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Internet Marketing · eMarketing · Internet Advertising · Online Branding |
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Internet Marketing · eMarketing · Internet Advertising · Online Branding |
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Internet Advertising Trends Presentation (73 pages)
1
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Internet Advertising Trends
7/5/05
mary.meeker@morganstanley.com
brian.pitz@morganstanley.com
Morgan Stanley does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the
objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Customers of Morgan Stanley in the United States can receive independent,
third-party research on the company or companies covered in this report, at no cost to them, where such research is available. Customers can access this independent research at
www.morganstanley.com/equityresearch or can call 800-624-2063 to request a copy of this research.
2
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• Perspective
• ‘Age of Engagement’ – Internet Impact Just Starting
• Search / Find / Obtain (SFO)
• Numbers Tell Story
• Data Tell Story
• What’s Next?
• Inventory!
Outline
3
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Perspective
4
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What We Have Lived Through with Internet
Company Creation Bust Boom-let
Wealth Creation Bust Boom
Patterns
Boom
Boom-let
5
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Top 5 Global Internet Market Cap Leaders
• $ 2B = market value — pre-2000 IPO
• $178B = market value — Nasdaq peak – 3/10/00
• $ 32B = market value — Nasdaq trough – 10/9/02
• $237B = market value — 6/27/05
Google + Yahoo! + eBay + Yahoo! Japan + Amazon.com
Google included after company’s 8/04 IPO.
6
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Internet 24x7…Everywhere
Patagonia 7 Miles Above North Sea
From: Peter Bloom
To: Mary Meeker
Sent: Fri Apr 15 11:04:43 2005
Subject: Amazing paradigm shift at 36,000
feet...the world really is getting smaller!
I am currently 7 miles above the earth on an
SAS flight somewhere over the North Sea. I
am writing this email from one of the first
planes to have a high speed continuous
connection to the Internet. I am connected
using standard wireless access and in
addition to email I have three IM sessions
running with instantaneous response and also
just executed a trade on NASDAQ. [I plan to
make a VoIP call later.]
Truly awesome implementation of
technology...but sadly the last haven from
"the connected world" has now been
obliterated. Someday we'll all take emails
like this for granted but I couldn't pass up
the opportunity to send one of the first
ones.
Coming up on Greenland!
7
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Global Data Points…
Google 7B global searches (+77% Y/Y, 4/05); 355MM global unique
visitors (+31%, 5/05) per comScore
Broadband 151MM global subscribers (+45% Y/Y, CQ1); 41MM in N.
America; 52MM in Asia
Yahoo! 917MM streaming video (music…) sessions (+119% Y/Y, CQ4)
Digital Music 400MM cumulative iTunes as of 5/05 (+270% in CQ1); 16MM
iPods; digital music = 15% of US music units sold in 2004
Yahoo! 40MM+ estimated My Yahoo! users
Blogging 27% of US Internet users indicated they read blogs
Tencent 13MM peak concurrent Instant Messaging users in China
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…Global Data Points
Wireless Internet 196MM messaging subscribers (CQ4) in China, No. 1 in world
VoIP 42MM registered Skype users (6/05) - fastest product ramp ever?
Global N. America = 26% of Internet users in 2004; was 46% in 1998
S. Korea Broadband penetration of 70%+ - No. 1 in world
China More Internet users < age of 30 than anywhere
Shanda
Networking 2MM peak concurrent online gamers (+69% Y/Y, CQ4) in China
PayPal 72MM accounts (+57% Y/Y, CQ1); 22MM users (+52%)
Mobile Payments 3MM+ NTT DoCoMo wallet phone users (CQ1) in Japan
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Broadband Ramp in 25-30% Penetration Sweet Spot…
Morgan Stanley Research.
