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Interactive Advertising Outlook 2009

   A Report to the JP Morgan Chase Virtual
             Advertising Summit



                                    Cyberspace, New York
                                    January 26, 2009
IAB’s Mission Remains…


    GROWTH
                The Interactive Advertising 
                Bureau is dedicated to the 
                growth of the interactive 
                advertising marketplace, of 
                interactive’s share of total 
                marketing spend, and of 
                our members’ share of 
                total marketing spend.


2
Our ~400 Members Represent 86% of
Measured U.S. Interactive Advertising
            Revenues
 Membership Sample
2009 Themes
• Interactive continues to grow despite strong economic
  headwinds
• Medium girded by its breadth of options, from above-the-
  line to below-the-line
• Consumers increasingly embracing digital media in all
  forms
• Share shift by marketers from offline to online to tap into
  the variety, reach, targetability, and effectiveness of
  interactive media
• Emerging platforms provide new opportunities for
  marketers to engage and learn from their customers
2008 First Nine-Month Revenues Totaled
                          Over $17 Billion
                                             First Nine‐Month Revenues — 2007 vs. 2008


$ millions




     Source: IAB Internet Advertising Revenue Report, 2008 Second-Quarter
     and First Six-Month Results October 2008, and Q3 November 2008 combined
Historical Quarterly Revenue Trends
             Since the third quarter of 2002, revenues have increased 21 of the past 24 consecutive quarters.
             Quarterly Revenue growth remains strong on a cumulative year-over-year percentage and dollar
             basis.
                                Quarterly $ Revenue Growth Comparisons — 2000‐2008 YTD
$ millions




                        2000      2001       2002       2003       2004       2005        2006   2007   2008




                   Source: IAB Internet Advertising Revenue Report, 2008 Second-Quarter
                   and First Six-Month Results, October 2008
Seasonal Trends Relatively Strong
                  Through First 9 months

                                                                                                                                   $21.2B




                                                                                                                                            28%

                                                                                                                   $16.9B




                                                                                                                            28%

                                                                                                    $12.5B
$ millions




                                                                                                             29%
                                                                                      $9.6B

                              $8.1B
                                                                                              28%
                                            $7.1B                       $7.3B
                                                                                                                                            72%
                                      26%                 $6.0B
                                                    23%                         30%
                                                                                                                             72%
                $4.6B
                                                                  26%
                                                                                                             71%

                        38%                                                                   72%

                                      74%           77%
                                                                                70%
                                                                  74%
                        62%




             Source: IAB Internet Advertising Revenue Report, 2008 Second-Quarter
             and First Six-Month Results, October 2008
YOY % Search & Display Spend Grow

                                            Lead Gen
                                               7%
      Classifieds
                                                               Email
         14%
                                                                2%




                                                                                                             Search
                                                                                                              44%
                                                                                                               (41% in ’07)
        Display*
          33%
          (32% in ’07)


                                     2008 First Six-Month Revenues: $11.5 Billion


Source: IAB Internet Advertising Revenue Report, 2008 Second-Quarter and First Six-Month Results, October 2007, 2008
* Display-related advertising includes Display Banner Ads, Rich Media, Digital Video and Sponsorship
Interactive is the fastest-growing display
                           medium
                                       Percentage Change in Measured Ad Spending:
                                             Jan‐Sept 2008 vs. Jan‐Sept. 2007.
      Media Sector                                                                    Percentage Change
      Television Media                                                                2.1%
      Magazine Media                                                                  -3.9%
      Newspaper Media                                                                 -10.0%
      Internet (Display Ads Only)                                                     7.0%
      Radio Media                                                                     -8.8%
      Outdoor                                                                         -0.5%
      FSIs                                                                            0.9%
      Total                                                                           -1.7%

