SherpaVentures On-Demand Economy report

2014 ODE Report The On-Demand Economy

@sherpa

OUTLINE

1 2 3 2

The Village Economy

Introducing ODE The On-Demand Economy

ODE Now 1.  ODE Transportation 2.  ODE Real Estate

4 5

ODE Next 1.  ODE Labor 2.  ODE Retail

Conclusion The ODE Effect

TWO VENTURE 
 CAPITALISTS
 WALK INTO A BAR… It sounds like the beginning of a joke, but it’s the beginning of something much bigger

3

4

IN THIS PUB IN A REMOTE VILLAGE
 IN IRELAND, WE NOTICED BUSINESS 
 CONDUCTED IN AN EXTRAORDINARY WAY

No Twitter handles or Web addresses

Just someone’s name and phone number implicitly beckoning, “Call me and I’ll bring you what you need…”

This is the Village Economy: On-demand service, as you need it 5

THE PERSONALIZED, EFFICIENT QUALITY OF THE VILLAGE ECONOMY HINGES ON THREE KEY CONDITIONS The very nature of the village economy drives a more personalized, accessible, and valuable customer experience

Trust •  No need for brokers •  Buyers and sellers interact directly

Collaboration •  Community pools resources •  Competition has little relevance

6

Geographic proximity •  All products and providers next door




AND SHIFTS IN TECHNOLOGY ARE BRINGING THE VILLAGE ECONOMY BACK – AT SCALE

Payments Platforms

Pervasive Connectivity

Reputation Networks 7

Creating a foundation of trust that enables sharing, face-to-face transactions and customized service

21st Century Village Economy

COMMERCE HAD BEEN MOVING AWAY FROM THE VILLAGE MODEL FOR YEARS Price and selection have increased while trust, service and personal relationships have decreased

General Store

8

Main Streets

Big Box Store

AT THE SAME TIME, WE ARE MOVING CLOSER AND CLOSER TOGETHER

1975

•  37% of the world population was urbanized •  3 10M-person cities

2009

•  50% of the world population is urbanized •  20 10M-person cities

9 Source: United Nations, Department of Economic and Social Affairs

2025 Estimate

•  57% of the world population will be urbanized •  29 10M-person cities

AT THE SAME TIME, WE ARE MOVING CLOSER AND CLOSER TOGETHER 1975

2009

10 Source: United Nations, Department of Economic and Social Affairs

2025 Estimate

ODE CONNECTS OUR VILLAGE PAST TO OUR ECONOMIC FUTURE

Creating a new generation of entrants to the Fortune 500 and unlocking new levels of economic productivity

11

THIS IS THE ON-DEMAND ECONOMY (ODE)

WHERE ATOMS MEET BITS

Mobile

Social

Tr a n s a c t i o n a l

13

•  Cheaply reach the mass market •  Remove anonymity + establish trust - reputation systems

•  Efficiently mobilize supply chains and workforces •  Enable collaboration and asset sharing

DEFINING ODE

OR: The pervasive, instant-access marketplace of goods and services tailored to individual needs, often facilitated by assetsharing and distributed supply chains.

Instant, pervasive access to goods and services, tailored to individual needs, often without the burden of longterm ownership or commitment Combining the best of the village economy with the best of modern commerce 14

ODE BRINGS THE VILLAGE TO SCALE

Choice •  Wide variety of selection Price •  Operates at scale •  Eliminates middleman to bring costsavings to the consumer

15

Collaboration •  Shared Resources •  Networked Devices Trust •  Reputation Networks

Geographic Accessibility •  Pervasive mobile connectivity unites people in urban areas

ODE SELF-REGULATES Algorithms determine value, trust and reputation •  A system of distributed supply adjusts to demand •  The marketplace turns individuals into entrepreneurs •  Buyers and sellers can interact directly in relationships of trust •  A “PeopleRank” algorithm determines the best suppliers and the best customers, based on reliability and reputation – Workers are liberated from bureaucracy as the best performers command the highest demand – Customers who behave badly have fewer choices

Marginalizing regulatory frameworks 16

TECHNOLOGY AND CULTURAL SHIFTS THAT LAID THE GROUNDWORK FOR ODE

17

2001

Carnegie Mellon releases first study of digital loneliness

2007

2009

iTunes hits 4 MM 2B song Foreclosures downloads filed (2.2% of U.S. Households)

2010

Sharing Economy: Publication of What’s Mine Is Yours

3.5 B Connected Internet Devices

2012 2013

Facebook Reaches 1 B Users

Pervasive Mobile Connectivity: 2013

1999

Uber AirBnB

Netflix Standalone Streaming iPad introduced

Popularization of the Sharing Economy: 2010

Online Marketplaces: 1990s

Rise of Culture of Convenience: 1960s-80s

VHS Microwaves in 25% of U.S. Homes VCR

1998

iPhone introduced

Rise of Social Networking:2007-12

1995

iPod Introduced

Loneliness Crisis: 2004-2013

1970

Paypal Founded

Netflix founded TiVo Introduced

Instant Video Delivery. Virtualization & Digitization: Early 2000s

1st DriveThru McDonalds

Ebay & CraigsList Founded

INSTANT ACCESS TO DIGITIZED AND VIRTUAL GOODS RESHAPED CONSUMER BEHAVIORS Media

Software Reservation Booking Financial Transactions Matchmaking

18

NOW ODE CREATES INSTANT ACCESS TO PHYSICAL GOODS AND SERVICES AS WELL Transportation

Real Estate

Labor & Services

Retail and Products

Now

Next

19

THE ODE EFFECT IS WIDE-REACHING

20

Growth Contraction

Consumers

Markets



New levels of convenience, value and service to consumers

Expanding underlying markets

Industries

Middlemen and Regulators

Displacing incumbents

Killing value-leaching intermediaries

Employment

Cultural and Social Impact

Entrepreneurize broad swaths of the workforce

Change the landscape of how we live today

EXPLOSION OF VC DOLLARS INVESTED IN ODE VC Investment in ODE: Physical ($B)

