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".

Real Reason Amazon Should Acquire Netflix

by Ric Merrifield

Amazon and Netflix might be great together, but not for the reasons you might think.

The way I see this, it's a little bit like peanut butter and chocolate, two great tastes you might not expect to go well together. People are talking about the possible acquisition of video company Netflix by Amazon, and they are speculating that it has to do with movies and streaming media. Maybe, but I don't think that's why this acquisition would be so powerful, and I am frankly surprised I haven't heard more people talking about this.

Here's why.

One of the biggest mistakes I think Amazon has been making all along is ignoring the buying history of customers. They never recommend anything to me based on my buying history. They tell me what other people have bought when I buy a certain book or a tent or a squash racket, but they don't seem to really pay attention to what I buy and what I like. And I buy a LOT on Amazon. They are crazy to have ignored this for so long.

By contrast, Netflix has the most incredible recommendation process ever. While I do have to make the effort to rate movies I have watched (irrespective of whether I watched them through Netflix) based on what I have liked and what I haven't liked, they have the ability to say, for example, that for a movie like Pulp Fiction, while the average viewer gave it three and a half stars out of five, based on my history and preferences, they think I would like it much more, on the order of four and a half stars. What's amazing to me is that they are always right, and I have really unusual taste in movies.

Back to peanut butter and chocolate - if Amazon could use the Netflix recommendation engine innovations to do a better job of tracking my purchases and preferences and recommending everything from books to movies to music to running shoes, it would be amazing.

Is it worth it? Well as of today, Netflix is worth about $3.22 billion, according to Wall Street, and Amazon is about 16 times bigger at $52 billion and to have this incredible way to connect with customers and help them find what they will really like even before they know about it, that would be a huge, much needed, boost for Amazon. The lift in revenue would be significant - just ask anyone in retail about how much upselling is done at the point of purchase.

Overdue rethinking at Amazon, but a great match. I really hope it happens.

P.S. It makes for an interesting side note that if Amazon does buy Netflix, that would probably put founder and CEO Reed Hastings on the board, and he's already on the board of Microsoft. Would he stay on the board of Microsoft?


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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".

Innovation Perspectives - 911 Call for Innovation and Revolution

This is the fourth of several 'Innovation Perspectives' articles we will publish this week from multiple authors to get different perspectives on 'What product or sector is in desperate need of innovation?'. Here is the next perspective in the series:

by Ric Merrifield

I define innovation as figuring out a way to accomplish the same outcome, the "what" we do, in a way that doesn't resemble "how" we used to do it. Flight check-in over the web doesn't resemble the experience of talking to the airline employee at the counter, but it accomplishes the same three outcomes (confirming a reservation, conducting a survey, and managing logistics when there is luggage). A revolution, by contrast, I would define as an innovation that results in a dramatically different, or richer experience. E-mail and text messaging haven't just replaced prior forms of communication, they have revolutionized the way we communicate in ways we couldn't imagine 20 years ago.

Right now, I see very distinct places where innovation is desperately needed, and at the same time, I see a place where a revolution isn't quite overdue, but it's getting there.

The most urgent innovation needs are in U.S. health care and energy. People in Washington are chipping away at ways to improve the administration of health care and the role of insurers and doctor incentives, and while I will grant that those are all big messes that need cleaning up, that's not where the greatest need is. The greatest need is to stop people from needing to see the doctor in the first place and the way to do that is managing wellness in a structured, disciplined way. People get there insurance through their work in the US, and the companies should mandate regular checkups and the insurers should provide statistics (not at the individual level - for obvious privacy reasons) as to where the risks are and then invest in wellness programs accordingly.

Just at Microsoft alone, if they don't take action on diabetes and obesity alone, in less than six years they will have to spend about $70 million more each year - and most of that will be avoided if the high risk employees lose just six pounds before they turn 46 (source: The American Diabetes Association, and Microsoft Corporation). People ask about the return on investment from wellness programs - there it is. Energy - this one is harder but more obvious. The car replaced the horse, we need something to replace our dependency on petrochemicals. I don't know where it will come from, waves, wind, cold fusion, whatever, but we need it soon.

As for where the revolution is needed, or why, I would say we need it because we are in a new era - the era I will call post-decentralization.

We grew up in a world of a finite number of TV stations, the record labels decided what music we would listen to, and we all got newspapers (all very centralized sources of news, entertainment, music, and information). Now, we are in a very different world that includes social networking, YouTube, blogs, iTunes, and the iPhone. Most of the sources information, music and content have become almost cartoonishly decentralized.