Source:  “TNS Media Intelligence Reports U.S. Advertising Expenditures Declined 1.7 Percent in First Nine Months of 2008 ,” TNS Media Intelligence 
     Press Release, Dec. 11, 2008.  Note TNS does not track search advertising revenue.  URL:  http://www.tns‐mi.com/news/12112008.htm
US Online Social Network Ad Spending
              Projected to Grow
 $ millions




Source: eMarketer, December 2008
Key Growth Drivers
Drivers of Interactive Ad Growth Include
                   Rising Broadband Penetration…
US Broadband Households
       (in millions)




                          Source:  JupiterResearch Internet Access Model, 3/07 (US Only)
Consumers Time Spent Online Keeps
                                          Increasing
                              18.0
                                                                                                                                                           15.3
                              16.0
                                                                                                                                          14
                                                                                                                     13.5
Average Weekly Hours Online




                              14.0                                                                12.5
                                                                               11.1
                              12.0
                                                              9.8
                                           9.4
                              10.0
                               8.0
                               6.0
                               4.0
                               2.0
                               0.0
                                         2001               2002               2003               2004               2005               2006               2007

                    Source:  USC Annenberg School Center for the Digital Future, The 2008 Digital Future Report, and previous Digital Future Report releases. 
Search Is Now Habitual

                                 100%
                                                                                                                                                       91%    91%
                                  90%                                                89%                                                                                                                     89%
                                                                                                                                           90%
                                             85%
Percentage of US Online Adults




                                                                                                                                                          88%
                                                                                                                84%
                                  80%
    Using Search Engines




                                  70%
                                  60%
                                  50%                                                                                                                                                                        49%
                                                                                                                                                  42%
                                                                                                                                           41%        41%
                                  40%
                                                                                                                                              38%
                                                                                     31%
                                  30%                                                                           30%
                                             29%
                                  20%
                                  10%
                                   0%
                                                          Sep-02




                                                                                     Sep-03




                                                                                                                Sep-04




                                                                                                                                           Sep-05




                                                                                                                                                                      Sep-06




                                                                                                                                                                                                 Sep-07
                                        Jan-02




                                                                   Jan-03




                                                                                              Jan-04




                                                                                                                         Jan-05




                                                                                                                                                    Jan-06




                                                                                                                                                                               Jan-07




                                                                                                                                                                                                          Jan-08
                                                 May-02




                                                                            May-03




                                                                                                       May-04




                                                                                                                                  May-05




                                                                                                                                                             May-06




                                                                                                                                                                                        May-07




                                                                                                                                                                                                                   May-08
                                    Used Search Engine Ever                                                              Used Search Engine Yesterday
                      Source:  “Almost Half of All Internet Users Now Use Search Engines on a Typical Day,” Pew Internet & American Life Project Data Memo, 
                      August 6, 2008  Link:  http://www.pewinternet.org/PPF/r/258/report_display.asp
During 2008, US Search Volumes Grew
                                                       by 15-26% Each Month
                                               30%                         US Core Search Growth Rates, Year‐On‐Year
Percentage Growth Rate of US Core Searches,




                                                                                                                                                     26%
                                               25% 23%                                                                                                                       22%
                                                                                                                                                                20%
                                                                                               19% 19% 19%
                                                                                   18% 19%
                                               20%                                         17%
               Year-on-Year




                                                                        15%
                                               15%

                                               10%

                                                 5%

                                                 0%
                                                             Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08


                                              Source:  comScore qSearch, quoted in “ComScore:  YouTube Now 25 Percent of All Google Searches,” TechCrunch, Dec. 18, 2008, 
                                              http://www.techcrunch.com/2008/12/18/comscore‐youtube‐now‐25‐percent‐of‐all‐google‐searches/ 
Digital Video Is Now a Mainstream
                                                        Medium
        US Monthly Video Streams Served


                                                                                                                          9.50
                                          10.00
                                           9.00
                                           8.00
                                           7.00             6.20
                   (Billions)