$0.2

$0.2

$0.3

Non-US Based

$1.3

US-Based Companies

$0.1

Source: Crunchbase

$0.5

$0.1 $0.1

2009

2010

2011

2012

2013

30

55

78

117

# of 17 Companies: 21

$0.5

$0.4

REPRESENTING AN INCREASING SHARE OF VC DOLLARS VC Investment in ODE: Physical ($B)

4.6%

1.5%

1.7%

2.0%

2010

2011

2012

0.5% 2009

% of dollars

*Note: Moneytree data estimated for Q4 2013

22 Source: PWC Moneytree, Crunchbase

2013

LET'S TAKE A CLOSER LOOK AT 4 KEY ODE SEGMENTS AND HOW THEY ARE SHAPING 
 THE FUTURE

1 2 3 4

23

Transportation Real Estate Labor Retail & Products

A CLOSER LOOK AT ODE NEXT: 
 TRANSPORTATION DEMAND

1 2 3 4

24

Transportation Real Estate Labor Retail & Products

TRANSPORTATION ON DEMAND: KEY AREAS

Car Services and Taxi Hailing

Car Sharing

25

Other Vehicle Sharing

Mass Transit Alternatives

TRANSPORTATION ON DEMAND: 
 A CLOSER LOOK AT CAR SERVICES Car Services and Taxi Hailing

Car Sharing

26

Other Vehicle Sharing

Mass Transit Alternatives

CAR SERVICES STARTUPS: 
 OVER $1B RAISED GLOBALLY FROM 2009-2013 US Competitors

International $265M

$308M $83M

Didi Dache

$115M

$20M

Kuaidi Dache

N/A

$51M

Yaoyaozhaoche N/A

$23M $42M YC Seed N/A

Capital raised

$37M $14M $11M $9M $6M $4M

27 Source: Crunchbase

Capital raised

THIS COMES AS NO SURPRISE TO EARLY INVESTORS IN ON-DEMAND CAR SERVICES Better Passenger Experience

Better Driver Experience

Transportation Network Companies (TNCs) like Uber have already established a foothold in key markets and are now taking share from traditional car services options 28

TNCS TURN ANYONE WITH A CAR INTO A CHAUFFEUR AND ANYONE WITH CELL PHONE INTO A POTENTIAL FARE

29

HOW IS THIS IMPACTING THE TRADITIONAL TRANSPORTATION MARKET? A proprietary deep dive in San Francisco Why San Francisco? •  The 3 leading US Transportation Network Companies (TNCs) – Uber, Lyft, Sidecar – all began in SF •  Each city is a self-contained marketplace •  TNCs have had to most time in SF to reach a scale of supply (drivers), demand (passengers), and liquidity (rides) that might be measurably impacting incumbent providers. Unprecedented Data Discovery •  Dozens of interviews with SFMTA officials, taxi company executives, industry consultants, and service providers •  Raw taxicab fare data –  Approximately 10% of the city’s taxi fleet –  Every transaction that runs through the taxi meter –  August, September, and October 2010 through 2013 –  In total, millions of trips representing tens of millions of dollars in fares •  Database of TNC Drivers –  Collected by the SFCDA •  Sherpa TNC Survey –  Over 100 TNC and taxi driver interviews and test trips   30

LEGAL US CAR SERVICES MARKET ESTIMATED 
 TO BE ~$50B ANNUALLY

Billions!

Annual US Car Services Revenue ($B) $50 $45

$10

$40

Limo Services

$35 $30

$16

Remainder of Urban US

$21

300 Most Populated Cities

$25 $20 $15 $10 $5

$10

$0

Taxi & Limousine Service Industry

IBIS World

Sherpa Estimate

Estimate is based on our analysis of 2M taxi trips and other nonpublic data sources

31 Source: SFMTA Taxi and Accessible Services Division; “Managing Taxi Supply” and “Taxi User Survey” Hara Associates

BEFORE TNCS, SAN FRANCISCO HAD 
 THREE CAR SERVICE OPTIONS Taxicabs

Bandits (Gypsy cabs)

Limo Service

•  Charge by the minute/ mile •  Prices + supply set by SFMTA •  Notoriously unreliable –  43% of calls to taxi dispatcher result in a car showing up*

•  Illegal taxicabs •  Charge premium to legal taxis •  Patronize at your own risk

•  >$60 per hour + tip + gas •  Require advanced booking •  Often require multi-hour minimums

32 Source: San Francisco Public Convenience and Necessity Report (February, 2006)

THE COMBINATION OF CONSISTENT PATROLS AND TNC ALTERNATIVES HAVE NEARLY ERADICATED BANDITS Estimated # of Active Bandits 160

Q2 ‘13: Regular Patrols Implemented

Q3 ‘11: SFMTA Begins Enforcement

140 120 100 80

High Estimate

60 40

Low Estimate

20 0 Citations Issued:

Jun-11

Dec-12

Dec-13

13

40

54

33 Source: SFMTA Taxi and Accessible Services Division

SF TAXI REVENUE WAS RELATIVELY FLAT IN 2013, AFTER A DRAMATIC RISE FROM 2010 TO 2012

Millions!

