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Uber All FutureView 2015 LIVE J. Walker Smith Executive Chairman

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1 Uber All FutureView 2015 LIVE J. Walker Smith Executive Chairman
Tomorrow’s Vertex of Value in On-Demand, Premium, Dynamic Pricing and Personal Services FutureView 2015 LIVE J. Walker Smith Executive Chairman Thank you. Welcome to this year’s FutureView 2015 LIVE Webinar, our annual look-ahead at the major marketplace dynamics shaping the future. A couple of quick preliminaries. First, I expect that I will take up most of our time today, so no Q&A at the end. But your account rep or, frankly, anyone, including me, is happy to follow up. Second, we’ll be live tweeting this Webinar and I encourage you to do the same. Hashtag #UberAllEconomy. The Twitter handles for both me and The Futures Company are shown in the bottom rail. Finally, if you’d like a hard copy of this deck or a replay link, you can find it at the link on the bottom left. Again, thanks for your time today. So onto our topic … the Uber All Economy, and the opportunity it offers to carry your businesses to the peak, or to the vertex, of value growth in the years ahead.

2 Uber All Economy FutureView LIVE
The digital reengineering of business models … Into on-demand personal services … That are more affordable for most … While unlocking hidden niches of … As you know, since we began FutureView LIVE in 2001, we have covered many dynamics that have proven to be very important. To mention but a few: In 2006, it was “dis-ownership,” an idea that foreshadowed the subsequent explosion of the sharing economy and peer-to-peer. In 2010, it was contentment and the emergence of happiness as a major market force. In 2011, it was the kinship economy and the new marketing model demanded by social media. Last year, it was the pivot to passive digital and the coming wave of digital technology. We’ll touch on this again today as we dig into the transformative impact of the Uber All Economy. So what do we mean by the Uber All Economy? Are we really defending Uber against its recent negative publicity? No, this is not about those controversies. In fact, today’s Webinar is only peripherally about Uber itself. Instead, today’s Webinar is about a business model revolution that is turning every category upside down. Uber is just the most famous example because, to date, it is the most successful pioneer. What’s happening is … A business model revolution … Rooted in the digital reengineering of the value model in all categories … That is based upon service not product innovation … And that opens affordability to the hollowed-out middle-class … While showing the way to a new vein of premium opportunities in an otherwise struggling consumer economy. Premium demand and value-added pricing.

3 Uber All Economy FutureView LIVE Rough ride economy Liftoff Uber All
Today’s Agenda Rough ride economy Liftoff Uber All Switching over I want to explore the Uber All Economy in the following way: First, we need to establish the context. The reality is that the global economy offers poor prospects for continuing to do business in the same old ways. Something new is needed, and that something new is the Uber-style business model. So, second, we’ll see that the impact and potential of the Uber All Economy is apparent already. Third, we will answer the question of exactly what this business model consists of, and what it will take for your brands to follow suit. Next, we will examine what makes Uber All such a tight fit for every aspect of what people want and what people can afford. Finally, we will tell you what should you be thinking about doing next. Tight fit Facing forward

4 Uber All Economy FutureView LIVE Rough ride economy Liftoff Uber All
Today’s Agenda Rough ride economy Liftoff Uber All Switching over Let’s start with the global economy and the rough ride we’ve been on lately. NOTE (1) An important caveat is in order. This section on global and U.S. economic prospects establishes a benchmark against which to assess the performance to date of companies utilizing the Uber All business model. But this particular benchmark is not critical to the cogency or validity of the essential takeaway of this FutureView LIVE, which is about brand futures in a marketplace dominated by on-demand personal services. The success of and threat posed by companies using an Uber-like business model is true irrespective of what happens, good or bad, in the global and U.S. economies. This caveat is important to keep in mind because macroeconomic trajectories often change abruptly. In this instance, the outside forecasts included in this FutureView LIVE were not updated to reflect the plummeting price of oil until after this Webinar was delivered. Those subsequent forecasts are slightly higher. But over the next several business quarters, the price of oil may or may not stay at near-record lows, and the global and U.S. economies may or may not be significantly stimulated by cheaper oil. But the Uber All business model will flourish however the economy unfolds. We have prepared detailed analyses about the economic impact of cheaper oil prices for both the global and U.S. economies. Our bottom line is that oil prices are likely to be somewhat lower going forward but not so low that traditional business models will be rescued from obsolescence. Contact us to inquire about: Global MONITOR Macroeconomic Foresights – December 2014, “A World of Cheaper Oil” and U.S. MONITOR Macroeconomic Perspective – December 2014, “Fueling the Economy.” Tight fit Facing forward

5 Rough ride economy First things first … Global economy running slow “Despite setbacks, an uneven global recovery continues. Largely due to weaker-than-expected global activity in the first half of 2014, the growth forecast for the world economy has been revised downward to 3.3 percent for this year, 0.4 percentage point lower than in the April World Economic Outlook (WEO). The global growth projection for was lowered to 3.8 percent. “Downside risks have increased since the spring. Short-term risks include a worsening of geopolitical tensions and a reversal of recent risk spread and volatility compression in financial markets. Medium- term risks include stagnation and low potential growth in advanced economies and a decline in potential growth in emerging markets.” Simply put, the global economy is not running on all cylinders. The view expressed by the IMF in its latest World Economic Outlook is illustrative of the consensus – global growth is slowing. In its latest report, the October World Economic Outlook, the IMF lowered both its 2014 and forecasts in the face of, quote/unquote, significant “increased” risks. Across the world, nearly all developed economies are largely stagnant and emerging economies are well off their fervid growth pace of years past. Remember, Russia is verging on recession. The EU has barely dodged one. China has slipped below its demographic breakeven GDP growth rate of 8%. India’s growth has slowed. Argentina is in default. Japan’s restart turned into a false start that has fizzled. And Brazil is in trouble on all fronts, with no growth expected this year. I could go on, but you get the picture, so I’ll stop there. IMF

