Internet Trends 2008

Slide 1: Internet Trends March 18, 2008 mary.meeker@ms.com / david.joseph@ms.com / anant.thaker@ms.com Morgan Stanley is currently acting as a financial advisor to Microsoft Corp. ("Microsoft") in relation to their proposed offer to acquire Yahoo! Inc. ("Yahoo!"), as announced on February 1, 2008. The proposed offer is subject to definitive documentation, due diligence, the consent of Yahoo! shareholders, required regulatory approvals and other customary closing conditions. This report and the information provided herein is not intended to (i) provide voting advice, (ii) serve as an endorsement of the proposed transaction, or (iii) result in the procurement, withholding or revocation of a proxy or any other action by a security holder. Please refer to the notes at the end of the report. 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. This presentation can be found at www.morganstanley.com/techresearch. For analyst certification and other important disclosures, refer to the Disclosure Section.

Slide 2: Internet Trends • Usage Patterns • Social Networking • Widget-ization + Component-ization • Measurability + Transparency + Customer Satisfaction • Video • Monetization • Mobile • Emerging Markets • Recession 2

Slide 3: Changes in Usage Patterns 3

Slide 4: Consumers Leading Way – 58% CAGR in IP Traffic, 2005E-2011E Global IP Traffic 30,000,000 25,000,000 IP Traffic (TB / month) 20,000,000 Consumer IP traffic 15,000,000 surpasses Business 10,000,000 5,000,000 0 2005E 2006E 2007E 2008E 2009E 2010E 2011E Total Consumer Business Source: Cisco Systems, Global IP Traffic Forecast and Methodology; Mobility segment (0.1% of traffic in 2007) not displayed 4

Slide 5: Consumer Information Technology – Advancing Faster Than Enterprise Fifteen years ago, enterprise technology was higher-quality than consumer technology. That's not true anymore. It used to be that you used enterprise technology because you wanted uptime, security and speed. None of those things are as good in enterprise software anymore [as they are in some consumer software]. Douglas Merrill Google Chief Information Officer, 3/18/08 Source: Interview with Vauhini Vara, ‘The Wall Street Journal’, 3/18/08 5

Slide 6: YouTube + Facebook Page Views > Yahoo! or Google – Massive Transition in Available Ad Units & Supply > Demand Alexa Global Traffic – Relative Page Views 10 Daily Page Views (%) 8 6 4 2 0 2002 2003 2004 2005 2006 2007 2008 Source: Alexa Global Traffic as of 3/12/08 6

Slide 7: Social Networking – Fast Growth + Low Penetration Worldwide Online Category Growth vs. Penetration Category Penetration (% of Online Users) Visitor Growth by Category (1/07-1/08) Source: comScore ‘Digital World – State of the Internet’ 3/08 7

Slide 8: Social Networking – Significant Share Gains of Internet Traffic Alexa Global Traffic Rankings 2005 (1) 2008 (2) Rank Web site Rank Web site 1 yahoo.com 1 yahoo.com 2 msn.com 2 youtube.com 3 google.com 3 live.com 4 ebay.com 4 google.com 5 amazon.com 5 myspace.com 6 microsoft.com 6 facebook.com 7 myspace.com 7 msn.com 8 google.co.uk 8 hi5.com 9 aol.com 9 wikipedia.org 10 go.com 10 orkut.com Traffic rank is based on three months of aggregated historical traffic data from Alexa Toolbar users and is a combined measure of page views / users (geometric mean of the two quantities averaged over time). (1) Rankings as of 12/31/05, excludes Microsoft Passport; (2) Rankings as of 3/12/08 Source: Alexa Global Traffic Rankings, Morgan Stanley Research 8

Slide 9: Social Networking – Connectivity Changing…Is E-Mail Becoming Archaic? Worldwide Share of Connecting – Younger Users Via Social Online Time (1) Networks + Older Users Via E-Mail? (2) 6% 14% 40% 37% 38% 35% % of Total Minutes 8% 30% Category 23% didn’t exist 3 years ago 20% 16% 10% 16% 22% 0% All Other Yahoo! Mail Facebook Communications Social Connections Age 15-24 Age 44+ Shopping & Travel Entertainment & Leisure Work, Business & Education Source: (1) comScore ‘Digital World – State of the Internet’ 3/08; (2) comScore global 1/08 9