0
10
20
30
40
50
60
70
80
2002 2003 2004 2005E 2006E 2007E 2008E 2009E 2010E 2011E
US Residential Broadband
Subscribers (MM)
0%
10%
20%
30%
40%
50%
60%
% of Total US Households
US Residential Broadband Subscribers % of Total US Households
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Mobile Increasingly Important
Mobile
Phone to
Internet
Country User Ratio
Mobile
Phones
(MM)
Internet
Users
(MM)
Installed
PCs
(MM)
China
US
Japan
Germany
UK
Italy
S. Korea
334
180
94
68
54
54
34
94
201
68
42
30
26
30
3.6 : 1
0.9 : 1
1.4 : 1
1.6 : 1
1.8 : 1
2.1 : 1
1.1 : 1
42
204
54
40
26
15
27
Euromonitor, CNNIC, World Bank, Morgan Stanley Research – 2004 year-end data
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Content / User Experience Continues to Improve…
Community Y! 360 Beta, Groups Redesign
Advertising Overture Advertiser Tools, Overture Local Match Y! Partner Network
BT Communicator, Rogers Portal, Y! Browser /
Sidebar
Access Partners
Mobile Mobile Site Upgrade, Messenger, Photos, Search Mobile Mail
Local Maps, SmartView, Local Search Launch
Personalization My Yahoo! Relaunch
Games Relaunch (EUR), My / Front
Page on BT / Rogers
Messenger 6.0 (WW), LaunchCast (UK), Mail
Upgrade, Toolbar Anti-Spy (EUR), Kelkoo
Relaunch, My Yahoo! Relaunch (EUR), Front
Page Relaunch (EUR)
International
Small Biz Domains 2.0, HotJobs Local Listings, HotJobs RSS, Free Local Business Sites
Personals Premier
SBC 2.0, Yahoo! BT, Yahoo! Plus, Small Biz
Merchant Solutions
Marketplaces
My Movies Recommend, Games/News
Redesign
Sports Upgrade, Finance Quotes Redesign, Autos Redesign, Games Upgrade
Movies User Reviews
Content
Desktop, Video, Y!Q Contextual Search,
Firefox toolbar
Proprietary Search Platform, News Search,
Search Shortcuts, Toolbar Anti-spy, Search
Results Redesign, Travel Search, Video Search
Search 4.0, Enhanced News Search, Product
Search, Shopping SmartSort
Search
Mail Spam Tools, Messenger 5.0, Photos Messenger 6.0, Mail Upgrade, Avatars 1.0 Mail Storage Increase
Relaunch
Communications
Front Doors Front Page Search Redesign Front Page Relaunch
2003 2004 2005 (through 4/22/05)
Source: Yahoo!
Yahoo! Product Launches
12
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…Content / User Experience Continues to Improve…
13
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…Content / User Experience Continues to Improve
Consumer Satisfaction with Merchants in CQ4 Holidays
50%
29%
18%
2% 1%
58%
28%
12%
1% 0%
73%
22%
3% 2% 0%
0
10
20
30
40
50
60
70
80
Very Satisfied Somewhat
Satisfied
Neither Somewhat
Dissatisfied
Very
Dissatisfied
Percent Selecting Response
2002 2003 2004
Shop.org/BizRate Research Online Holiday Mood Study
BizRate Research, a Division of Shopzilla
Conducted By Shop.org and BizRate Research
Wave 2 Dates
2002: 12/2 – 12/3
2003: 12/1 – 12/2
2004: 12/6 – 12/7
14
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Hierarchy of Needs?
Selfactualization
Esteem
Belonging
Safety
Physiological
Created for discussion purposes and perhaps a bit of humor. Not intended to discredit Maslow’s hierarchy of needs which we believe to be accurate.
1943 - Maslow 2005 - ? ;)
Internet /
Mobile Phone
Shelter
Food / Water
15
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‘Age of Engagement’ – Internet Impact Just Starting
16
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950MM+ global customers driving on same
highway with same information at same time
Only differences:
● speed
● language
● device (mobile, PC…)
360° of Engagement
17
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Our mission is to organize all the world’s
information and make it universally accessible
and useful. - Google
‘All the World’s Information…’
More and faster progress may be made here
than most folks imagine…
Think about ~$600MM in annual capex and
universal language translation on the fly
18
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Search / Find / Obtain (SFO)
19
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Truth is that interactions with customers, and the customer experiences that
result from those interactions, are, for many businesses, the sole remaining
frontier of competitive advantage
1) In this era of near total commoditization, competitive differentiation along
traditional dimensions of corporate performance is becoming largely
unsustainable
2) There is longstanding evidence that quality of service matters very much to
customers
3) Whether it’s labor / products / services, finding what you want is
increasingly difficult
Jeff Rayport / Bernard Jaworski from Best Face Forward…
Where can you find what you are looking for AND high quality service?
THE WEB!
