Would you accept cheaper rent in exchange for an Amazon purchasing quota?

Snippets 2, Episode 9

Hi everybody!

Ok so first of all:

Anyway. On to our regularly scheduled programming.

Would you accept cheaper rent in exchange for an Amazon purchasing quota?

I’m sure many of you either have an Alexa-powered device in your house, or at least have played around with one somewhere. So it won’t be surprising to you that Amazon has been partnering with home builders in order to incorporate Alexa into appliances and features all over new builds. It certainly makes sense for Amazon: retailers and CPG companies have known for a long time that the home is one of the most valuable top-of-funnels you can own. And to be totally honest I don’t have that much of a problem with it. If you, as a home buyer, deliberately choose to have an Alexa powered house, then good for you. That’s your choice; and if you change your mind, guess what! It’s your house. You can throw them out if you want to. 

But with rental housing, I’m not so sure.

Amazon’s plant to move into your next apartment before you do | Christopher Mims, WSJ

Part of the reason why professionally incorporating Alexa into leased apartments makes me worried is, well, it’s quite literally the plot of a Cory Doctorow short story, Unauthorized Bread. That’s not a good sign. 

If you’ve never read any of Doctorow’s fiction, I recommend you do. It’s like Black Mirror, but better: sketches of a dystopian future that reflect today’s current trends taken to their logical conclusion. His recent book Radicalized is a collection of four stories, the first of which is called Unauthorized Bread. The main character is a new immigrant to America, seeking affordable housing in the Boston area, who finds herself at odds with a surprising villain: the Digital Millennium Copyright Act. 

In this delightfully realistic dystopia, the local government has decided to address their affordable housing crisis by requiring developers to reserve a certain number of floors in every development as below-market rate, or as they call them, “the poor floors”. (This is already common practice in many cities today.) The developers, in return, are allowed to get creative with exactly what level of services the Poor Floors are entitled to receive, and how they opt to “alternatively monetize” the residents of those below market units. The elevators, for example, will only take residents from the lobby to the Poor Floors and back if there are zero outstanding requests from the Rich Floors; this effectively forces the lower income residents to either walk thirty flights up to reach their units, or else wait forty minutes at rush hour to use the elevators - a pretty thinly veiled analogy to what happens today with commuting inequality.

But the real foundation of the dystopia in this story is the appliances within the apartments. One of the main “characters” in the story is a toaster oven from a company called Boulangism. The toaster oven will only accept certain co-branded bread and other marked-up food products: any attempts to cook other food will throw an error message; “Unauthorized Bread.” Initially, we see this as an inconvenience: a dumb artifact of the “everything as a service” industry, where we increasingly don’t own the software inside our refrigerators and cars and tractors, and are vulnerable to clumsy coercion and unanticipated problems with that software. What happens if the company who owns it goes bankrupt? What about emergencies?

Later on, it becomes clear to the reader that these appliances are more than just annoyances: they’re an important part of how the apartments are monetized. We learn that the landlords of the apartments have income sharing agreements with the appliance owners; in return, the leases specify that tenants may not bring in their own appliances, nor may they make any attempt to circumvent any of the digital restrictions - if they do so, not only will they immediately be in violation of the terms of their lease; they’ll also be subject to five years in prison under the DMCA. (Remember, this isn’t some theoretical dystopian rule. This is established law, in America, today!) 

Why am I bringing this up? Well, I’ve heard the idea thrown around, in serious discussion, that part of the reason housing remains stubbornly expensive is that the free market and the software boys haven’t been able or allowed to use software and the internet to its full potential to creatively bring down costs. By “creatively bring down costs” I don’t mean like, do a better job of buying and selling real estate (e.g. OpenDoor & Redfin); I mean ideas like “What if we reimagined the home not just as a place we live, but also as a channel for consuming goods and services?” (If anyone just spat out their coffee and yelled “Public Schools!!”, congratulations, you get a ribbon.) 

