Blackstone 2013 Digital Marketing Review

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2013 Review of the Digital Marketing ecosystem.

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Blackstone 2013 Digital Marketing Review

  1. 1. Digital Marketing Industry ReviewJanuary 2013Ken AllenManaging Directorallen@blackstone.comRumena ManolovaAssociaterumena.manolova@blackstone.com
  2. 2. Table of Contents I. Executive Summary 2 II. Industry Themes 7 III. M&A Perspectives 39 Appendix 51 Blackstone 1
  3. 3. I. Executive Summary
  4. 4. I. Executive SummarySummary ObservationsThe Digital Marketing The Digital Marketing Ecosystem Continues to Undergo a Significant Transformationsector continues to  Multi-decade transition from analog to digitalevolve, and is  Audience-centric, cross-channel, data-driven, real-timebecomingincreasingly strategic Growth in the Digital Marketing Industry is Being Driven by a Number ofto a large number Important Trendsof ecosystem players.  Mobile, Social, Video, Audience Targeting / RTB, and Data / Analytics are critical capabilities that have gained strategic importance in recent years The Above Trends Have Catalyzed a Significant Wave of Consolidation in the Industry  Leading strategic acquirers seeking growth have gained access to these capabilities through inorganic expansion  Stack convergence is resulting in unified, multi-channel offerings fueled by data and analytics Consolidation / M&A Will Continue to Define the New Digital Marketing Ecosystem  Larger players will continue to leverage M&A as a means to unify the product suite, ‘purchase R&D’, acquire talent, and, as a defensive measure, prevent strategic assets from falling into the wrong hands  Strategic M&A has become a core capability and a source of competitive advantage for many firms Blackstone 3
  5. 5. I. Executive SummaryA Significant Shift Is Occurring in Online Marketing and Commerce PlatformsMarketing and eCommerce platforms are becoming increasingly integrated, supported by data andanalytics, and processed in real time. How We Decide How We Buy Social Comparison Mobile Mobile Shopping Social Display Email Digital Auctions Goods Flash Sales / Search Local Daily Deals Ecommerce Community TV Barcode TV Radio Branding Point of Call Direct Mail Sale Print Center Multi-Channel Multi-Channel Engagement Commerce Purchase Social Demo / Preferences Intent Behavioral History Graph Geo / ‘Likes’ 10110011011001010110001 ... Data ... 10110011011001010110001 Blackstone 4
  6. 6. I. Executive SummaryThe Online Channel Represents the Sole Growth Vector in the Global Advertising Market While currently smallest in size, the Online advertising market is vastly outpacing other channels in terms of long-term growth. 2011 Global Market Size ($bn) 2006 – 2011 CAGR Key Drivers and Themes $497bn  Online media becoming central pillar of advertisers’ marketing efforts Online, 18%  Growth driven by increased Internet penetration, advanced technologies +14% (e.g., data analytics), and new forms of engagement (e.g., video) ($87)  Advertisers demanding engagement across multiple screens  Rapid decline caused by secular disadvantages Print, 23% (6%)  Shift towards brochures, flyers, booklets, press kits; away from news ($116)  Increased integration with digital (QR, augmented reality, ambient)  Strength in local / national cable offset by decline in broadcast TV, radio, Broadcast, 25% and outdoor broadcast 2% ($125)  Rapid growth of online video and radio creating competitive pressure  Persistent decline caused by secular disadvantages  Integration with digital channels (mobile, QR) and enhanced data Direct, 34% (5%) analytics capabilities becoming critical ($169)  Renewed interest in Direct Mail led by financial services, retail, and automotive sectors ($5) Global Market Size________________________________________________Source: Wall Street research, Bloomberg, eMarketer. Blackstone 5
  7. 7. I. Executive SummaryKey Industry Growth Drivers A number of Social important themes are driving growth in the Digital Marketing ecosystem. Mobile Video $40 $30 $20 $10 $0 1995 1999 2003 2007 2012 Consolidation / Audience M&A Targeting / RTB Data / Analytics________________________________________________Note: Digital Advertising Revenue refers to U.S. spending; $ in billions.Source: Business Insider, IAB, eMarketer, Blackstone. Blackstone 6
  8. 8. II. Industry Themes
  9. 9. II. Industry ThemesDigital Marketing Industry Themes: Mobile Social Mobile Video $40 $30 $20 $10 $0 1995 1999 2003 2007 2012 Consolidation / Audience M&A Targeting / RTB________________________________________________ Data / AnalyticsNote: Digital Advertising Revenue refers to U.S. spending; $ in billions.Source: Business Insider, IAB, eMarketer, Blackstone. Blackstone 8
