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Big Bang Disruption in DeliveryMay 2015

2

What is Big Bang Disruption? A look at the history of Pinball.

Copyright © 2014 Accenture All rights reserved.

Pinball not only survived the early period of arcade video games, it thrived...

Pinball Units Sold(Hundreds of Thousands Per Year)

1989 19920

0.5

1.0

1.5

Pinball suffered a stealth invasion, not from arcades, but from an unexpected source: home consoles.

Pinball Units Sold(Hundreds of Thousands Per Year)

Playstation™ Units Sold(Millions Per Year)

0

0.5

1.0

1.5

0

10

20

30

1989 1992 1995 1998 2001 2004Copyright © 2014 Accenture All rights reserved. 3

4

Big Bang Disruption


Innovators(2.5%)

Early Adopters (13.5%)

Early Majority (34%)

Late Majority (34%)

Laggards(16%)

BIG-BANG MARKET SEGMENTS

5

Competitive StrategiesStrategy gurus would say you must pick one.


160

140

120

100

80

60

40

20

The Inevitable Reality for Kodak

Source: The Economist, Kodak annual reports, Google Finance

1970 1975 1980 1985 1990 1995 2000 201520102005

Number of Employees (thousands) Share Price (USD)


BIG BANG DISRUPTORS ARE EVERYWHERE

Industry BigBang Disruptor

M aps & dedicated GPS devices

Taxi services

Hospitality–Hotels

PCs and Laptops

FinancialServices –Payments

Retail

Education

Travel agencies

Yellow pages

Film rentals

Low-end digital cameras

Unencumbered Development

BIG BANG DISRUPTION

Time

Mar

ket P

enet

ratio

n

TRADITIONALTECHNOLOGYADOPTION CURVE

Undisciplined Strategy

Unconstrained Growth

Driven By Moore’s Law

Copyright © 2015 Accenture All rights reserved. 8

9

Twice As GoodTwice as good as the flip phone was easy…


10

Twice As Good… the next iPhone is much harder.


Unconstrained Growth

NB: Garmin and TomTom data from available 10k filings and annual reports. Garmin’s year 0 = 1998 (StreetPilot debut); TomTom’s year 0 = 2002 (Navigator debut). Both Garmin and TomTom unit sales are inclusive of all GPS products. Google data from publicly available news sources; year 0 = 2007 (debut of Maps for Mobile 2.0)

* TomTom stops reporting unit sales per yearafter 2009

Google Maps mobile installsTomTom cumulative unit sales*Garmin cumulative unit sales


Years since debut of first auto-GPS offering

Est

imat

ed u

sers

(mill

ions

)

0 2 4 6 8 10 12 14

200

180

160

140

120

100

80

60

40

20

Near perfect information means you can’t stop it.

12

Unencumbered Development Until the right combination occurs it is a series of failed experiments.


1993 1996 1998 1999 2003

Napster

iTunes Music Store

Internet Underground Music Archive

Ritmoteca.com, eMusic

Cductive

1992 1998 2004 2006 2007

Kindle™

Expanded books

Rocket eBook, SoftBook

Librié

iLiad, Reader

Smartphone Network Cloud Infinite Processing

Capacity

13

Moore’s Law AppliedThree technologies have come together to forever, radically change the consumer landscape.


+ + + =

We’ve Already Seen It

Source: Global approximation based on data from USPS, “Email Volume Estimates from 1978 to 2011,” International Center for Integrative Systems

1926 1936 1946 1956

Pieces of transaction mail (billions)Global email volume (trillions)

120

100

80

60

40

20

160

140

100

80

40

20

120

60

1966 20061976 1996


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Retail Trends – Shorter DistanceAmazon's global network of fulfillment centers


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Retail Trends – Free ShippingFree shipping is the number one decision factor for online purchases.


Source: ComScore

Free Shipping

44%Customer

Pays Shipping Charge

56%

Q3 2013

Free Shipping

68%

Customer Pays

Shipping Charge

32%

Q3 2014

Percentage of U.S. E-commerce Purchases with Free ShippingQ3 2013 vs. Q3 2014

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Retail Trends – SpeedRetailers are investing in speed and it is working.