20
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Search / Find / Obtain (SFO)
Obtain
Find
Search
for “TiVo”
21
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Evolution of Search - eBay as Proxy
As buyers, sellers and eBay became smarter
about expanding / improving eBay’s user
experience, volume and scope of listings and
value of goods increased, while conversion
rates (ex-ASP increases) remained relatively
steady
Similar trends playing out in search – as
searchers, advertisers and search engines
become more sophisticated about expanding /
improving user experience and relevancy of
sponsored / natural search results, search
query volume, conversions and resulting
revenue levels should increase
Key takeaway -- more sophisticated user
experience leads to a higher ROI, for both
eBay and its sellers
eBay Listings, Gross Merchandise Volume (GMV)
As eBay and buyers / sellers became smarter, eBay’s online marketplace improved…
0
50
100
150
200
250
300
350
400
450
500
Mar-98
Sep-98
Mar-99
Sep-99
Mar-00
Sep-00
Mar-01
Sep-01
Mar-02
Sep-02
Mar-03
Sep-03
Mar-04
Sep-04
Mar-05
Listings (MM)
0
2,000
4,000
6,000
8,000
10,000
$12,000
Total GMV (MM)
Listings GMV
Morgan Stanley Research, eBay.
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Numbers Tell Story
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(1) Google unique user count from comScore and Morgan Stanley estimates of global users at year-end (’02 – 209MM, ’03 – 251MM, ’04 – 327MM, ’05 – 409MM). (2) Yahoo! active
registered users per company reports and Morgan Stanley estimates (’02 – 101MM, ’03 – 133MM, ’04 – 165MM, ’05 – 202MM). (3) eBay Payments users per company reports and Morgan
Stanley estimates (’02 – 8MM, ’03 – 13MM, ’04 – 20MM, ’05 – 26MM). eBay figures not presented pro-forma for PayPal acquisition, acquired 10/02.
$2
$14 $11 $12
$21
$37
0
5
10
15
20
25
30
35
40
Google Net Revenue per
Unique User (1)
Yahoo! Net Revenue per
Active Registered User (2)
eBay Payments Revenue
per Active Account (3)
Revenue per User or Account
C2002
C2003
C2004
C2005E
Monetization Continues to Rise
24
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Morgan Stanley Research, PricewaterhouseCoopers, IAB, Jupiter Research, McCann-Erickson, RAB; Newspapers include Classifieds. Promotions ($101B)
include: incentives ($27B), promotional products ($22B), POS ($17B), specialty printing ($8B), coupons ($7B), premiums ($6B), promotional licensing ($6B),
promotional fulfillment ($5B), product sampling ($2B), and in-store marketing ($1B). Households may use multiple advertising mediums.
Promotions
Direct Telephone
Newspapers
Classifieds
Direct Mail
Broadcast TV
Radio
Cable TV
Magazine
Yellow Pages
Internet / Online
$101
91
48
17
51
45
20
18
21
15
10
99
105
72
55
99
108
60
74
99
99
66
$1,022
865
674
302
514
416
334
240
216
151
145
2004E Advertising
Spending ($B) Households (MM)
Ad Spending /
Medium Household ($)
Total
Average
$420
42
881
88
$4,575
458
Internet Ad Spend at $145 Per Home vs. $674 for Newspapers?
25
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(1) Adapted from SRI-Knowledge Networks, Fall 2003. (2) Adapted from Universal McCann, (6/03); Internet Advertising Bureau (3/04). (3) Veronis Suhler
Stevenson (2003), Yahoo! Analyst Day (5/04). Youth defined as age 17 and under. Ratios are calculated as percent of US media usage on a medium divided
by percent of US ad spending on a medium.
US Media Usage (1) to Ad Spending (2) Ratios
4.7x
0.0
2.0
4.0
6.0
8.0
10.0
12.0x
Newspapers
+ Magazines
Total TV Radio Internet
Youth Media Usage (3) to Ad Spending (2)
Ratios
11.3x
0.0
2.0
4.0
6.0
8.0
10.0
12.0x
Newspapers
+ Magazines
Total TV Radio Internet
Gap Between Internet Consumption and Ad Spend is Large
26
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Advertising Moving Online at Rapid Clip
eBay Advertising Spending (2)
Offline
38%
Online
62%
Global Advertising Spending (1)
Offline
97%
Online
3%
(1) PricewaterhouseCoopers, 2003 totals (6/04). (2) eBay (2004), Morgan Stanley.