                                           6.00
                                           5.00
                                           4.00
                                           3.00
                                           2.00
                                           1.00
                                           0.00
                                                   December-07                                                   November-08
                                                                                        Key November 2008 Data (Nielsen):
                                                                                        Streams Served:  9.5 billion
                                                                                        Unique Viewers:  124.3 million
                                                                                        Streams/Viewer:  76.8 streams
                                                                                        Time per Viewer:  177.9 minutes
Source:  “Nielsen: 9.5B Video Streams in November,” NewTeeVee.com, Dec. 30, 2008; “Nielsen Online's VideoCensus: Networks Failing To Reach 
                                          Men Online,”  MediaPost Onlline Media Daily, Feb. 15, 2008.
Smartphones Are Unleashing Mobile’s
               Potential
As of 2Q 2008, in the US:
• More than 26 million mobile subscribers use a
  smartphone device
• Smartphones represent 16% of recent mobile device
  acquisitions
• 57% of smartphones are acquired by personal users
• 30% of smartphone users are likely to upgrade their
  device in the coming year




  Source:  “Nielsen Proivdes iPhone 3G and Smartphone Statistics,” Nielsen Mobile Press Release, October 16, 2008.  URL:  
                http://www.nielsenmobile.com/html/press%20releases/iPhone3GandSmartphoneStats.html
Social Media Sites Already Exceed
                                            Television’s Reach
                                    Worldwide Audience for Top 10 Social Media Sites, November 2008

                                 250       221.5
Monthly Global Unique Visitors




                                                                                 •Total Social Media Audience:  691M, or 69.4% reach
                                                        200.2                    •Facebook’s audience grew 116% from Nov 07‐Nov 08 
                                 200
         (in Millions)




                                 150                                 126.2
                                                                                   113.7
                                 100                                                             86.8
                                                                                                              69.2         63.9          58.1
                                                                                                                                                      46.4       45.6
                                  50

                                   0




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                                          er




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                                                                             W




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                                                                       W




                                   Source:  comScore as reported in “Top Social Media Sites of 2008 (Facebook Still Rising),” TechCrunch, Dec. 31, 2008.
Consumers want the Internet to be
                               ad-supported
         • For both mobile and PC video, 70% of consumers prefer
           ad-supported models over consumer-paid models.
                (IBM study across 6 major international markets)


         • 67% of US consumers ages 25-34 and 75% of
           consumers aged 13-24 would “be willing to be exposed
           to online ads in exchange for free content.” 66% of all
           Internet users would click on more online ads if they
           were better targeted to them. (Deloitte)




Source:  “IBM Study Shows Consumers Will Accept New Forms of Advertising If Companies Follow Their Rules,” IBM Press Release, Nov. 17, 2008, URL:  http://www‐
03.ibm.com/press/us/en/pressrelease/26077.wss; Deloitte Study quoted in “Survey:  More online ads, free content,” Forbes, December 26, 2007, link:  
http://techland.blogs.fortune.cnn.com/2007/12/26/survey‐more‐online‐ads‐free‐content/
Challenges
• Measurement standardization/simplification
• Cross-media measurement
• Antiquated media-mix modeling
• Overuse/misapplication of DR standards and
  methodologies
• Creative shabbiness

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Iab Interactive Advertising Outlook 2009