6 Rough ride economy Conference Board
First things first … Global economy running slow We project global growth in 2015 at 3.4%, marking the fourth consecutive year of disappointing performance. https://www.youtube.com/watch?v=DB5MAiFrmhg Jobs, investment and productivity continue to be weak. Add geopolitical tensions and you get real pessimism. We may see a mere 3% average annual growth between now and 2025. A similarly gloomy outlook is heard from Bart van Ark, the Chief Economist of The Conference Board. 2015 is not going to improve, thus continuing several years of, quote/unquote, “disappointing performance,” with geopolitics now translating into, quote/unquote, “pessimism.” He predicts that this will continue to play out through at least Disappointment is here to stay. To underline what this portends, van Ark reminds us that 3% growth is simply not enough to measure up to the challenges ahead in the 21st century. This has direct implications for business prospects and strategic planning. It means a new approach, a new business model is needed. While the world economy is not about to fall off the cliff, 3% will likely not satisfy the increased health, housing and safety needs of growing middle classes in emerging economies or service the world’s aging populations. Bart van Ark, Conference Board Chief Economist Conference Board

7 Rough ride economy Federal Reserve
First things first … U.S. economy also running slow Longer run 2015 2014 Sept June 2.0% to 2.2% 2.1% to 2.3% 2.6% to 3.0% 3.0% to 3.2% 2.0% to 2.3% Range of annual real GDP growth forecasts during 2014 FOMC meetings among Federal Reserve Bank Presidents and Board Members March 2.8% to 3.0% 2.2% to 2.3% This disappointment is true in the US as well. Despite improvement and recent good news, the U.S. economy is running slow, too. This chart of many numbers simply shows the declining optimism of economists as this year has progressed. Every time the Federal Reserve met to make policy decisions – from March to June to September – the assembled economists lowered their growth projections over every time frame, whether this year, next year or the long-run. As a recently published Federal Reserve study reported to big headlines in places like the Wall Street Journal, severe downturns around the globe in years past have permanently depressed economic output. Which is to say that when you fall into the kind of hole we just fell into, history shows that you never climb all the way out. You start growing again, of course, but the trend line of growth resets at a lower level and is always below where it was before. NOTE (2) In late 2014, the Bureau of Economic Analysis released its revised estimates of Q2 and Q3 GDP growth. Both were significantly higher at 4.6% and 5.0%, respectively. Its estimate of consumer spending growth was much higher, too, meaning GDP was “up for all the right reasons,” as the Chief Economist of Mesirow Financial, Diane Swonk, put it. This is welcome news, and might appear to signal an imminent rebound in the U.S. economy. Such a conclusion would be premature. As noted in all commentaries about this news, the primary reason for the boost in spending and GDP was the dramatic drop in gasoline prices during the last six months of the year. Given the geopolitics of oil prices, it is dicey to pin too much on this for future planning. At significant expense to itself, Saudi Arabia is holding fast to low oil prices to defend its market share by bankrupting competition. Assuming that occurs, what happens next is unknown, but, historically, monopolists have used their market power to raise prices. Saudi protestations to the contrary notwithstanding, that is probably the best bet. But even taking these revised estimates at face value, they only show a short-term spike not a reversal of long-term trends. In short, it remains to be seen what this news really portends. Federal Reserve

8 $868 billion below potential
Rough ride economy A sizable output gap in U.S. economic performance Potential GDP Real GDP $868 billion below potential Just to say it again, the economy resets at a lower level. This is the worry behind the recent debate about secular stagnation and labor market slack. What you see here is a chart showing the decline and recovery of U.S. GDP versus a trend line shown above it that is extrapolated from the U.S. economic trajectory before the Great Recession. The gap between the actual trend line and the extrapolated trend line is a little under $900 billion, or about 5% of last year’s GDP. The extrapolated trend line is not some academic fiction. It represents the path that the economy was on before the downturn. Businesses had geared up to stay on that trend line – investments, training, IT systems, plants, R&D, new products, contracts, etc., etc. Productive capacity was in place to meet demand on the pre-recession trend line. When demand faltered, the trend line extrapolated here didn’t materialize, and thus the things businesses had put in place were left hanging, unutilized and unproductive. Actual demand hasn’t been sufficient to put them to use. The lower demand of the downturn and afterwards doesn’t need that much capacity anymore. So this output gap represents capacity in the U.S. economy – labor, factories, shipping, and so forth – that is under-utilized to the tune of nearly $900 billion. The U.S. economy has the capacity to produce more, but there is not enough demand in the marketplace to do so. In more practical terms, it is a case of too much supply, too little demand. And that means deflationary pressure on prices and wages, which is exactly what we have been seeing. When there is too much supply, prices drop. When there are lots of people looking for work, wages drop. If you want to know why your company can’t grow its revenue like before – even as, perhaps, your unit sales are on a torrid pace – the reason is downward pressure on pricing because of an output gap in the broader macroeconomy. NOTE (3) The biggest part of underutilized capacity is labor – the unemployed, the under-employed who aren’t making full use of their skills and training, those of working age who have left the labor force involuntarily, part-time workers looking for full-time work, etc. This creates a vicious cycle of weak demand that weakens employment that keeps demand weak. BEA/CBO

9 BEA/CBO Rough ride economy
Closing the output gap is going to take time A few years ago, the Washington Post analyzed the growth it would take to close the U.S. output gap. At 6% growth, post-recession, the $900 billion output gap would have closed by now. At 3% growth, closing this gap will take until at least 2020. At 2% growth, which is more in line with recent experience and long-term forecasts, it never closes. We never get back to the pre-recession trend line. The economy just resets at a much lower level. This is what we are facing. NOTE (4) Forecasts of 2015 U.S. GDP growth range from mid-2% to low to mid-3%. There is a lot of uncertainty, but every scenario shows improvement from recent years due to a number of encouraging signs in the U.S. economy: Yet even with 3%+ growth, the U.S. output gap is years from closing to full productivity and performance. Economists put a positive spin on this gap by noting that it will hold down inflation, but this is a mixed blessing. Low inflation will keep interest rates low but downward pressure on pricing is exactly what’s holding back revenue growth for many businesses, which in turn keeps economic growth potential modest. Hence, it’s no surprise that forecasted improvement over the next year or two is expected to be a temporary spike, with the economy settling into long-run growth below 3%. NOTE (5) When a trend line resets, it doesn’t stop growing. It keeps growing, but it reaches a given level at a later date than the original, or higher, trend line. In other words, it takes more time to get to the same place. This matters a lot because timing affects when people reach a certain quality of life and what they have to spend at any particular point in time. The longer it takes to reach a certain level of prosperity, the longer people must do without, and thus the longer it takes companies to realize that level of growth and returns on investments and assets. Greater prosperity sooner is always better. BEA/CBO

