Alice.com proves that you can make money by not making money, just like Costco

It doesn’t happen very often, but sometimes I hear about a new company 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 – Louise Story wrote a fantastic article on this subject here).  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.

-Ric