Slide 10: Next Generation Assets – YouTube + Facebook + Skype + PayPal Users Y/Y Growth Comments #3 site in global minutes; 51% of users go to YouTube weekly or more; 50% watch all 258MM(1) +94% videos to the end; ongoing copyright challenges; 52% of 18-34 year-olds share videos with friends / colleagues often(1,3) #4 site in global minutes; 67MM+ active users; >50% of active users return daily; 20K 101MM(1) +305% applications + 95% of Facebook members have used at least one(1,4) $1.67 annualized revenue per registered user (+9% Y/Y) on peer-to-peer network; 1.6B 276MM(2) +61% Skype Out minutes (+10% Y/Y); 11.9B Skype- to-Skype minutes (+25% Y/Y)(2) Payment volume +35% Y/Y; On-eBay / off- eBay payment volume +17% / +66% Y/Y (to 57MM(2) +16% 44% of TPV); Average transaction size of $68.88 (+10% Y/Y)(2) Source: (1) comScore global 1/08; (2) eBay CQ4, Morgan Stanley Research; (3) YouTube; (4) Facebook 10

Slide 11: Social Networking – Changing the Way People Think About ‘Presence’ 11

Slide 12: Internet + Personal Sources = Most Importance Sources of Information…Essence of a Social Network Internet – Importance as Source of Information 100% 80% 73% % of Users Age 17+ Responding 80% Important / Very Important 68% 63% 63% 60% 40% 20% 0% Internet Television Radio Newspaper Personal Source Source: USC Annenberg School: Digital Future Report 2007 12

Slide 13: Facebook – Rapid User / Usage Growth • 101MM visitors +305% Y/Y (67MM+ active users), 20B minutes (#4 globally behind Yahoo!, Live, and YouTube), +363% Y/Y; 250K new registrations per day since 1/07; >50% of active users return daily (Facebook 3/08, comScore 1/08) • 55K+ regional / work-related / collegiate / high school networks (>50% outside of college); Fastest growing demographic is those 25+ years old; 85% market share of 4-year US universities (Facebook 3/08) • 14MM+ photos uploaded daily; 6MM+ active user groups on site (Facebook 3/08) • Top non-US active users: UK (8MM+), Canada (7MM+), Turkey, Australia, France, Sweden, Norway, Columbia, and South Africa (Facebook 3/08) 120 Facebook Global Traffic 25 100 20 Total Unique Visitors (MM) Total Minutes (B) 80 15 60 10 40 5 20 0 0 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Total Unique Visitors (MM) Total Minutes (B) Source: comScore global 1/08, Facebook 3/08, Morgan Stanley Research 13

Slide 14: Facebook – Top Applications • In 5/07, Facebook opened its platform to third-party developers, allowing anyone to create widgets for use on Facebook pages • 20K applications, 859MM installations, 34MM usages per day since APIs opened – may be unprecedented ramp (adonomics.com 3/08) • Early to understand that individuals had the ability to innovate faster than it could, while users would govern quality / value as they customized their profiles Application Company Installs (% Active Users) Super Wall RockYou! 28MM (8%) Top Friends Slide 26MM (7%) FunWall Slide 25MM (9%) SuperPoke! Slide 21MM (2%) Movies Flixster 20MM (3%) Likeness RockYou! 16MM (2%) Facebook (1) Video 16MM Hug Me RockYou! 13MM (2%) iLike iLike 12MM (3%) (2) Quizzes N/A 12MM (1%) (1) Active user data unavailable; (2) E. Diep / J. Winterhalter; Source: adonomics.com 3/12/08 14

Slide 15: Facebook – Why is it Growing Faster than MySpace? • Facebook offers a social network that is both standardized + self-controlled / flexible – a highly personalized first-stop portal for online connectivity – users can program their pages with growing number of drag-and-drop applications (aka widgets) • Users like the ability to express themselves + connect with friends in a protected environment where they know / trust people in their network + don’t feel exploited / spammed by intrusive ads Less instrusive ads Personalized ? News Feed Cleaner UI ‘Friends’ section more prominent ? Personalized ad platform Source: MySpace, Facebook 15

