The Financial Page

A Washing Machine That Tells the Future

How smart appliances are revolutionizing commerce.
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Illustration by Golden Cosmos

The Smoot-Hawley Tariff Act of 1930 is perhaps the single most frequently mocked act of Congress in history. It sparked a trade war in the early days of the Great Depression, and has become shorthand for self-destructive protectionism. So it’s surprising that, while the law’s tariffs have been largely eliminated, some of its absurd provisions still hold. The other week, the American appliance-maker Whirlpool successfully employed a 1974 amendment to the act to persuade the United States government to impose as yet unidentified protections against its top Korean competitors, LG and Samsung. Whirlpool’s official argument was that these firms have been bolstering their market share by offering fancy appliances at low prices. In other words, Whirlpool is getting beat and wants the government to help it win.

This decision is more than a throwback. It shows that Whirlpool and its supporters in government have failed to understand the shift occurring in the business world as a result of the so-called Internet of Things—appliances that send and receive data. It’s easy to miss the magnitude of the change, since many of these Things seem like mere gimmicks. Have you ever wanted to change the water temperature in the middle of a wash cycle when you’re not at home, or get second-by-second reports on precisely how much energy your dryer is consuming? Probably not, but now you can. And it’s not just washing machines. There are at least two “smart” toasters and any number of Wi-Fi-connected coffeemakers, refrigerators, ovens, dishwashers, and garbage cans, not to mention light bulbs, sex toys, toilets, pet feeders, and a children’s thermos.

But this is just the early, land-rush phase of the Internet of Things, comparable to the first Internet land rush, in the late nineties. That era gave us notorious failures—cue obligatory mention of—but it also gave us Amazon, the company that, more than any other, suggests how things will play out. For most of its existence, Amazon has made little or no profit. In the early days, it was often ridiculed for this, but the company’s managers and investors quickly realized that its most valuable asset was not individual sales but data—its knowledge about its loyal, habit-driven customer base. Amazon doesn’t evaluate customers by the last purchase they made; instead, customers have a lifetime value, a prediction of how much money each one will spend in the years to come. Amazon can calculate this with increasing accuracy. Already, it likely knows which books you read, which movies you watch, what data you store, and what food you eat. And since the introduction of Alexa, the voice-operated device, Amazon has been learning when some customers wake up, go to work, listen to the news, play with their kids, and go to sleep.

This is the radical implication of the Internet of Things—a fundamental shift in the relationship between customers and companies. In the old days, you might buy a washing machine or a refrigerator once a decade or so. Appliance-makers are built to profit from that one, rare purchase, focussing their marketing, customer research, and internal financial analysis on brief, sporadic, high-stakes interactions. The fact that you bought a particular company’s stove five years ago has no value today. But, when an appliance is sending a constant stream of data back to its maker, that company has continuous relationships with the owners of its products, and can find all sorts of ways to make money from those relationships. If a company knows, years after you bought its stove, exactly how often you cook, what you cook, when you shop, and what you watch (on a stove-top screen) while you cook, it can continuously monetize your relationship: selling you recipe subscriptions, maybe, or getting a cut of your food orders. Appliances now order their own supplies when they are about to run out. My printer orders its own ink; I assume my next fridge will order milk when I’m running low.

Whirlpool makes smart appliances, just like Samsung and LG. The president of Whirlpool North America, Joseph Liotine, e-mailed me to say that the firm has “led the way in developing cutting-edge innovations and solutions.” He pointed out that its appliances connect to various services, such as Amazon Dash, which can automatically order laundry detergent, and Yummly, a recipe app that Whirlpool owns. But having the right products isn’t the same as having the right strategy. Unlike its Korean competitors, Whirlpool hasn’t embraced the Amazon lesson: that the way to win in a data-driven business is to push prices as low as possible in order to build your customer base, enhance data flow, and cash in in the long-term. Douglas Irwin, an economist at Dartmouth and the author of “Peddling Protectionism,” a book about Smoot-Hawley, told me, “Whirlpool is putting their resources into stopping competition. Maybe they should put their resources into serving their consumers better. This may just delay the reckoning.”

Irwin points out that Whirlpool’s trade complaint was first filed under the Obama Administration, which had imposed tariffs on LG and Samsung in two related cases. But most of the tariffs were small and easy for the companies to get around. President Trump, of course, views free trade more skeptically, and may well impose huge tariffs on all laundry-machine imports. Irwin suspects that this will produce a flood of trade-protection complaints from other American firms. That would be bad for anyone who wants to buy a laundry machine, but, in the long run, it will be even worse for American business. ♦