10 Rough ride economy What about the record-setting November jobs report?
The question is not whether it was a great jobs report. It’s whether it foreshadows a change in economic trajectory. The answer is that it was a great but not a game-changing report. Michael Strain Deputy Director, Economic Policy Studies American Enterprise Institute But wait, you say, we just had a great jobs report, and the stock market liked it. Of course, it’s no surprise that the stock market liked it. The report was evidence of a growing economy and equities are priced on growth. But it’s not a question of whether or not it was a good report. It’s a question of whether or not it was good enough to signal a return to the pre-recession trend line, which is to say, what does it show about how fast the output gap will be closed. Unfortunately, it was a good report but not so good that it hints at an early end to the output gap. Indeed, as conservative economist Michael Strain of the American Enterprise Institute tweeted that day, the good news of the November jobs report comes with several caveats.

11 Rough ride economy It takes more than jobs – wages must grow, too
Most important is what liberal economists always focus on, and that’s wage growth. This is equally important to business leaders – wages are what people have to spend. And on this front, the November jobs report shows no improvement whatsoever. Wages continue to be stagnant, with only sluggish growth since the beginning of the Great Recession. NOTE (6) Compounding the problem of stagnant incomes are rising expenses for household necessities. As noted in more detail on Slide #44 of this deck, The Center for American Progress has calculated that since 2000, stagnant incomes for a typical middle-class family of four must cover an additional $10,600 of expenses for fundamental lifestyle needs such as health care and housing. An analysis by The Wall Street Journal of Labor Department data for the middle 60% of the U.S. population by income found that spending from 2007 to 2013 rose by 12.5% for food at home, 22.9% for education, 24.2% for health care, 26% for rent, 42.1% for health insurance, 49.1 % for mobile phone service, and 81.3% for home Internet service. Of necessity, spending in other categories declined, but even so, net spending across all categories still rose 2.3% while incomes grew a mere 0.2%. To put it another way, since 2007, the average household has been forced to cut spending in some categories in order to afford rising costs in other categories, yet the net of this budget rebalancing was still an increase in spending more than 10X the growth in income over the same period. The challenge for businesses was perhaps best summed up by a Kansas City, MO, mother quoted in this article: “In Kansas City, Mo., Dawn Miller said her family’s cellphone bill has grown from $35 a month years ago to more than $350 some months today, depending on whether someone in the family blows past their plan’s monthly data limit. “’Because the Verizon bill is so expensive, and because it changes month to month, you have to cut back,’ said Ms. Miller, a police dispatcher. “Two months ago, she and her husband postponed an anniversary dinner after their Verizon bill eclipsed $500. ‘I can’t tell you the last time I went out to a movie,’ she said.”

12 Rough ride economy Macroeconomy mirrored in consumer economy
With wages stagnant, consumers are struggling. Census tracking of retail sales and spending shows a downward trend of year-over-year growth, and in recent years, growth levels well below those dating back to the mid-1990s. Again, there is growth, just not strong growth. The economy is running slow. This presents a challenge to established ways of doing business. The old ways of doing business rely on an economy that no longer exists. Businesses have long pegged their growth to growth in discretionary incomes, and that model is mismatched with the situation at hand, and, indeed, with the situation likely to persist for the foreseeable future. The economy is simply not operating like it used to. For the near-term at least, if not longer, the economy has reset. While growth is occurring, it is on a lower trend line, with middle-class consumers struggling and many falling ever further behind.

13 Rough ride economy Macroeconomy mirrored in consumer economy
P&G Profit Up Slightly; Sales Growth Remains Sluggish Company Tries to Get More Consumers to 'Trade Up' to Pricier Products (WSJ, April 23, 2014) Unilever reports slowest sales growth in 5 years (FT, October 23, 2014) This is taking a toll. Recent headlines tell the tale. P&G. Unilever. Walmart. All have reported difficulties and cautious outlooks, symptomatic of business model mismatches with the current economy. More likely than not, this situation is true of your company, too. 'Urgent' Walmart Memo Lays Out Strategy To Boost Grocery Sales (HuffPost Business, November 12, 2014)

14 Rough ride economy Key takeaways
The old models of doing business face powerful headwinds Strong revenue growth is becoming much more challenging Consumers are struggling to stay even, much less spend freely A new business model will be better suited to these circumstances There is big growth potential in a better match of model to situation What’s the takeaway from this gloom and doom? As I said, the old ways are under-powered. It’s seen in weakening growth. Consumers are struggling. The economy has put them behind the 8-ball, so they can’t spend like they used to. What companies need to do is not to try to run faster; it’s to run in a new direction. A different model. One that better fits what consumers can actually afford. One that offers more of what consumers truly value today. One that can turn the new trend line into a strong new trajectory. What’s the better match? Yep, you guessed it, the business model of the Uber All Economy.

15 Uber All Economy FutureView LIVE Rough ride economy Liftoff Uber All
Today’s Agenda Rough ride economy Liftoff Uber All Switching over That takes us to the one place in an otherwise difficult marketplace that is growing exponentially. Tight fit Facing forward

16 Liftoff Uber All In a lukewarm economy, Uber is red hot
As I said, the takeaway from today’s FutureView LIVE is not so much about Uber per se as it is the Uber business model. But one way to calibrate the business model is to look at Uber’s success. This chart shows Uber’s current market cap based on its latest round of fundraising that just closed in early December. Today, Uber is worth more than Delta Air Lines. And more than Tesla, another hot start-up. And more than LinkedIn, part of the social media royalty. It’s nearly half as valuable as McDonald’s and getting closer to GM. Admittedly, this is far from Apple’s march to a $1 trillion valuation, but it’s not peanuts either. In fact, Uber’s market cap has more than doubled in value since June. Simply put, Uber is red hot, even in today’s tepid economy. Its recent investment round of $1.2B that closed in early December puts Uber’s current market cap over 2X its June valuation of $17B.

