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Dominican College, Orangeburg ​Steffie OC dr. Callen and mr. Berger thanks for hosting such a wonderful event I have 900 seconds and 90 slides so fasten your seat belts at NYU Stern we developed an algorithm in 2010 that looks at 850 data points across four dimensions sight digital marketing social and mobile and across 11 geographies we apply this against 1300 brands and over the course of time we like to think that we can make recommendations around who the winners and losers are what platforms and technologies people are investing or divesting from sort of an always-on or think of us as train spotters that see patterns in what's going on in a 2% growth economy any company that's growing faster than 2% there's someone on the losing end of that and I think it's just as important to talk about the losers as the winners in a conferences we tend to only talk about the winners so I affectionately call this the four horsemen I was asked to look at the four most dominant companies in digital and make some sort of predictions around who's going to increase in value and influence and who will decrease and include in influence and value so when we say loser we just mean decrease in value or influence any of these companies could technically be losers for the next 10 years and still be incredibly important they're all amazing companies I also want to say that I get it wrong all the time and I constantly hear from these brands after we talk to them but I hope most of this is right but I know some of it is wrong so enough of the fine print these companies have a combined market cap of 1.3 trillion which is greater than the GDP of South Korea market cap of approximately 5 million dollars per employee that blows away any country if these four companies got together and created a society for their employees it would look like something out of Elysium the movie with Matt Damon let's kick off and talk about Amazon we believe that pure-play retail is going away that e-commerce companies are either going to open stores or go out of business and retailers need to be the excellent it digital or they will go out of business I also believe that Amazon cannot survive as a pureplay retailer there's evidence everywhere fab launches to raises 250 million at a billion-dollar valuation 14 months later it's sold for fifteen million I believe fab guilts now deporte are all fantastic companies than once the venture capital community falls out of love with their magnetics founders and they long longer have access to cheap capital they will discover the business models don't work and go out of business or they will open stores and the majority of them are running to open store stores are the new black in the world of e-commerce we've discovered these incredibly flexible robust warehouses called stores so Rent the Runway yrb Parker and a variety of pure plays are now opening stores the most impressive which yrb Parker whose sales are second in the US per square foot just behind Apple and just ahead of Tiffany retailers are not befuddled prey waiting around to get to get disrupted they in fact are growing their ecommerce businesses this is a list of retailers that are growing the recovers businesses faster than Amazon youth might think Amazon's the most innovative company in retail over the last 10 years that might be true but if you look at the last five years it's been Macy's from a shareholder standpoint in Amazon it's at the lowest return of almost every major retailer in the US over the last year this is the returns of the biggest retailers in Europe which you can take away the European retail has failed its investors the strategy of Amazon is the last man strategy to a last mile strategy a last man standing a multi-billion dollar investment at last mouth an incredible fulfillment infrastructure hoping that other retailers have to follow them and then run out of oxygen because no other retailer has access to the same cheap capital is Amazon however we have revealed an Achilles heel of Amazon Amazon's feel and that is their shipping costs are exploding 40% a year and over the last nine months they've gone up more than 40 percent which is not sustainable even for Amazon their shipping fees are what they took in for shipping was three billion dollars but they spent almost 7 billion on transportation costs this is not sustainable it's a race to the bottom they forced everybody else to offer free shipping 2/3 of Christmas packages were brought to you free it used to be one third that happened in just 12 months some of their differentiation one-click ordering an incredible same-day fulfillment I believe those points of differentiation are being eroded by on-demand payment and on-demand or specifically I think likely the disruptive force for Amazon who's been the most disruptive force in retail in America is going to be Boober and it came to me when I took an uber ride in southern Florida it was $4 in Chicago you can hire a car in a driver for ninety cents a mile if you spent the same amount on Amazon as Amazon digital shipping services that's 7 billion miles of flexible delivery