27
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eBay (One Website) vs. All U.S. Newspapers (1,468 Dailies) Annual Classified Ads (MM)
4 33
123
238
320
427
603
764
141 144 145 146 127 122 119 119
0
100
200
300
400
500
600
700
800
900
1997 1998 1999 2000 2001 2002 2003 2004
Listings (MM)
eBay (US) All US Newspapers
eBay Has Grown Classified Market
Newspaper Association of America, eBay, Morgan Stanley Research
28
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(1) Source: IAB/PriceWaterhouseCoopers Interactive Advertising reports.
(2) Calculated as reported revenue multiplied by the reported percentage of US Ad Revenue.
(3) Yahoo! Gross US Ad revenue forecast by holding constant CQ4:04 reported TAC rate, and multiplying Overture 3rd Party & Affiliate revenue by TAC rate / (1 - TAC rate).
(4) Calculated as the difference between total IAB US revenue and the sum of Google, Yahoo! gross revenue.
(5) Assuming that TAC of Google and Yahoo! was included in others total, this segment would have been up 14% Y/Y.
Google + Yahoo! Account for 54% (and rising) of US
Online Ad Revenue
0
200
400
600
800
1,000
1,200
$1,400
CQ1:04 CQ1:05
US Ad Revenue ($MM)
Google, US Gross Ad Revenue (2)
Yahoo!, US Gross Ad Revenue (2,3)
Others (4)
20%
23%
27% 27%
US Online Ad Revenue Mix (1)
57% 47%
Total US, +26% Y/Y
•Google, +73%
•Yahoo!, +46%
•Others (5), +3%
29
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Don’t Underestimate Power of Google + Yahoo!
Ecosystems…
• While Google generated $1.2B in gross online
advertising revenue in CQ1 it PAID OUT
$462MM to thousands of partners like AOL, Ask
Jeeves and iVillage
• While Yahoo! generated $1.0B in gross online
advertising revenue in CQ1 it PAID OUT an
estimated $353MM to thousands of partners like
MSN, ESPN and The Wall Street Journal
30
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Q1:05 US Online Ad Revenue: $2.8B (1)
(1) Source: IAB/PriceWaterhouseCoopers Interactive Advertising report.
(2) Calculated as reported revenue multiplied by the reported percentage of US Ad Revenue.
(3) AOL estimates from Morgan Stanley Cable Analyst Richard Bilotti.
(4) MSN US ad revenue computed as reported MSN ad revenue multiplied by MSFT year-end percentage of
US revenue. For F2005, US percentage estimated at 65%.
(5) Calculated as the difference between total IAB US revenue and the sum of Google, Yahoo! gross
revenue.
Google,
Gross (2)
27%
Others (4)
46%
Yahoo!,
Gross (2)
27%
Other
21%
AOL (3)
29%
Google,
Net (2)
50%
Yahoo! US Gross Revenue (2), $749MM
Google US Gross Revenue (2), $757MM
…Don’t Underestimate Power of Google + Yahoo!
Ecosystems
Other
28%
MSN (4)
22%
Yahoo!,
Net (2)
50%
31
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Data Tell Story
32
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Search – Sponsored & Natural (iProspect)
Sponsored
Search
40%
Natural
Search
60%
iProspect Search Engine User Survey (5/04). Based on answer to question, “For a given query, which result is more relevant,
natural or sponsored?” from a US survey of 1,649 respondents (http://www.iprospect.com/about/searchenginemarketingwhitepapers.htm)
For a given query, which result is more relevant, natural or sponsored?
33
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Search – Driving Branding & Sales (SEMPO)
14%
21%
44%
54%
58%
61%
0% 10% 20% 30% 40% 50% 60% 70%
To provide informational/educational content only
To generate leads for a dealer or distributor network to
close as sales
To drive traffic to our Web site, the revenue model of
which is online advertising
To generate leads that we ourselves will close as sales
via another channel
To sell products, services, or content directly online
To increase/enhance brand awareness of
products/services
Percentage of Respondents Answering
SEMPO (12/04); Based on answer to the question, “What is your company using search engine marketing to accomplish?” Survey of 288 search engine advertisers and SEM agencies.