Slide 16: Facebook – ‘Presence’ Via Mobiles 24x7 Source: Facebook; C. Messina on flickr 16

Slide 17: Facebook Ads – Monetizing Word of Mouth / Conversations Facebook prompt… User restaurant rating entered …Appears on Facebook Becoming a ‘fan’ profile / News Feed appears on News / Mini-Feed Source: Facebook, New York Times 17

Slide 18: Music – Monetizing Word of Mouth Nine Inch Nails Radiohead • Ghosts I-IV online release – 800K • In Rainbows ‘pay what you want’ online transactions + $1.6MM sales in first week (1) release – higher profit to the band than traditional record? Global Downloads (2) Paid 38% Free 62% $9 $8.05 Average $ Spent $6.00 $6 $4.64 $3.23 $3 $2.26 $1.68 $0 Global US Non-US Paid downloads All downloads Source: (1) Billboard 3/14/07, screenshots from Nine Inch Nails website; (2) comScore study 11/5/07, screenshots from Radiohead website 18

Slide 19: Widget-ization + Component-ization of Web – Users in Control of What They Want When They Want It 19

Slide 20: Not Your Father’s ‘Widget’ A Web widget can be best described as a mini application that can add functionality to your web page, blog, social profile, etc. If you find a widget that you like, you simply copy and paste some code and add it to the HTML of your web page. Photo galleries, news, videos, advertising, mp3 players and pregnancy countdown tickers! You name it, there is probably a widget that does it. David Lenehan, ReadWriteWeb Yahoo! – Weather Channel – Rock You – Finance for iPhone Forecast for iGoogle Amazon.com – ‘Super Wall’ for Facebook ‘Giver’ for Facebook Source: ReadWriteWeb, RockYou!, Yahoo!, Weather Channel, Google, Amazon.com, Facebook 20

Slide 21: iGoogle + Yahoo! Mobile Add a tab + customize Search 3rd party widgets ‘gadgets’ in Yahoo! Go 3.0 Gmail Weather Maps Movie showtimes News Wikipedia YouTube videos Source: Google, Yahoo! 21

Slide 22: The BBC! – @ www.bbc.com + Facebook + YouTube… Source: BBC 22

Slide 23: In Recession, Measurability + Transparency + Customer Satisfaction May Be More Important Than Ever 23

Slide 24: Personalization + Targeting Improvements – Driving Material Revenue Amazon.com recommendation engine: Google ads: Leveraging data Improvements in relevance What other What other customers are customers thinking are buying What other customers are doing What other customers are saying Source: Amazon.com, Google 24

Slide 25: Google Zeitgeist – Predictive Power of Data Fastest Rising (global) Fast Gainers by Quarter - 2007 Fastest Rising (US) 1. iphone 1. iphone 2. badoo 2. webkinz 3. facebook 3. tmz 4. dailymotion 4. transformers 5. webkinz 5. youtube 6. youtube 6. club penguin 7. ebuddy 7. myspace 8. second life 8. heroes 9. hi5 9. facebook 10. club penguin 10. anna nicole smith Source: Google Year-End Zeitgeist, 2007 25

Slide 26: Lots of Servers…Lots of Interactions…Lots of Data Google Data Center – The Dalles, Oregon Source: The Financial Times 1/5/08 26

Slide 27: Search Impact – Still Early Stage & 66% Y/Y Google Query Growth (CQ4) % of New Online Customers for Online Retailers / Marketing Spend Mix (2005) % Customers acquired from source 50% 36% 29% 40% 30% 11% 20% 10% 7% 5% 10% 3% 3% 1% 0% ls s g ts ls s c s ne er tin m ea ffi lis ea og th ra gi tra ke ld ld al g O en og in ar rta at rta ic ct pr m C g an po po pe in te ne rg pp os al ia ew O gi on ho fil pr en N Af i ti -s o ch ad lt on ai ar Tr is Em Se r pa om C Source: The State of Retailing Online 2006 (Forrester Research), comScore global 12/07, Morgan Stanley Research 27