17 invested to date in on-demand start-ups
Liftoff Uber All It’s about Uber-like business models for everything $4.8B+ invested to date in on-demand start-ups including $2.2B+ in past 12 months And it’s not only Uber. It’s anything and everything that is based on an Uber-like business model. Uber is just the poster child for this business model, which is powering every start-up you see in this slide taken from a SlideShare presentation posted by Steve Schlafman, one of the principals at New York City VC firm, RRE Ventures. There are a lot of companies shown here, but in truth, this is a mere smattering of what’s happening. Investors are clamoring to put money into the Uber All Economy. Now, later I’m going to talk about adding some of these elements to your businesses or brands, but suffice it to say for now that this is where you are most at risk. These start-ups are your biggest competitors, your biggest threats. They may not look like your products or your current competition, but they are coming at you, and they are coming at you hard and fast. Their investors want your customers for their businesses, now. They want your market share. They want your profits. They have you in their sights. They are betting big that their brands are better than yours at what you do, even though their brands do it with a different business model. Again, Uber exemplifies this. Right now, Uber competes with taxis. But its ambitions are bigger. It wants to compete with auto companies. It wants to compete with logistics firms. It wants to compete with delivery services. It is a new model that gives it a platform to compete with anything that has to do with transportation. For that matter, Uber will even affect housing, which, after all, is built on a grid that has a certain transportation network embedded into it. Once Uber changes the profitability of that network, all bets are off. This is what the Uber All Economy is doing – it is reconfiguring how benefits will be profitably delivered to consumers. Not how your product or service is retailed or employed, but how the benefits your product or service delivers are made available to consumers.

18 “An Uber for dry cleaning and laundry”
Liftoff Uber All Go ahead, pick a category, any category Laundry detergent “An Uber for dry cleaning and laundry” I literally mean every category is going to be affected. Let’s just pick one for the sake of discussion. Let’s say a very traditional, old-time, well-established category like laundry detergent. The competitive set is not just Tide versus Purex, or whatever current brands you want to name. The competitive set is FlyCleaners, too, which, like Uber, operates on-demand with a mobile app. You see their trucks lined up in the photo here. Obviously, FlyCleaners is not a directly substitutable product. It is not a liquid in a bottle or a powder in a box, sold from a grocery store shelf. But it is a direct substitute for the same benefit – which is clean clothes when you need them. Note (7) The benefit cited for this particular example is only meant to be illustrative. Clearly, there are numerous benefits, both tangible and emotional, delivered by various laundry detergent brands. The point is that there is no benefit exclusive to any particular product form or retail location. All benefits, whatever they are, can be made available to consumers in many different ways, and that is the threat posed by the Uber All Economy to established brands. It is a fallacy to suppose that product forms and product benefits are inextricably intertwined. Benefits are fundamental and enduring, and, in the end, benefits not forms are what matter to consumers.

19 Liftoff Uber All Go ahead, pick a category, any category
Laundry detergent The biggest of these to date are FlyCleaners and Washio, but there are others like Rinse and DRYV. As these firms gain experience and as competition drives down pricing, they will have an impact on traditional brands in established categories. In a sluggish global economy, marginal share matters, so Uber All competitors can’t be dismissed merely because of smaller size and scale today.

20 Liftoff Uber All Every consumer category is going to be affected
“Aided by the playbook of GrubHub/Seamless, Uber, and Airbnb [restaurants, transportation, hospitality], service providers in newer categories are anticipated to reach scale rapidly. “In a survey conducted by The On-Demand Economy of 18 high- profile industry “influencers,” grocery, home services, and local events were the most likely to experience explosive growth over the next three years.” The 'On-Demand Economy' Is Revolutionizing Consumer Behavior — Here's How Mike Jaconi, CEO of Button July 13, 2014 Every category is being scrutinized for Uber All potential. One survey of investors and experts foresees grocery products and retail, home services, and events and entertainment as the next wave of categories most likely to follow the first wave of restaurants, transportation and hospitality.

21 Liftoff Uber All Established companies putting a toe in the water
Established companies are alert to the Uber All Economy. American Express has teamed with Uber for a joint rewards program. This is interesting and innovative, but far from enough.

22 Liftoff Uber All But the future demands a more aggressive posture
Monthly average price for an individual (nonfleet) medallion: $871,667 $840,000 Nov. The future demands a more aggressive assessment of threats and opportunities. Recently, The New York Times’ Upshot team looked at the impact of Uber on the value of New York City taxi medallions. After decades of steady increases, value has flattened out, with signs of slumping. The November update to this trend line shows a continuing drop. And this is due to the impact of Uber at the margins. That’s the minimum threat. In fact, the Uber All Economy is a much bigger threat. In San Francisco, where it all got started, cab rides are down 65% since January 2012.

23 Liftoff Uber All “A lot to learn” from the Uber business model
What happened when Boloco founder John Pepper became an Uber driver (Boston.com, February 7, 2014) “Last October, Boloco co-founder and CEO John Pepper resigned his job after a tussle with directors about the (regional burritos) restaurant chain's direction. “In that situation, lots of other entrepreneurs might take time off to travel, or become an ‘entrepreneur in residence’ at a college or investment firm. “Pepper decided to become a part-time Uber driver.” Q. Did you sign up because you wanted to learn about Uber? A. Whatever business I do next, there's a lot to learn from their model … I think they could really affect the world of restaurant and retail. There is a lot to learn from Uber about business models. At least that’s what the Boloco burritos chain co-founder, John Pepper, said when asked why he became a part-time Uber driver after he left his company. He took it up, he says, because he believes that Uber-like business models are going to remake restaurant and retail. We agree, and we think it’s more categories than just those.

