scott galloway - best practice: 0 or 1 - winners & loosers in a digital world

Scott Galloway | July 10, 2012

@profgalloway

Facebook/l2thinktank

Winners & LosersBEST PRACTICE: 0 or 1 --

in a Digital World

Info@L2ThinkTank.comInfo@L2ThinkTank.com

Objectiv3

Greatest

Session

Intro:

Winners, and losers, have emerged.

Info@L2ThinkTank.com

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E0

Newspaper Industry Help Wanted Classified Ad RevenueGoogle Revenue

Revenue(2000–2010)

Google Killed the Newspaper Star

Sources: Google, cnet News; naa.org; TheLadders

What is this data set?

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E0

Revenue(2000-2010)

And what is this?

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E0

Newspaper Revenue vs. Google Revenue(2000–2010)

-92% in Newspaper Revenue vs. -92% in Newspaper Revenue vs. +1541% for Google

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E0

4.44.0

4.65.1

787MM 723MM

19MM 86MM 439MM1.5

21.823.6

Newspaper Revenue vs. Google Revenue(2000–2010)

Google IPO

-92% in Newspaper Revenue vs. +1541% for Google

Source: Mary Meeker, Internet Trends, April 10, 2010

2007 2008 2009 20100.0%

Facebook

YouTube

Google

Share of Global Online Time Spent(2007–2010)

“The top 10 Web sites accounted for 31% of US page views in 2001, 40% in 2006, and about 75% in 2010”

--Wired Magazine, August 2010

Web Dead, Internet Thriving

Facebook and the Seven Dwarves

Oct-08

Oct-09

Oct-10

Facebook

All Other Social Media Sites:(Myspace, Twitter, LinkedIn, Tumblr, etc.)

Source: comScore

Minutes Spent on Social Networks Each Month(June 2008–August 2011)

2005 2006 2007 2008 2009 2010 20110

US Consumer Magazine Ad Spend Facebook Revenue

What is this?(2005–2011)

Sources: Bloomberg News, Business Insider, TechCrunch, eMarketer, AdAge

sWho’s Next?

Revenue

2005 2006 2007 2008 2009 2010 20110

Revenue(2005–2011)

sWho’s Next?

And this?

2005 2006 2007 2008 2009 2010 20110

Magazine Revenue vs. Facebook Revenue(2005–2011)

sWho’s Next?

2005 2006 2007 2008 2009 2010 20110

18.5 19.2 20.118.5

16.7 15.8 15.3

10MM 50MM 150MM 265MM

Magazine Revenue vs. Facebook Revenue(2005–2011)

sWho’s Next?

Renting vs. Owning

Powering the Print Industry

Technolo

Cosmet

Apparel

Leading Magazine Advertising Category Growth(Q1 2011 vs. Q1 2012)

-34.6%

-15.2%

-3.8% -3.0% -1.0% -.2%

+13.2%

Source: Publishers Information Bureau (PIB) with Kantar Media as city MPA, April 4, 2012

Taking on Foursquare

August 2010:

Facebook launches “Places”

December 2011:

Facebook acquires Gowalla

Taking on Foursquare

And Pinterest?

February 2011: Facebook launches

“Pinned Posts”

And Pinterest?

What about Google +?

“After a brief blip in Google+’s traffic surrounding the site going public, we saw a prolonged and sustained downward trend in overall activity coming from the site.”

- Gabe Donnini, Chitika

Public Beta

Indexed Referral Traffic Google +(Sep-18 to Oct-12)

Not “Sticky”

Google+ Not So Sticky

And Tumblr?

And in April…

The E-commerce Opportunity

In 2010 68% of affluents indicated they purchased a product or service via the internet…

…in 2011 the percentage

jumped to 92%Source: Affluent Consumers and How they Use the Internet, Social Media, and Mobile Devices, Unity Marketing, November 2011

A more daunting Giant?

Their favorite websites?