  • 1. Interactive Advertising Outlook 2009 A Report to the JP Morgan Chase Virtual Advertising Summit Cyberspace, New York January 26, 2009
  • 2. IAB’s Mission Remains… GROWTH The Interactive Advertising  Bureau is dedicated to the  growth of the interactive  advertising marketplace, of  interactive’s share of total  marketing spend, and of  our members’ share of  total marketing spend. 2
  • 3. Our ~400 Members Represent 86% of Measured U.S. Interactive Advertising Revenues Membership Sample
  • 4. 2009 Themes • Interactive continues to grow despite strong economic headwinds • Medium girded by its breadth of options, from above-the- line to below-the-line • Consumers increasingly embracing digital media in all forms • Share shift by marketers from offline to online to tap into the variety, reach, targetability, and effectiveness of interactive media • Emerging platforms provide new opportunities for marketers to engage and learn from their customers
  • 5. 2008 First Nine-Month Revenues Totaled Over $17 Billion First Nine‐Month Revenues — 2007 vs. 2008 $ millions Source: IAB Internet Advertising Revenue Report, 2008 Second-Quarter and First Six-Month Results October 2008, and Q3 November 2008 combined
  • 6. Historical Quarterly Revenue Trends Since the third quarter of 2002, revenues have increased 21 of the past 24 consecutive quarters. Quarterly Revenue growth remains strong on a cumulative year-over-year percentage and dollar basis. Quarterly $ Revenue Growth Comparisons — 2000‐2008 YTD $ millions 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: IAB Internet Advertising Revenue Report, 2008 Second-Quarter and First Six-Month Results, October 2008
  • 7. Seasonal Trends Relatively Strong Through First 9 months $21.2B 28% $16.9B 28% $12.5B $ millions 29% $9.6B $8.1B 28% $7.1B $7.3B 72% 26% $6.0B 23% 30% 72% $4.6B 26% 71% 38% 72% 74% 77% 70% 74% 62% Source: IAB Internet Advertising Revenue Report, 2008 Second-Quarter and First Six-Month Results, October 2008
  • 8. YOY % Search & Display Spend Grow Lead Gen 7% Classifieds Email 14% 2% Search 44% (41% in ’07) Display* 33% (32% in ’07) 2008 First Six-Month Revenues: $11.5 Billion Source: IAB Internet Advertising Revenue Report, 2008 Second-Quarter and First Six-Month Results, October 2007, 2008 * Display-related advertising includes Display Banner Ads, Rich Media, Digital Video and Sponsorship
  • 9. Interactive is the fastest-growing display medium Percentage Change in Measured Ad Spending: Jan‐Sept 2008 vs. Jan‐Sept. 2007. Media Sector Percentage Change Television Media 2.1% Magazine Media -3.9% Newspaper Media -10.0% Internet (Display Ads Only) 7.0% Radio Media -8.8% Outdoor -0.5% FSIs 0.9% Total -1.7% Source:  “TNS Media Intelligence Reports U.S. Advertising Expenditures Declined 1.7 Percent in First Nine Months of 2008 ,” TNS Media Intelligence  Press Release, Dec. 11, 2008.  Note TNS does not track search advertising revenue.  URL:  http://www.tns‐mi.com/news/12112008.htm
  • 10. US Online Social Network Ad Spending Projected to Grow $ millions Source: eMarketer, December 2008
  • 12. Drivers of Interactive Ad Growth Include Rising Broadband Penetration… US Broadband Households (in millions) Source:  JupiterResearch Internet Access Model, 3/07 (US Only)
  • 13. Consumers Time Spent Online Keeps Increasing 18.0 15.3 16.0 14 13.5 Average Weekly Hours Online 14.0 12.5 11.1 12.0 9.8 9.4 10.0 8.0 6.0 4.0 2.0 0.0 2001 2002 2003 2004 2005 2006 2007 Source:  USC Annenberg School Center for the Digital Future, The 2008 Digital Future Report, and previous Digital Future Report releases. 