Slide 28: Amazon.com – Continues to Gain Online + Offline Share Amazon.com vs. US Retail 45% E-Commerce Sales(1) 40% Key Y/Y Growth Metrics – C2007 35% CQ1 CQ2 CQ3 CQ4 30% ~23ppts Y/Y Growth Revenue 32% 35% 41% 42% 25% Active Customers 15 17 17 19 20% TTM Revenue / Active 15% 12 13 15 17 Customer 10% Units 23 25 32 33 5% 0% CQ1:02 CQ1:03 CQ1:04 CQ1:05 CQ1:06 CQ1:07 US Adjusted Retail E-Commerce Sales Amazon.com North America Revenue (1) Adjusted for eBay by adding eBay US gross merchandise volume and subtracting eBay US transaction revenue; Source: Amazon.com (CQ4:07), US Dept. of Commerce (CQ4:07), Morgan Stanley Research 28

Slide 29: While Only 13% of Top 15 Online Retailers are Internet Pure-Plays, Biggest $ Grower = Amazon.com 2006 2006 Online Global 2006 Online Global Sales Rank Company Sales (US$MM) Y/Y Growth as % of Total Sales 1 Amazon.com $10,710 26% 100% 2 Staples 4,900 29 27 3 Office Depot 4,300 13 29 4 Dell 3,965 * 6 7 5 HP Home & Home Office 3,055 * 8 3 6 OfficeMax 2,849 * 11 32 7 Sears Holdings 2,376 * 10 4 8 CDW 2,001 13 29 9 SonyStyle.com 1,690 * 4 0.5 10 Newegg.com 1,500 15 100 11 Best Buy 1,425 * 12 4 12 J.C. Penney 1,300 25 7 13 Wal-Mart 1,260 * 20 0.4 14 QVC 1,257 24 18 15 Apple Computer 1,136 * 39 6 * Denotes ‘Internet Retailer’ estimate; Source: Internet Retailer Report (2006) 29

Slide 30: Video 30

Slide 31: Ongoing Traction of Online Video • YouTube - 258MM unique global visitors, +94% Y/Y, 25B minutes, +146% Y/Y ; other (1) video distribution models: Hulu, Fancast, veoh, Joost, Sling Media, VUDU… • YouTube accounted for 56% of unique US video viewers + 33% of videos watched (2) online in 1/08 YouTube Global Traffic 300 30 250 25 Total Unique Visitors (MM) Total Minutes (B) 200 20 150 15 100 10 50 5 0 0 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Total Unique Visitors (MM) Total Minutes (B) Source: (1) comScore global 1/08; (2) comScore Video Metrix (US) 1/08, Morgan Stanley Research 31

Slide 32: YouTube Content – Pro, Semi-Pro, Amateur + Combos Most Viewed Videos Most Viewed Channels Source: Google, YouTube 2/08 32

Slide 33: YouTube – The New Portal(s)? • ‘Organize the world’s information and make it universally accessible and useful’ – in the most effective way for high customer satisfaction – sort by most active / discussed / recent / responded / viewed / etc.. More / more content providers should get on board, after all, users are voting it’s what they want. There should be ways to monetize the litigation away… News & Politics - Most Viewed Sports - Most Viewed Source: Google, YouTube 3/08 33

Slide 34: Online Content – Coming from Anywhere / Anytime, BTW, Try to Find Dan Aykroyd’s ‘Bass-O-Matic’ Online... There's a sea change occurring in creative circles these days - or maybe it could be called an identity crisis. What does is mean when the star-studded Golden Globes ceremony gets cancelled because the Writers Guild of America wants a share of Internet revenue? When one of the top spots of 2007 was filmed by an amateur for $27.00? When an obscure Colorado blender company - Blendtec - can create a viral sensation without even hiring an agency? Joseph Crump Avenue A | Razorfish Executive Creative Director Source: Avenue A | Razorfish 2008 Digital Outlook Report, YouTube 34