SF Taxi Industry Revenue ($M) $400 $350 $300

% 8 + $340

$368 (3%) $358

2011

2012

$270

$250 $200 $150 $100 $50 $0 2010

34 Source: SFMTA Taxi and Accessible Services Division; “Taxi User Surveys” Hara Associates

2013

TNCS IN SF PRODUCED AN ESTIMATED 
 ~$140M IN REVENUE IN 2013 2013 TNC Revenue Estimate ($M) (SF Only) $106 $19

UberSUV

$38

UberBLACK

$28 $48

uberx $9

SF Share of Co’s Overall Revenue:

Uber

Lyft

15%

76%

35 Source: Based on Sherpa’s analysis of data sources discussed on slide 20

SideCar

WHILE THE TAXI MARKET WAS ESSENTIALLY FLAT, TNCS GREW NEARLY 450% SF Taxi vs. TNC Revenue ($M)

Taxi $358

$368

$100

$75

Limo

$143

TNC

$32 2012

2013

Note: 2% weekly growth rate assumed for all TNCs throughout 2012

36 Source: SFMTA Taxi and Accessible Services Division; “Taxi User Surveys” Hara Associates

WHAT’S DRIVING THIS TNC GROWTH? Limo Companies Converting Fleets To UBER Un-Met Taxi Demand

Car Service Market Share Theft + Expansion

•  Commonly use lead generation services to source customers •  Uber is a lead gen tool that enables real-time booking

•  SF has always had an insufficient number of taxis •  Any fixed supply system = woefully inadequate during peak demand periods •  Typical wait times for taxis >20 minute; system breaks during demand spikes

•  Avg. wait times for Uber are 4-6 minutes •  As of Jan. ‘14, uberX costs over 40% less than taxis

•  Limos now able to charge by the minute rather than only by the hour or several hours

•  Passengers starving for any reliable, real-time car service •  TNCs’ dynamic supply model capable of matching passenger demand patterns

37

•  People using TNCs even when they could have taken taxis •  People using TNCs when they wouldn’t even have considered taxis

THERE’S ANOTHER SIDE TO THIS STORY

38

SEVERAL INTERMEDIARIES COME BETWEEN A DRIVER AND A TAXICAB Gov. Regulators

Driver

•  Set Medallion Supply + Purchase Price •  Set Gate Fees •  Set Fare Prices

Medallion Owner (Senior Taxi Drivers)

Taxi Company

•  Drivers Purchase •  Own + Maintain Medallion From Fleet of Taxis SFMTA For $250K •  Run Dispatching •  Lease To Taxi System Company •  Charge Drivers –  Multi-year Per Shift contracts –  $104 Gate Fee –  Current lease rate –  $7-$15 Tip is $2.6K per month –  5-10 year payoff

Net Result: Drivers pay ~$115 plus gas for each shift whether they end up making that much or not

39

Taxicab

TNCS ARE AN ATTRACTIVE ALTERNATIVE FOR DRIVERS Pricing Model

Schedule

Safety

•  Median driver spends the first 5 hours of a 10 hour shift paying off Gate fees and tips before he earns a cent

•  Weekly schedule of 10hour shifts •  Seniority, tips determine access to the best shifts + vehicles

•  Taxi + Limo driving more dangerous than firefighting –  21.3 fatalities per 100K vs. 17.4 respectively –  Primarily assaults + car crashes •  60% of fares paid in cash –  Median driver has >$200 in cash at the end of a shift •  Street hails = anonymous passengers

•  Flat percentage fee –  80 cents of every dollar goes into the drivers pocket

•  Wherever, whenever driver wants to work –  No more fighting over who gets to work Saturday night

•  Carry no cash •  Every passenger “known”

Taxi

TNCs

•  In last 12 months, one-third of SF taxi drivers moved to TNCs* •  20% of TNC drivers are former taxi drivers**

40 *SFCDA Report **Sherpa TNC Driver Survey

WHILE MANY TAXI DRIVERS STILL MAKE GOOD MONEY, NEARLY 40% FAIL TO EARN $20 PER HOUR 2013 Driver Hourly Earnings* By Decile $36 $31 $27

$25

$22

$20

$17

$14 $10

90% 80% 70% 60% 50% 40% 30% 20% 10%

*Note: Excludes fuel cost, assumes 10 hour shift; $117 for Gate Fees, Payment Processing, and Tips

41 Source: SFMTA Taxi and Accessible Services Division

TNC DRIVERS EARN VIRTUALLY THE SAME AMOUNT AS THEIR TAXI COUNTERPARTS 2013 Estimated Driver Earnings Per Hour* $90 $80 Median Taxi Driver

$70 $60

Max

$50 $40

Weighted 
 Avg. Min

$35

$30

$25

$20

$19

$18

Lyft

Sidecar

$10 $0 UberBlack

uberX

*Note: Excludes cost of fuel, insurance, vehicle maintenance and financing; assumes 20% marketplace fee from all TNC services except for uberX which was 15% in 2013 (currently 5%)

42

THE TAXI DRIVER SHORTAGE HAS BEGUN Change in SF Taxi Revenue, $M +$45

$368

12% More Taxis

-$14

4% Lower Driver Earnings

-$41

11% Fewer Drivers

2012 *Note: Excludes cost of fuel, insurance, vehicle maintenance and financing; assumes 20% marketplace fee from all TNC services except for uberX which was 15% in 2013 (currently 5%)