But imagine: suppose you go looking for an apartment, and you find one that’s $100 per month cheaper than it ordinarily would be. You find out that this subsidy is courtesy of Lyft: the apartment owners have struck a deal with Lyft giving them exclusive access to the pickup zone in the building courtyard. How might you feel about this? Well, there a few sensible questions you might ask: Is there a parking space for your own car, or are you close to public transit? If you walk a few blocks away, can you get an Uber there? What happens if Lyft goes bankrupt? Net, are you gaining choices (in the form of cost savings) or are you losing choices? How are these choices reflected in your lease, and what are your rights as a tenant? Ok, now change Lyft to Amazon, or Sidewalk Labs, or whomever.  

I can already hear the counterargument here, which is “No one is forcing anyone to do anything!” Fine, and remember, that’s why I don’t have a problem with Alexa-powered homes if you own your house. We have a pretty strong and well-established canon of property rights that grants you pretty comprehensive freedom over what you do and don’t do within the confines of your home. But property rights go the other way when it comes to rental housing: as a renter you explicitly do not own the house, and the switching cost of moving (or the inability to find other houses within your budget) may be significant enough that you, the tenant, can effectively be coerced into doing whatever your lease agreement tells you. I hope you all get that I’m not talking about a situation where a tenant brings their own Alexa or Google or whatever voice assistant with them, but rather the Unauthorized Bread where Alexa comes with the apartment, not with you, and has an agenda that’s potentially at odds with your own interests. 

This is a bit of a dire warning as it currently stands: I see no direct evidence that Amazon has plans to do anything like Unauthorized Bread. I’m not so worried about the literal “You’re going to prison because you tried to jailbreak your toaster” DMCA violation type nightmares so much as I’m worried the following scenario:

Imagine a newly built apartment complex that comes with Alexa built into everything, and even comes with a free Prime subscription for any occupant* (Adding a little asterisk* here because the membership isn’t really yours; it’s the apartment’s membership, of which you’re the beneficiary so long as you’re the tenant.) Now suppose one day Alexa starts playing ads for new Amazon TV shows you’ve never heard of. You try to turn it off, but you can’t; you find out that the “ad-free” Amazon Home experience is only available to people who spend at least $100 per month on Prime Purchases. 

Well, that’s annoying, you figure; but there are plenty of habitual purchases you make that could be shifted over to Amazon in order to fill your quota. So you do, and things are fine; the ads turn off, and you barely notice any difference in the fact that some of your purchasing has shifted over to Amazon, rather than Target or Trader Joes or wherever. But then next year, as your lease comes up, you face a choice. Either your rent can increase by $100 / month to keep up with the market, or your Amazon Purchase quota can go up by $80. Hmm! 

Does this offer the user “choice?” I mean, I guess they’re being offered a choice. But it’s a highly coercive choice! Of course, in a real life scenario it wouldn’t be phrased as a “rent increase punishment” but rather a “$100 discount on your rent that you’re eligible to unlock if you make a certain amount of purchases”, or something. When it comes to loyalty programs, a little bit of phrasing goes a long way.

Imagine you get a few cycles deep here, where you’re now accepting a $500 discount on your rent in exchange for a $400 monthly Amazon quota or something. And that $500 discount on your rent is necessary for you to continue to afford living where you’re living. The thing is, moving apartments has a high switching cost. It’s really something you want to avoid being forced to do, both for economic reasons and for social & personal reasons. Now, Amazon has you trapped: however much you may be inconvenienced or disappointed by being effectively required to purchase Amazon’s stuff rather than other merchants, it’ll be less bad than the monumentally large cost of moving apartments. They’ve played the long game: they may have paid a high cost to acquire you as a tenant, but now it’ll pay back in spades for them in terms of your lock-in as a customer. It’s coercive because they’ve offered a “swap” that looks like a good deal ($500 vs $400) but in exchange they’ve traded one kind of customer retention profile for another one with vastly greater switching costs that will only get larger as time goes on. 

