Adobe Digital Economy Project - September 2016

© 2016 Adobe Systems Incorporated. All Rights Reserved.

ADOBE DIGITAL ECONOMY PROJECTSEPTEMBER 2016 UPDATE

© 2016 Adobe Systems Incorporated. All Rights Reserved.© 2016 Adobe Systems Incorporated. All Rights Reserved.

Main takeaways: September

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§ In the wake of this summer’s Brexit vote, the U.K. appears to be an attractive destination for travelers. International flights to London Heathrow and London Gatwick are down 8.6% and 8.5% month over month, in contrast to 2.3% decrease in overall prices for all international flights. Hotels in the UK saw a MoMincrease of 3.1% though they are down 18.3% YoY compared to September of 2015

§ Deflation is slowing across the U.K. in select DPI categories, revealing the first signs of inflationary pressures post-Brexit

§ Lower prices for flights to the U.K. as well as MoM declines in prices of flights to Madrid (-5.1%) and Paris (-4.3%) are making flights to Europe cheaper MoM (-5.5%) than international flights, which saw MoM deflation of only 2.3%

§ Labor Day sales in the U.S. contributed to continued deflation for appliances, TVs, and tablets. Appliance prices are down 1.5% between August and September, while TV prices are down 1.0% and tablets 1.3%. TVs, computers, tablets, and electronics have seen double-digit YoY deflation

§ Significant MoM inflation occurred in domestic flights (up 2.4%) where airlines are facing higher fuel prices and employment costs and for computers (1.4%), though both categories are still down YoY (7.0% and 10.3%). Other categories including international hotels, grocery, medical equipment, and non prescription drugs saw prices rise MoM

§ U.S. results signal continued economic stability and low inflation:

§ In the U.S. DPI domestic airfare prices are up from August 2.4% but still down 7.9% from last September, YoY

§ Our U.S. Job Seeking Index shows that online job searches have decreased, reflecting fewer job seekers in the labor market

§ Our U.S. Digital Housing Index shows the largest YoY increase since April in online searches for home purchases and rentals, revealing a strengthening housing market moving into the fall


Adobe Digital Insights Background

Based on analysis of aggregated and anonymous data from Adobe Marketing Cloud:• Adobe Analytics and Adobe Mobile Services

Thousands of brands worldwide including two thirds of Fortune 50 companies rely on Adobe Marketing Cloud:• $7.50 of every $10 spent online with top 500 U.S. retailers go through Adobe Marketing Cloud **• Adobe Marketing Cloud powers:

• 20 of the top 30 U.S. employers

• 9 of 10 largest hotel groups• 7 of 10 largest airlines

** Latest IR Top 500 Report 2015

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AdobeAnalyt ics

AdobeMobile Services


Economist Advisors

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Austan Goolsbee, University of Chicago§ Robert P. Gwinn Professor of Economics at The University of Chicago's Booth School of Business

§ Formerly served as President Obama’s Chairman of the Council of Economic Advisers

§ The youngest member of the cabinet of President Obama

Pete Klenow, Stanford University§ Professor, Department of Economics, Stanford University

§ Currently Visiting Scholar, Federal Reserve Bank of San Francisco

§ Member of editorial boards for Econometrica, American Economic Review, Quarterly Journal of Economics and others

© 2016 Adobe Systems Incorporated. All Rights Reserved.© 2016 Adobe Systems Incorporated. All Rights Reserved. 5

Digital Price Index(DPI)

Job Seeking Index(JSI)

Digital Housing Index(DHI)


Digital Price Index(DPI)


Methodology – U.K.