That's great from a control perspective, but except for those who are really on top of it all, it's hard for people to feel comfortable that they are getting connected to the right stuff that's most aligned with their needs and interests. We need innovations to do better match making between consumers and all of these decentralized sources of apps and content. I shouldn't have to find the best news articles, blogs, video clips, and music, they should find me based on who I am and what I am interested in. I happen to have some ideas on how that will happen - but that is going to allow us to really fulfill the potential of the internet, and it will be awesome.


You can check out all of the 'Innovation Perspectives' articles from the different contributing authors on 'What product or sector is in desperate need of innovation?' by clicking the link in this sentence.

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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".

Should you be measuring ROR instead of ROI?

by Ric Merrifield

For literally decades, the notion of return on investment, or even more specifically return on invested capital (R.O.I. either way) was the gold standard for justifying a business decision. If the return exceeded the investment enough (also weighing risk, disruption, and many other factors) then it would get the green light for funding.

This was, and is, especially common in investments in enterprise software. But I predict we will see a (long overdue) rapid decline in the use of R.O.I. as the gold standard for project justification for these four reasons:

1) Smart organizations have figured out that you can justify almost anything with R.O.I. math. Someone recently said "if you do project X at a cost of $2 million and it saves you $5 million per year, then you should do it, right?" Many people would say yes, I would say there's nowhere near enough information. For large companies, a $5 million savings could be a distraction to more important activities, just to name one reason, but too often I see these sorts of projects approved.

2) The metrics are often very squishy. Organizations don't generally have great metrics to begin with, but especially when anchored to the process view (which is often very volatile, with a short half-life), and when the process changes, organizations end up comparing apples to oranges. The simple solution there is to use the business capabilities lens described in the pages of Rethink, starting with the "what" outcome you are measuring, and then looking to the "how" of process.

3) There needs to be larger context setting. What overall goals is the department, division, or enterprise setting? It isn't enough just to cover costs for a lot of projects. These days, it's about staying ahead of competition, differentiating, and knowing who your most valued customer is (see #4 below). If the $5 million in savings in #1 above doesn't connect to a key performance indicator, you need to be certain that it's not going to be too distracting or disruptive in an area in need of much more attention someplace else and the "shiny object" project selected out of context from the rest of the organization always has that risk.

4) Many organizations need to look at their R.O.R. (Return On Relationship). How much do you spend on each customer and how much do you get in return. Someplace in almost every industry, their is a vital set of relationships, sometimes it's partners, sometimes it's customers or sales channels, and sometimes it's employees and you have to know what is most valuable to your most valued relationships so that when the least valued relationships whither, you don't worry, but when you see blinking red or yellow lights in the most valuable relationships, nothing can get in your way of fixing that.

So as we enter this new decade, and hopefully start to get further out of a recession, start to measure your R.O.R., do better context setting in terms of the value of a project to the overall, be sure you have concrete metrics, and be leery of the R.O.I. math of the one-off "shiny object" projects.

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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".

Innovation Insight Contest Winner

Congratulations to Evelyn Hannon!

Evelyn has won the Innovation Insight Contest and a copy of "Rethink" by Ric Merrifield.

Thank you to everyone who submitted their favorite innovation insight or quote, and to all of you that voted. I hope that you had fun with the process. If you have any suggestions for future contests, please add them as a comment to this blog post or send an @reply on Twitter to @innovate.

Here is the winning entry from @Journeywoman (Evelyn Hannon):

"Question all rules. 1900 Olympics only 15 women took part. It was feared if she ran too fast her uterus would fall out."

While all of the entries were great, there were a couple of things that struck me when I read Evelyn's entry that aren't explicity in the text:

1. Smart organizations don't see innovation as an effort, but as a movement. Too often we let the "rules" limit us, instead of seeing the rules as something to test against in stages over time.
   
   
   • Why have things always been done a certain way? Why is it a rule?
   
   
   • What prohibits us from doing them differently?
   
   
   • What changes would have to occur for a particular challenge to become easier?
   
   
   • What changes would have to occur for a constraint to no longer exist?
   
   
   • What insights can we uncover from apparent contradictions?
   
   
   • What is our plan for achieving the collective incremental changes that will result in an overall rule change?
   
   
2. Too often the "rules" are determined by the companies building the industry over time.Disruptive innovations often occur when a new entrant seeks to understand what customers think the "rules" should be.


