6. On Community Membership

Dear Co-creator;

The problem with the ideation phase is that once you get in the groove, it is tough not to think. And take a break. And sleep properly. And not sleeping properly is a dealbreaker. So, I try to do some stretches to calm down, and then it is 2am in the morning and I am hallucinating pigeon poses for our eventual logo. Not good. Well, when one sets out to involve paradoxes, complexity, public good, cooperative communities, etc. into the design as both inspirations and constraints, things are deliciously hard before the complications resolve and leave delightful simplicity. Not bad.

Two major updates:

1) We signed a deal with multimillion dollar co-development deal with Exclone. Utilized by giants like Novartis, Wall Street Journal, etc, Exclone understands language through ontological machine learning and linguistic neural networks, not pretending to understand like LLMs. It learns meaning like children do, and therefore no eventual hallucinations. When Novartis wants no errors within their domains, it turns to Exclone. Can’t think of a better partner for our healthcare forays where we would not want any LLM hallucinations. Let me give you a quick example of what ontological machine learning means, as I let Exclone Labs try to understand the following text:

2) The other update is yesterday’s release of Meta’s LLAMA 2. Exclone has no errors when it operates in specific domains but has some ways to go (hence the term co-development) as a chatbot that can have some free flowing dialogue on non-mission-critical stuff. I liken it to a Savant with limited social abilities. On the other hand, LLAMA 2 is an open source; can be used for commercial applications and it gets the job done for UX (chatbot is the new UX) perspective. It is like a somewhat superfluous social bumble bee. Basically I would want LLAMA 2 for input (“How much do you weigh, darling?”), and Exclone for output (“You have 3 months to live.”) until of course Exclone does it all (Riza thinks Exclone can do that now so maybe no LLAMA after all - we will see).

So our tech development is on as we will scale our company with awesome AI “customer service” also known as personal assistant, also known as doctor in your pocket, also known as investment advisor, also known as carbon reducer. Many different applications and services. Some our own, some white labeled, some outright distributed, and all with a public good perspective. For our own community by our own community.

I have been thinking about Costco lately, world’s third largest global retail player after Walmart and Amazon because I am more and more thinking about creating a community-owned AI-powered Costco for all the sophisticated (digital or experience) products and services Costco (or Amazon Prime) doesn’t sell. And give them away for free to those who cannot afford.

Costco has several distinctive characteristics that contribute to its success. Despite having fewer store locations compared to other prominent retailers, Costco outperforms its competitors. It generated $222.7 billion in net sales in 2022, employs over 314,000 people globally, operates in 13 countries with 848 stores, and has a membership base of 120.9 million. The company's membership renewal rates are remarkable, with 93% in the United States and Canada and 90% globally. Costco’s ownership comprises 31% retail investors and 40% top 25 institutional investors with a market cap of $245 billion. Over $2,000 valuation per customer.

Costco's success is primarily attributed to its membership-based business model. Operating as a warehouse retail store, Costco offers a continuous revenue stream through membership fees, which allows the company to provide customers with unbeatable low prices.

The company follows a cost leadership approach, delivering quality goods and services at the lowest possible prices. Costco's big-box stores offer a wide range of products, including non-perishables and bulk-sized items, appealing to customers seeking savings through bulk purchases. The integration of the warehouse club membership business model sets Costco apart from its competitors and enables it to offer lower prices.

Costco operates on a membership-only basis, with two tiers of membership: basic ($60 p.a.) and executive ($120 p.a.) plans. Membership fees represent a significant portion of Costco's operating profit, surpassing its net income. According to Perfect Price Research, Costco shoppers spend $136 per trip ($55 at Walmart) and $16 profit (at 12% margin). Once customers pay the membership fee, they perceive it as a sunk cost and are motivated to extract maximum value by making additional trips to Costco. This, coupled with the reinvestment of membership fees into low prices, contributes to high renewal rates.

Costco strategically targets affluent suburban homeowners, as they possess the means to capitalize on bulk purchases and have the necessary storage space. The company intentionally limits its merchandise selection to ensure superior quality and competitive pricing. The perception of higher quality and the appeal of acquiring a deal drive customers to spend more over time.

In conclusion, Costco's innovative business model, combining a cost leadership strategy and a membership-only warehouse club approach, has propelled its success in the retail industry. By leveraging membership fees and emphasizing bulk purchasing, Costco delivers value to customers while maintaining a competitive advantage.

Enough about Costco as you get the picture. Now imagine having no stores, bulk purchases and bargaining power on sophisticated stuff when the community wants it acquired for its benefit, running your own apps when it wants to own key infrastructure, and find a happy medium in the middle and white label. Imagine the machine itself is owned by the community as a cooperative. Imagine the members of the community provide the goodies when possible.

I am designing a Discrete Choice Modeling for our potential membership model. These nifty suckers have been the bread and butter of my traction evidence arsenal for a long time. DCM is a statistical method used to understand how consumers make choices between different alternatives. In the context of pricing research, DCM can be used to help companies determine the optimal price for their products or services.

I want you to learn about them and use them. More on this in the next section.

See you next Wednesday!

PREMIUM MEMBERS

Subscribe to Premium Membership to read the rest.