43 Source: SFMTA Taxi and Accessible Services Division

$358

2013

IN FACT, A TAXI DRIVER SHORTAGE HAS BEEN
 2011 BREWING SINCE 2011 2012

% = YoY Change

2013

# of taxis 12%

Earnings/shift

Shifts worked

15% 7%

7% 4% 1%

0%

-4% -11%

44 Source: Sherpa TNC Survey

UBERX FARES WILL CONTINUE FALLING AND COULD EASILY REACH 70% BELOW THE COST OF A TAXI 2013 Driver Earnings / Hour* $25

Car Service Ride Cost (Normalized to $20 Taxi Trip**)

$22

$20.0

$13.4

$6.7 uberX Estimate

Taxi Actual

Taxi

22 Minutes of Fares / Hour

*Note: Excludes cost of fuel, insurance, vehicle maintenance and financing; assumes 20% marketplace fee from all TNC services except for uberX which was 15% in 2013 (currently 5%) **Note: Assumes 15% tip per taxi fare

*Source: Sherpa TNC Survey

uberX

Assumes 44 Minutes of Fares / Hour – Holding Driver Income Constant

UBER AGGRESSIVELY DROPPING PRICES AS FARE DEMAND INCREASES

Actual results for trial period reveal 1% increase to driver income

46

THE NETWORK EFFECT OF UBER’S MODEL IS POWERFUL Second order effect First order effect Driver Fares / Hour Rise

Passengers Join More passengers

More drivers

47

Uber Lowers Prices

WHAT HAPPENS TO EVERYONE ELSE? Medallion Owner (Subset of Taxi Drivers)

Taxi Service

Taxi Company

•  500 more taxis added by 2017 (25% increase) •  Fare + Gate Fees remain static •  Cannot compete with TNCs –  Market-based prices –  Dynamic supply –  Accruing reputation system

•  Increasing difficultly recruiting and retaining drivers •  Causing utilization (taxi shifts covered / taxi shifts available) and profitability to plummet

•  As utilization falls, so do future lease rates (medallion cash flows) •  Medallion values approach zero

Companies saddled with expensive medallion leases will fail

Owners end up under-water on medallion financing Currently 10% APR à total costs ~2X purchase price

Decline in driver quality

48

SF TAXI MEDALLION LEASE RATES ARE 
 FALLING PRECIPITOUSLY SF Taxi Medallions Issued Vs. Monthly Lease Rates (‘000) 2,000

Medallions issued

1,800

$6

Monthly Lease Rates

$5.2 $5

$4.6

1,600

$3.9

1,400 $3.4

1,200

$3.1

$4.0

$2.7

1,000

$2.6 $3

$2.4

800

$4

$2.0

$1.6 $1.7 $1.7 600 $1.6

$2

400

$1

200 0

$0 2000

2002

49 Source: SFMTA Taxi and Accessible Services

2004

2006

2008

2010

2012

SUMMARY

The personalized, on-demand nature of TNCs have virtually eliminated the car services gray market in San Francisco and is now driving a fundamental shift in the underlying economics of the market for car services, with the total market expanding, while taxis themselves are losing ground.

50

TRANSPORTATION ON DEMAND: 
 A CLOSER LOOK AT CAR SHARING Car Services and Taxi Hailing

Car Sharing

51

Other Vehicle Sharing

Mass Transit Alternatives

AS WITH TAXIS, WE HAVE A TOLERATE / HATE RELATIONSHIP WITH RENTAL CAR AGENCIES

52

ZIPCAR WAS AN IMPORTANT INNOVATION IN ONDEMAND DELIVERY OF RENTAL CARS

Rental Increment

By the day

By the half hour

20 locations run by 7 different companies

140 locations via Zipcar

Vehicle Locations

Pickup Process

53

LEVERAGING A PEER-TO-PEER SUPPLY STRATEGY, GETAROUND HAS BECOME A STRONGER ZIPCAR

Rental Increment

As low as $8.25/hour + Annual Membership Fee

As low as $5.50/hour

140 locations, ~300 vehicles*

~100 locations + vehicles*

10-15 vehicle types

Dozens of different models

Vehicle Locations

Pickup Process

54 *Note: Cars available in early January 2014 as of mid-December

AND TOMORROW GETAROUND WILL SUPERSEDE ITS CAPITAL INTENSIVE ELDER

Meaningful owner earnings driving rapid supply growth value

55

Growth improving customer access and value

ADVANCEMENTS IN ON-DEMAND TRANSPORTATION WILL CHANGE THE LANDSCAPE OF URBAN LIFE

Outlying Neighborhoods Gain Accessibility

56

Fewer People Will Buy Cars

NEW VARIETIES OF URBAN TRANSIT ARE ALSO REDUCING THE NECESSITY OF CAR OWNERSHIP

Gov-sponsored Bike-Sharing

57

Private Company Busing

WHAT IF OUR CITIES WERE NO LONG CLUTTERED WITH PLACES TO STORE CARS?

58

AND THE GROUND FLOOR OF EVERY TOWNHOUSE NO LONGER HAD TO BE A GARAGE?

59

AND THE GROUND FLOOR OF EVERY TOWNHOUSE NO LONGER HAD TO BE A GARAGE?