  10. 10. Social Mobile Video $40 $30II. Industry Themes $20 $10 $0 1995 1999 2003 2007 2012 Audience Consolidation Targeting /Mobile Endpoints Are Expected to Drive Significant Data Consumption and Advertising Growth / M&A RTB Data / Analytics The proliferation of mobile devices, combined with the potential inherent in mobile targeting, Callout presents a significant market opportunity.Evolution of Hardware Device Penetration Ad Conversion by Device Type(Millions in log scale) (Based on a scale of 100% for Desktop)1,000,000 120% 110% 107% 100% 100% 100% 100% Mobile 100% 90%93% Internet 100,000 80% 68% 60% 45% 50% Desktop 40% 10,000 25% 27% 22% Internet 17% 20% 1,000 PC 0% 10B+Units? Rev. Per Click Conv. Rate Avg. Order Value Mini iPad Desktop Android Tablet iPhone Android Phone 100 1B+Units / Users Computer U.S. Net Mobile Ad Revenues 10 100MM+Units ($ in millions) Mainframe 11 - 14E CAGR $4,000 1 10MM+Units 68% $3,000 1MM+Units $2,000 0 40% $1,000 194% 1950 1970 1990 2010 2030 85% $0 57% 2011 2012E 2013E 2014E There are currently 953mm smartphone subscriptions vs. 6.1bn mobile subscriptions, representing a massive growth opportunity. Google Facebook Twitter Apple (iAd) Other________________________________________________Source: Wall Street research. Blackstone 9
  11. 11. Social Mobile Video $40 $30II. Industry Themes $20 $10 $0 1995 1999 2003 2007 2012 Audience Consolidation Targeting /Mobile Is Taking Share From all Other Media Channels / M&A RTB Data / Analytics Consumers are incorporating mobile in all aspects of their daily lives – from social activities to commerce and TV viewing. Share of Consumer Time Spent with Major Media(1) Metric(2) 50% 45%  ~1,100% YoY growth in users in Q4 2012 44% 45% 43% 42% 40%  ~56% of users from mobile in 2012 35% 30% 26% 26% 26%  ~1,000% YoY growth in users in Q3 2012 25% 25% 20% 17% 16% 15%  70% of users from mobile in 2011 14% 15% 12% 10% 9% 9% 8% 8%  ~20% of shoppers scan a product barcode 7% 7% 7% 6% 6% 5% and/or send product pictures to friends 4% 5% and family 0%  85% of smartphone users access phones TV Online Radio Mobile Print Other while watching TV 2009 2010 2011 2012________________________________________________  55% of users from mobile in 2011(1) Source: eMarketer, BII Research.(2) Source: BII Research, Facebook, Enders Analysis. Blackstone 10
  12. 12. Social Mobile Video $40 $30II. Industry Themes $20 $10 $0 1995 1999 2003 2007 2012 Audience Consolidation Targeting /On a Global Basis, the Mobile Growth Opportunity Is Massive / M&A RTB Data / Analytics Despite its rapid growth to-date, mobile continues to represent a major untapped opportunity.G-20 Internet Access(1) Untapped Smartphone Opportunity(2)(Consumer broadband connections in millions) (Global users in billions) 8.0 6B 3,000 7.0 Users 2,707 6.0 5.0 2,500 4.0 3.0 1B 2.0 Users 2,000 1.0 0.0 2,134 Smartphone Mobile Phone 1,500 Untapped Online Opportunity(3) (In billions) 1,000 7.0 825 6.0 5.0 475 500 4.0 Global Population 167 573 3.0 350 0 2.0 2005 2010 2015 1.0 Internet Population Fixed Mobile 0.0 1998 2008 1990 1991 1992 1993 1994 1995 1996 1997 1999 2000 2001 2002 2003 2004 2005 2006 2007 2009 2010 2011________________________________________________(1) Source: Strategy Analytics, International Telecommunications Union, BII Research.(2) Source: Boston Consulting Group, Mary Meeker, Kleiner Perkins, Morgan Stanley Research, Berg Insight, BII Research.(3) Source: International Communication Union, Google, BII Research. Blackstone 11
  13. 13. Social Mobile Video $40 $30II. Industry Themes $20 $10 $0 1995 1999 2003 2007 2012 Audience Consolidation Targeting /Smartphone Penetration in the U.S. Is Showing Signs of Saturation / M&A RTB Data / Analytics As more than half of U.S. mobile subscribers now own smartphones, the pace of net new adds has slowed down.U.S. Smartphone Market: Year-Over-Year Net New Adds(Users in millions) 40 100% 35 80% 35 34 30 32 32 60% 29 29 25 27 40% 20 21 20% 15 18 14 15 0% 10 12 13 13 10 11 9 10 (20%) 5 8 0 (40%) 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2013 Users Added % YoY Growth % Smartphone Penetration(1) 30% 38% 41% 44% 48% 50% 55%________________________________________________Source: comScore, Nielsen, BII Research.(1) Note: U.S. mobile subscribers 18+. Blackstone 12
