Adobe Digital Economy Project: July 2016 Update

© 2016 Adobe Systems Incorporated. All Rights Reserved.
ADOBE DIGITAL ECONOMY PROJECT
JULY 2016 UPDATE

© 2016 Adobe Systems Incorporated. All Rights Reserved.© 2016 Adobe Systems Incorporated. All Rights Reserved.
Adobe Digital Insights Background
Based on analysisofaggregated and anonymous datafrom Adobe Marketing Cloud:
• AdobeAnalytics and Adobe Mobile Services
Thousands ofbrands worldwide including two thirds of Fortune 50 companiesrely on Adobe
Marketing Cloud:
• $7.50ofevery $10spent online with top 500 U.S.retailers go through Adobe Marketing Cloud **
• Adobe Marketing Cloud powers:
• 20 ofthe top 30 U.S.employers
• 9 of10largest hotel groups
• 7of10largest airlines
**LatestIR Top 500 Report 2015
2
Adobe
Analytics
Adobe
Mobile Services

© 2016 Adobe Systems Incorporated. All Rights Reserved.© 2016 Adobe Systems Incorporated. All Rights Reserved. 3
Digital Price Index
(DPI)
Job Seeking Index
(JSI)
Digital Housing Index
(DHI)

Economist Advisors
4
Austan Goolsbee,UniversityofChicago
§ 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

Main takeaways: July
5
§ Six months into the DEP project, we are building a data set that tracks closely with the BLS’ CPI, even as we are able to provide highly accurate and more timely
economic data.
§ Although the Federal Reserve has been looking for inflation, we find that most of the categories we currently track, especially in non-discretionary categories,
have presented deflation year-over-year. Even for Pokémon-branded merchandise, which have seen a significant increase in demand, we saw price declines in
July.
§ In appliances, computers, furniture and sporting goods we show significant year-over-year deflation, even more so than the CPI.
§ Another important category showing deflation is groceries. This month, we did a deep-dive into the category and found significant growthin the volume of
groceries being bought online, especially as the option of buying online and picking up at the store expands into new regions. We found that organic fruits &
vegetables are becoming more popular, with prices increasing at 2x the rate of non-organic in the past year. In addition, we found important correlations
between purchases and health outcomes in a state-by-state analysis.
§ Some of the categories showing month-over-month inflation in July are hotels, medical equipment & supplies and nonprescription medications.
§ Our data shows that year-over-year flight and hotel prices to the United Kingdom have decreased significantly since Brexit. In the United States, year-over-year
hotel prices have increased, with Nevada showing the largest increases (likely due to new hotel parking fees in Las Vegas). For domestic flightsall states showed
price decreases in July, except for Florida.
§ Our Job Seeking Index shows that online job seeking activity declined by 18% YoY, a sign of a strong job market.
§ Our DigitalHousing Index shows that online housing seeking activity increased by 14.3%YoY, reinforcing that the housing market remains healthy.

Quotes: July Update
6
“The lackof inflation in Pokémon-branded items, despite their explosion in popularity, is
fascinating. Among other factors, it could be that the new buyers are more price sensitive, which
hints at some of the difficulties the economy is facing in raising prices, or that they have been
able to ramp up production without increasing per unit costs.”
Pete Klenow, Stanford University
“If you look at the growth rate of the US economy, it's only moderate -- there are a lot of
international risks and there is no sign of inflation. While our long-run prospects are excellent,
the next 12-18 months are likely to continue to have some significantbumps.”
Austan Goolsbee, University of Chicago

Special topics: Brexit and Pokémon Go
7
• Prices for flights to London (LHR) are down 13.3% since Brexit was
announced, and are down 12.3% YoY. Our data shows that Brexit has
significantly decreased flight prices in other European destinations, especially
to Paris (-13% YoY), likely due to competition with the UK.
• Prices for hotels in London decreased 9.8% since Brexit was announced, and
are down 15.2% YoY. Again, prices in Paris have showed significant decrease
as well (-13% YoY).
• Sales volume for Pokémon-branded items has increased considerably year-
over-year (June-July):
• Apparel: +86%
• Electronics: +210%
• Toys: +170%
• Surprisingly, prices for Pokémon-branded items did not increase with
increased demand in July – prices decreased by 2.9% in July vs. June. Since
this is even more deflation than overall for Electronics (1%) and Toys (1.2%),
this indicates how much retailers struggle to raise prices