Source: Stella Service

0

1

2

3

4

5

6

7

Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dez 13

BestBuy.com Amazon.com

SFSLaunch

Store Warehousing vs. Centralized Fulfillment Centers2H 2013, Amazon.com vs. BestBuy.com Average Parcel Delivery Speed

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Retail Trends – Online InventoryRetailers are investing in online inventory and proximity solutions.


“How prepared are you to drive in-store sales from consumers’ digital interactions?”

We can identify online the stores that stock our merchandise

We can identify online the stores with current merchandise availability

We can collaborate with retailers on targeted incentives for consumers buying in-store

We can identify online the stores in the consumer’s proximity with current merchandise availability

48%

50%

50%

66%

19

Retail Trends – Click and CollectRetailers are betting on click and collect with 57% saying it is a top omnichannel priority.


Percentage of Consumers who have Used Click & Collect Service by Country

19%12%

21%

32%

41%

51%

57%

60%

US

Germany

Italy

Netherlands

Belgium

UK

France

20

Retail Trends – New Delivery PlacesRetail and eCommerce are blending and investing in new delivery pts.


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Potential Big Bang Disruptors


Drone Delivery

Analytics Driven Network Brokers

New Delivery Models

22

New Models Now PossibleNew entrants have an entirely different cost structure. It is no longer about density.


Sourcing Spare Capacity

Rapid Scale (Up and Down)

Focused On Last Mile (For Now)

Technology Enabled

Total Funding in Sharing Economy Start-ups by Year ($M)

23

Significant Last Mile Investment


Storage

Logistics

Stay

Transport

Personal Goods

Private Spaces

Food

Business Equipment

Total Sector Funding ($M) Top Funded Companies Top Investors

Source : Sharing Economy Landscape, 2015, Tracxn, Accenture Analysis

0

4

11

16

51

273

645

800 Airbnb ($776.4M), Wimdu ($90.0M)

Lyft ($333M), RelayRides($53.2M), Boatbound ($5.3M)

Chegg ($252M; IPO at $1.1B). Bag Borrow or Steal($20.0M)

LiquidSpace ($26.2M), PivotDesk($6.7M), Storefront($8.9M)

Getable($3.2M), Yard Club($1.6M)

EatWith ($9.2M), Suppershare

Friendshippr ($1.2M), WeDeliver($0.8M)

Roost ($160k), StowThat ($50k)

Sequoia, TPG Growth

Trinity Ventures, Shasta Ventures, Google Ventures, August Capital

N/A

Shasta Ventures, Roth Capital Partners, Lucas venture Group, Spark Capital

N/A

GreyLock

N/A

N/A

60 96 283 357 116

958

2009 2010 2011 2012 2013 2014

Local Deliveries

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Significant Last Mile Investment


StorageCrowd Shipping

25

Variable Cost Networks Change The Game


Variable Cost Levels – Margin Impact

Operating MarginLoss Sensitivity Revenue Loss

1% 3% 5% 7% 10%

Variable Cost Ratio

10% 9% 27% 45% 63% 90%

20% 8% 24% 40% 56% 80%

30% 7% 21% 35% 49% 70%

40% 6% 18% 30% 42% 60%

50% 5% 15% 25% 35% 50%

60% 4% 12% 20% 28% 40%

70% 3% 9% 15% 21% 30%

80% 2% 6% 10% 14% 20%

90% 1% 3% 5% 7% 10%

Variablizing costs or being more captive in sustainable revenue streams would be important

Notes: Illustrative of a firm with a 10% operating margin in the original scenario Source: Accenture Analysis.

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Better?


ConvenienceIs King

New Value Added ServicesFaster Delivery

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Cheaper?


Estimated last mile delivery costs.

$5.00+

$2.00

$1.50

28

More Personal?


When I Want It

Where I Want It

Fully Within Consumer Control

Completely Transparent

29

Analytics Driven Network BrokersThe emergence of multi-carrier domestic fulfillment solutions is following the models developed for cross-border solutions.


Building Blocks

Significant Scale• Large contracts directly with retailer/etailer• Founded on price negotiation power

Analytics driven• Detailed data on price and performance• Becoming predictive

Multi-carrier first/last mile • Negotiated lanes connecting hubs

• Multi-carrier last mile strategies

End-to-End Visibility• Proprietary tracking systems knit networks• Customers see single network

30

CainiaoThe most advanced and aggressive of these networks is an emerging player in China called Cainiao.