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Based on analysis of aggregated and anonymous data• Fisher Ideal Price Index• $6 of every $10 spent online with top 100 European retailers go through Adobe Marketing Cloud **• Based on analysis 1 billion website visits and 100k products sold online

ONS: Consumer Price Index Adobe: Digital Price IndexQuantities Sold No YesProducts/quantities updated Annually Daily

Number of Products 180,000 100k(currently covered categories)

Data Collection Frequency Monthly DailyData Availability Monthly DailyOffline Prices Yes NoLong history Yes NoAll categories of spending Yes No

** Latest IR U.K. Top 500 Report 2015


Adobe DPI in the United Kingdom

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• Our Digital Price Index in the U.K. for groceries shows that grocery prices have deflated by 2.9% YoY in September. Prices dropped 0.52% between August and September, continuing the trend of lowering food prices while the UK still enjoys pre-Brexit terms of trade with the EU

• For computers, we see YoY deflation of 13.7%. Deflation in this category appears to be slowing, as deflation slowed MoM from -1.0% in July to -0.7% in August to 0.3% in September.

• Similarly TV prices in the UK continue to fall; the DPI shows YoY deflation of 24.6% between September 2015 to September 2016. Deflation appears to be slowing in this category as well as deflation MoM was 1.3% between August and September, down from 2.9% between July and August.


Methodology – U.S.

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Based on analysis of aggregated and anonymous data• Fisher Ideal Price Index• Adobe measures 80% of all online transactions from top 100 U.S. retailers ** • $7.50 of every $10 spent online with top 500 U.S. retailers go through Adobe Marketing Cloud **• Based on analysis of 15 billion website visits and 2.2 million products sold online

BLS: Consumer Price Index BEA: Personal Consumption Expenditures

Adobe: Digital Price Index

Quantities Sold No No YesProducts/quantities updated Every 2 years Monthly Daily

Number of Products 83 thousand (all categories) 83 thousand (all categories) 2.2 million (currently covered categories)

Data Collection Frequency Bi-Monthly Monthly DailyData Availability Monthly Monthly DailyOffline Prices Yes Yes NoLong history Yes Yes NoAll categories of spending Yes Yes NoIndex Type Laspeyeres Fisher Ideal Fisher Ideal

** Latest IR Top 500 Report 2015


Big data in DPI decreases uncertainty

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DPI CPIAppliances 0.15% 0.46%Airfare 0.08% 0.51%Computers 0.28% 0.49%Furniture and bedding 0.07% 0.31%Grocery 0.10% 0.12%Hotels: domestic 0.04% 2.30%Medical equipment and supplies 0.20% 0.39%Nonprescription Drugs 0.18% 0.47%Sporting Goods 0.12% 0.31%Televisions 0.24% 0.60%Toys 0.25% 0.59%


Inflation rates by price ranges

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• Televisions have seen higher-ticket items deflate faster than lower-ticket items

• In computers, models priced above $1,200 showing the least deflation in the category

• Price bins are determined based on the price the product had when originally launched (first price).


The Importance of detail: Black Friday

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• DPI captures the effect of major discount holidays like Black Friday and Cyber Monday because it measures quantities and does so in real-time

• Lowest prices for TVs in 2015 were Thanksgiving and Black Friday

• Data demonstrates retailers trying to start sales earlier – the Sunday and Monday before Thanksgiving saw low prices


Measuring rapidly shifting consumer preferences

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• Electronics see an average of 80% of online spend on new* products**

• 16% of monthly online spend for groceries on new products

* Products that have been available for 1 year or less** A product is defined as an item for purchase which has an unique identifier (such as a SKU)


August 2016 Recap

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MoM: AugusttoSeptemer

MoM: AugusttoSeptember

Difference(percentage)

SameSign?

YoY:CumulativeAugust2015-2016

YoY:CumulativeAugust2015-2016

Difference(percentage)

SameSign?