60

TRANSPORTATION ON DEMAND: IMPACT Winners

Losers

End User: Passengers

End User: Drivers

•  Cheap + reliable car service •  Cheap + ubiquitous car rental •  Safer + more flexible employment •  Keep more of what they earn •  Enormous job growth

Medallion Owners

•  Medallion values approach zero

Taxi Companies

•  Passengers shift auto spend from ownership to services + rental

Commercial Garage Owners Car Manufacturers + Dealers

Societal Impact •  Development + gentrification of outlying neighborhoods •  No more garages à repurposing of space •  Less + greener consumption 61

A CLOSER LOOK AT ODE NEXT: 
 REAL ESTATE ON DEMAND

1 2 3 4

62

Transportation Real Estate Labor Retail & Products

REAL ESTATE ON DEMAND: KEY AREAS

New Hospitality Products

Parking & Storage on Demand

63

Metered Business Rentals

REAL ESTATE ON DEMAND: A CLOSER LOOK
 AT NEW HOSPITALITY PRODUCTS

New Hospitality Products

Parking & Storage on Demand

64

Metered Business Rentals

THE HOSPITALITY INDUSTRY HAS LONG HAD AN ESTABLISHED SET OF PRODUCT OFFERINGS Motels

Hotels

Resorts

•  Development takes years and enormous capital, requiring high leverage ratios •  Supply managed to 80%+ occupancy •  Multi-decade replacement cycles

65

ONLINE MARKETPLACES ARE NOW CHANGING THAT PARADIGM BY FACILITATING PEER-TO-PEER RENTALS

66

HOMEAWAY HAS BUILT SIGNIFICANT SCALE IN 
 VACATION HOME RENTAL

Paid Listings Globally, 000’s 900 800 700 600 500 400 300 200 100 0

Sales Estimate1 (B) $12

AGR

C 20%

338

433

640

712

773

517

R

AG %C

$10

19

$8 $6

$5.6

$8.3

$9.3

$10.3

$6.7

$4.4

$4 $2 $0

2008 2009 2010 2011 2012 2013 2

Only ~13% of US Vacation homes Listed On HomeAway 1 Note: Assumes HomeAway paid listings generate $13K in sales 2 Note: Estimated Q4 listings growth by annualizing Q3 2013 results

67 Source: Company filings

LONG A STAPLE OF CRAIGSLIST, NEW PLATFORMS ARE MAKING SHORT-TERM RESIDENCE RENTALS MAINSTREAM VC Funding $284M $140M $25M $60M $23M $16M $2M $2M

68

OF THESE, AIRBNB IS THE CLEAR LEADER Total Listings Globally (As of January 2014; ‘000) 550

300

290

111

Airbnb

69

Wimdu

HouseTrip

9Flats

AIRBNB: PULLING AWAY FROM THE PACK Total Listings By City (As of January 2014; ‘000)

33.9

20.5

9.6 2.9 1.4 0.8 NYC

4.7 5.4 1.0 Paris

3.7 1.3 1.9 Berlin

Annualized Growth Rate Across 6 Cities Above1: 70 Note: Annualized Nov. ’13 – Jan. ’14 listings growth rate

7.3 3.6 2.7 1.1 London

54%

43%

6.7 5.1 4.1 1.5 Rome

10%

6.2 0.4 SF

AIRBNB: SIGNIFICANT GLOBAL SCALE Airbnb # of Listings (‘000)

Airbnb # of Stays (M) 53 676

550 300

6

120

2008-2011 2012

1 1

2013 Inter-Cont

Airbnb Listings By Region

71 1 Note: InterContinental rooms + stays for 2012; assumes guests stay average of 3 nights per check in 2 Stays last 6.4 nights at nightly cost of $180 (inclusive of fees)

3

2008-2011 2012

2013

Inter-Cont

Implies ~$7B in Revenue2

2

AIRBNB HAS QUICKLY DWARFED CRAIGSLIST US Sales ($B)

$1.9

Annualized Estimate of Sublets/ Temporary Supply (Dec. ’13) $0.6 1

Avg. Stay:

2013 Airbnb Sales

2013 Craigslist Supply

~1 week

~6 weeks

72 1 Note: Assumes 1/3 of Airbnb stays in US, stays last 6.4 nights at nightly cost of $150

AIRBNB: VASTLY BETTER CUSTOMER EXPERIENCE 
 THAN CRAIGSLIST Craigslist

Airbnb

VS.

73

•  Transparent listing availability and location •  Professionally photographed listings •  Comprehensive listing descriptions •  Instant booking •  Credit card acceptance

AND MORE TRUSTWORTHY

VS.

•  Social connections visibility •  Prior guest reviews and references •  Offline ID verification •  Credit Card Acceptance/ Collections •  Customer service hotline

•  3% Host Fee •  6-12% Guest Fee

74

HOW ARE THESE SHORT-TERM RENTAL MARKETPLACES IMPACTING THE HOSPITALITY INDUSTRY?