Slide 35: TV + Internet + Mobile (CBS) – Complimentary Platforms 2007 Football Season 2007 Football Season Thursday CBS Television Kickoff NFL CBSSports.com Sundays CBS Mobile Patriots vs. Colts • Plasma Screen TV – HD Quality Event • PC Screen – Fantasy, Stats, and Injury Reports • Mobile Screen – Highlights, Scores Source: CBS Sports Interactive 35 35

Slide 36: Monetization 36

Slide 37: US Internet Ad Spend = $288 Per Home vs. $818 for Newspapers? 2007 Advertising Ad Spending / Medium Spending ($B) Y/Y Growth Households (MM) Household ($) Direct Telephone $110 7% 107 $1,032 Promotions 116 5 115 1,011 Newspapers 46 -7 56 818 Classifieds 15 -14 56 260 Direct Mail 61 4 114 532 Broadcast TV 44 -5 112 390 Cable TV 27 6 80 327 Internet / Online 21 26 71 288 Radio 20 -3 113 172 Yellow Pages 16 1 114 141 Outdoor 7 7 114 63 Total $469 3% $4,774 Average 47 477 Newspapers include Classifieds. Promotions ($116B) include: incentives ($30B), promotional products ($27B), point-of- purchase ($19B), specialty printing ($9B), coupons ($7B), premiums ($7B), promotional licensing ($7B), promotional fulfillment ($6B), product sampling ($2B), and in-store marketing ($2B). Households may use multiple advertising mediums. Source: PricewaterhouseCoopers, IAB, Jupiter Research, McCann-Erickson, Morgan Stanley Research 37

Slide 38: Google + Yahoo! = ~61% of US Online Ad Revenue, Other Players Would Have Grown ~14% Y/Y in CQ4:07 but Grew ~20% Owing to Google / Yahoo! Affiliate Assist US Online Ad Revenue Mix 3,000 42% 2,500 39% US Ad Revenue ($MM) 42% 2,000 37% 1,500 19% 21% 1,000 500 0 CQ4:06 CQ4:07 Google, US Gross Ad Revenue (1) Yahoo!, US Gross Ad Revenue (2) Others (3) Source: (1) Google, Morgan Stanley Research (calculated as reported gross ad revenue multiplied by US % share of gross revenue) (2) Yahoo!, Morgan Stanley Research (calculated as gross Marketing Services revenue multiplied by US % share of gross revenue); (3) Internet Advertising Bureau (IAB) / PriceWaterhouseCoopers (PWC) Internet Advertising Revenue Reports (calculated as difference between total IAB US ad revenue and sum of Google, Yahoo! gross ad revenue), Morgan Stanley Research. Assuming that TAC of Google and Yahoo! was included in others total, this segment would have been up ~20% Y/Y 38

Slide 39: Google + Yahoo! Share Significant Portion of Revenue with Partners + Affiliates • Google generated $4.8B in gross ad revenue in CQ4; it PAID OUT $1.4B to 1,000s of partners like AOL, Ask Jeeves, EarthLink, + HowStuffWorks(1) • Yahoo! generated $1.6B in gross ad revenue in CQ4; it PAID OUT $429MM to 1,000s of partners like CNN, ESPN, + The Wall Street Journal (2) Source: (1) Google gross Advertising revenue, Morgan Stanley Research; (2) Yahoo! gross Marketing Services revenue, Morgan Stanley Research; (3) Internet Advertising Bureau (IAB) / PriceWaterhouseCoopers (PWC) Internet Advertising Revenue Reports (calculated as difference between total IAB US ad revenue and sum of Google, Yahoo! gross ad revenue), Morgan Stanley Research 39