34
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Search – Driving Branding (IAB / Nielsen)
Image Ad 4 5 2 4 8 8
(728 X 90)
Content Ad 7 2 2 5 14 10
5th Search 8 (4) 6 6 11 11
Paid Ad
1st Search 19% 2% 14% 8% 16% 16%
Paid Ad
Health Auto Beverage Electronics Retail Financial
Impact to Unaided Brand Awareness, by Category
IAB and Nielsen//NetRatings (6/04), as quoted by AR | Search, a division of Avenue A | Razorfish. Based on answer to question to request to name a specific brand within a tested
industry, with 10,500 participants recruited from Survey Sample International.
35
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Search – Driving Sales – Online & Offline (Overture / ComScore)
Same
Session
Online
Conversion
1%
Latent
Online
Conversion
7%
Offline
Conversion
92%
Estimated 92% of conversion activity following a Consumer
Electronics / Computer Search occurs offline
Search and the Consumer Buying Cycle, Overture and comScore study 2005, as quoted by AR | Search, a division of Avenue A | Razorfish. 25% of initial searchers purchased
a product, and an estimated 92% purchased offline. Based on buying activity within 90 days of Internet users who conducted a consumer electronics or computer (CE/C) search
at one of the top 25 search engines in CQ1:04.
36
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Clicks in ‘Tails’ (findmefaster)
Clickthrough Rate vs. Phrase Length
1.0%
2.5% 2.8%
4.8%
7.1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
1 Word 2 Words 3 Words 4 Words 5 Words
Phrase Length
Clickthrough Rate
findmefaster (2004). Based on client data from findmefaster. Chris Anderson coined term “The Long Tail.”
37
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Conversions in ‘Tails’ (Oneupweb)
Oneupweb (1/05); (1) Based on Oneupweb client data, and high-traffic keywords, top 100 terms as ranked by total unique visitors.
Conversion rate defined as the percentage of unique visitors that purchased or converted.
1
2
3
4
5
6+
6%
15
22
38
10
9
Number of Words
Average Conversion
Rate (1)
38
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ROI in ‘Tails’ (findmefaster)
1 Word
18%
3+ Words
46%
2 Words
36%
1 Word
19%
3+ Words
$0.24
26%
2 Words
$0.49
55%
How users navigate to findmefaster How findmefaster buys keywords
findmefaster (2004). Based on findmefaster site data. Chris Anderson coined term “The Long Tail.”
39
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What’s Next?
40
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• Broadband
• Mobile
• User experience
• Search
• Personalization with more effective targeting
• User-generated content (RSS, blogs, reviews, video, images, audio…)
• Music
• Payments
• Short- and long-form video
• Interactive entertainment
• VoIP
• Local
• Pay per call
• Accessibility (PC + mobile…)
Innovation Will Drive Usage Growth
41
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Usage Growth Will Drive Inventory Growth
Expansion of highway system assisted
growth in billboards / outdoor inventory
Lots of unused inventory on the
web
Image sources: http://www.bctf.bc.ca/WorthSpeakingOutFor/materials/billboard.html, GameSpot.
42
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10-15% user growth
20-30% usage growth
30%+ monetization growth
Global Internet Thesis
43
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Creative Marketers in a Virtual Candy Store!
Trends imply we are in first inning of development of
optimized online advertising:
• inventory
• tools / measurability / targeting
• ROI
• revenue per user
• international (+36% Q/Q to 39% of Google CQ1 gross
revenue vs. 75%+ of Internet users outside US)
44
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We're moving to a world where we're able to
show very, very clear value to advertisers in
a way that's been unprecedented…in any
form of advertising before.
– Sergey Brin, Google, 4/05
What Did Sergey Brin Say?
45
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What Did P&G Say?
Commitments to cable channels will fall by as
much as 25%...while spending on broadcast
networks will be cut around 5% [for the 2005-
2006 season].
-The Wall Street Journal, 6/13/05
46
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What Would John Wanamaker Say?
50% of advertising is
wasted, we just don’t
know which half
~1900-1920 2010E
For discussion purposes only. Clearly, we don’t know what John Wanamaker would say in 2010, but we know he was a smart guy! Note that if US advertising spending
grows at CAGR of 4% for 2006-2010 and online spending grows at CAGR of 21%, online would reach 10% of total ad spending, up from 4% in 2004.
10% of advertising is
online and less than
10% of it is wasted
47
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What Happens When Measurability Gets Extended?
Broadband IP will be everywhere…every
electronic device will be a digital IP device…all
content will be digitally distributed…IP delivery
of digital media is the future for broadcasting of
content.
