Accessory club exec preso 110513

Confidential and proprietary materials for authorized Verizon personnel and outside agencies only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.

“Accessorize Me” Business Case11/05/13

Confidential and proprietary materials for authorized Verizon personnel and outside agencies only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement. 2

Robust growth in smartphone sales drives smart accessories sales

• Spurred by smart-device sales growth, the mobile-device accessories market is forecast to grow 10.5% per year, reaching $62 billion by 20171

• Americans now have half a billion connected devices2,. Projections for growth:

• 2013-17: Tablet sales will grow 79%; Smartphone sales will grow 71% ; Smart home automation will grow 5x6

• By 2017, Smartphone-only accessories will be a $50 billion market4

• By 2018, Smartphone health and fitness device users will increase from 15MM to 96MM7

Sources: 1. ABI Mobile Handset Accessories, 2. NPD Group Connected Intelligence Report, 3. Nielsen, Sept 2013 and NPD Group, 4. ABI Mobile Handset Accessories, 5. IDC, 6. Forbes, 7. Jupiter, 8. Cisco

Opportunity & Consumer Demand for Smart Accessories


Demand exists for accessories long after original point of device activation

• Verizon retains “first accessory” sales as 50% of phone purchasers obtained accessory at retail POS

• After activation, 62% of accessory purchases migrate online

• Post-activation, most customers do not consider carrier’s website for accessories

• Verizon captures only 5–7% share of overall accessory shoppers

• 80% reported visiting a different retailer to purchase aftermarket accessories

Sources: RAUXA Qualitative Testing Report

Accessories sales over a six-month cycle

By Month 4: After initial purchase, nearly two out of three accessory purchases are made via competitors’ online channels

By Month 6: Three top players now control over 70% of the online accessories market

Verizon’s lost revenue

opportunity for downstream smart

accessories

Opportunity: Accessory Demand Extends Through Customer Lifecycle


A subscription-based sampling/rental service for smart-device owners to try out new smart accessories

How it works:1. Sign-up for one, two or three accessories to

rent or trial at a time (6 mo minimum)2. Select accessories3. Receive box of accessories in the mail4. Return one or all accessories when you want

to switch out of others• Subscribers can also choose to keep

and purchase the accessory at a discounted price

5. Subscribers’ returned items are cleaned, refurbished for use with other subscribers

Service is available to customers and prospects

START: Sign up > Select segment > Browse accessories:

Accessories are boxed and shipped

to member

Member selects accessories for

trial

Member trials and returns when ready

to try a new item

Accessories are tested and

repackaged

Accessories are re-inventoried

Member is emailed that the next box is

on its way

OR... member chooses to purchase an

accessory

“Accessorize Me” Concept

All wireless competitors sell accessories but none offer trial or subscription. Opportunity to shift share to Verizon.There are no subscription commerce companies concentrating on the smart accessories space


• Try accessories they might not have purchased otherwise

• Access to new-to-market accessory products

• Ability to rest and return products without risk

• Confidence in product quality and variety

…all for a predictable monthly subscription fee

Value Proposition and Business Benefit

• Increase in accessories market share from existing VzW accessories business.

• Steals share from non-traditional Verizon competition (i.e., Amazon, Best Buy, etc.)

• Gives Verizon access to other wireless carrier’s customers.

• Ongoing, dependable revenue stream from the subscription model

…and if the business is eventually branded Verizon, it will Increases the brand’s perception as a technology leader.

Consumer Value Proposition Verizon Business Benefits


Positive sentiment towards concept of subscription service

• Participants were very receptive to subscription model for smart-device accessories

• Discovery based on personal tastes is driving subscription commerce growth

For undecided customers, opportunity to try-before-you-buy with generous consideration window:

• Most subscription models offer high-end, unique value for customers at reasonable (but recurring) price

• Subscriptions provide foot-in-the-door to customers hesitant to pay high initial price

• Increasing length of trial greatly increases likelihood to purchase (participants mentioned Best Buy as their de facto trialing service due to 30 day return policy)

Opportunity for further customer interactions, touch-points and relationships

• Consumers gain unique, unhurried sales experience to trial smart accessories over time

• By paying monthly, customers stretch their financial obligation to even out cash flow and keep costs down by paying only for what they consume

Research Findings (incl Focus Groups)


Research indicates that the consumers will react well to this concept. Two target segments emerged:

Segment Narrative Value Proposition

Fashion-forward

Want to be seen with hottest accessory

With so many accessories out there, a Accessorize Me keeps me in the know

General Tech

I have the best device and I want the best technology for it

You want the best and you want it now; and Accessorize Me gives you the freedom to constantly try the best offerings


“I know the choice of the right accessories helps exploit to the maximum the full potential of a mobile phone.”