• Industry "rules" are usually built around operational efficiency goals


• Existing airlines believed the "rules" were focused on hub-spoke efficiency and network size


• Southwest Airlines recognized that customers believed the rules of the industry should be based on price, customer service, and convenience (point to point travel)

Are you questioning the rules?


Here is a bit more information about the winner:

In 1982 when few women were doing it, Evelyn Hannon put a backpack on and went out into the world to travel solo. An early adaptor on the web, in 1997 she began telling her travel stories online at Journeywoman.com which today is the largest online travel resource for women. Her mandate remains to inspire women of all ages and at all stages of their lives to travel safety and well, and to connect female travelers around the world. Now approaching 70, Evelyn continues her travel writing and is considered the guru of 'how to' in women's travel. Each morning Evelyn sends out one JW Tip of the day to over 2000 Twitter followers. TIME Magazine named her 'one of the 100 innovative thinkers of this new century' for the work she does on behalf of 'women travelers.'


If you're passionate about innovation, join the lively innovation discussion on the Continuous Innovation group on LinkedIn:


Braden Kelley (@innovate on Twitter)

Five Finalists - Innovation Insight Contest

In honor of the impact that Twitter has in democratizing information, Blogging Innovation is awarding a copy of the only business book I know of with a green cover - "Rethink" by Ric Merrifield - and a quick winner's profile on this blog, to the winner of the innovation insight contest.

The voters have spoken and we now have five finalists (as determined by your @reply and comment votes).

I now have the unenviable task of choosing a winner from amongst these five great entries and announcing the ONE (1) winner on July 2nd via my profile on Twitter and on this blog with a quick profile of the winner, their winning entry, and a link to their web site.

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Here are the five finalists (ordered by number of votes received):

1. "90% of what we learn comes AFTER we launch a new product." - Eric Feng, CTO of Hulu - @veget


2. Question all rules. 1900 Olympics only 15 women took part. It was feared if she ran too fast her uterus would fall out. - @Journeywoman


3. Insight in a Marketing-driven company is hindsight, while Insight in Innovation-driven company is foresight. - @Lerou


4. Research is the transformation of money into knowledge - Innovation is the transformation of knowledge into money! - @Lerou


5. Implementing best practice is replicating yesterday; innovation is designing tomorrow. - @paulsloane

If you're not on Twitter, make sure you subscribe to the RSS feed to find out who the one winner will be.

I look forward to announcing the innovation insight contest winner tomorrow!


Join the lively innovation discussion on the Continuous Innovation group on LinkedIn:


Braden Kelley (@innovate on Twitter)

Vote Now - Innovation Insight Contest

In honor of the impact that Twitter has in democratizing information, Blogging Innovation is awarding a copy of the only business book I know of with a green cover - "Rethink" by Ric Merrifield - and a quick winner's profile on this blog, to the winner of the innovation insight contest.

Vote for your favorite innovation insight before 23:59 GMT on June 30th via one of the two following channels:

1. Twitter - Send an @reply on Twitter with the # of the entry you are voting for and @innovate AND #i140 in the body of the tweet


• This will allow everyone to see the votes


2. Blog Comment - Vote below as a comment - include the # of the entry in your vote

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I will announce five (5) finalists on July 1st on this blog, complete with links to their Twitter accounts.

I will announce the ONE (1) winner on July 2nd via my profile on Twitter and on this blog with a quick profile of the winner, their winning entry, and a link to their web site.

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Please vote by # for one these 30 entries (in no particular order):

1. The sovereignty of your #innovation is often more valuable than its content. - @jsbelfiore


2. "90% of what we learn comes AFTER we launch a new product." - Eric Feng, CTO of Hulu - @veget


3. The key to successful #innovation is learning to channel your inner wise-ass. - @jsbelfiore


4. Do Better Today - What You Did Yesterday. - @pehodk


5. #Innovation is a mirror, which reflects your thought processes. If you see nothing, you're a vampire. - @jsbelfiore


6. Genius in innovation is the clever reapplication of the "obvious" in a non-obvious manner or area - @jmccolgin


7. Solutions come & go based on current technology; but underlying needs of audience transcend time and lead to meaningful solutions - @adamdole


8. Innovation doesn't just fall into your lap - Gijs van Beeck Calkoen


9. Ideas have to be consciously designed - Gijs van Beeck Calkoen


10. The application of a technology follows the generation of an idea, not visa versa - Gijs van Beeck Calkoen


11. Innovation is the intersection of what's possible, viable and desirable. - @ddetlefsen


12. Innovation requires commitment. What is commitment? A chicken is "interested" in breakfast. The pig is "committed" to it. - @ddetlefsen