75

STILL TOO NASCENT TO NOTICEABLY IMPACT 
 HOTEL REVENUE US Sales ($B) $160

NYC ($B) $156

$25 $21.7

$18B Growth In 2012

$140

$20

$120 $100

$15

$80 $60

$10

$40 $20 $0

NYC 2012 US Lodging Industy

Overall Share:

95.0%

$6.2

$2.3

2013 2013 Airbnb HomeAway Estimate 2 Estimate 1 3.8%

1.4%

$5 $0.4 $0 2012 Hotels Aug. '12 - July '13 Airbnb

1 Note: Assumes HomeAway paid listings generate $13K in sales and 60% in US, annualized Q3 listings growth from Q3 2013 2 Note: Assumes 1/3 of Airbnb stays in US, stays last 6.4 nights at nightly cost of $180 (inclusive of fees)

76 Source: American Hotel and Lodging Association, Company filings

BUT A RECENT STUDY ARGUES THAT AIRBNB LISTINGS NEGATIVELY IMPACT LOCAL HOTEL REVENUE

•  •  •  • 

77

Based on the number of Airbnb listings in Texas 1% increase in Airbnb listings results in a 0.05% decrease in hotel revenue 1% increase in hotel supply results in a 0.29% decrease in hotel revenue Doubling of Airbnb produces the following revenue shortfalls: –  Budget hotels -2.1% –  Economy hotels -2.6% –  Mid-price hotels -0.9% –  Upscale properties are insignificantly affected

STILL, THE STORY IS BROADER THAN SHARE THEFT. AIRBNB IS A FUNDAMENTALLY NEW HOSPITALITY PRODUCT

Hotel Establishment

78

The Gray Market

STAY ANYWHERE, NOT JUST THE COMMERCIAL DISTRICTS AND SAY GOODBYE TO 2-STAR ACCOMMODATIONS Hotels Noted In Orange

79

AIRBNB GUESTS STAY ALL OVER NYC, NOT JUST MIDTOWN WHERE THE HOTELS ARE CONCENTRATED

80

WHAT ARE GUESTS BOOKING ON SHORT-TERM
 RENTAL MARKETPLACES? Wimdu Rome (Jan. ’14 Run Rate; $M) $250! $200!

$234 $40 !

$150! $100!

$182 !

$50!

$33 $28 !

$0! Total Supply! Total Nights: 1.4M

85% of bookings are for apartments, with an average price Avg. Price1 of $190 per Vacation Home $259 night Private Room $115 Apartment

$190

Bookings! 205K

1 Includes Wimdu 9.5% fee; Supply and bookings estimates exclude Wimdu fee Note: Assumes listing unavailability due to new booking through Wimdu, assumes methodology captures 100% of bookings

81 Source: Sherpa proprietary research; ScrapingHub

RESIDENCE RENTALS OFFER A MORE HUMAN EXPERIENCE AT VASTLY BETTER VALUE
 THAN HOTELS 1,400 sq ft 3 Bed, 2 Bath - $164/night Rome, Italy 260 sq ft Queen - $165/night •  •  •  • 

Accommodates 6 (5.4X bigger than Hilton) Full kitchen Washer/Dryer Wi-Fi

540 sq ft Studio - $164/night

•  •  •  • 

Accommodates 3 (2X bigger than Hilton) Full kitchen Washer/Dryer Wi-Fi

Note: Inclusive of Wimdu booking fee

82

915 sq ft 3 Bed, 1 Bath - $164/night

Median Price for Wimdu Rome Apartment: $164/ Night1

•  •  •  • 

Accommodates 7 (3.5X bigger than Hilton) Full kitchen Washer/Dryer Wi-Fi

FACILITATES FAMILY/GROUP TRAVEL LIKE NOTHING THAT’S EXISTED BEFORE •  Larger residence as opposed to multiple hotel rooms – 50% savings •  Private kitchens to prepare meals – 50% savings over restaurant restaurant patronage •  No additional fees for internet, entertainment access •  Living rooms enable congregating outside of hotel lobbies •  On premises washer/dryer enable lighter packing •  Rentals outside of hotel districts where consumer staples more accessible + less expensive

83

AIRBNB ALSO REMOVES TRADITIONAL HOSPITALITY’S POTENTIAL FOR MORAL HAZARD Anonymous Transaction

Village-Based Commerce

Guests behave more responsibly

à Hosts more willing to offer residences

à Guests more willing to rent them Don’t break anything, but otherwise behave as badly
 as you want 84

Treat my stuff as you would your own or face ostracism

FLEXIBLE SUPPLY CREATES ENORMOUS VALUE DURING LARGE EVENTS Austin Hotel Availability 1 Week Before SXSW Huge Premium

Airbnb adds 2,400 units of supply

85

Fully Booked

FOR HOSTS, SHORT-TERM RENTALS CAN BE AN ECONOMIC LIFE LINE •  Substantial earnings power –  1 stay per month (6.4 nights, $165/night) = $13K per year •  Entirely incremental revenue (under-utilized space) •  In major markets, 2/3 of Airbnb hosts do not work full time •  Airbnb UK Study: –  Typical hosts earns $4,627 on Airbnb renting some or all of their residence 33 nights/ year –  63% of hosts report using Airbnb income to pay bills they would otherwise struggle to have paid

86

PROFESSIONAL HOSTS PROVIDE A LARGE PORTION OF INVENTORY Wimdu Listings by Host Size (# of Listings Managed) (Jan. ‘14) 100% 90% 80%

31%

26%

28%

34% >50 Listings

70% 60% 50%

25%

23%

17%

17%

9% 3 Listings 8% 2 Listings 20% 1 Listing

33%

40% 30%

8%

6%

20%

9%

9%

6% 7%

15%

16%

19%

Istanbul

Barcelona

London

10%

14% 10-49 Listings 16% 4-9 Listings

0%

87 Source: Sherpa proprietary research; ScrapingHub

Rome

Professional Property Managers

THESE HOSTS ARE SMALL BUSINESSES

•  •  •  • 

88

15 Wimdu listings 25 Wimdu reviews over 2 years 126 TripAdvisor reviews 1,557 Facebook Likes

•  67 Airbnb listings •  Run by former HomeAway executives

THIS IS ONLY THE BEGINNING OF THE PEER-TOPEER RESIDENCE RENTAL WAVE

89

PROFESSIONAL HOSTING IS SIMPLE AND LUCRATIVE

Rent for $164 / night

Break even w/ 14 nights booked per month Central Rome (italy) location 800 sq ft 1 Bed, 1 Bath Furnished $2,000/month