DPI CPI DPIvs.CPI DPIvs.CPI DPI CPI DPIvs.CPI DPIvs.CPIAppliances 1.8% -0.9% 2.7% No -5.7% -2.9% -2.8% YesComputers -0.4% -0.7% 0.3% Yes -12.2% -6.9% -5.3% YesDomestic Hotels -2.1% -1.5% -0.6% Yes 2.3% 2.5% -0.2% YesFlights -3.6% -5.5% 1.9% Yes -3.2% -3.7% 0.4% YesFurniture and bedding 0.2% -1.2% 1.4% No -3.3% -2.9% -0.5% YesGrocery 0.0% 0.0% 0.0% No -0.9% -1.9% 1.0% YesMedical equipment and supplies -1.0% -0.2% -0.8% Yes -1.3% -0.1% -1.2% YesNonprescription Drugs -0.8% 0.2% -1.0% No -0.3% -1.2% 0.9% YesSporting Goods -0.5% -0.3% -0.2% Yes -5.7% -1.8% -3.9% YesTelevisions -2.9% -1.9% -1.0% Yes -20.9% -20.5% -0.4% YesToys 0.3% -0.1% 0.4% No -5.6% -8.1% 2.5% Yes


September 2016 Summary

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• Main deflation in September:• International flights, appliances, tablets,

televisions

• Main inflation in September:• Domestic flights, computers

YoY MoMAppliances -6.1% -1.5%Computers -10.2% 1.4%Electronics -10.7% -0.5%Flights -3.1% 1.3%Domestic Flights -5.7% 2.4%Intl Flights 0.0% -2.3%Furniture and bedding -3.4% -0.1%Grocery -1.0% 0.2%Domestic Hotels 1.0% -0.3%Intl Hotels -3.7% 0.1%Medical equipment and supplies -0.9% 0.3%Nonprescription Drugs 0.2% 0.1%Sporting Goods -5.5% -0.4%Tablet -20.4% -1.3%Televisions -20.8% -1.0%Toys -6.0% -0.8%


Appliances

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• Adobe DPI shows cumulative deflation of -6.1% YoY (September 2015 to September 2016)

• Main YoY price decreases for Appliances priced between $600 and $1000

• For September 2016, prices decreased -1.5% vs August 2016 MoM

METHODOLOGY:

• The data used contains transactions for ~110 K products• Products include large appliances such as fridges, ovens, washers, dryers as well as smaller appliances such as vacuums, mixers, blenders etc.


Airfare

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• For September 2016, prices increased 1.3% vs August 2016 MoM

METHODOLOGY:

• The data used contains transactions for ~370 K flight routes• Includes associated fees, where applicable


Airfare: domestic

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• Main YoY deflation for flights Oregon, Illinois and Colorado

• Main YoY inflation for Hawaii, Florida


METHODOLOGY:



Airfare: international

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• Adobe DPI shows cumulative inflation of 0.0% YoY (September 2015 to September 2016)

• Main YoY deflation for flights to Europe and Africa

• Main YoY inflation for flights to South America


METHODOLOGY:



Electronics

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• Main YoY price decreases for Electronics priced between $200 and $500


METHODOLOGY:

• The data used contains transactions for ~1 M products• Products span across dozens of different categories such as televisions, laptops, Blu-ray players, desktops, tablets, wearables, headphones, video games, printers etc..


Electronics: computers

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• Main YoY price decreases for Computers priced between $700 and $1200


METHODOLOGY:



Electronics: televisions

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• Main YoY price decreases for Televisions priced greater than $2000


METHODOLOGY:



Electronics: tablets

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• Main YoY price decreases for Tablets priced between $350 and $550


METHODOLOGY:



Furniture and Bedding

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• Main YoY price decreases for Furniture and bedding priced between $100 and $150


METHODOLOGY:

• The data used contains transactions for ~173 K products• Products include interior and exterior furniture, mattresses and other bedding products


Groceries

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METHODOLOGY:

• Our dataset covers an estimated 30-40% of all online grocery purchases. It contains transactions for ~195k products• The mix of grocery products bought online is not the same as offline – the top category for online shopping is drinks (nonalcoholic), while for offline shopping it is meat


Hotels: domestic

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METHODOLOGY:

• The data used contains transactions for ~250 K hotel properties• Includes associated fees, where applicable


