for about 10% less than buying through HP directly.

Days passed, the promised ship date passed and an e-mail arrived saying that the wireless mouse I had "ordered" was out of stock. I was told my shipment would arrive late with a wired mouse followed by a month later by my wireless mouse.

Wireless mouse I ordered? I didn't order a wireless mouse. Phone calls ensued.

It turns out that HP, convinced people will only buy a laptop if a free wireless mouse is involved, had decided one must be included with every laptop order before it can ship. So I called, and asked for the laptop to be shipped on time sans mouse - no dice. Apparently, HP laptops are built and shipped directly to the customer from China, so Costco is only able to place or cancel orders, never modify.

Then this week an e-mail arrives in my inbox from HP announcing a Presidents' Day sale including 25% off the very laptop I had ordered from Costco. So, I promptly place an order on shopping.hp.com (at a $260 savings), and called and cancelled my Costco order.

Imagine my surprise when 36 hours later I get an e-mail from Costco saying that my order had shipped (my order from January 23). When I cancelled my Costco order they said I would either get a shipping or a cancellation confirmation but they had no idea which one. Which brings me to my points:

1. In 2008 how can this happen?
2. How can a transaction that should be nearly instantaneous, still not be executed 36 hours later by an undisputed technology leader and seller of technology consulting services?

Financially this snafu won't effect me (I can get an immediate refund at my local Costco), but it will affect Costco and HP. Costco will lose money executing the return. HP will lose money executing the return and also lose $260 because of their delay that allowed me to re-order at a lower price.

All because of a "free" mouse.

Followup - Following the Line to Innovation

I was hesitant this weekend when a man at Costco asked if he could scan my Costco card while I was standing in line, thinking that he was going to try and sell me on their executive card. I was pleasantly surprised when he then scanned my items with a portable scanner/computer and gave me a slip of paper to alert the cashier that he had done so.

It is a pretty simple system:

1. Scanner/Computer reads my Costco account number and creates a record
2. It then associates the item numbers scanned with that record, and sets a flag in the system that this temporary record exists on my account
3. Cashier enters my Costco account number and retrieves my account
4. The flag in the system enables the cashier to transfer the scanned item numbers into a live order
5. The cashier verifies the number of items
6. The cashier processes payment
7. The system deletes the temporary record

I thought "wow!", this is brilliant, this is exactly the type of potential process improvement that I was talking about in innovation blog entry #78 of November 16, 2007 (Following the Line to Innovation).

Costco has a fixed number of registers and the cashiers can only scan items and process payment so fast. If the cashiers only have to process payment and maybe throw a few things in a box, then the throughput of each cashier increases and lines become shorter or non-existent. This appears to be a new process to accommodate the increased volume of shoppers that all retailers experience during the holiday season, but the process could be even better.

Normally when I go to Costco there is a cashier working busily and a box person working less frequently. It seems to me that this scanner/computer task could become the normal job responsibility of the box person. If the jobs were re-distributed then maybe the non-holiday throughput could be increased and possibly free up people for other tasks.

All I know is that I was a happier customer that day. And--as I've said before--by making more efficient use of waiting time, companies can potentially decrease costs and increase revenue at the same time, while also increasing customer satisfaction. What can be better than that?

What do you think?

@innovate