24 Liftoff Uber All Key takeaways
Uber All is the new motive force in the marketplace It is the path to explosive value growth even in the current economy This new model is being rapidly pioneered by well-funded start-ups At the very least, this is a huge new competitive threat But established companies should tap into this opportunity, too What to take away? … Uber All is the way to grow in the current economy. It’s a powerhouse model with explosive growth opportunities. As traditional business models struggle, Uber All business models are booming. Take note: investors want your customers for their start-ups. They believe their business models are better than yours for delivering the benefits your brands provide now. So at the very least, the Uber All Economy is a competitive threat that you need to better understand. But more than anything else, it’s a huge opportunity. Either way, though, threat or opportunity, it matters to you. Let’s take a closer look.

25 Uber All Economy FutureView LIVE Rough ride economy Liftoff Uber All
Today’s Agenda Rough ride economy Liftoff Uber All Switching over What is this business model? What are its basic elements? What do you need to do to switch over? Tight fit Facing forward

26 Switching over Uber business model Personal service …
Boiled down to its essence, just three things comprise the Uber business model. The first is a personal service. Uber itself is a personal service of drivers. FlyCleaners is washing your clothes. Now, you may be in a products and goods category, and thus think this doesn’t affect you. But remember, these companies want to substitute their service for your product. Not to mention that in a sluggish economy, it is on-demand services that are showing breakout growth while everything else is slowing. Service value matters, even to products and goods brands. You can’t ignore this. The second thing is availability on demand. Mobile apps have revolutionized this. Finally, it is pricing by usage. Or to put it another way, availability on demand that is priced to demand. This means strategic pricing that charges for value delivered. This is a platform for both affordable pricing and premium pricing, thus unlocking otherwise hidden opportunities for value- added offerings. There are lots of other things mentioned in connection with Uber. It’s a long list … automated, embedded credit card payment; a preset tip; GPS map location tracking; ratings of drivers by passengers and ratings of passengers by drivers; collaborative sharing of unused resources; amateurs as well as professionals; direct contact information; omnichannel customer service; and more. But these things are enhancements not essentials. The core of the business model is these three things. Simple as that. Let’s take a closer look at each one. Personal service … … available on demand … … and priced by usage.

27 Switching over Uber business model Idle assets Products-plus
Substitution Start with personal service. The concept at work here is the idea of conversion. If what you’re working with is not a service now, it needs to be converted into one. This is to say that the value associated with it needs to be realized through a service attached to it or associated with it. For Uber itself, idle assets are converted from non-use to use. Products and goods must add a service or find a service in which to get embedded. Products have to act like services. The value of products has to be more than the product itself. Services grow as they become substitutes for products, thus converting an aspect of themselves in the minds and consideration sets of consumers. And service brands need to aggressively innovate what they do in order to stay ahead of the broader conversion of value in every category to something tied to service. The short phrase for this element of the business model is what you see at the bottom of this slide … from one use to another. Personal service … … available on demand … … and priced by usage. From one use to another

28 From “go to” to “come to”
Switching over Uber business model Idle assets Mobile Products-plus Apps Substitution Fulfillment The next element is on-demand – specifically, availability on-demand. More to the point, this is about availability of the benefit itself. The benefit needs to be provided immediately. Speed, convenience, immediacy are the operative concepts. Mobile apps have been central to this. But it is really about fulfillment in whatever way is fastest. Mobile apps are the way to do that for many categories, but it’s about the best way of delivering with immediacy not technology per se. The short phrase for this is moving from a “go to” marketplace where consumers had to go to someplace to get the benefit to a “come to” marketplace where the benefit or service comes directly to consumers, and immediately so at that. Personal service … … available on demand … … and priced by usage. From one use to another From “go to” to “come to”

29 From “go to” to “come to” From flat rate to tiered
Switching over Uber business model Idle assets Mobile By the slice Products-plus Apps Occasions Substitution Fulfillment Premium The final element is pricing. More specifically, pricing by usage. This is the most misunderstood piece of the Uber All business model, largely because many of the new on-demand mobile services charge a premium. But premium pricing is not the essence of it. The essence is pay-as-you-go. The Uber All business model is pricing for usage rather than pricing for ownership. The typical pricing approach today is based on accumulation, not usage or demand in the moment. It’s stocking up or subscribing or collecting. That’s pricing by accumulation not pricing by usage. With the Uber All business model, you sell it by the slice – no more than a consumer needs in the moment. This has a very particular implication. It puts occasions at the center of the value equation. Not people. Not segments. Not products. For the Uber All business model, it’s occasions. Most occasions will be ordinary, so pricing will have to be cheap. But some occasions will be extraordinary and special, and thus able to command a premium. This is the key to unlocking value-added opportunities, as noted at the bottom of this slide – from flat rates that are the same no matter the occasion to tiered rates that better match demand on each occasion. Uber calls its premium pricing “surge” pricing. But note, there are no “surge” consumers. There are no “surge” drivers or special “surge” cars. Just “surge” occasions for which “surge” pricing applies to all consumers. This business model and these three elements are being leveraged in many ways across an expanding set of categories. Let’s take a quick look at a few illustrative and interesting examples. NOTE (8) There will be an evolution of pricing with companies based on the Uber All business model. In the early stages of growth, most of these companies will target a niche willing and able to pay a premium price for on-demand access and delivery. Once this foundation is secured, these companies will expand their footprint by adding an affordable option for a mass consumer target. This is the trajectory followed by Uber, which started with the upscale Uber Black service and then later added the mid- to lower scale UberX service. Personal service … … available on demand … … and priced by usage. From one use to another From “go to” to “come to” From flat rate to tiered

30 Switching over Places and head spaces
Breather is a service people use on-demand to find spaces in which they can be more productive, whether it’s a smart work space or a fun play space or simply an inspiring, striking place to relax. It’s a first step in real estate. Homebuilders, office designers, landscape architects, take note!

31 Switching over Blooms and Bouquets
Bloom That is flowers on demand, and really fast. Now, flowers are a product for which delivery is nothing new. But on-demand immediacy changes the game completely, and – take note – maybe even makes flowers a viable, cross-category substitute for other gifts and remembrances with which flowers don’t compete today. The Uber All Economy is going to reconfigure this competitive space.