in the US this is a heat map of blah blah Clow and it's usually showing a ton of excuse me carpooling con and it's usually showing people carpooling all over Germany and what I see are not people sharing cars I see flexible work staff without brown or yellow DHL uniforms who are going to be delivering packages this guy's about to disrupt Amazon in our view the other big trend in retail is something pretty boring people talk about click and Collect ordering online picking up and store it ends up that stores are fantastic and flexible warehouses 2/3 of europeans have tried this before in the u.s. we're well behind pickup points for online orders drive-thru pickup points in France have exploded from 1 to 3,000 just in the last year also stores are using their brick-and-mortar locations for flexible warehouses if you order a flat screen TV from Best Buy it will now get there faster than if you order from Amazon because they're using their local store as the warehouse to fulfill the retailer the future is not Amazon it's Macy's that has multi-channel retail Macy's is a metaphor for what's happening not only in retail but in our larger economy they're closing 15 stores reinvesting two billion dollars in online commerce most of these jobs are going away they're 40 to $80,000 sales jobs and being replaced by 20 to $40,000 factory and fulfillment jobs it's a larger metaphor for the economy where we're losing middle-class jobs some some services jobs going away some growth in healthcare and education some fantastic new jobs for people in the information economy but real to where the will drop growth is is low-wage on-demand services the smartphone economy is going to be outstanding for employment it's going to be terrible for wages some predictions Amazon will decline in value Amazon will make a transformative Rick and mortar acquisition in the next 12 months because they have no choice pure play does not work top candidates radio station shock my favorite is I think they will buy a gas station company and use gas stations that are decreasing in their importance such that people can pick up their orders or they may in fact buy or invest in the US Post Office and the music is stopping for pure play ecommerce companies let's talk about Facebook Facebook has redefined the taxonomy of friendships Facebook has pulled off the greatest bait and switch in marketing history they convinced many of the brands in this room to spend hundreds of millions to build their communities telling them that it would be their community and they would have access to it they then put a walled garden around it and said just kidding you have to pay for access to that community the organic reach on Facebook is now six percent meaning that if you are Procter & Gamble and you want to speak to the community that you paid to bill bill one in 16 messages will actually reach them they are telling clients that they should assume organic reach of zero best acquisitions and technology Facebook Instagram and whatsapp whatsapp perfectly overlaps with Facebook's weaknesses geographically if you want a sense for what an outstanding acquisition Instagram was it was purchased for a hundred million less than tumblr at the same time Facebook last year did somewhere between 400 and 500 million Yahoo refuses to say what tumblr did best acquisition intact worst acquisition in tech the only threat to Facebook's dominance two years ago we predicted that the most powerful social network in the world would be Instagram the primary drivers of social media are visual and being born on a mobile device and Instagram as both Instagram is growing faster than any social platform with the exception of WeChat that has over 100 million users if you look at the Facebook properties including Amazon excuse me including an Instagram that they own they dominate the app economy this is the most popular apps by age groups as you can see Facebook is littered all over these charts if you look at engagement rates Instagram gets 10 to 15 times the engagement rate of Facebook and 25 times the engagement rate of Twitter Facebook loves to be picked on people are constantly talking about young people not liking Facebook that is total hogwash Facebook could contain use to pull away in power social media is becoming Facebook in the seven divorce two-thirds of all time on on social media is now on Facebook if you look at European nations almost everybody that's on a social network is on Facebook the real quiet war that's taking place is your ability or Facebook and Google's ability to track you specifically by your identity which Google can only do on Gmail or Google Plus Facebook can do test your specific login on Facebook and then they can serve you ads when you're no longer on the platform across the wider platform this is a huge lucrative business and as of last year Facebook is now tracking more individual identities and Google and beginning to pull away their 1.1 self-identified Catholics in the world Google has relationships with 2.2 billion Facebook has relationships with 2.4 billion the training it fits Facebook should go something like this for the sales associates hey break brand what platforms are you investing in we're investing in Pinterest and Twitter congratulations you're going to win awards those are great when you're interested in building your brand at scale give me a call Admiral relationships than God on this planet and I'm on a mobile phone let's talk about Google Google has dominant share but it's beginning to decline other people chipping away at their search volume the billion searches on Facebook 300 million searches on Twitter twothirds of product searches begin on Amazon which are high-value serve searches we see share starting to decline the bottom line is the mobile economy is not friendly to Google's Google's business model when people are in apps they're less inclined to search on Google as a result the cost per click is declining net profits and revenues are slowing down Google+ is dead already it's at a 97% decline and engagement rate video people are talking about how