Source: Affluent Consumers and How they Use the Internet, Social Media, and Mobile Devices, Unity Marketing, November 2011

The New Retail Giants

Source: comScore Media Metrix

Amazon eBay Alibaba Apple

Percent Reach of Global Internet Users(June 2011)

North America Europe Asia Pacific Middle East / Africa Latin America

11.3%9.7%

Referral Traffic: 2011 Digital IQ Index®: Beauty

Upstream & Downstream Traffic to Beauty SitesTo and From Sephora.com and Amazon.com

(2010 vs. 2011)

17.50%

27.50%

25.45%

36.36%

20.00%

22.50%

16.36%

21.82%

% of Brands for whom the following are a top eight

source of upstream traffic

% of Brands for whom the following are a top eight

source of downstream traffic

2010 2010 201020102011 20112011 2011

Overview:

The Digital IQ Index®

Digital IQ Index®

The only brand audit that benchmarks

the digital performance of brands

Ranks brands on the following dimensions:

SITE &E-COMMERCE

DIGITAL MARKETINGSearch, Email,

Display, Innovation

SOCIAL MEDIAMOBILE

3rd Annual Study Published

October 11, 2011

Population with Income >$30,000 USD(1995–2025E)

US Europe Japan China RoW

+300 Million(1995-2010)

+600 Million(2010-2025)

The Addressable Market for Luxury

Methodology

110–139

90–109

70–89

Genius:

Gifted:

Average:

Challenged:

Feeble:

Digital efforts are a point of competitive differentiation

Engaging and brand-enhancing; takes risk

Predictable, few innovation leaps

Limited innovation, experimentation and engagement

Nascent digital footprint; Investment does not match opportunity

Categorizing Results

Brands parsed into five categories based on Digital IQ score:

Overview:

The Rankings

RANKING: Challenged

Digital IQ Index®: Fashion (2011)

RANKING: Average

Digital IQ Index®: Fashion (2011)

Key Findings

Genius Gifted Average Challenged Feeble

Digital IQ® Dispersion 2011: Fashion (% of Brands per Digital IQ Class)

The standard deviation across Fashion Digital IQ decreased from 39 in 2010 to 25 in 2011 suggesting that it is becoming increasingly difficult to

differentiate.

The Race is Tightening

Punching Above Their Weight Class

Digital IQ by Parent Company

The Digital IQ of public companies significant outpaces that of private companies suggesting the pressure the markets put on signaling innovation.

U.S. (n=17) Great Britain (n =7) Italy (n=14) France (n=10)

Average Digital IQ by Country of Origin(October 2011)

Red, White & Digital

Greatest Year-Over-Year Gain(2010 vs. 2011 Digital IQ Percentile Rank)

Greatest Year-Over-Year Loss(2010 vs. 2011 Digital IQ Percentile Rank)

Donna Karan Alexander McQueen Ermenegildo Zegna Christian Dior Salvatore Ferragamo

43% 43% 41%

25% 24%

Hermès Oscar de la Renta Armani Prada Chanel

-35% -34% -33% -33%

Biggest Winners & Losers

Top 10 Overachievers (Facebook Fans vs. Global Google Searches)

Burberry Giorgio Armani

Dolce & Gabbana

Christian Dior

Jimmy Choo

Ralph Lauren

Chloé Gucci Yves Saint Laurent

343%308%

165% 156%

94% 82% 80% 69%

Top 10 Underachievers(Facebook Fans vs. Global Google Searches)

Theory

Donna Kar

an / D

Cather

andrin

Badgle

Alfred

Dunhill

-88%-89%

-90% -91% -91% -91% -92%-93%

Facebook Overachievers & Underachievers

Size vs. Engagement

Shifting Centers of Gravity

People Talking About This: Global Luxury Facebook Pages(April 2012)

TaipaiMexico City, Mexico

Tunis Bangkok

Istanbul

Kuala Lumpur

vLondon

v Paris

In the Company of Genius

Four SeasonsReallocation of capital.

Digital and the Balance of Power

Cost Per Booking by Distribution Channel(2010)

Digital IQ = Growth in RevPAR

Relationship Between 2012 Digital IQ & 2010-2011 growth in RevPAR

(Hotels with Published Data, N=22)

The End of Command and Control

Only 17% of hotel brands host user reviews……brands with reviews

sent 39% less traffic to OTAs

In the Company of Genius: Four Seasons

Allocation of Capital

FragranceThe Importance of Ownership

Fragrance: Digital IQ by Ownership

Licensed Owned 80

108 31

Average Standard Deviation

n = 39 n = 24

Digital IQ by Ownership Structure: Fragrance IQ(June 2012)

Huge digital assets…

8,762,020

1,028,899 894,165

Average Facebook Community Size by Ownership(May 2012)

Celebrity Licensed Owned

…But considerably underleveraged

BenefitLeapfrogging in China.