Slide 40: Ad Inventory Monetization – Upside Potential Though Lots of ‘New’ Inventory (Social Networking + Video) to Process Unique Users Total Pages Total Minutes CQ3E Annualized (000s) Viewed (MM) (MM) Global Ad Rev. per User Total Internet 791,288 5,867,641 3,545,500 $42.62 (1) Y/Y Growth 10% 9% 11% 19% Google 561,202 461,014 221,693 $21.16 (2) Y/Y Growth 21% 75% 114% 34% Yahoo! (3) 478,686 316,576 334,766 $8.85 (2) Y/Y Growth -1% -8% 2% 17% Time Warner 270,623 64,304 128,208 $7.98 Y/Y Growth 21% -7% -16% -7% Microsoft 528,848 236,826 458,433 $3.68 Y/Y Growth 5% 5% 9% 25% MySpace 106,620 150,841 52,288 $2.99 Y/Y Growth 38% 45% 50% 85% eBay 243,790 85,689 54,037 $0.87 Y/Y Growth 2% -16% -2% 64% YouTube 205,596 62,322 61,566 $0.72 Y/Y Growth 185% 346% 333% -- Source: (1) ZenithOptimedia C2007E, 10/07; (2) Denotes net revenue estimates (ex-TAC); (3) Yahoo! reported 477MM unique users (+14% Y/Y) at the end of CQ3, excl. Yahoo! Japan. We use comScore global data for consistent comparisons across companies. Note: comScore data is based on ages 15+; comScore global 9/07, ZenithOptimedia, Google, Yahoo!, Time Warner, Microsoft, eBay, Morgan Stanley Research 40

Slide 41: Advertising Age US Internet Advertising – Companies With >$50MM in Spending, 2006 Advertiser 2006 ($MM) 2005 ($MM) Y/Y Growth Comments -#4 behind Network TV, Newspaper & Radio AT&T $169 $58 189% -Shift to Internet from Newspapers. -#3 behind Cable TV & Magazines Dell 138 159 (13) -Shift to Cable TV, Network TV & Magazines from Internet. -#6 behind Network TV, Cable TV, Newspapers, Magazines & Radio Walt Disney 133 91 47 -Shift from Newspapers & Network TV to Internet. -#5 behind Newspapers, Network TV, Cable TV & Radio Verizon 124 144 (14) -Shift from Newspapers to Internet. -#5 behind Network TV, Magazines, Cable TV & Newspapers General Motors 118 103 15 -Shift from Newspapers & Cable TV to Internet. -#5 behind Network TV, Magazines, Cable TV & Newspapers Ford Motor 99 55 80 -Shift from Newspapers to Internet. -#6 behind Network TV, Cable TV, Magazines, Newspapers & Radio Time Warner 91 168 (46) -Shift from Internet to all others. -#2 behind Magazines Microsoft 82 103 (21) -Shift to Newspapers & Outdoor from Internet. -#4 behind Magazines, Network TV & Cable TV American Express 81 29 180 -Shift to Internet from magazines & network TV -#5 behind Network TV, Cable TV, Newspapers & Magazines Sony 74 44 66 -Shift from Newspapers & Magazines to Internet. -#4 behind Network TV, Cable TV & Magazines Wal-Mart 61 34 79 -Shift to Internet from Network TV. -#6 behind Network TV, Newspapers, Cable TV, Radio & Magazines General Electric 61 47 28 -Shift from Network TV to Internet. -#5 behind Network TV, Newspapers, Magazines & Cable TV Target 57 37 54 -Shift from Newspapers & Magazines to Internet. -#6 behind Network TV, Cable TV, Radio, Newspapers & Magazines News Corp 56 48 16 -Shift from Network TV, Radio & Magazines to Internet. -#4 behind Network TV, Magazines & cable TV Toyota Motor 56 33 67 -Shift to Internet from Cable TV & Magazines. -#5 behind Network TV, Cable TV, Magazines & Newspapers Procter & Gamble 54 34 61 -Shift from Cable TV & radio to Internet. -#3 behind Network TV & Cable TV Capital One Financial 53 33 61 -Shift to Internet from Network TV & Cable TV. Total $1,504 $1,221 23% Source: Advertising Age, Morgan Stanley Research 41

