The real appeal of Loot Crate

When you buy Loot Crate, you aren’t buying stuff. You are buying intangible, subjective experiences. The most notable of these must be the experience of getting a pleasant surprise each month. What’s in the box is merely the vehicle used to deliver the surprise, delight, feelings of exclusivity, and all those other experiences. Amazingly clever when you consider that people could basically pay Loot Crate to include their book/game/pop-culture thing/whatever in the package. Add an element of gambling – random crates contain extra-valuable goodies – and you have a model that is almost irresistible.

There is research into relationships between dopamine in the brain and novel experiences (both having and seeking), gambling, and gaming. I can’t begin to asses these findings here – not lease because I’m not a cognitive neuroscientist or behavioral psychologist. (And before anyone starts an argument about dopamine and video-game addiction, I know that some of this research is considered to be controversial – I’m not endorsing it either way.) But imagine that there is a link. We have a business that sells novel experiences (with just a hint of gambling) to gamers – who may already have elevated levels of dopamine, which may make their  subjective experiences of novelty and gambling pay-off stronger than it would be otherwise. Viewed in this light, Loot Crate’s success is hardly a surprise.

In a time when consumers in parts of the developed world seem to be buying less stuff, this business model keeps the stuff going out to consumers by tying it to the experience of novelty – something missing from the more traditional forms of shopping.

This connection of a physical product to an intangible experience or feeling isn’t new. After all, Charles Revson, one of the founders of Revlon, is credited with saying: “In the factory, we make cosmetics. In the drug store, we sell hope.”

Is this method of marketing morally or ethically problematic? That depends how you look at it, and is a conversation for another day. Whatever the case, it will be interesting to see if this business model can be sustained over time, especially if the novelty required by consumers escalates over time.

Technological disruption of the housing market

There has been no lack of talk in the past few years about the potentially disruptive effect of technology across a range of areas. The effect on the music industry, as well as the demise of the video store are well documented, as is the supposed risk of automation to various vocations and professions.

What there does not seem to have been so much of, is a discussion of how technology might disrupt the housing market. The kind of disruption that I am thinking of is not primarily captured by the rise of apps that facilitate transactions between vendor/landlord and buyer/tenant. This might disrupt the real-estate business. What they do not do, in my opinion, is disrupt the fundamental basis of supply and demand of housing.

What I am going to sketch, very vaguely and hastily, are two ways that technology could disrupt the housing market. One relies on changing the nature of the transaction, the other on a more profound disruption of how people relate to their homes. The likelihood of either of these occurring, as well as the potential ramifications, is as much a question of politics as technology.

Disrupting power relations in bargaining

Apps such as Uber and Airbnb function to take out the middle-man – exposing buyers (and sellers) to unmitigated (or less-mitigated) market forces and individual bargaining. The residential rental and real estate market is not dissimilar. Or that is how it can appear to people on the buyers’ side. If you want to buy a house, or rent it, you face the market forces that influence the price, and then you bargain with the seller. I say ‘bargain’ – in Australia, as a renter, the main bargaining that occurs is for potential tenants to offer to pay more for a property, such is the level of rental housing scarcity in some areas. In the end, you need somewhere to live, and it has to be close enough to your place of work/study etc. Your landlord, and the real-estate agent acting on their behalf, is much less likely to have this same problem. Hence, even if you have a long record of perfect tenancy, you are bargaining from a position of such weakness, that any concession is vanishingly unlikely. This situation contributes a range of undesirable outcomes – ranging from housing stress to pressure on animal shelters as people are forced to give up their pets in order to gain tenancy.

How could this power relation be disrupted?

What if there was the rental equivalent of an ‘anti-Uber’ app? I mean this in the sense that it allows buyers, i.e: renters, to somehow collectively bargain against individual sellers.

I haven’t figured out what the methods for collective buyer bargaining would be. But a few things spring to mind:

  • Buyer rating – buyers indicate the price they wished to pay for a service, and then report on the outcome.
  • Buyers collectively decide (through peer network or whatever) what they feel the acceptable market price is. Note that sellers can’t be part of this network, lest they artificially inflate the price.