$1,500 gross margin w/ 24 nights booked per month

+ $100/month utilities 1 Note: Median price for central Rome apartments; Inclusive of Wimdu booking fee

90

EVEN IN THE MOST MATURE CITIES, PENETRATION IS STILL VERY LOW Total Listings / Housing Units (Sum of Airbnb, Wimdu, HouseTrip, and 9Flats Listings) 3.1%

1.8% 1.3% 1.1%

1.0% 0.4%

Paris

SF

Rome

Berlin

NYC

Hosting is equally lucrative across all cities 91 Source: Sherpa proprietary research

London

ECOSYSTEM DEVELOPMENT:
 HOSTING AUTOMATION

Tech-Enabled Cleaning Services

Full-Service Hosting Outsourcer + Concierge

Partnered with dozens of property management companies 92

IT’S ONLY A MATTER OF TIME BEFORE THESE BECOME ENDANGERED SPECIES

93

SUMMARY

A burgeoning new market in shortterm, peer-to-peer rentals is creating a new kind of travel offering that is more flexible, more personal and better priced than traditional hospitality options. At the same time, this marketplace is creating a new breed of hospitality entrepreneurs. 94

REAL ESTATE ON DEMAND: A CLOSER LOOK
 AT BUSINESS RENTALS & CO-WORKING

New Hospitality Products

Parking & Storage on Demand

95

Metered Business Rentals

LAPTOPS AND ALWAYS-ON CONNECTIVITY FREE US TO WORK ANYWHERE

96

WORK IS NO LONGER A PLACE

EXPENSIVE OFFICES ARE NO LONGER NECESSARY, NOR ARE THEY A MARKER
 OF SUCCESS

97

CO-WORKING SPACES ARE PROLIFERATING RAPIDLY Global CoWorking Spaces 2,490 Africa Australia 141 South America

2,500

245 Asia

2,000

2,072 853 North America

1,500 1,320 1,000

500

600

European 1,160 Union

0 October-10 February-12 October-12 February-13 98 Source: deskmag Global CoWorking Survey

Implies $750M - $1.5B in Gross Sales Globally (Assumes: 41 desks/ space, 55% utilization, and rental fees of $50$100/day)

REAL ESTATE ON DEMAND: IMPACT Winners

Losers

End User: Guests

•  Broader choice and better value in hospitality

Motel Owners

End User: Hosts

•  Birth of a new profession w/ excellent hourly wage •  Ideal for enabling “passion career” pursuit

Non-Business Hotels

End User: Start-ups & solopreneurs

•  Access to professional space to start-up businesses, meet clients

Generic Resorts

Cities

•  Increased tourism •  Able to host bigger destination events •  Moderate tax revenue growth

•  Travelers no longer solely reliant on hotels for travel accommodations

Societal Impact •  More transient population •  New way to mix cultures/communities •  Facilitating entrepreneurship spurs economic growth 99

A CLOSER LOOK AT ODE NEXT: 
 LABOR ON DEMAND

1 2 3 4

100

Transportation Real Estate Labor Retail & Products

LABOR ON DEMAND: KEY AREAS

Freelance Marketplaces

Local Providers

101

Managed Services

NEARLY HALF OF THE U.S. WORKFORCE IS COMPRISED OF SOME FORM OF
 ON-DEMAND LABOR $5T US Labor Market Full-Time Employees

52%

•  Unclear or no long-term need •  Difficult to source quality talent •  Long lead time Freelancers, Contractors + Temps

10%

•  Time-consuming to source independent labor •  Same quality challenges as full-time talent •  Staffing Firms + Temp Agencies deliver on demand but command significant markups •  Free of ongoing obligation Consulting Firms + Professional Services Agencies

38%

•  On-demand delivery •  High quality of work •  Exorbitant per hour fees

102 Source: US Census, Staffing Industry Analysts, “Online Staffing”– January 2, 2014; SelectUSA

ODE

THE SELF-EMPLOYED US WORKFORCE HAS BEEN GROWING ONLY MODERATELY Nonemployer1 Firms vs. US Labor Force

18% 14.9%

16% 14%

12.5%

12%

15.4M

13.1%

12.9%

17.0M

17.7M

3.8%

3.4%

3.2%

21.7M

16.1% Nonemployers / 22.5M Total US Workers

10% 8% 6% 4% 2%

Nonemployer Sales / Total US Firm Sales

0% Avg. Income Per Nonemployer:

1994

1997

2002

2007

2011

$38K

$43K

$44K

$46K

$44K

1 Nonemployer firms have no employees and may be organized as a sole proprietorship, partnership, or corporation. A sole proprietorship is an 
 unincorporated business owned by an individual. A sole proprietorship has no existence apart from its owner. Business debts are personal debts of the owner.