Now, all of this sounds pretty “Un-Amazon-y”, because Amazon has been relentlessly customer-focused since the very beginning and this would seem pretty out of character for them. They’re horrible to their suppliers and their partners and (allegedly) their employees, but they’re very good to their customers. But, to be honest, you can replace Amazon with anybody here and the warning is still the same. Furthermore, imagine what it must be like in other parts of the world where retail and e-commerce infrastructure is getting established for the very first time, and newcomers like Alibaba and JD have far more leeway to pursue these creative rent-share business models. We may not see this come to fruition in North America, but I wouldn’t be at all surprised to see it happen elsewhere in the world - probably soon. 

Sound off in the comments or email me - when will we see the first Alibaba or JD-subsidized rental housing agreement? Within a year? Two years? Ten years? Never? Let me know what you think, and what you think about this scenario in general. I’m curious to hear your thoughts on this one. 

I’m also curious to hear if anyone can think of any really good “switching cost swaps” like this one that exist in real-world business models. If you know of any, please email me! I’d love to learn about them. 

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Would you accept cheaper rent in exchange for a monthly Amazon purchasing quota? | alexdanco.com


This week’s reading links:

First up, if you’re interested in the media business, always read everything by Matthew Ball:

Why Amazon is going to be one of the winners of the streaming video wars: an interview with Matthew Ball | Eric Johnson, Vox

An interesting story that’s starting to escalate in some predictable directions: after Facebook decided to not take down a deceptively altered video of Nancy Pelosi, people understandably got pretty mad. You can see both sides’ arguments here: on the one hand, it was a pretty clear instance of fake news in real form: the purpose of the video was to make her sound slurred, drunk or otherwise incapacitated, towards a motivated end. But on the other hand, it’s pretty hard to articulate exactly what rule you could draft to ban this and yet allow perfectly legitimate forms of speech like satire. Naturally, somebody on the internet reacted with a logical next step: a deep fake video of Mark Zuckerberg talking about world domination, which is obviously not real but is meant to poke and probe this new policy of Facebook’s for consistency and vulnerability. 

This Deepfake of Mark Zuckerberg tests Facebook’s fake video policies | Samantha Cole, Motherboard

Speaking of control over the internet and world domination: we’ve heard an awful lot about how the internet is getting carved into increasingly separate US-dominated and Chinese-dominated hemispheres. But right on cue, and I guess this makes a fair amount of sense, the always- internet savvy Russians are looking to do something similar:

Russian technology: can the Kremlin control the Internet? | Max Seddon & Henry Foy, FT

A nice follow-up on the unfolding 737 MAX story, in which absolutely no one looks good! No one! 

Boeing built deadly assumptions into 737 Max, blind to a late design change | Jack Nicas, Natalie Kitroeff, David Gelles & James Glanz

A really interesting profile on Larry Ellison returning back to day-to-day product management in his obsessive quest to beat Amazon. (Sounds familiar!) If you have a subscription to The Information, this is worth reading. 

Larry Ellison returns to war (and diaper changing) | Kevin McLaughlin, The Information

A few pieces on how things are different elsewhere in the world, and that makes certain things easier (or harder) than they are in the United States:

Quitting Facebook is easier in rich countries | Nina Jancowicz

Why public transportation works better outside the US | Jonathan English, CityLab

And a few music-related links. First of all, an absolute tragedy: in 2008, a fire that most people didn’t know about (and which was quietly covered up) at Universal turned out to have destroyed a massive treasure trove of priceless, irreplaceable recordings. 

I’ll let this excerpt speak for itself:

The Day the Music Burned | Jody Rosen, NYT Magazine

In more modern music industry problems: it turns out that the metadata system around linking artists, credits and songs together is totally, completely broken - and fixing it will be far more complex than most people think. 

Metadata is the biggest little problem plaguing the music industry | Dani Daehl, The Verge

And finally, here’s a newsletter you should subscribe to that isn’t this one: Pithy Outcomes by Maya Kosoff. 

Pithy Outcomes | Maya.substack.com 

Raptors in six,

Alex