Slide 42: Mobile 42

Slide 43: Rising Adoption of Newer Task-Driven Wireless-Enabled Devices Nintendo Wii Apple iPhone 20MM consoles since 11/06 launch 4MM units in < 200 days; browser – raised bar with motion sensors + market share already 50% > Windows playability Mobile – raised bar with ease-of-use + functionality Microsoft Xbox 360 3 Skype Phone 10MM Xbox Live members (+100% Opportunity to leverage large Skype Y/Y) since 11/02 launch – raised user base of 276MM (+61%Y/Y) + bar with online playability create a true web-enabled VoIP, social networking, digital presence phone Amazon.com Kindle Garmin + TomTom PND With free EV-DO + 100K books + 18MM+ units sold in C2007 (+125% newspaper / magazine / blog Y/Y) – lower price points + innovative subscriptions, can Amazon do with features such as spoken street names books what Apple with tunes? First have driven NA / Western Europe PND batch sold out in 5.5 hours… penetration of 11% in C2007 Source: Nintendo (CQ4), Microsoft, Amazon.com, Apple, 3, eBay (CQ4), Garmin, TomTom, Net Applications 12/07, Morgan Stanley Research 43

Slide 44: Notebooks Retrofitting to Cloud Via 3G – PCs Retrofitted to Internet Via Dial-Up ~1995 Deja Vu?! • Global cellular modem shipments projected to rise from 5MM in 2006E to 68MM+ in 2012E (CAGR of 53%). Primary drivers – rising proliferation of 3G networks + large notebook populations. (ABI Research, 5/07) • Global WiFi unit shipments estimated at 66MM in C2007E (Synergy Research Group) Source: ABI Research (Cellular modem shipments includes PC Cards / ExpressCards, USB modems, internal modems + 3G/Wi-Fi routers); Synergy Research Group (Access Points, Wireless Gateways / Routers, Wireless Client Adaptors, VoWLAN phones) 44

Slide 45: Mobile – A New Computing Cycle • Mobile Internet represents a new computing cycle - Mainframe Minicomputer PC PC Internet Mobile Internet • Unlike past cycles, US is follower, not leader − 85% of mobile subscribers, 87% of mobile data subscribers in non-US markets (2007E); China is #1 in both • Uncharted / new sources of usage generated for / from Mobile Internet platform − Killer application(s) for mobile? Social Networking / Presence? Video? Location- Based Services? Browser? email? SMS? Music? Games? Search? Ringtones? Camera? Blogs? • Why now? 1) handsets becoming small functional computers; 2) cheaper / faster / more data; 3) more content − 450MM (48%) of handsets shipped (21% of base) Mobile Internet ready (can run Java or BREW applications…), 2006E − 2.9B subscribers with <2.5G (~50Kbps) network access; 311MM 3G subscribers have broadband-like services (browsing, full track music), 2007E − Mobile content improving steadily - consumers are spending billions on it Source: Informa, Morgan Stanley Research 45

Slide 46: 3 Skype Phone Launcher – ‘Presence’ is Key Chat Contacts Call Source: 3, Skype 46

Slide 47: i – NOT – A - Phone Source: Apple 47

Slide 48: iPod Touch + iPhone = Very Fast Ramp – Touch is Trojan Horse? Importance of WiFi? Cumulative Unit Shipments Cumulative Unit Shipments (000) Source: Company reports, Morgan Stanley Research 48

Slide 49: Global Mobile Awards 2008 Winners – Name That Company?! Best Mobile Handset or Device Best Mobile Game SonyEricsson: W910 Walkman Phone Cellufun: Call of the Pharaoh 3UK: 3 Skypephone - Highly Commended Glu Mobile: My Hangman Best Broadcast Commercial Best Mobile Music Service Safaricom: M-PESA 'Send Money Home' campaign Omnifone: MusicStation Best Mobile Advertising Best Mobile Video Service Crossmedia Avenue: AMF Pension – the MMS campaign mywaves: mywaves Best Use of Mobile for Social Best Mobile Social Networking Service & Economic Development BuzzCity: myGamma.com Grameenphone: CellBazaar Best Mobile Infotainment Portal for Best Network Quality Initiative News / Entertainment RAD Data Communications: LA-130 Cell Gateway - Cost- Yahoo! Connected Life: Yahoo! Go for Mobile 2.0 Effective HSPA Backhaul Best Mobile Enterprise Product or Service Best Service Delivery Platform Microsoft: Windows Mobile 6 Aepona: Aepona Telecom Web Services Platform Best Mobile Messaging Service Best Billing and Customer Solution Seven: System Seven 7.0 Bharti Airtel: mChek on Airtel – Mobile Payments Service The GSMA Chairman's Award Best Roaming Product or Service Sunil Bharti Mittal, Founder, Chairman & Group Syniverse Technologies: Syniverse Datanet CEO Bharti Enterprise Source: GSM Association 49