Company Details One China Network

Founded 2013

CEO Jack Ma (founder Alibaba)

Ownership • 40% Alibaba• 30% Real Estate Dev• 1% each – SF Express,

ZTO, Shentong Express, YTO, Yundan Express

Coverage 2,000 of largest cities in China

Network 9 processing centers across China

31

CainiaoThis new model may become the default shipping option for most content moving through China’s domestic networks.


Building Blocks

Significant Scale • All Alibaba content• 96% of C2C• 45% B2B• 50% B2C

• Expanding to include other etailer/retailers

Analytics driven• Selecting on price and service responsiveness

• Detailed pricing by lane• Objective is D+1 across China

Multi-carrier first/last mile • Sourcing network from 5 largest CEP companies in China

• China Post for USO and warehousing• Large stake in KXTX logistics platform (ground tranport)

End-to-End Visibility• Tracking system called Logistics Pal• Captures tracking events across networks for every delivery

32

Better?


Remote Locations

Focused on Speed

(next day everywhere)

Improved Service

Reliability

33

Cheaper?


Currently focused on speed and reliability but price is next.

Minimal network investment

required

Leveraging spare capacity

Analytics driven pricing data

34

Drone DeliveryOne of a few truly transformative technologies, drones will soon become part of the consumer landscape.


Cheaper.Faster.Smaller.

AccelerometersBarometersGyroscopes

Digital CompassesMicroprocessors

WiFi RadioBluetooth RadioCellular Radio

Near Field CommsBatteriesDisplays

• Flight controllers have dropped 100x in last 8 years• Fully autonomous for $150• Mission control: laptop, tablet or

smartphone

• Sensor costs dropping rapidly driven by smartphone investment• Cheaper, smaller and more

environment aware• Processing capacity and speed

exponential

• Hobby/consumer use becoming prevalent, cheap and easy• Even hobby models have

multiple onboard radios• Taking selfies to a new level

35

Drone DeliveryExperiments are just getting started.


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But We’re Not There Yet…Additional technology and regulatory advancement required before delivery will be a reality.


Regulatory (not exhasutive)

Country Status Delivery Suitability

UK Clear regulationsand certification

Germany Clear regulation and certification

US Draft regulations until 2016

Australia Clear regulations and certification

India No regulation – local discretion

China No regulation – local discretion

Required Technology

Collision avoidance

Battery – the universal limiter

Longer lifeAutonomous swap

Autonomous package delivery/retrieval

Delivery base systems

App store model

37

Better?


Remote LocationsAll HoursFaster Delivery

(less than hour)

38

Cheaper?


Current experiments are too costly but models estimate delivery could be very cheap.

.24$2 kilograms25 kilometers

39

More Personal?


When I Want It

Deliver To My Location

Smartphone Controlled

We Are In The Singularity


The Singularity The BigBang

The Big Crunch Entropy

What should companies do about it


The Singularity The BigBang

The BigCrunch

Entropy

Foresight

ScalingM anagement

Asset Freedom

End GameM astery

The Singularity The Big Bang The Big Crunch Entropy

EARLY ADOPTERS M UST BE REPLACED

1. Listen to your truthtellers

2. Time the pace of technology

3. Engage in seemingly random experiments

SHARKFIN M ODEL

RULES OF THE SINGULARITY


ADVERTISING AND PROM OTION M UST BE SOCIAL

1. Deploy winner-takes-all strategy

2. Create bullet time

SHARKFIN M ODEL

RULES OF THE BIG BANG


M ARKETING M UST CALL THE FIGHT

1. Anticipate saturation

2. Shed assets before they become liabilities

3. Quit while you’re ahead

SHARKFIN M ODEL

RULES OF THE BIG CRUNCH


M ARKETING M UST LEAD THE ENDGAM E

1. Become someone else’s components

2. M ove to a new singularity

SHARKFIN M ODEL

RULES OF ENTROPY

Thank [email protected]: Brody BuhlerTwitter: @brodybuhler

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