• Main YoY inflation for Nevada, Hawaii, Colorado and Tennessee

• Only state showing YoY deflation is New York



Hotels: international

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METHODOLOGY:

• The data used contains transactions for ~250 K hotel properties• Includes associated fees, where applicable


• Main YoY inflation for Oceania and North America destinations

• Main YoY deflation for African and European destinations



Medical Equipment and Supplies

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• Main YoY price decreases for Medical equipment and supplies priced greater than $135

• Main YoY price increases for Medical equipment and supplies priced between $0 and $10


METHODOLOGY:

• The data used contains transactions for 6,000 products• ” includes supportive and convalescent equipment, dressings and first aid kits, and medical equipment for general use


Nonprescription drugs

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• Main YoY price decreases for Nonprescription Drugs priced greater than $40

• Main YoY price increases for Nonprescription Drugs priced between $15 and $25


METHODOLOGY:

• The data used contains transactions for 16 K products• Includes all non-prescription medicines taken by swallowing, applying on your skin (such as topicals), inhaling, as suppositories, or enemas.


Sporting Goods

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• Main YoY price decreases for Sporting Goods priced between $40 and $100


METHODOLOGY:

• The data used contains transactions for ~300 K products• Products include small equipment and accessories (balls, gloves, uniforms) as well as large equipment such as treadmills, weightlifting tools etc.


Toys

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• Main YoY price decreases for Toys priced between $70 and $200


METHODOLOGY:

• The data used contains transactions for ~249 K products• Products include toys, games as well as playground equipment


Job Seeking Index(JSI)


Online job seeking sees steep decline

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METHODOLOGY:

• Based on analysis of aggregated and anonymous data from more than 1 billion visits to U.S. employment-search websites and top employer career pages

• Adobe Marketing Cloud powers 20 of the top 30 U.S. employers**

• US online job seeking is down 17.9 % YoY in August

• This is indicative of a strong labor market and fewer workers looking for jobs. These data reinforce recent findings from the U.S. Department of Labor stating that U.S. jobless claims are the lowest in decades


Digital Housing Index(DHI)


Online housing search growth rises

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METHODOLOGY:

• Based on analysis of aggregated and anonymous data from more than 2 billion visits to U.S. housing search websites

Online search for purchases and rentals up 17.0% YoY in September, the strongest housing market in the DHI since April 2016, signaling that the housing sector is picking up more steam heading into the fall


Appendix

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Digital Price Index: Fisher Ideal Price Index

∑ 𝑃#$𝑈#$&'(#)'

∑ 𝑃#$&'𝑈#$&'(#)'

∗∑ 𝑃#$𝑈#$(#)'

∑ 𝑃#$&'𝑈#$(#)'

• The Fisher Ideal Price Index uses quantities purchased on the current period (month) and a previous period (previous month) to determine actual consumer’s preferences. Instead of assuming that consumers preferences for what goods to buy are constant over a certain number of years, it is able to account for the fact that they are constantly changing what they buy.

𝐹𝑖𝑠ℎ𝑒𝑟𝜋$ =


Methodology Comparison: Fisher, Laspeyres and Paasche


Annual Cumulative Inflation Rates


Electronics Deflation in Detail

• The average price paid for an iPad mini (all models) has decreased by about 40% since the iPad mini 1 was introduced in November 2012.

• Although the initial price tag of new models remains constant at around $400, the automatic discount of previous models causes the average price to consistently fall: when the iPad mini 3 was introduced at an average price of $450, the price for the iPad Mini 2 was reduced by 25% to $300.

• This data only includes iPad minis sold in retail websites


Inflation Rates by Price Bins, May (MoM)


Inflation Rates by Price Bins, May (MoM) – Cont’d


Job Seeking Online: Traffic Sources

• Direct traffic to employment-listing websites is higher than search traffic

• Search ranks second

Adobe Digital Economy Project - September 2016

Economy & Finance

Transcript of Adobe Digital Economy Project - September 2016