United Kingdom

France

2010 vs. 2015: Internet Users in the World's Largest Luxury Markets

(In Millions)

2010 2015

China Rest of World0

Internet Users: 2015

China U.S.Japan United KingdomFrance

Source: eMarketer, April 2011

Internet Tidal Wave

Source: MckInsey, 2009

China U.S. Japan

30%19%

70%81%

Customer Demographics: World's Three Largest Luxury Markets

18-44 45+

The average age for a millionaire in the U.S. is 54 years old vs.average age for a millionaire in China of 37 years old.

Digitally Native

2005 2006 2007 2008 2009 20100

U.S. United Kingdom Korea Japan

Online Sales as a Percentage of Total Retail Sales: Apparel(2005-2010)

2005 2006 2007 2008 2009 20100

Source:BCG, 2011

The Greatest Opportunity in a Generation

2005 2006 2007 2008 2009 20100

U.S. United Kingdom Korea Japan

Online Sales as a Percentage of Total Retail Sales: Skincare & Cosmetics(2005–2010)

2005 2006 2007 2008 2009 20100

Source:BCG, 2011

The Greatest Opportunity in a Generation

Benefit Dolce & Gabbana Johnnie Walker Burberry Audemars Piguet

48% 44% 40% 37%

Top Five: Greatest Year-Over-Year Gain or Loss2010 vs. 2011 Digital IQ Percentile Rank

Vacheron Constantin

Van Cleef & Arpels

Chivas Regal Wuliangye Moutai (Maotai)

-41% -43%

-67% -68%

Top Five: Greatest Year-Over-Year Gain or Loss2010 vs. 2011 Digital IQ Percentile Rank

Launched E-commerce

China IQ: Biggest Winners & Losers

Sina Weibo: 98K+ fansKaixin: 225K+ fans

“Flirt” Videos: 1M+ views

Strong presence on multiple social

platforms

Benefit: A Beauty

Youku: 430K+ views

Experimenting with Tmall

Estée Lauder A focus on the organization.

Multi-Brand Organiza-tions (N=25)

Other: Privately Owned (N=17)

Other: Publicly Traded (N=10)

2012 Digital IQ Index®: HotelsAverage Digital IQ® by Ownership Structure

(March 2012)

Independent Brands

The Enterprise Outpaces the Independents

5 OF TOP-10 BRANDS:

Estée Lauder

Companies

Digital IQ Index®: Beauty(2011)

And in Beauty

Dior Smashbox Origins Estée Lauder Shiseido

28%25%

Aveda NARS Perricone MD La Mer Neutrogena

-11%-14%

-17%-19%

Greatest Year-Over-Year Gain(2010 vs. 2011 Digital IQ Percentile Rank)

Greatest Year-Over-Year Loss(2010 vs. 2011 Digital IQ Percentile Rank)

2010 Acquisition

Biggest Winners & Losers

To date brands have focused on FB Growth + Programs + Online BuzzFacebook: Community Size

Facebook: Programming + Best Practices

Facebook: Engagement

Facebook: Global Integration

Twitter

YouTube

Digital Marketing Innovation

Online Buzz

Overall: Beauty Industry(Digital IQ Index®: Beauty 2011)

Limited Digital Marketing Innovation

Analysis includes top 55 Global Beauty & Skincare Brands across Channels

& Price-point

L2 Digital IQ Index®: Beauty (Social Media)

Facebook: Community Size

Twitter

YouTube

Online Buzz

Beauty Industry vs. Dove(Digital IQ Index®: Beauty 2011)

Facebook Advertising + Programming Strategy:

Grew from 300k fans to 4.3 MM fans over 2011

However…low Facebook

engagement

Dove has focused on FB fan acquistion

Twitter

YouTube

Online Buzz

Beauty Industry vs. Clarins(Digital IQ Index®: Beauty 2011)

Strong FB engagement rates in category; Experimenting with gamification, Facebook

Commerce and Product-focused content

Primarily organic growth strategy has resulted in

180,000 fans

Clarins: Strong Programming Leads to Engagement

Beauty Industry vs. Lancôme(Digital IQ Index®: Beauty 2011)

Twitter

YouTube

Online Buzz

Michelle Phan partnership generates

platform-centric competitive advantage

Lancôme: YouTube Dominance

Beauty Industry vs. Chanel(Digital IQ Index®: Beauty 2011)