- Rob Glaser, Real, 6/05
48
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Will There be a Difference Between
Advertising / Marketing / Selling?
Search
for “TiVo”
Obtain
Find
49
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• Video
• Mobile
• User-Generated Content
• In-Game
• IPTV
Inventory!
50
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You just heard you missed one of the greatest
golf shots in the history of the game. You want
see it and you are happy to pay to watch it or
perhaps view an ad in front of the footage.
You just want to watch it…
Video
51
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Google and Yahoo! Search Don’t Help
Search: Tiger Woods 16th hole Augusta video
• Lots of news stories
• No video
52
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Google & Yahoo! Video Search Don’t Help
Search: Tiger Woods 16th hole Augusta
• Pictures, text
• Not video we’re looking for
53
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What Does Help?
• Blogger posts video in the spirit of
creating a prototype Nike ad
• It’s downloadable, it’s free, but
potentially missing appropriate
permissions…
54
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Note -- Adobe® Acrobat® Reader® version 6.0 or greater required to play video clip
To download a free copy, go to http://www.adobe.com/products/acrobat/readstep2.html
The Shot!
click on image below for video clip
Source: Blogger (http://www.jaffejuice.com)
55
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We Want it - Make it Easy!
Content / Rights Owners
User searches for content Search Engines
Content owners receive payments via payment mechanism or ad
User gets content
Payment Mechanism Advertisements Such as…
56
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What We Know About Making Money on Online Content
Yahoo! — 917MM streaming video (mostly music) sessions (CQ4); < 10%
preceded by streaming ads (rising to 50%, in our view) with compelling CPMs
Korea — TV channels allow users to download shows for ~$1
Google — launched upload.video.google beta (4/05)
Camera Phones – 263MM sold globally in 2004
Digital Music — 400MM iTunes / 16MM iPods sold
Digital sales could rise to as much as 25% of global music sales in five years…
At long last the threat has become the opportunity… -- IFPI, Digital Music Report, 2005
PayPal — 72MM accounts (CQ1); 22MM active users; 110MM payments with $6B
in volume; 3-8% of iTunes
Online Paid Content — $1.8B US revenue in 2004 per OPA
57
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Mobile
•Enables impulse purchases for digital content
•Potential complement to search-based
advertising, as local grows
•Eventual rollout of video ringtones and mobile TV
creates new inventory
•Effectiveness of Jamster TV ads for ringtones,
games, graphics and screensavers is immediately
measurable, owing to unique SMS shortcodes
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Mobile – Asia Leads
• Mobile WAP browsing, at 8-10x higher speeds than
the US, with graphical ads – surfing for latest news
on Sina while on the bus in Shanghai
• Instant messaging, connecting phones to PCs –
messaging from restaurant in Beijing to friends
back home in Guangzhou via Tencent QQ
• Subscription and ad-supported digital content –
accessing jokes, screensavers or horoscopes from
Tom Online
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Mobile - Coupons, Location-Based Services
+ + =
Mapping services that know
where you are
Vendor offering
Location-Based
Coupon
• Opt-in location-based coupons / advertising provide similar degree of
engagement with consumers, on personalized / local / day-parted levels
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Mobile - Next-Gen Radio
• What we want: listen to a song on iPod radio, and
click a button to sync with dock or wirelessly
download
• What we’ve got: Podcasting – interim solution to
realtime wireless downloads to mobile device
• Hybrid satellite radio + mobile device + on-demand
content + fast connection = fertile ad ground?
• Radio, like any medium, gets even more interesting
for advertisers when they can know something about
audience
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Mobile – Business Models
Model Potential Examples
Free (with ads)
Subscription
Purchased a la carte
Yahoo! daily weather update
Google SMS Search with ads inserted
NAVTEQ Opt-in Location Based Coupons
VeriSign’s Jamster content plans
Idetic’s mobiTV
Tencent IM subscriptions
Wireless carrier-originated ringtones
iTunes Mobile
Perhaps hubs — like Yahoo! — will be key?