103 Source: Bureau of Labor Statistics, US Census

BUT THE TYPES OF ACTIVITY INDEPENDENT WORKERS ARE ENGAGED IN SEEM TO BE SHIFTING Biggest Losers

Biggest Gainers

More white-collar and locally-sourced categories

104

PERPETUAL, HOURLY EMPLOYMENT IS OFTEN DEEPLY INEFFICIENT FOR ALL PARTIES INVOLVED

105

THE COST SAVINGS AND FLEXIBILITY OF CONTINGENT LABOR APPEALS TO EMPLOYERS We've had a never-ending stream
 of projects of the last 5 years, which strains our in-house resources. With freelancers, we can augment our workforce and tap specialized knowledge for 3 different departments: IT, operations, and finance. – Hiring manager from leading printing software company

To hire a full-time employee, you have to have a long-term need. But a lot of the time, we only have immediate need. It's much easier to budget for a contractor. – Representative from a leading biotech company

•  60% of companies expect to hire more freelancers in 2014 •  20% of companies expect to significantly increase their freelance staff 106 Source: Tower Lane “Surveying the New World of Work” 2013

THE INDEPENDENCE AND PRODUCTIVITY THAT COME WITH FREELANCING MAKE WORKERS HAPPIER

107 Source: Elance “The State of the Freelance Market,” September 2012

40% OF TNC DRIVERS USE THEIR EARNINGS TO FUND THE PURSUIT OF “PASSION CAREERS” Reason For Becoming a TNC Driver

40%

•  Subsidizing Passion Careers or Benefiting Beyond Income –  Students and homemakers –  Actors, artists, photographers, etc. that can’t live off sparse earnings –  African soccer agent trying to improve his English –  Retiree that likes having an activity and the conversation

38%

•  Supplemental Income For People w/ Few Alternatives –  Low-paying full-time jobs –  Slow earnings seasons –  Unemployed

23%

•  Professional Drivers –  Former Taxi, Chauffeur, and Shuttle drivers

TNC Drivers 108 Source: Sherpa TNC Survey

ACCESS TO AFFORDABLE HEALTHCARE AND RETIREMENT PROGRAMS CREATES MORE OPTIONS FOR WORKERS

ACA and a variety of independent savings programs offer key benefits once available only through full-time employment with a large firm

109

NEW SERVICES PROVIDE SUPPORT AND EXPERTISE FOR SMALL BUSINESS AND FREELANCERS In lieu of dedicated IT, Finance and Marketing Departments, independent workers can now leverage: Finance

Marketing

Collaboration Tools

•  Freshbooks

•  Google AdWords

•  BaseCamp

•  Square

•  SquareSpace

•  Google Docs

•  Apptivo

•  Facebook

•  Skype

•  QuickBooks

•  Yelp

•  Dropbox

110

LABOR ON DEMAND: A CLOSER LOOK AT 
 FREELANCE MARKETPLACES

Freelance Marketplaces

Local Providers

111

Managed Services

IN AN ERA OF VIRTUAL WORK, ONLINE MARKETPLACES PROMISE TO EMPOWER A FREELANCE REVOLUTION Individual Freelancers, Consultants + Contractors

Online Freelance Marketplaces

Temp + Staffing Agencies

•  Freelancers are fully-empowered entrepreneurs •  Receive 80%-90% of billing rates

Outsourcing Companies

•  Workers are commoditized •  Paid 20%-30% of billing rates

Businesses with Immediate But Non-Permanent Hiring Needs *Note: Staffing Industry Analysts, “Online Staffing”– January 2, 2014

112

FREELANCE MARKETPLACES BRING CONVENIENCE AND TRUST TO HIRING
 REMOTE WORKERS Craigslist

Freelance Marketplace







VS.

Employer Track Record Lead Generation 113

Employee Work History

Reputation Building

Payment Collection

WITH $750M IN BILLINGS & 50% SHARE, ELANCE/ ODESK DOMINATES ONLINE FREELANCE MARKETPLACE Millions!

Elance / oDesk Billings ($M)

$800

$750

$700

$575

$600 $500 $400

$383

$300

$156

$200 $100

$226

$314

$215

$437

$360

$0 2011

2012

2013 50% of Online Staffing Market Globally1

1 Note: Staffing Industry Analysts, “Online Staffing”– January 2, 2014; Excludes Craigslist

114

BUT ONLINE STAFFING IS STILL A TINY PORTION OF THE INDUSTRY OVERALL Billions!

Global Staffing Industry ($B)

$25 $20 Local Gigs

$15 $2T

$10 $5 $0

Craigslist Short-Term Labor Supply $3.0B All Other Players Elance /oDesk

Online Staffing

$3.0B

All Staffing

1 Note: Staffing Industry Analysts, “Online Staffing”– January 2, 2014; Sherpa proprietary Craigslist study

115

In-Person Staffing

Online Staffing

OUTSIDE OF IT, ELANCE / ODESK IS ESSENTIALLY THE SAME SIZE AS CRAIGSLIST GIGS Billions!

2013 US Supply of Freelance Labor ($B)

$1.6

$1.5B

$1.4 $1.2

$0.1

Other

$0.9

IT

$0.1

Marketing

Local Gigs

$1.0 $0.8

$0.1 $0.1

$0.6

$0.1

$0.4

$0.2

$0.2

$1.5B

$0.3

$0.3 $0.1

$0.0 Craigslist 116 Source: Sherpa proprietary Craigslist study, company reports

Elance / oDesk

Creative Ops

ELANCE / ODESK: CONNECTING FIRST WORLD SMALL BUSINESS TO TALENT IN DEVELOPING COUNTRIES Elance Jobs Posted vs. Earnings by Country (Lifetime Results) 100% 90% 80% 70% 60%

>100 Others Australia Canada UK

50%

Ukraine Pakistan

Australia

India

40% 30%

>100 Others

Canada UK

US

20%

US

10% 0%

117

Jobs Posted

Earnings

90% of Employers have