13. Innovation is change that adds value. In math: I=Magnitude of Change*(addition of good features + removal of bad features) - @ddetlefsen


14. Innovation does not just happen for free or by magic - it's a game you can choose to win - @simontevans


15. Make innovation happen by instilling fear - why? Because chasing an oppt is an option; running away from danger is a must - @bpluskowski


16. Innovation is the process of uncovering problems for which people need solutions, and then developing a valuable and accessible solution. - i360 Insight


17. "Nothing can withstand sustained thinking" ~ Voltaire - @tomludwicki


18. Innovation is like loosing weight. Everyone wants & talks about it, knows its benefits, but most won't work for it. - @ddetlefsen


19. Aligning Business models with market expectations and Challenge the Market with Rapid Demonstrator development - @stefaanvermael


20. Research is the transformation of money into knowledge - Innovation is the transformation of knowledge into money! - @Lerou


21. Insight in a Marketing-driven company is hindsight, while Insight in Innovation-driven company is foresight. - @Lerou


22. Implementing best practice is replicating yesterday; innovation is designing tomorrow. - @paulsloane


23. I do not know who discovered water but I am sure it was not a fish. We cannot perceive that in which we are immersed. - @paulsloane


24. Organizations that have a high % of people initiating innovative solutions 2 social problems are far more likely to thrive. - @DennisHoenig


25. Will not innovate with a scam, will not innovate sending spam. will not innovate if workers cram, will not innovate Sam I am - @chris_townsend_


26. Innovation and creativity seem to peak where the ripples spreading outward from knowledge networks intersect. - @geniusnet


27. Creativity = the contxn b/w 2 seemingly random objects. Innovation = creating market value from two seemingly random objects. - @adamdole


28. Question all rules. 1900 Olympics only 15 women took part. It was feared if she ran too fast her uterus would fall out. - @Journeywoman


29. Humankind's evolution: Stone Age-> Feudal Age-> Industrial Age-> Information Age-> Knowledge Age-> Awareness Age - @CrazyColombian


30. Everything big started small. - @ryantracey

If you're not on Twitter, make sure you subscribe to the RSS feed to find out who the five finalists and the one winner will be.

I look forward to announcing the five innovation insight contest finalists!


Join the lively innovation discussion on the Continuous Innovation group on LinkedIn:


Braden Kelley (@innovate on Twitter)

140char Innovation Insight Contest

In honor of the impact that Twitter has in democratizing information, I'd like to give everyone a chance to win a copy of the only business book I know of with a green cover - "Rethink" by Ric Merrifield.

The rules for entering the contest are simple. Send us your favorite innovation insight in 140 characters or less* via one of the two following channels:

1. Twitter - Send your favorite innovation insight as a tweet on Twitter with @innovate AND #i140 in the body of the tweet


• This will allow everyone to see all of the innovation insights submitted on Twitter by doing a search for #i140


2. Blog Comment - Post your innovation insight below as a comment in 124 characters or less


• This is to level the playing field for people who post a comment vs. a Twitter tweet

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@reply and comment voting from 00:00 GMT to 23:59 GMT on June 30th will decide the finalists.

I will announce five (5) finalists on July 1st on this blog, complete with links to their Twitter accounts.

I will announce the ONE (1) winner on July 2nd via my profile on Twitter and on this blog with a quick profile of the winner, their winning entry, and a link to their web site.

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Here are the entries so far (in no particular order):

1. The sovereignty of your #innovation is often more valuable than its content. - @jsbelfiore


2. "90% of what we learn comes AFTER we launch a new product." - Eric Feng, CTO of Hulu - @veget


3. The key to successful #innovation is learning to channel your inner wise-ass. - @jsbelfiore


4. Do Better Today - What You Did Yesterday. - @pehodk


5. #Innovation is a mirror, which reflects your thought processes. If you see nothing, you're a vampire. - @jsbelfiore


6. Genius in innovation is the clever reapplication of the "obvious" in a non-obvious manner or area - @jmccolgin


7. Solutions come & go based on current technology; but underlying needs of audience transcend time and lead to meaningful solutions - @adamdole


8. Innovation doesn't just fall into your lap - Gijs van Beeck Calkoen


9. Ideas have to be consciously designed - Gijs van Beeck Calkoen


10. The application of a technology follows the generation of an idea, not visa versa - Gijs van Beeck Calkoen


11. Innovation is the intersection of what's possible, viable and desirable. - @ddetlefsen


12. Innovation requires commitment. What is commitment? A chicken is "interested" in breakfast. The pig is "committed" to it. - @ddetlefsen