  • 14. Search Is Now Habitual 100% 91% 91% 90% 89% 89% 90% 85% Percentage of US Online Adults 88% 84% 80% Using Search Engines 70% 60% 50% 49% 42% 41% 41% 40% 38% 31% 30% 30% 29% 20% 10% 0% Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 May-02 May-03 May-04 May-05 May-06 May-07 May-08 Used Search Engine Ever Used Search Engine Yesterday Source:  “Almost Half of All Internet Users Now Use Search Engines on a Typical Day,” Pew Internet & American Life Project Data Memo,  August 6, 2008  Link:  http://www.pewinternet.org/PPF/r/258/report_display.asp
  • 15. During 2008, US Search Volumes Grew by 15-26% Each Month 30% US Core Search Growth Rates, Year‐On‐Year Percentage Growth Rate of US Core Searches, 26% 25% 23% 22% 20% 19% 19% 19% 18% 19% 20% 17% Year-on-Year 15% 15% 10% 5% 0% Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Source:  comScore qSearch, quoted in “ComScore:  YouTube Now 25 Percent of All Google Searches,” TechCrunch, Dec. 18, 2008,  http://www.techcrunch.com/2008/12/18/comscore‐youtube‐now‐25‐percent‐of‐all‐google‐searches/ 
  • 16. Digital Video Is Now a Mainstream Medium US Monthly Video Streams Served 9.50 10.00 9.00 8.00 7.00 6.20 (Billions) 6.00 5.00 4.00 3.00 2.00 1.00 0.00 December-07 November-08 Key November 2008 Data (Nielsen): Streams Served:  9.5 billion Unique Viewers:  124.3 million Streams/Viewer:  76.8 streams Time per Viewer:  177.9 minutes Source:  “Nielsen: 9.5B Video Streams in November,” NewTeeVee.com, Dec. 30, 2008; “Nielsen Online's VideoCensus: Networks Failing To Reach  Men Online,”  MediaPost Onlline Media Daily, Feb. 15, 2008.
  • 17. Smartphones Are Unleashing Mobile’s Potential As of 2Q 2008, in the US: • More than 26 million mobile subscribers use a smartphone device • Smartphones represent 16% of recent mobile device acquisitions • 57% of smartphones are acquired by personal users • 30% of smartphone users are likely to upgrade their device in the coming year Source:  “Nielsen Proivdes iPhone 3G and Smartphone Statistics,” Nielsen Mobile Press Release, October 16, 2008.  URL:   http://www.nielsenmobile.com/html/press%20releases/iPhone3GandSmartphoneStats.html
  • 18. Social Media Sites Already Exceed Television’s Reach Worldwide Audience for Top 10 Social Media Sites, November 2008 250 221.5 Monthly Global Unique Visitors •Total Social Media Audience:  691M, or 69.4% reach 200.2 •Facebook’s audience grew 116% from Nov 07‐Nov 08  200 (in Millions) 150 126.2 113.7 100 86.8 69.2 63.9 58.1 46.4 45.6 50 0 5 ut rt er kr ok ce ss es es HI pa k gg ic a re it i bo ac Or Sp Fl xA oc dp o Sp ce Bl My Si Ge or Fa ve W o Li ho ws Ya do in W Source:  comScore as reported in “Top Social Media Sites of 2008 (Facebook Still Rising),” TechCrunch, Dec. 31, 2008.
  • 19. Consumers want the Internet to be ad-supported • For both mobile and PC video, 70% of consumers prefer ad-supported models over consumer-paid models. (IBM study across 6 major international markets) • 67% of US consumers ages 25-34 and 75% of consumers aged 13-24 would “be willing to be exposed to online ads in exchange for free content.” 66% of all Internet users would click on more online ads if they were better targeted to them. (Deloitte) Source:  “IBM Study Shows Consumers Will Accept New Forms of Advertising If Companies Follow Their Rules,” IBM Press Release, Nov. 17, 2008, URL:  http://www‐ 03.ibm.com/press/us/en/pressrelease/26077.wss; Deloitte Study quoted in “Survey:  More online ads, free content,” Forbes, December 26, 2007, link:   http://techland.blogs.fortune.cnn.com/2007/12/26/survey‐more‐online‐ads‐free‐content/
  • 20. Challenges • Measurement standardization/simplification • Cross-media measurement • Antiquated media-mix modeling • Overuse/misapplication of DR standards and methodologies • Creative shabbiness