Grocery Category Deep-Dive
8
§ Online grocery shopping is seeing stellar growth in 2016, as online grocery shopping options expand beyond urban centers
and brick-and-click retailers grow in the space
§ Although the mix of goods bought online has been traditionally different from those bought offline (with a bigger focus on
drinks online), the mixes are growing more similar over time.
§ The expansion of “buy online and pick up in store” methods of grocery shopping have taken off in 2016, presenting an unique
opportunity for brick-and-click retailers to reclaim some shoppers lost to online-only retailers
§ Prices for groceries bought online have changed little in the past year, with online prices decreasing less than offline
§ We also looked at how online grocery shopping patterns correlate with health outcomes in each state and found interesting
correlations
METHODOLOGY:
§ Based on analysis of 300 million visits to grocery-selling websites from Jan 2014 through July 2016
§ Our dataset covers an estimated 30-40% of all online grocery purchases
§ Our dataset contains transactions for ~195k products

Online grocery shopping is seeing strong growth in 2016
§ 66% growth in spend in July 2016 vs. July 2015.
Growth in online grocery spend exceeds even the
highest rates of retail (15-20% during the holiday
shopping season)
§ The grocery categories seeing the most growth are
meats & cheese (185%), bakery products (150%) and
fruits and vegetables (125%)
9

Online grocery basket of goods becoming more like offline
Although the mix of goods bought online has been
traditionally different from those bought offline (with a
bigger focus on drinks online), they have been
converging, with bakery products, cheeses, meats, fruits
and vegetables going from 40% of online grocery
purchases in 2015 to 51% in 2016
10

Buy online and pick up in store goes mainstream
§ The expansion of “buy online and pick up in store” methods
of grocery shopping have taken off in 2016. Our estimates
show that the share of groceries purchased through that
method went from 18% of all purchases in January 2015 to
45% in July 2016.
§ This presents a great opportunity for brick-and-click retailers
to regain customers lost to online-only retailers, as brick-
and-clicks have a big advantage in the grocery shopping
business due to their local presence.
11

Online grocery shopping expands beyond tech-heavy centers
The top states with the highest growth rates in online
grocery shopping are Oregon (350%), Kentucky (340%),
Washington (310%), Colorado (310%) and Indiana
(300%)
12
Year-over-year online grocery growth, Jan-Apr

Online grocery shopping expands beyond urban centers
§ The top 5 states with the highest rate of online
grocery shopping include D.C., California and
Washington, as well as Arizona and Colorado
§ Right behind are Oklahoma, Kentucky, Arkansas, Utah
and Indiana
13
Online grocery spend by population, Jan-Apr 2016

Online prices virtually unchanged in the past year
§ Prices for groceries bought online have decreased less than
offline: while the CPI shows cumulative deflation of 1.3%
YoY, the DPI shows deflation of only 0.1% during the same
period for groceries bought online
§ The main categories where the DPI shows more inflation
than the CPI are meats, breakfast cereal and cheese
products
14

A possible reason for growth: restaurant prices up
15
§ With grocery prices seeing 1/5 of the inflation rate as that of
food at restaurants, busy consumers might be seeing an
opportunity to save timeand money via online grocery
shopping
§ “Restaurant food inflation is outpacing the increases at
supermarkets and the gap is widening, McDonald's Chief
Financial Officer Kevin Ozan said on a conference call with
analysts.”
http://www.nbcnews.com/business/consumer/lower-grocery-prices-
good-consumers-bad-mcdonald-s-n617221

Busy consumers shift to online for health
§ Another possible reason for this shift towards online grocery
shopping can be attributed to busy consumers, who don’t
have time for regular grocery shopping routine, trying to eat
healthier at home (instead of at restaurants)
§ The data shows that the share of fruits & vegetables
purchased online that are organic has grown by almost
50% year-over-year, from 7% to 10%
§ Over the same timeperiod, prices for organic fruits &
vegetables have increased by more than 2x that of non-
organics in the last year, showing that eating health is
getting more expensive
16

More sugary drinks, more obesity
17
• We found a significant correlation between states with a
high share of sugary drinks purchases and obesity: states
that buy more sugary drinks tend to have higher rates of
obesity
• Mississippi, Alabama and Missouri show highest rates of
sugary drink consumption as well as some of the highest
rates of obesity
• In the current debate about the so-called “soda tax”
recently approved by the city of Philadelphia (to take effect
in 2017), Pennsylvania places second on our list of states
with highest share of sugary drinks purchases online

More sugary drinks, more diabetes equipment
• We found a correlation between states with a high share of
sugary drinks purchases and diabetes equipment
purchases
• Mississippi, Missouri and Louisiana present highest rates of
sugary drink consumption as well as some of the highest
rates of diabetes medication purchases
18

More sweets, more obesity
19
§ We found a significant correlation between states with
a high share of sweets purchases and obesity: states
that buy more sweets tend to have higher rates of
obesity
§ Louisiana, Mississippi and Missouri have some of the
highest rates of obesity and also sweets purchases