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Consumer is Center of Content, Device is Not…
• Play games, check email, watch videos on handhelds
• Watch high-quality video stored on PVRs or Media Center PCs
• Program PVRs / similar devices / open garage door from mobile
phone
• HD video and audio on the consumers’ schedule, allowing
consumers to create their own prime time
• Listen to purchased music at home / work / in car without having to
carry around many devices, mediums or wires
Consumers want integrated content, when they want it
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User-Generated Content…
Yahoo! Movie Reviews eBay Feedback Ratings
Blogs
Google Video Search
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…User-Generated Content
Tencent Instant
Messaging (PC / Mobile)
Vlogs
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QQ vs. TV?
• 18MM households – CSI, #1 viewed TV show,
2004-2005 season (1)
• 13MM peak concurrent users – Tencent’s QQ,
#1 instant messaging service in China in CQ1
(1) Source: Morgan Stanley Media Research, Nielsen. Based on 16.4 ratings points for CSI, where 1 ratings point = 1.096MM households.
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Yahoo! vs. CBS / Fox / NBC / ABC?
(1) Source: Yahoo! (CQ1:05).
(2) Source: Nielsen Media Research US data (4/05).
Yahoo!
CBS
Fox
NBC
ABC
Network
Global Unique Visitors
Avg. Primetime Households
Avg. Primetime Households
Avg. Primetime Households
Avg. Primetime Households
Metric Amount
372MM (1)
8.8MM (2)
6.8MM (2)
6.6MM (2)
6.4MM (2)
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Yahoo! vs. ABC / CBS / FOX / NBC?
It’s a matter of time before the Web will…
• Serve as launchpad for content from major studios
/ content developers, like Yahoo!s deal with
Showtime to stream complete first episode of
Kirstie Alley’s Fat Actress
• Allow for user interaction / feedback (i.e. focus
group-like feedback from the community) on
developing content to allow for improved
• relevance of content during development cycle
• efficiency of content creation
• reception of content upon entry to mass market
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In-Game…
Image sources: http://www.massiveincorporated.com/index.htm. From the game Splinter Cell.
• Many gamers crave realism (and realistic backgrounds), and
advertisers crave the gaming demographic
• In-game advertising networks enable users to dynamically
download contextual advertising into game
• Highly targetable captive audience, measurable results
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…In-Game
(1) Total console gamers derived from console installed base figures from Morgan Stanley Research.
• Activision partnered with Nielsen to survey video game habits
~1,000 males, age 8-34. They found:
• 75% owned a gaming system
• Video gaming is preferred equally to TV viewing
• Older males play video games at expense of TV viewing
• 70% of gamers feel real products make games more “genuine”
• Advertisers in 2003 spent $8.5B on TV and less than $0.002B
on games
• With 100MM+ (1) global console gamers, opportunity is large…
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IPTV
• At the risk of sounding like a skipping CD…TV + Internet-enabled
set-top box can help marketers place targeted ads—in the TV
guide, between shows, even during ad skipping
+ =
• Potentially combines massive reach of TV with targeted advertising
Smart TV
advertising
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Impact of Internet has Just Begun
People have very little intuition for what it will
mean when the top 40% of US households,
based on income, have half a dozen computers,
all of them connected to the Net, all of them with
"instant on." They just don’t know how important
a part of our daily life the online world will be!
Jeff Bezos interview with Chip Bayers, Business 2.0
September, 2002
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Analyst Certification
The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect
compensation in exchange for expressing specific recommendations or views in this report: Mary Meeker, Brian Pitz, and Brian Fitzgerald.
Important US Regulatory Disclosures on Subject Companies
The information and opinions in this report were prepared by Morgan Stanley & Co. Incorporated and its affiliates (“Morgan Stanley”).
The research analysts, strategists, or research associates principally responsible for the preparation of this research report have received compensation based upon various factors, including quality of research, investor client
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Global Stock Ratings Distribution (as of May 30, 2005)
Coverage Universe Investment Banking Clients (IBC)
Stock Rating Category Count % of Total Count % of Total IBC % of Rating Category
Overweight/Buy 680 35% 263 40% 39%
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Total 1,922 654
Data include common stock and ADRs currently assigned ratings. For disclosure purposes (in accordance with NASD and NYSE requirements), we note that Overweight, our most positive stock rating, most closely
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Unless otherwise specified, the time frame for price targets included in this report is 12 to 18 months. Ratings prior to March 18, 2002: SB=Strong Buy; OP=Outperform; N=Neutral; UP=Underperform. For definitions, please
go to www.morganstanley.com/companycharts.
Analyst Industry Views
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Disclaimer – www.morganstanley.com/techresearch
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