32 Switching over Grocery retail
Everybody knows about Instacart. But think about it a few years out from today. Not only will it shake up retail, it will change the ways consumers sort through consideration sets and step through the purchase process. Consumers will no longer encounter, sort through, evaluate and select brands in the ways in which we utilized media, point-of-sale and digital today. Thus, even as nothing but a retailing service (before competition to deliver value or the benefit), the Uber All business model is going to change the perceived merit of many product brands.

33 Switching over The Pivot to Passive will power Uber All
Pizza Hut menu picks toppings for you by tracking eye movements Finally, let’s not forget what we noted last year about The Pivot to Passive. This shift to passive digital is the biggest transformation of the marketplace since the commercialization of the Internet in the mid-1990s, a shift from screens to sensors as the primary interface with technology. Soon, it will power on-demand services as well. In the U.K., Pizza Hut is experimenting with a digital menu that tracks your eye movements as you scan toppings. Those toppings over which your eye lingers an extra millisecond or two are immediately selected for your order. As the saying goes, it occurs in the blink of an eye! This is the first step toward passive digital instantaneously parsing demand to feed preferences and intentions directly into an Uber-like delivery system that can get the product or benefit to you as fast as possible.

34 Anchor value in a service Execute with immediacy
Switching over The three-legged stool of Uber-ization The driver’s seat Proposition Anchor value in a service Pricing To recap, Uber-ization is a three-legged stool. The first leg is about your proposition. You have to anchor value in a service. That’s where strong value growth is being realized in the marketplace today. If you’re a product, wrap it in something more. If you’re a service, innovate to make it better. The second leg is about performance. Robert Woodruff built Coke around his vision of putting Coke “within an arm’s reach of desire.” That was tough to do, but Coke did it. However, today’s imperative is tougher – the benefit has to be within arm’s reach of the firing of a neuron. The third leg is usage-based pricing. Altogether, these three elements will put your brand in the driver’s seat of the Uber All Economy. Charge by usage Performance Execute with immediacy

35 Uber All Economy FutureView LIVE Rough ride economy Liftoff Uber All
Today’s Agenda Rough ride economy Liftoff Uber All Switching over What makes the Uber All business model such a tight fit with today’s marketplace? The economy has something to do with it, but whether the economy is good or bad, there are bigger things at work fueling the growth of the Uber All business model. Indeed, as the economy improves, the momentum behind this business model transition will accelerate. Let me offer four thoughts. Tight fit Facing forward

36 72% Tight fit 1. Service is where the action is
If I am getting bad service, I will walk out of a store even if they have exactly what I am looking for Source: U.S. MONITOR 2014 First, when it comes to value, service is where all the action is. In our U.S. Yankelovich MONITOR research, seven in 10 agree that when service fails, the product cannot rescue the day. Value resides in service. When service fails, people willingly give up the product. The product doesn’t have enough value to make up for bad service, whereas service has so much value that when it’s bad it overwhelms the perfect product. In short, you build the value of product by attaching it to or associating it with service. And you build the value of service by innovating the service you offer.

37 Tight fit 1. Service is where the action is 62% 76% 84% 86% 68% 85%
Mexico 77% Colombia 70% Brazil 59% Argentina 76% Turkey 62% Russia 64% South Africa 71% Kenya 91% Nigeria 86% India 74% Indonesia 84% China 85% Thailand Somewhat/very likely in next 12 months to pay for a service that provides extra convenience in your life (Source: Global MONITOR 2014) This is true globally as well, especially in emerging markets. In every emerging market tracked in our Global MONITOR study, the overwhelming majority expresses the intention over the next year to spend on services that enhance the quality of their lives. This is what people are looking for … everywhere.

38 Tight fit 2. The future of service is immediacy
Amazon has led the way in retail with a relentless focus on speed 1997 2005 2007 2009 2011 2013 2014 Speaking of which, the second thing to note is that key imperative for the future of service is immediacy. We know this from watching Amazon. A central element in its growth over the past two decades has been an unrelenting focus on speed. In 1997, the year it went public, it introduced 1-Click. In 2005, it introduced Amazon Prime with expedited two-day delivery. In 2007, Amazon got into grocery delivery. In 2009, it ratcheted up speed with same-day delivery. In 2011, Amazon Locker offered an even quicker way for consumers to get access to what they bought. And then in 2013, Jeff Bezos appeared on 60 Minutes to announce PrimeAir, or drones to make deliveries within 30 minutes of ordering. Not only did that put the world on notice about speed and immediacy, it prompted the Internet meme you see at the bottom of this slide, with Homer Simpson whining, “30 minutes? I want it now.” Yes, Homer, Amazon agrees. Amazon hears you. It continues to push the envelope. 2013 saw a partnership with the U.S. Postal Service for Sunday deliveries, not to mention news that Amazon has patented anticipatory shopping software to analyze your clickstream to make a real-time forecast about the likelihood that you’re actually going to purchase what you’re looking at. If so, Amazon will start shipping that item to you before you’ve actually clicked the button to buy! Amazon knows that it’s better to take the financial hit to get that item out of its logistics system if you decide not to buy than to be even a moment too slow with delivery if you do buy it. This year Amazon partnered with Twitter so that you can put something in your cart directly from your Twitter feed. PrimePantry is a subscription service that ensures you’ll never run out and have to wait. And Printed Creations is 3-D printing that enables you to customize directly, no waiting. In short, Amazon is creating more value for the goods it sells by wrapping them in a service and delivery package that is all about immediacy.