“I want accessories that help enhance the functionality and performance of a mobile phone.”

20%

80%

• For complex products, “discovery” enables consideration time for purchase.

Consumer Research


8

Product Categories and Pricing

Purchase Consideration Window: Amount of time (weeks) shoppers need to decide whether to purchase an accessory. Longer purchase consideration window = better fit

Amazon Ratings 4+ Stars: Market-based metric representative of the broader population to assess product popularity and satisfaction outside Verizon

Average Monthly Keyword Searches: Indicative of the degree to which shoppers are conducting research on upcoming purchases and suggestive that a future purchase is imminent

# Criteria

Points (total =

100)

1 length of purchase consideration window 252 Amazon.com 4+ stars 25

3 avg. monthly keyword searches 204 avg. monthly units sold by VZ 155 Accessory Sentiment Rating, positive 106 intangibles / other 5

Total 100

Sources: Amazon ratings, Verizon internal data

Major product categories include Speakers, Headphones (entertainment), Cases/Sleeves, Chargers, Earpieces (utility), Fitness/Health, Connectivity, and Emerging Accessories.

The purchase consideration time has major influence on accessory categories best-suited for inclusion.Product Selection Criteria

Weights express the relative importance of each criteria.


Feature Premium Tech Segment

Standard TechSegment

Fashion-forward Segment

Demo one accessory at a time

$35 / month $15/ month $15 / month

Demo two accessories at a time

$65 / month $25 / month $25 / month

Demo three accessories at a time

$90 / month $40 / month n/a

Emphasis Tech accessories with retail prices

over $125

Tech accessories with retail prices from $75 - $125

Fashion-inspired phone cases

Price changes • Increases to monthly prices of 10% to 25% implemented each year, depending on year and segment

Contract • No contract; no month-to-month

Purchase Discount • 20%–25% discount if keeping the actual item demo-ed• 10–15% discount if buying a new version of the item demo-ed

Accessorize Me Pricing


10

Potential Ancillary Revenue Streams

1) Market Research and Inclusion Fees

• Opportunity for OEMs to gather consumer research for product development and positioning

• Accessories manufacturers could potentially have the Accessorize Me also ship out their samples

2) Gift Subscription Revenues

• Subscription commerce players derive a percentage of revenues from gift subscriptions

Other Benefits (from strategic partners)

• Build subscriber value by offering exclusive smart accessories from leading manufacturers

• Opportunity to purchase significantly discounted CPO inventory from top accessories manufacturers


Two, additional revenue streams could enhance revenue generation:

SubscriptionRevenues

E-commerceRevenues

GiftSubscriptions

InclusionFees

Enhanced LTV turns

customer data into actionable insight

and buyer

profiles

$205MM2016 est.

$99MM2016 est.

$12MM(est) $10MM

(est)


Subscription-based models have many advantages:• Foot-in-the-door for selling to difficult-to-engage customers • Greater predictability of inventory needs over time• More efficient cash flow management• Collects substantial customer information beyond payment

data for cross-selling and personalized database marketing

“Sub-comm” model is attracting major investment from VCs, with many achieving remarkable financial results:• JustFab took three years to get to $200MM annual revenue• JustFab and Shoedazzle are merging with $400MM in

revenue• Birchbox has $66MM in sales• Honest Company reached $50MM in revenues in 18 months• AdoreMe shipped 100,000 units within its first 12 months

Sources: Crunchbase, Red Herring

$11MM funding$45MM revenue

50,000 subscribers

$73MM fundingAll venture rounds


18 million subscribers

$12MM funding400,000 subscribers

$55MM funding3 million subscribers

Adding 100,000 subs/mo


15 million subscribers

$22MM funding250,000 subscribers

Kleiner Perkins backed

$19MM fundingSeries A

None since 2011

Attractiveness of Subscription Commerce Businesses


Providing hard-to-get accessories (via Kickstarter, GrandStreet , BiteMyApple, etc.) can enhance the Accessorize Me model