Slide 50: Broadband – Vendor / Seller Pays Mobile – User Pays…Make Up on Volume?! Top 10 Internet Companies - Revenue Composition Mobile Internet - Revenue Composition C2005 - $42B C2005E - $19B Payments Music & 3% Personalization (1) Video 35% 4% Games 10% Gambling Advertising 1% 36% Search / 411 Commerce 16% Other Info & 61% Infotainment Enterprise 24% Services 10% Source: Left Chart - Morgan Stanley Research estimates: includes revenue from Google, eBay, Yahoo!, Yahoo! Japan, Amazon.com, T-Online, InterActive, Time Warner (AOL only, ex-access), Microsoft (MSN only, ex-access), and Rakuten. CQ4:05 annualized revenue for Rakuten, and T-Online. Right Chart – Morgan Stanley Research estimates, Global Data. Informa (5/05), Ovum (5/05). Data excludes IVR. (1) Personalization includes ringtones, wallpapers, and screensavers. If SMS / MMS were added to Mobile Internet—it would add $55B to total revenue and would account for 74% of total revenue. 50

Slide 51: Still Early in 3G+ Ramp But… 2009 Should Be Inflection Point @ ~20% of Subscribers Global 3G+ Penetration 4.5 30% % of Total Wireless Subscribers 4.0 25% 3.5 Subscribers (B) 3.0 20% 2.5 15% 2.0 1.5 10% 1.0 5% 0.5 0.0 0% 2005E 2006E 2007E 2008E 2009E 2010E 2.5G and Below Subscriptions 3G and Above Subscriptions % 3G and Above Penetration Note: 2.5G can be compared to ‘narrowband’ Internet access, while 3G can be compared to ‘broadband ’ Internet access. 2G: Analog & TDMA, cdmaONE, PDC, iDEN; 2.5G: GPRS/EDGE, CDMA 2000-1x; 3G: W-CDMA/HSDPA/HSUPA, CDMA 2000-1x-EV-DO/Rev A, TD-SCDMA Source: iSuppli 51

Slide 52: Wireless Data Revenue Ramping Nicely – +58% Y/Y @ AT&T, CQ4 • ~12% of devices are integrated devices, with ARPU >2x the 2G base • ~13% of devices are 3G, which drives 20% higher ARPU than 2G base Wireless Data Revenue 2.0 25% AT&T – CQ4 Wireless Data % of Wireless Service Revenue Wireless Data Revenue ($B) Y/Y Revenue Growth 1.6 20% • Internet access: >40% 1.2 15% • Messaging: >50% 0.8 10% • E-mail: >60% • Data access: >70% 0.4 5% • MediaBundle: >70% 0.0 0% CQ4:06 CQ1:07 CQ2:07 CQ3:07 CQ4:07 Wireless Data Revenue Data % of Wireless Service Revenue Source: AT&T 52

Slide 53: Asia / Europe Lead – Mobile Internet Adoption + Carrier Revenue, 2007E 1,600 30% 1,400 25% 25 Subscribers (MM) 1,200 20% 1,000 20 18% 800 15 600 10 400 5 200 0 Mobile Subscribers Mobile Data Subscribers Mobile Data as % of Revenue (leading carrier in region) Asia Pacific Europe ROW LatAm N. America Source: Informa, Company Reports. Includes SMS; (1) Leading carriers by wireless subscribers in Asia Pacific, Europe, and North America are: China Mobile, Vodafone (Europe only), and AT&T, respectively. 53

Slide 54: Emerging Markets 54

Slide 55: Mobile Users 2x+ > Than Internet Users – N. America = 8% of Mobile / 16% of Internet Users Internet Users – 1.3B Mobile Subscribers – 3.3B C2007E (1) C2007E (2) N. America N. America 8% 16%