Twitter

YouTube

Online BuzzUnderinvestment across

the board, but brand equity equates to huge

organic buzz

Coupling TV Commercials with Long

Form Video leads to strong YouTube

engagement

Chanel: Organic Buzz + Long Form Video

Twitter

YouTube

Online Buzz

Beauty Industry vs. Clinique(Digital IQ Index®: Beauty 2011)

Overall #1 aggregate scores across

dimensions

Clinique: Top Overall Scores

Twitter

YouTube

Online Buzz

Beauty Industry vs. Estée Lauder Company Brands(Digital IQ Index®: Beauty 2011)

Strong aggregate scores across dimensions

suggests ELC is fast follower

The corporation lags in FB engagementELC Brands:

AvedaBobbi Brown

CliniqueEstée Lauder

MACOrigins

Smashbox

ELC Demonstrates Enterprise Dominance

Estée Lauder

Bobbi Brown

Origins Aveda Smashbox MAC La Mer Clinique

Live Chat ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔

User Reviews

✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔

Estée Lauder Companies Efficiencies

Top 10 Sites: 2011 Digital IQ Index®: Beauty (August 2011)

Site Rank Brand Tech User InterfaceCustomer

ServiceProduct Page Account

E-commerce(10)

Content / Innovation (10)

Brand Trans. (10)

Total (45)

1 Bare Escentuals 2.7 2.9 3.0 4.6 5.0 9.0 8.0 7 42.2

2 Smashbox 4.0 3.0 3.0 3.5 4.8 7.9 7.0 7 40.1

3 Bobbi Brown 4.8 3.5 3.3 3.7 3.5 6.6 6.0 8 39.2

4 Benefit 3.8 3.0 2.8 4.4 3.8 7.0 6.5 8 39.2

5 Clinique 3.4 4.0 3.3 3.5 3.3 7.3 8.3 6 39.0

6 Estée Lauder 3.0 3.2 3.3 4.6 3.5 6.6 7.5 7 38.6

7 M.A.C Cosmetics 3.6 1.7 2.8 3.0 3.8 6.8 7.0 10 38.6

8 Aveda 2.9 3.3 3.5 3.2 4.5 6.9 5.3 5 34.5

9 Burberry Beauty 1.8 2.3 3.3 3.0 3.8 7.4 3.8 8 33.2

10 Lancôme 2.4 4.3 2.5 3.9 3.8 7.8 4.5 4 33.1

The Opportunity Around Enterprise

BurberryShareholder value.

British + Plaid + Innovation

Burberry

Louis Vuitton

Chanel

Swarovski

Dolce Gabbana

Tiffany & Co.

Percentage of Traffic From Facebook to Luxury Brand Sites

September-11 September-10 Unique Visitors (000)

Source: comScore Media Metrix, Europe, Sept 2010 vs Sept 2011

Here Comes Everyone

Facebook Fans & Friends are 10x as Likely to Visit Site

Series1

Visitation of Burberry Website United Kingdom (% Reach)

Total InternetBurberry Network (Fans and Friends of Fans)

Source: comScore Social Essentials, U.K. September 2011

Share Price(May 2008 - November 2011)

Burberry Dow Jones Luxury Index

November 2008 November 2011

November 2009:Art of the Trench

January 2011:Site Relaunch

April 2011:M-commerce

October 2010:2 MM Facebook fans

March 2010:3D Fashion Show

August 2011:F-commerce

Dow Jones Luxury Index (DJLUX)

+136%(From November 2008)

Burberry (BRBY: LSE)

+397%(From November 2008)

Digital IQ = Shareholder Value

Burberry

Luxottica

Swatch

Richemont

Enterprise Value / EBIDTA(2011)

Burberry

Luxottica

Swatch

Richemont

Price / Earnings Ratio(2011)

Source: Barclay’s Capital, December 14, 2011

Digital IQ = Shareholder Value

Engines of Growth

Commonalities?

3. Genes

2. Lifestyle

1. Social

Source Code(can be fooled)

Productivity

Adding Value

To the next generation

Fitness

Mental

Amplitude

Gratitude

infant mortalityConflict

Genocide in the 20th Century

Battle Deaths in Wars1946–2008

Democracies & Autocracies1946–2008

International Peacekeeping1948–2008

Vegetarianism1984–2009

Approval of Spanking1954–2008

Objectiv3

Greatest

Session

Scott@stern.nyu.edu

scott galloway - best practice: 0 or 1 - winners & loosers in a digital world

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