39 Uber is budget or premium.
Tight fit 2. The future of service is immediacy Uber is budget or premium. Both are fast. UberX Cheap UberXL Fast There is no price or quality at which there is any such thing as ‘slow Uber.’ Of course, with Amazon, immediacy comes at an upcharge. Not so Uber, and this is where Uber is leading the way beyond Amazon. Think of this in classic terms, as illustrated in the pyramid on this slide. As the old adage goes, you can be cheap and fast, quality and fast or cheap and quality, but not all three. Unlike Amazon, Uber eschews slow. Look at the Uber offerings … Uber Black, the original service, is quality and fast. UberSUV is a bit more quality. UberX and UberXL are cheap and fast. What Uber offers is premium and budget, quality and cheap. But both are fast. With Uber, unlike with Amazon, you can get cheap and fast. There is simply no slow option with Uber, not at any price or any quality. Slow is off-limits for Uber. Amazon changed perceptions about fast. Uber is going to change expectations that there is a trade-off between fast and cheap – that it either has to be fast or cheap. With the Uber All business model, there is no such trade-off. With Amazon, speed is the driver of price. No so with Uber. With Uber, speed is not the driver of price. Instead, price is driven by occasions, as noted already. Speed is the essence of every offering, whatever the price. Uber Black Uber SUV Quality Adapted from …

40 Tight fit 3. Perfect analogue to future labor markets
Software and robotics are fundamentally upending employment Computers put “47% of total US employment at risk … [in] perhaps a decade or two.” Third, perhaps the most interesting thing about the Uber business model is the extent to which it tightly fits the future of the labor market. The biggest factor changing employment is not economic but technological. The economy has had a huge impact over the past several years, but as far as the future is concerned, it’s technology that matters. Robotics and software are completely restructuring jobs. Two technology experts at Oxford examined all job categories tracked by the U.S. Commerce Department. Using models that compared skills required for thousands of individual jobs to the myriad capabilities of computers, they found that nearly half of all jobs in the U.S. labor market today will be displaced soon by computers. Broadly speaking, what remains will be jobs in one of two buckets – either be jobs running technology or personal service jobs, which is to say jobs in which people sell their personal services to those with jobs running technology. Middle management will be gone.

41 Tight fit 3. Perfect analogue to future labor markets
A bifurcation of work into those who manage technology and those who provide various personal services for those who manage technology “As workers are displaced by smart machines in manufacturing and other areas, more individuals will be employed as personal trainers, valets, private tutors, drivers, babysitters, interior designers, carpenters, and other forms of direct personal services … The middle of the distribution is thinning out and this process appears to have a long ways to run.” This bifurcation of the labor market was the subject of a 2013 bestseller by George Mason University economist Tyler Cowen, a book that I highly recommend to you. In Average is Over, Cowen noted that the source of inequality in the future will be technology not finance. No need to dwell on it here, only to note that this is where we’re headed, something Cowen outlines at length. NOTE (9) There is considerable debate among economists and futurists about the long-run impact of technology on jobs. A sampling of that debate can be found in these links: world.html?abt=0002&abg=0 why-theyre-wrong/ This is an important subject, but the point made in this FutureView LIVE about the structure of the job market is true whatever plays out in the long-run in terms of total employment. Irrespective of whether technology permanently shrinks labor force participation, assuredly, it will change the nature of whatever jobs remain for humans to do. There may be more jobs or fewer jobs, but the key point here is that the jobs available will be one of two types – jobs running technology and jobs selling personal services. In terms of the Uber All Economy, it is this bifurcation that is relevant, not overall levels of employment. What makes the Uber All business model such a tight fit with the future is its match with this technologically-driven restructuring of jobs into two broad types, as discussed next on Slide #42. “We can expect a lot of job growth in personal services … The more that the high earners pull in, the more people will compete to service them, sometimes for high wages and sometimes for low wages.”

42 Tight fit 3. Perfect analogue to future labor markets
Uber is exactly this – the intersection of tech and personal services Uber is run by people who manage the technology Uber employs people selling a personal service The Uber All Economy is exactly this intersection of tech and personal services. It is built on precisely the distribution of job skills in a labor market remade by computers. Again, Uber exemplifies this. It is run by people who manage the technology. And Uber is delivered by people selling their personal services to and through a company run by people managing the technology. This is tech and personal services. Uber is on the cutting edge of bringing together these two pools of the labor market. This is what makes the Uber All Economy a perfect analogue for the future of work. In the future, the talent pool will consist of tech nerds on the one hand and people skilled in personal services on the other. Your businesses will have to draw from these two types of human resources – that’s all that will be available to you. You will have to build your business around the kinds of people available for you to hire and the skills they can bring to your workforce, and, increasingly, that means one of two broad sorts of jobs. Today’s Uber All ecosystem of start-ups shows how to do that. They are the perfect analogue to future labor markets. The Uber All business model points the way for making profitable use of the resources that lie ahead for your brands. NOTE (10) This restructuring of work is not only the future, it is affecting the labor force today. The New York Times article in this link provides a contemporaneous view of what’s going on right now. This story was published with a foreboding headline that ended with the declaration, “Workers Struggle to Keep Up.” Similarly, Uber-like business models will thrive by virtue of being structured appropriately to tap directly into the labor and skills pools of the future job market

43 Tight fit 3. Perfect analogue to future labor markets
Woman opens professional cuddling shop – gets 10,000 customers in first week Hair strokes, hand-holding, caressing and conversation is also available November 19, 2014 Professional cuddler Samantha Hess has opened a pro cuddling shop, where for $60 customers can get an hour's worth of spooning and "the level of human contact that we want or need in order to be our optimal selves." Located in Portland, Oregon, the shop is called Cuddle Up To Me and is already very busy. And just as a fun footnote, as this shift of skills and labor to personal services takes off, expect to see people being very inventive and creative in the services they deliver. For example, a woman in Portland, OR, made international headlines (as featured here in a story from the U.K. newspaper, The Independent) when she opened a storefront business specializing in cuddling. For a dollar a minute, you can get hugging, stroking, nuzzling, pillow talk and spooning. In her first week alone, 10,000 people called to inquire. Next up for her cuddling service? She would do well to add on-demand immediacy and tiered pricing. 42A

44 Tight fit 4. Right match for household resources
Household finances are being squeezed -$5,500 Housing College savings Health care Child care Retirement Groceries Clothing Phone Emergencies https://www.americanprogress.org/issues/economy/report/2014/09/24/96903/the-middle-class-squeeze/ The fourth and final reason that the Uber All business model is a tight fit with the future is because it is the right match for household budgets. Simply put, the economic trends discussed earlier mean the finances of the average household are in a bind. People are being squeezed, the middle class in particular. This infographic from a recent report by the Center for American Progress puts it in stark perspective. Over the last 15 years, on average, the foundational elements of middle-class security cost, $10,000 more. Yet, household income is basically the same. When all other gains and losses are sorted out, there is $5,500 less to spend on everything else. Not to mention that things like media, cable, phones and technology cost more than ever. Consumers can no longer spend the way they used to, which is why Uber-style offerings are so attractive. Pay-as-you-go may be pricier in the long-run, but it Is often cheaper in the moment, and that matters more when it’s harder than ever to get from paycheck to paycheck. For your brands, it’s a shift from consumers buying to have things on hand to consumers buying only as needed. This means that consideration sets will no longer be about what works as well as or just like your brands, but what is available just as quickly or more quickly than your brands.