• While existing VZ accessories will have strong representation, 20% of them can be devoted to “niche” or novel accessories

• Smart accessory manufacturers are embracing Bluetooth standard (not 30 pin, USB, Lighting, etc.), setting stage for more connected devices

• For example, wireless streaming speakers, most using Bluetooth, jumped 175% to $383MM in 2013

• Kickstarter is supporting a rise in niche accessory manufacturers,

Source: Consumer Electronic Association, Digital America Report 2013

Wireless Baby MonitorFor iPhone/iPad

Wireless Smart LeashWallet Tracker

AutomobileDiagnostics

More smart devices introduced every day:Hand crank generatorCredit card chargerPhone controlled robotsm-PrintersKitchen accessoriesBBQ accessoriesMountable cameraThermoelectric generatorCrash sensorSmart scaleBlood pressure monitorsSmart diceAirspeed calculatorsPet/Child trackersRemote shutter releaseiPad/iPhone stylusTripod mountsLocation leashesGolf swing analyzersPedometersArmbands and more…

Accessory offerings in the smart device category are a burgeoning business for manufacturers and start-ups.

Weather clocks

Speakers

Detachable Video Lenses

Wearable devices

SLR Camera Lenses

Mint Tin Chargers

Remote Control Toys

Solar Backpacks

Digital Binoculars

Wireless Home SecurityFor iPhone/iPad

Other Specialty Accessories


Negotiating leverage: Verizon carries significant leverage over accessories providers for negotiating relationships

Category Experience:

Given its core business, Verizon has know-how to run this synergistic offering

Shared platform:

Leveraging shared resources within Verizon can help business grow more quickly

Data/FinancialData and feedback loop:

A massive Verizon repository of data can drive accessory recommendations to trial and customer segmentation

Best- and worst-selling item analysis enables continual product refinement

OperationsInfrastructure:

Verizon ‘s logistics platform for warehousing and fulfillment, billing, inventory management, shipping and returns, and customer support.

MarketingA ready pool of customers: Verizon’s 100MM subscribers are “hand-raisers” as they have already signaled interest in mobile devices, accessories and technology

Cost-effective marketing outreach:

Cross-marketing to Verizon base is significantly cheaper than external marketing

Accessorize Me can easily be pushed through Verizon’s existing, well-defined advertising channels

Sustainable Competitive Advantage


Thank You! We've received your request and added you to our beta list. We’ll launch soon and will let you know what’s in store next.

Implement test to more deeply gauge interest in the specific concept :• Create various Google Ads or Facebook messaging to

drive potential customers to 1 of 5 test landing pages• Each landing page will provide different details about

Accessorize Me, response rates to each will be measured• Conduct consumer profiling of opt-in customers• Results to be analyzed and leveraged for subsequent

high-fidelity test

Partner: Launch Rock

Estimated Cost: $50K

Estimated Time: 30 days

Learnings: Pricing, percentage of people that would sign up, types most interested

SEO, SEM, display advertising, etc.

drives market traffic to a landing

page

Landing page visitors will be incentivized to

provide their email to “request an invite”

to the ASC

Access great accessories for your smart device.

We’ll send you 3 to try for one low monthly payment

Test 1 (Low Fidelity)


• Offer limited test with a strategic partner such as Fab

• Gain promotional carriage and presence on partner’s homepage

• Fulfillment is coordinated with partner logistics and warehouse team

• Track various performance metrics, sign-up rates, churn, top accessories of value, etc.

Estimated Cost: TBD

Estimated Time: 6 months

High Fidelity Test

Confidential and proprietary materials for authorized Verizon personnel and outside agencies only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.

Appendix


Accessorize Me: Key Features

Suitability analysis and individual product ratings and reviews informed decisions on which products to offer subscribers.(1 of 2; see Product Gallery in Appendix)

Category # Product Recommendation

Existing VZ Accessory,

or New? Sub-Category Segment JustificationPrice

LoPrice

Hi

speakers 1 Jawbone Jambox existing portable speaker PTexceptional Accessory Sentiment Score (84.9%) $180