Either way, the system has to allow for the power of the collective of buyers to be brought to bear against the individual sellers in some way, (as well as sellers’ collectives). Thus an Uber driver, landlord, or vendor who sets the price unreasonably high needs to expect a loss of business from the buyers’ collective. For example, the buyers’ collective has decided, by as yet undetermined means, that the price for a given good or service is $100, but an individual vendors sets their price at $110. What the seller can (somehow) expect is less business from the buyers’ collective. Thus they are encouraged to keep prices as low as possible, even if some buyers are not part of the collective.

Where this might not work is in the case of seller’s markets where the good or service is scarce, and that good or service is essential – i.e: housing in much of Australia

In one sense, the effectiveness a renters’ collective might be stymied in a situation where renal property vacancy rates are low and property prices are high – people need to live somewhere. But where geographic concentrations of collective members are high, landlords are stuck too – especially if they need someone to rent the house in order to maximise the tax benefits of negative gearing as occurs here in Australia.

So it might be that the renter’s collective would need to provide some benefit to landlords. If there were, for example, some reason why a landlord might choose a collective member for a rent of $300 per week, rather than a non-member for $310, then we might have something. Obviously, the renter’s collective can supply a ready source of tenants. Whether or not they would be good tenants is another question. The interests of most members of the tenancy collective would not be served by having members who were bad tenants – they have to be at least as good as the average tenant in the eyes of the landlords & property agents – probably better. Thus the renters’ collective needs some way of managing this that is not prone to being gamed by the rent-seeking property owners and those who profit from them.

As I said, I have not worked out the details, but the bones of the idea are there, and I think it would be worth exploring.

Disrupting experience

There is another way that we may disrupt the housing industry – by disrupting our experience of the reality of where we live. This will not change that people have to live somewhere, but it could change where they choose to live, which could alter the kind of real-estate that experiences relatively high demand.

I was thinking about disruption and evolution of the music industry. In the past, people bought vinyl LPs, then cassette tapes and then, more recently, compact discs. Now, we download information, and our programs turn that information into the music we hear. If the thing people really wanted was circular vinyl discs with grooves in them, then the aforementioned innovations would never have been commercially successful. (Though some people do still buy LPs). Rather, what people wanted to pay for was the experience of the music. The disruption occurred when we minimised the physical object or token that had to move in order for us to have that experience.

How does this relate to housing? Surely real estate must be immune to disruption? You can’t digitize reality. This thinking is still in the mode of ‘vinyl discs’. All, or at least many, of the things that people want from housing can be thought of as experiences they want to have. All, or most, of these experiences could be provided by a properly developed Augmented Reality (AR) technology, especially if it includes a haptic interface.  Want to see great water views when you look out the window? Done. Want a view of Winterfell, Minas Tirith or Corasant? All achievable. A bathroom of finest marble? No problem (so long as your AR interface is waterproof).

You could have the illusion of living in a palace, or even outdoors, so long as you don’t walk into your physical walls, and your AR interface is more or less permanently glued to your head. The problem of interaction with the physical location can be overcome with good programming, and the likelihood is that the AR interface will be as unobtrusive as is technologically and financially viable, so don’t scoff too soon.

You could even have the illusion of continuity, security and ownership. If you have to move to another physical location, your digital home can go with you, so long as you don’t fall so far into poverty that you can no longer pay for the access to it. (Perhaps the fee will be pegged to the universal basic income?)

This second scenario seems a long way off – and that might be the case. But it is certainly conceivable. What effect would such innovations have on the housing market? I find this hard to predict. For example, a view of the ocean must surely be worth less when it is no longer restricted to those lucky or wealthy enough to live in certain geographic locations. On the other hand, there are people who will always pay a premium for the ‘real’ thing – just like the people who still buy their music on vinyl. What proportion of the population will fall into this category remains to be seen. In theory though, with an excellent AR setup and some clever programming, any utilitarian box with air conditioning can appear, to its occupants at least, as the home of their dreams. I find it difficult to image that this would have no effect whatsoever on the housing market.

So there is it, two very different ways that I imagine technology could alter the housing market. Both have technological, social and political impediments. An app that enables an effective collective of tenants is technologically viable right now, but would be politically unpalatable in any country where landlords and rent-seekers are so well-connected to politicians, such as is the situation in Australia (where they are often one and the same). An augmented-reality system, capable of the feats I describe, is some way off – though it could be as soon as years, rather than decades. The point is that the bricks-and-mortar side of housing may not be as immune to disruption as people think.