45 Tight fit 4. Right match for household resources
Payment on demand is already widespread – and spreading rapidly It’s worth noting that payment on-demand at specific occasions is already familiar to consumers. The best-known instance of this in the digital age is iTunes. Steve Jobs famously pioneered the 99-cents song. The idea was don’t pay for the album, just pay for the song you want. This concept of “only-what-you-want,” or paying for usage rather than ownership or accumulation, is moving now from virtual goods and services to physical goods and services. In a slide I’ve borrowed from Uber investor Shirven Pishevar, you see many of the start-ups using the Uber All business model to make this shift, the biggest impact of which is in pricing. Foundation Capital associate Zach Noorani and early Uber investor Shirven Pishevar

46 Tight fit 4. Right match for household resources
Unlocks value-plus pricing opportunities My final thought here is perhaps the most important element of the Uber All business model. It is about unlocking value-added pricing opportunities. Traditionally, we look for value-added premium markets by targeting people who can afford to trade up. Now, clearly, I’m over-generalizing, but not unfairly. My point is that this traditional focus is harder than ever. Trends in the global economy mean that people like this are fewer and farther between, especially the aspirational middle class willing and able to trade up to luxury. But the focus of the Uber All business model is on occasions. The objective is to target occasions, or moments, when price sensitivity is not a factor, occasions so special or so critical that people of every means, high and low, are indifferent to price. They want the service in that moment, and the price is worth it on that occasion. This is not to say that price doesn’t matter. But in every price tier, there are premium occasions. These so-called “surge” occasions, in Uber’s terminology, are the value peaks available within an otherwise slow-moving economy. These are niches of opportunity unlocked by the focus on occasions that is part and parcel of paying by usage. These key elements of the Uber All Economy not only fit better with the tight budgets of most consumers, they unlock value-added premium opportunities where even hard-pressed consumers will trade up on that occasion. Not targeting people willing and able to pay a premium Targeting occasions in which people of all means are price indifferent Fewer and farther between Service on demand worth it

47 Uber All Economy FutureView LIVE Rough ride economy Liftoff Uber All
Today’s Agenda Rough ride economy Liftoff Uber All Switching over How, then, to plan ahead in the midst of this confluence of a lagging global economy and an exploding Uber All Economy? Three closing thoughts – three key words or ideas to take away from today’s FutureView LIVE. Tight fit Facing forward

48 Services Facing forward The imperative … Figuring out how to Uber-ize
The future of service, service types and formats The overarching imperative is to Uber-ize your businesses and brands – maybe to adopt this business model yourself, but at the very least to protect yourself. Focus first on service. What is the future of service? Where is service headed? What types of service have potential? What formats seem promising? You should array the scenarios and know your response, offensive or defensive. And let us help you do that. Diagnosing and foreseeing future possibilities is one of our core specialties.

49 Services Immediacy Facing forward
The imperative … Figuring out how to Uber-ize Services The future of service, service types and formats Immediacy Benchmarking against trends shaping expectations Second, focus on immediacy. In particular, understand which trends are changing expectations about speed and how this plays out relative to reengineering your infrastructure. For example, you’ve heard us talk in years past about things like head space. How do trends like that affect immediacy in your categories? What does immediacy mean to people? How will they integrate it into their lifestyles? And what does this mean for designing and delivery your brands?

50 Services Immediacy Occasions Facing forward
The imperative … Figuring out how to Uber-ize Services The future of service, service types and formats Immediacy Benchmarking against trends shaping expectations Finally, dig deeper into occasions because that’s what shapes pricing. In this regard, let me offer one last thought. I’ve talked about how the Uber All business model opens up high- and low-value opportunities. This is on-trend with a consumer marketplace that is also headed high and low. But there is a misunderstanding that scarcity of time or money, or both, just pushes people low. In fact, it also pushes them high. When there’s only a little time or money to go around, spending it on something average is just as big a waste as overspending on something bad. Neither offers full value for the scarce minute or dollar. What we see is that people will spend less on many things in order to pay the premium on a few things. They want a lot from every minute and every dollar – not just quantity, but quality, too. To put it another way, consumers want superstar as much as super-sale, and in this situation, you want a platform that opens your brands to both. The Uber business model does exactly that. By the way, when it comes to studying occasions, we’ve been working with TNS and the digital team at Burson Marsteller as part of the Kantar partnership with Twitter to segment conversations in real- time in order to identify moments where brands can credibly and appropriately connect with consumers. We call it the Segmentation of Now, and we’ve done successful pilot work in categories like ice cream and beverages. In fact, Burson Digital has developed an app to do it interactively in real-time I mention this because this is the sort of thing you should be doing, too. If not with us, then with someone. Because in today’s marketplace, occasions are the keystone. Nothing matters more. NOTE (11) For more thoughts on the superstar versus super-sale economy, music industry insider and culture critic Bob Lefsetz offered an interesting take on it at his blog: Occasions Segmentation of Now® Super-sale and Superstar

51 Uber All Thank you! FutureView 2015 LIVE J. Walker Smith
Tomorrow’s Vertex of Value in On-Demand, Premium, Dynamic Pricing and Personal Services FutureView 2015 LIVE Thank you! J. Walker Smith Executive Chairman With that, let me bring FutureView 2015 to a close. Thanks for your time and interest. Be sure to go to the link shown at the bottom left if you’d like a copy of this deck or a replay. We look forward to following up with you. Thanks.


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