2 Beats by Dr. Dre - Pill existing portable speaker PT 4+ / 5 stars on Amazon $200 3 HMDX audio Jam Speaker new unique speaker ST 115 reviews, 5/5 stars on Google Shopping $404 Bone Collection Horn Bike new unique speaker ST Winner of several design awards. $30

headphones for entertainment 5 Klipsch S4A Headphones new in-ear headphones ST CNET exceptionally strong reviews for Klipsch $65

6 Shure SE425 new in-ear headphones PT Very positive review from CNET editors $300

cases & sleeves 7 OtterBox existing designer case ST, Fconsumer sentiment as "most protective" case; top-10 in sales $65

8 Mophie Juice Pack Charging Case existing charging case PTvery strong positive sentiment amongst Verizon users $88

9 Lifeproof existing protector case ST, F"saved my phone" stories = most common positive feedback $49

10 Belkin existing designer case ST, Fhigh scores on design, 78.8% Accessory Sentiment Score $23

11 PowerSkin Charging Case new charging case ST, F $60 $80 12 various designer brands new designer case ST, F $15 $50

chargers 13 Micro USB Dual Car Charger existing traditional ST the dominant, #1 units-sold item $24 14 XD Design Solar Window Charger new solar-powered ST consumer trend towards eco / solar chargers $65

15WakaWaka Power Compact Solar Charger new solar-powered PT consumer trend towards eco / solar chargers $79

16 Solio CLASSIC2 new solar-powered PT consumer trend towards eco / solar chargers $100 17 Powermat 3X new unique design PT 9.5/10.0 score on Top10Reviews.com $78 18 PowerDoc 5 new unique design PT $100

Note: “PT” = Premium Tech Segment; “ST” = Standard Tech Segment; “F” = Fashion Segment


Accessorize Me: Key Features

Suitability analysis and individual product ratings and reviews informed decisions on which products to offer subscribers.(1 of 2; see Product Gallery in Appendix)

Category # Product Recommendation

Existing VZ Accessory,

or New? Sub-Category Segment JustificationPrice

LoPrice

Hiearpieces: utility headphones, headsets, Bluetooth, etc. 19 Plantronics "M" series existing wireless ST

Lower price ($30), high units sold, high Amazon review scores $35 $60

20 Bose Bluetooth Headset Series 2 new wireless PT Excellent Amazon ratings (5/5), 590 reviews $150 21 Jabra SUPREME Bluetooth Headset new wireless ST 2012 Red Dot Design Award $72 22 Overture Cellular Headset new wired / corded ST Lightweight design (less than 2 oz.) $55

23 Jabra Freeway existing speakerphone PTexceptional Accessory Sentiment Score (80.5%) $88

fitness smart accessories 24 FitBit One existing fitness PT

Fitbit = #1 most-mentioned high-end accessory in Social Analytics study $98

25 Jawbone Up existing fitness PTfrequently mentioned as substitute / replacement for Fitbit $130

wellness smart accessories 26

Withings Smart Blood Pressure Monitor new health PT 4/5 stars on Amazon; 350 reviews $130

connectivity 27 Jetpack 4G LTE Mobile Hotspot existing jetpack ST 55.6% Accessory Sentiment Score $50 cutting edge emerging accessories 28

Sony's Cyber-shot QX10 wireless camera lens new photography PT exceptional reviews by tech editors $250

29 GoPro line of cameras new photography PToversubscribed on Kickstarter by 3x of funding goal $199 $399

30 StickNFind Location Stickers new lost item recovery ST Compatible w/ several devices; sold in 2-packs $50

31 XiStera Accessory new tools SToversubscribed on Kickstarter by 3x of funding goal $25

32 Automatic new car telematics PTBeams data about engine performance to Automatic's app on the iPhone $100

Note: “PT” = Premium Tech Segment; “ST” = Standard Tech Segment; “F” = Fashion Segment