Facebook is going to disrupt TV Facebook is going to disrupt YouTube Google glass is not a wearable it's a prophylactic ensuring you will not conceive a child as no one will get near you let's talk about Apple what makes the luxury brand the first is an absolute majesty of reverence for artisan ship and craft at the very beginning there's someone who is obsessed with a passion and a love for the craftsmanship the art of the object itself you also have an iconic founder you also have an exceptionally high price point you have vertical control of your distribution recognizing that brands are now built at purchase in addition to add broadcast media so an exceptional investment in stores and control luxury for the first time last year now controls over 50% of its distribution your vertical your global rich people the most boring people in the world they smell look and feel alike they all fly British Airways where I'm as in party in st. Barts the middle class is much more different luxury brands are able to go global faster because rich people aspire to the same things you also have and I think this is the most important thing and the reason why Apple is about to become the first trillion-dollar brand luxury brands give you self expressive benefit they signal something about you this is not a timepiece I have not wounded in five years it's my vain attempt to express Italian masculinity and signal that if and signal that if you mate with me I'm more likely to take care of your offspring than someone wearing a swatch watch we like to think we're more evolved in that we're not the most powerful luxury brand in the world is Apple craftsmanship and iconic found or exceptional price point find another technology product that over time as its matured has expanded its margins this is the only tech product I can find that's been able to achieve that exceptional price point controller their distribution they open stores just 13 years ago now the most successful retailer in the store the store I'm looking at here on Fifth Avenue to will half a billion dollars just in this one underground store it's very much a global brand with exceptional brand management and core associations that extend beyond cultural boundaries and what's the key the self-expressive benefit it's no accident they hired paul de neve out of YSL or am Aran's was willing to give a 28 million dollar job and moved to Cupertino she's not opening stores she's building the next great luxury brand look how Burberry asked this Apple watch ad looks self-expressive benefit there are only three things three things we do in business and that's appeal the people's instinct to survive food housing food housing warmth clothing their ability their instinct to love choosy moms choose Jeff by tide if the clothes are you washed with tide it shows that you love your family and your desire to propagate and as we move down the torso the margins get better and the business gets better and luxury is in the business of propagation Tesla is not an environmental car it's an attempt to tell people you can afford 120 thousand dollar car the core actually move evolution is men paying $150,000 for cars that can go 160 miles an hour and domains where you can only go 55 makes no sense women will continue to pay $600 for economically impossible shoes to try and solicit inbound offers from those same men don't lap I believe this stuff anyways Apple is the only company in history that has successfully migrated down that torso the only tech company in history used to be the best computer then it's saying to your heart with songs now it's the ultimate self expressive benefit brand this is a heat map of operating systems this is the iOS operating system the wealthy areas of Manhattan as you go into the lower-income households in suburbia Android lights up by the way if you see purple in the middle that's Jurassic Park that's the dinosaurs using blackberry this is Los Angeles if you want to live on the coast or in Beverly Hills you only have to own an iOS if you want to move inland or into South Central you can use ant you can use Android the ultimate self-expressive benefit brand is now an iPhone for those of you carrying an iPhone it means you're wealthier and better educated and more likely to have more options in terms of who you mate with we knew they were going into watches you want to see a company in denial talk to the watch industry I'm going to fly through this first year Apple is going to be the biggest watch company in the world who does this hurt it hurts everybody not just watch companies but all aspirational price-point brands teen retailers are getting killed they're staring at the navel if the product is a brand problem it's an Apple problem these brands get hurt predictions Apple will become the first trillion-dollar market cap company on the back of a successful transition to a luxury brand the luxury boom hits a wall China lack of innovation Apple my name is Scott Galloway teaching to oyster and I appreciate your time with all of our panelists Hobart and William Smith Colleges, Geneva.