Longer commutes, more coffee
20
§ We found a significant correlation between states with
a high share of coffee purchases online and commute
length
§ New York, New Jersey, Illinois and Massachusetts have
some of longest commutes and also rates of coffee
purchase

Digital Price Index
(DPI)

Methodology
22
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 Adobe: DigitalPrice Index
Quantities Sold No Yes
Products/quantities updated Every 4 years Daily
Number of Products 83 thousand (all categories)
2.2 million
(currently covered categories)
Data Collection Frequency Bi-Monthly Daily
Data Availability Monthly Daily
Offline Prices Yes No
Long history Yes No
All categories of spending Yes No
** Latest IR Top 500 Report 2015

Big data in DPI decreases uncertainty
23
DPI CPI
Appliances 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
24
• 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
25
• 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
26
• Electronics see an average of 80% of online
spend on new* products**
• 16% of monthlyonline spendfor 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)

June 2016 Recap
27
MoM: June vs May MoM: June vs May Difference (percentage) Same Sign? YoY: Cumulative June 2015-2016 YoY: Cumulative June 2015-2016 Difference (percentage) Same Sign?
DPI CPI DPI vs. CPI DPI vs. CPI DPI CPI DPI vs. CPI DPI vs. CPI
Appliances -1.8% 0.0% -1.8% No -6.5% -2.9% -3.6% Yes
Computers -1.6% -0.8% -0.8% Yes -12.3% -7.6% -4.6% Yes
Flights 0.4% 0.0% 0.4% No -4.2% -4.8% 0.5% Yes
Furniture and bedding -1.3% -0.7% -0.6% Yes -4.0% -3.1% -1.0% Yes
Grocery -0.6% -0.4% -0.2% Yes -0.1% -1.3% 1.2% Yes
Domestic Hotels -1.0% 3.8% -4.8% No 0.8% 6.0% -5.3% Yes
Medical equipment and supplies -0.2% 0.3% -0.5% No -0.6% -0.7% 0.1% Yes
Nonprescription Drugs 0.5% -0.2% 0.7% No 0.3% -0.4% 0.7% No
Sporting Goods -0.6% -1.4% 0.8% Yes -5.1% -1.1% -3.9% Yes
Televisions -2.2% -2.6% 0.4% Yes -17.5% -19.4% 1.9% Yes
Toys 0.3% -1.2% 1.5% No -4.9% -8.5% 3.6% Yes

July 2016 Summary
28
• Main deflation in July:
• Flights, Appliances, Televisions
• Main inflation in July:
• Hotels (domestic), Medical Equipment and
Supplies, Prescription Drugs
YoY MoM
Appliances -6.6% -2.4%
Computers -12.8% -1.2%
Electronics -10.9% -0.9%
Flights -4.4% -3.6%
Domestic Flights -7.5% -4.8%
Intl Flights 0.4% -0.2%
Furniture and bedding -3.4% -0.2%
Grocery -0.8% -0.2%
Domestic Hotels 2.2% 2.3%
Intl Hotels -2.2% 0.4%
Medical equipment and supplies -1.0% 0.6%
Nonprescription Drugs 0.1% 0.3%
Sporting Goods -5.4% -0.5%
Tablet -19.5% 0.3%
Televisions -20.2% -2.1%
Toys -6.0% -1.2%

Appliances
29
• Adobe DPI shows cumulative deflation of -6.6% YoY (July
2015 to July 2016)
• Main YoY price decreases for Appliances pricedbetween
$600 and $1000
• For July 2016, prices decreased -2.4% vs June 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 smallerappliances such as vacuums, mixers, blenders etc.

Airfare
30
2015 to July 2016)
METHODOLOGY:
• The data used contains transactions for~370 K flight routes
• Includes associated fees, where applicable

Airfare: domestic
31
2015 to July 2016)
• Top states with YoY price declines are Oregon (-11%),
Colorado (-11%) and Washington (-11%)
• Only state with YoY price increases is Florida (0.7%)
METHODOLOGY:

Airfare: international
32
• Adobe DPI shows cumulative inflation of 0.4% YoY (July 2015
to July 2016)
• Regions showing the most inflation YoY are South America
(7%) and Asia (2.6%)
• Regions showing the most deflation are Europe (-10%) and
Africa (-8.9%)
METHODOLOGY:

Electronics
33
2015 to July 2016)
• 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
34
2015 to July 2016)
• Main YoY price decreases for Computers pricedbetween
$700 and $1200
METHODOLOGY:

Electronics: televisions
35
2015 to July 2016)
• Main YoY price decreases for Televisions priced greater
than $2000
METHODOLOGY:

Electronics: tablets
36
2015 to July 2016)
• Main YoY price decreases for Tablets priced between
$350 and $550
• For July 2016, prices increased 0.3% vs June 2016 MoM
METHODOLOGY:

Furniture and Bedding
37
2015 to July 2016)
• Main YoY price decreases for Furniture and bedding
priced between $100 and $150
METHODOLOGY:
• Products include interior and exterior furniture, mattresses and other bedding products

Groceries
38
2015 to July 2016)
• Main deflation YoY coming from Eggs, Milk & Coffee
• Main inflation YoY coming from Fruits & Vegetables
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 foronline shopping is drinks (nonalcoholic), while foroﬄine shopping it is meat

Hotels: domestic
39
METHODOLOGY:
• The data used contains transactions for~250 K hotel properties
• Adobe DPI shows cumulative inflation of 2.2% YoY (July
2015 to July 2016)
• Main states with price increases are Nevada (11%),
Colorado (8%) and Hawaii (7.5%)
• Main states with price decreases are New York (-1.8%),
Massachusetts (-1%) and Texas (-0.2%)

Hotels: international
40
METHODOLOGY:
• The data used contains transactions for~250 K hotel properties
2015 to July 2016)
• Regions showing the most deflation YoY are Africa(-6%),
South America (-2.7%) and Europe (-1.6%)
• Regions showing the most inflation YoY are Oceania
(3.9%) and North America (3.5%)

Medical Equipment and Supplies
41
2015 to July 2016)
• Main YoY price decreases for Medical equipment and
supplies priced between $45 and $135
• Main YoY price increases for Medical equipmentand
supplies priced between $0 and $10
• For diabetes-specific supplies and equipment, we found
YoY inflation rate of 1.9%
METHODOLOGY:
• The data used contains transactions for6,000 products
• ” includes supportive and convalescent equipment, dressings and first aid kits, and medical equipment forgeneral use

Nonprescription drugs
42
• Adobe DPI shows cumulative inflation of 0.1% YoY (July
2015 to July 2016)
• Main YoY price decreases for Nonprescription Drugs
priced greater than $40
• Main YoY price increases for Nonprescription Drugs
priced between $0 and $10
METHODOLOGY:
• The data used contains transactions for16 K products
• Includes all non-prescription medicines taken by swallowing, applying on yourskin (such as topicals), inhaling, as suppositories, or enemas.

Sporting Goods
43
2015 to July 2016)
• Main YoY price decreases for SportingGoods priced
between $40 and $100
METHODOLOGY:
• Products include small equipment and accessories (balls, gloves, uniforms) as well as large equipment such as treadmills, weightlifting tools etc.

Toys
44
2015 to July 2016)
• Main YoY price decreases for Toys priced between $70
and $200
METHODOLOGY:
• Products include toys, games as well as playground equipment

Job Seeking Index
(JSI)

Online Job Seeking declines
46
METHODOLOGY:
• Based on analysis of aggregated and anonymous data frommore than 1 billion visits to U.S. employment-search websites and top employercareer pages
• Adobe Marketing Cloud powers 20 of the top 30 U.S. employers**
• US online job seeking is down 17.9 % YoY in July
• This is indicative of a strong labor market, with fewer
people looking for jobs, which coincides with the
government numbers

Digital Housing Index
(DHI)

Online housing search growth slows
48
METHODOLOGY:
• Based on analysis of aggregated and anonymous data frommore than 2 billion visits to U.S. housing search websites
Online search for purchases and rentals up 14.3% YoY in
July, reinforcing that the housing market remains healthy

Appendix
49

June-July Official Government Statistics
50
• GDP growth: 1.2% (Q2)
• Wages growth: 2.6% (YoY)
• Consumer spending: +0.4% (June)
• Unemployment: 4.9% (June)
• Housing Sales: +1.1% (June)
• CPI inflation rates (YoY):
• All items: 1%
• Housing: 3.5%
• Medical Care: 3.8%
• Gas: -15.4%
• Commodities: -2% If you look at the growth rate of the US economy, it's only
moderate -- there are a lot of international risks and there is no
sign of inflation. While our long-run prospects are excellent, the
next 12-18 months are likely to continue to have some significant
bumps.
- Austan Goolsbee

Digital Price Index: Fisher Ideal Price Index
∑ 𝑃#$ 𝑈#$&'
(
#)'
∑ 𝑃#$&' 𝑈#$&'
(
#)'
∗
∑ 𝑃#$ 𝑈#$
(
#)'
∑ 𝑃#$&' 𝑈#$
(
#)'
• The Fisher Ideal Price Index uses quantities purchasedon the current period (month) and a previous period
(previous month) to determine actualconsumer’s preferences. Insteadof 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.
𝐹𝑖𝑠ℎ𝑒𝑟 𝜋$ =

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: July 2016 Update

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Adobe Digital Economy Project: July 2016 Update