Product Gallery


Product Gallery

Speakers

Jawbone® Jambox™ HMDX Audio Jam™ Speaker

Bone® Collection Horn Bike

Beats™ by Dr. Dre™ – Pill


Product Gallery

Headphones for Entertainment

Klipsch® S4A Headphones

Shure® SE425


Product Gallery

Cases & Sleeves

LifeProof ® Cases

PowerSkin®

Battery CasesBelkin Cases

Otterbox® Cases mophie® juice pack

Cases – various designer brands


Product Gallery

Chargers

WakaWaka Power Compact Solar Charger

Solio® CLASSIC2

Micro USB Dual Car Charger XD Design Solar Window Charger

PowerMat™ 3X

Griffin’s PowerDock 5


Product Gallery

Earpieces

Bose® Bluetooth Headset Series 2

Jabra® FreewayOverture Cellular

Headset

Jabra® SUPREME Bluetooth HeadsetPlantronics® "M" series


Product Gallery

Fitness Smart Accessories / Wellness Smart Accessories

FitBit® One Up™ by Jawbone® Withings Smart Blood Pressure Monitor

Jetpack® 4G LTE Mobile Hotspot

Connectivity


Product Gallery

Emerging Accessories: Cameras

SONY® Cyber-shot QX10 wireless camera lens

GoPro® Cameras


XiStera Accessory

StickNFind Location Stickers

AutomaticCar & Smartphone

Connection

Product Gallery

Emerging Accessories: Tools & Utilities Cameras


Key Assumptions of the Financial Model

Sources: a) Birchbox, Netflix b) Churn Expectations c) PandoDaily d) ABI Research e) US E-Commerce Landscape and

Trends (see slide 12), Yahoo Finance

f) Papermart.com g) Amazon Shipping

# Source Driver Value Justification/Source:

1 a Subscriptions by Year 2 480,503Model assumes Verizon will be able to reach 400K+ subscribers by year 2 due to Verizon brand, marketing power, and large subscriber base. Birchbox attained 400K subscribers in year 3, while Netflix attained 400K+ subscribers in year 4.

2 Subscription Prices (2014-2019) $4.99 - $64.99

For Year 1, amongst Fashion and Tech segments, model assumes beginning pricing as low as $4.99 per month for one accessory (Fashion, 1-item demo) to $34.99 for 3 accessories (Premium Tech, 3-item demo), so as to obtain a strong subscriber base in the shortest amount of time. Price increases in the ensuing years result in pricing of $9.99 and $64.99, respectively, for these same segments in 2019.

3 b Yearly Churn (2014-2019) 15%Customer churn of 10%-20% per year considered a fair benchmark by investors in subcomm businesses.

4 cMo Purchases from Subscribers (1 Accessory) (2014-2019)

5% - 15%Birchbox converts 50% of subscribers into purchasing customers. Model conservatively assumes monthly conversions of 15% by year 6. This assumption grows retail revenue in 2014 from 24% of total revenue to 34% in 2019.

5 dMarket share of mobile device accessories market captured by Retail Revenue of ASC, 2017

0.6%The mobile device accessories market is expected to be $62B by 2017, the most distant year that ABI Research forecasted

6Wholesale Cost per Subscription Item Procured by VRZ (2014-2019)

$43Reflects the average cost to Verizon of an item which will be demo-ed in the subscription program.

7Products purchased from Accessory box Discount

20% - 25%Products kept and purchased by subscribers from accessory box receive 20% - 25% discount.

Product Purchased new item Discount 10% - 15%New products purchased from online store by subscribers receive 10% - 15% discount.

8Average Retail Price of New Products (2014-2019)

$84This is the weighted average retail price of 30+ products recommended for the accessory box.

9 e Gross Margin of Purchased Products 49%

The gross margin amongst Amazon, Target, Zappos, and Blue Nile is around 28%, while for Verizon it is 60%. We have utilized a gross margin of 49%, approximately in the middle of the two, due to the discounts we expect the Accessory providers to give to us in exchange for the opportunity to demo their new products in front of millions of VZ subscribers, similar to the discounts that Birchbox suppliers extend to Birchbox for the 'showcasing' opportunity.

10 Headcount by Year 2 28Utilizing LinkedIn to assess staffing, a similar subcomm business, Bag Borrow or Steal, shows a headcount of 30 employees.

11Marketing as % of Revenue (2014-2019)

5%-->15%Expect marketing expenses to be aggressive in the first 2 years to attain subscriber base.

12Restocking / Cleaning Fee / product (2014-2019)

$2.00Benchmarked against, 1) VZ and competitors' restocking fee as a pct. of the device's value, and, 2) monthly insurance premiums for device insurance as a pct. of the device's value

13 f Packaging (2014-2019) $0.20Standard shallow box from papermart.com costs $0.21. Model assumes VZ has better purchasing power to get boxes and wrapping for $0.20.

14 g Shipping (2014-2019) $0.75 - $2.25 Amazon shipping at $0.75 per pound.

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