The Fortune At The Middle of The Pyramid
A Zeitgeist Called The Experience Economy
“Erlebnisgesellschaft” or The Experience Society was a book written by German sociologist Gerhard Schulze in 1992. Although, Alvin Toffler in his book Future Shock published in 1971 alluded to the dawn of a new ‘Experience Economy”. Alvin argues that people in the future will spend a large portion of their salaries to enjoy amazing experiences. In August 2004, CK Prahlad and Stuart L Hart wrote an article titled “the Fortune At the bottom of the Pyramid” which was later converted into a book by the same name. According to Bill Gates, it “offers an intriguing blueprint for how to fight poverty with profitability.
Very similarly, today, I would argue there is a need to look at the middle of the Pyramid I.e. the middle class. The experience economy comes after the agrarian, industrial and internet economies. It is a logical evolution as the business of providing experiences, of bringing luxury to the masses is indeed booming albeit to varied extent in various parts of the world. While the developed world may not experience a double digit increase in salaries or disposable income, an overwhelming majority (approximately 88%) of the next billion added to the middle class will come from Asia. This is an important observation noted by Homi Kharas in a report titled ‘The Unprecedented Expansion of the Middle Class” published by the Brookings Institution (Working Paper 100, February 2017). Kharas defines middle class as a four person household with annual income between $14,600 and $146,000 in 2005 Purchasing Power Parity(PPP)terms. In addition, the working paper goes on to note:
- There are 3.2 billion people in the global middle class. This means that in two to three years time, there will be a tipping point and a majority of the worlds population will live either in the middle or the rich class.
In 2015, the total spending by the middle class was about $ 35trillion in 2011 PPP terms
- Roughly 140 million people are joining the middle class annually. This number could rise to 170 million in 5 years time.
- An overwhelming majority of the middle class will be in Asia.
- The middle class is bigurcated into slow growing developed world middle class and the rapidly growing developing world middle class.
None of these observations should come as a surprise. As the developing world grows, the middle class aspires to escape the mundane everyday. They want to work hard but party harder. After bearing the brunt of a 60 hour work week, millennials want to spend money on creating memories.
One does not need to own a Ferrari to drive one. Chartering a private plane for a family vacation will soon become a reality. Today, renting a BMW or a Jaguar is a simple reality. As the middle class continues to spend on experiences, those providing such experiences are in for the ride of their lives.
Personally, I have flown a Cessna 172 Skyhawk. As I was flying the plane, I realized the non erasable memories that I was creating. The value of such memories is truly extraordinary. With 60 more flying hours, I would be able to obtain a private pilot license. It was truly the wildest of my dreams come true. Imagine a global middle class with $35 trillion in spending power dedicating a slice of that money to experiences. It’s a truly powerful economy.
The sharing economy and an almost zero marginal cost of creating new experiences are the catalysts to this revolution.
While I was studying the portfolio of a VC firm Corigin Ventures, I could see startups in the developed world riding the waves of the experience economy.
There were 3 startups that caught my eye, each with a different experience delivered to paying clients:
Meural
Meural provides a digital canvas to display a new work of art as long as you purchase the digital paintings. From Van Gogh to Georgia O’Keefe, it has a veritable collection of art that can be digitally displayed on your wall. Talk about bringing an art museum home.
Wheels Up
Based out of NY, Wheels up is a private aviation company that allows you to charter a plane for personal use. The price for membership is not out of reach.
Skeddadle
Skeddadle pairs luxurious rides with crowdsourced demand to provide flexible travel to clients.
XDubai
On the other side of the world, Xdubai offers BASE jumps to paying clients.Their website declares:
“Skydive Dubai and XDubai have partnered with DreamJump to bring dreams to extreme reality when they opened the opportunity for limited people from the public to jump using the Dream Jump System”
There are countless such examples of companies and startups creating experiences. From travel to food to extreme sports, nothing is out of reach.
For entrepreneurs with an ability to create personalized experiences for the burgeoning middle class, the sky is truly the limit.
A trip to the moon is not beyond imagination. It’s funny how life imitates science fiction. All I have to say is “Beam Me Up, Scotty!”