13. Innovation is change that adds value. In math: I=Magnitude of Change*(addition of good features + removal of bad features) - @ddetlefsen


14. Innovation does not just happen for free or by magic - it's a game you can choose to win - @simontevans


15. Make innovation happen by instilling fear - why? Because chasing an oppt is an option; running away from danger is a must - @bpluskowski


16. Innovation is the process of uncovering problems for which people need solutions, and then developing a valuable and accessible solution. - i360 Insight


17. "Nothing can withstand sustained thinking" ~ Voltaire - @tomludwicki


18. Innovation is like loosing weight. Everyone wants & talks about it, knows its benefits, but most won't work for it. - @ddetlefsen


19. Aligning Business models with market expectations and Challenge the Market with Rapid Demonstrator development - @stefaanvermael


20. Research is the transformation of money into knowledge - Innovation is the transformation of knowledge into money! - @Lerou


21. Insight in a Marketing-driven company is hindsight, while Insight in Innovation-driven company is foresight. - @Lerou


22. Implementing best practice is replicating yesterday; innovation is designing tomorrow. - @paulsloane


23. I do not know who discovered water but I am sure it was not a fish. We cannot perceive that in which we are immersed. - @paulsloane


24. Organizations that have a high % of people initiating innovative solutions 2 social problems are far more likely to thrive. - @DennisHoenig


25. Will not innovate with a scam, will not innovate sending spam. will not innovate if workers cram, will not innovate Sam I am - @chris_townsend_


26. Innovation and creativity seem to peak where the ripples spreading outward from knowledge networks intersect. - @geniusnet


27. Creativity = the contxn b/w 2 seemingly random objects. Innovation = creating market value from two seemingly random objects. - @adamdole


28. Question all rules. 1900 Olympics only 15 women took part. It was feared if she ran too fast her uterus would fall out. - @Journeywoman


29. Humankind's evolution: Stone Age-> Feudal Age-> Industrial Age-> Information Age-> Knowledge Age-> Awareness Age - @CrazyColombian


30. Everything big started small. - @ryantracey

And some of my own to help stimulate thinking (@innovate):

• "Innovation is a gift. What are you doing to ensure employees want to give it?"


• "An innovation leader's job isn't to provide the answers but to provoke the thinking that gets you there."


• Knowledge Management is more about "How do I?" while Innovation is more about "Why don't we?"


• "We must create clarity in innovation strategy, goals, and participation for a continuous innovation culture to be created."

I look forward to seeing your favorite innovation insights!


Braden Kelley (@innovate on Twitter)

Interview and Book Review - Ric Merrifield, Author of "Rethink"

I had the opportunity to interview Ric Merrifield on camera about his new book "Rethink" and here are the questions I asked him:

1. What inspired you to write Rethink?


2. What is the key insight you want to share with this book?


3. What is the most common mistakes people are making in cost cutting mode right now in this recession?


4. What is the most common barrier to innovation that you encounter in your work?


5. In your opinion, what recent innovation (or area of innovation) has the most intriguing potential?

"Rethink" arrived in my mailbox a couple weeks ago and after completing it, overall, I would give it a thumbs up.

For me, the second half of the book was the most interesting part. The case studies were good, and I felt they brought the book's thesis to life. While I found myself thinking about core competencies and value curves when I was reading the book, I could also see how creating 'what' heat maps would integrate quite nicely with other business frameworks like these. They all fit together.

Looking back at my experience of reading the book, my favorite chapter was the 'Key Concepts' chapter. Personally I feel that all too often, the authors of business books spend too much effort expanding a single insight to the requisite thickness, only to omit a proper summary or useful cheat sheet that the reader can go back to for easy reference. The 'Key Concepts' chapter also gives you a glimpse into the level of detail and complexity that these 'what' heat maps actually deliver in practice. I had the opportunity to see one in all of its glory in Ric's office, but there are supposed to be some examples in color at http://www.rethinkbook.com.

So, if your organization is seeking to escape the 'how trap' and refocus its energies on identifying the 'what' changes that will have the greatest impact, I encourage you to check out "Rethink" by Ric Merrifield.

I would be interested to hear what you think of the interview and of the book. Please post a comment with your thoughts.

Braden Kelley (@innovate on Twitter)