  14. 14. Social Mobile Video $40 $30II. Industry Themes $20 $10 $0 1995 1999 2003 2007 2012 Audience Consolidation Targeting /Mobile Ad Revenues Have Exhibited Slower Growth Thus Far Relative to Other Media / M&A RTB Data / Analytics Mobile advertising has grown more slowly than other media, as advertisers struggle to adopt the ‘right’ advertising model.Comparative U.S. Advertising Media Annual $ Revenue Growth (First 5 years)($ in millions)$5,000 $4,621$4,500$4,000 $3,698$3,500$3,000$2,500 $2,162 $2,162 $1,920$2,000$1,500 $1,171 $1,012 $907$1,000 $806 $500 $358 $392 $80 $55 $160 $267 $0 Year 1 Year 2 Year 3 Year 4 Year 5 Broadcast TV Mobile Internet________________________________________________Note: Adjusted for inflation.Source: IAB, McCann-Erickson, BIA-Kelsey, Bll Research. Blackstone 13
  15. 15. Social Mobile Video $40 $30II. Industry Themes $20 $10 $0 1995 1999 2003 2007 2012 Audience Consolidation Targeting /Mobile Ads Are Primarily Web Search and Display / M&A RTB Data / Analytics Search dominates mobile ad revenues; however, eCPMs are lower than Desktop. The two leading smartphone platforms, Android and iPhone, garner the highest eCPMs.2011 Global Mobile Ad Spend(1) Effective CPM, Desktop vs. Mobile(3) Messaging $4.00 10% $3.50 $3.50 Display 28% $3.00 62% Search $2.50 $2.00CPM Rates by Mobile Devices(2)$3.00 $1.50$2.50$2.00 $1.00 $0.75$1.50 $2.85$1.00 $2.10 $0.50$0.50 $1.01 $0.59 $0.64 $0.20 $0.00$0.00 Windows Symbian RIM J2ME / Android iPhone Desktop Internet Mobile Internet Phone others________________________________________________(1) Source: IAB, BII Research.(2) Source: Opera Software, Q2 2012.(3) Source: comScore, Vivaki, Mobclix Exchange, BII Research. Blackstone 14
  16. 16. Social Mobile Video $40 $30II. Industry Themes $20 $10 $0 1995 1999 2003 2007 2012 Audience Consolidation Targeting /Native, Location-based, and Video Ads Represent the Next Big Opportunity in Mobile / M&A RTB Data / Analytics Native, social, location-based, and video ads integrate more seamlessly in consumer mobile experiences and have higher CPMs.Ads in Timelines (Twitter / Facebook)(1) Location-Based Ads(2) (Monthly Ad Requests Per Mobile User by Location) 75 60 70 67 67 45 47 30 37 39 35 15 27 24 23 16 0 CPM Rate for Selected Mobile Ad Platforms(3) xAd Local $3.50 LSN Mobile Local Ads $5.00 Adsmobi Video Ads $5.00 Flurry Video Ads $10.00________________________________________________(1) Source: Twitter, Facebook. $0.0 $2.5 $5.0 $7.5 $10.0(2) Source: JiWire, 3Q 2012.(3) Source: Ad platforms, BII Research, Greg Sterling, Opus Research. Blackstone 15
  17. 17. Social Mobile Video $40 $30II. Industry Themes $20 $10 $0 1995 1999 2003 2007 2012 Audience Consolidation Targeting /Smartphone Users Spend More Time on Apps than on the Web / M&A RTB Data / Analytics Apple dominates the mobile app revenue market.Total Time Spent Using Mobile Web vs. Apps(1) 2011 Mobile App Revenue Share(2)(Minutes Spent per Month in billions)140 Other120 10%100 Android 7% 80 60 40 20 83% 0 Apple iOS Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Mobile Web Apps________________________________________________(1) Source: Nielsen Smartphone Analytics, BII Research, Blackstone.(2) Source: iSuppli, Forrester Research, company press releases, BII Research. Blackstone 16
  18. 18. Social Mobile Video $40 $30II. Industry Themes $20 $10 $0 1995 1999 2003 2007 2012 Audience Consolidation Targeting /Google Is the Overall Leader in Mobile Ad Revenues / M&A RTB Data / Analytics Google practically owns the mobile search market, and has steadily increased its revenue share over time.Mobile Ad Revenue(1)(% of total)100% 90% Other 80% 70% 60% 50% 40% 30% 20% 10% 0% 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11Google Global Mobile Search Market Share(2) Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 96% 96% 96% 97% 98% 98% 98% 98% 97% 97% 97% 97% 97% 97% 97% 97%________________________________________________(1) Source: BII Research, Blackstone.(2) Source: Global StatCounter, BII Research. Blackstone 17
  19. 19. Digital Marketing Industry Themes: Social Social Mobile Video $40 $30 $20 $10 $0 1995 1999 2003 2007 2012 Consolidation / Audience M&A Targeting / RTB________________________________________________ Data / AnalyticsNote: Digital Advertising Revenue refers to U.S. spending; $ in billions.Source: Business Insider, IAB, eMarketer, Blackstone. Blackstone 18
  20. 20. Social Mobile Video $40 $30II. Industry Themes $20 $10 $0 1995 1999 2003 2007 2012 Audience Consolidation Targeting / / M&ASocial Networks Are Profoundly Changing How Consumers Discover and Interact with Brands RTB Data / Analytics Social networks are becoming a primary source for consumers to discover new products, view peer recommendations, and seek reviews. Innovations such as mobile check-ins and Facebook integration with retailer sites have allowed consumers to take “word-of-mouth” marketing to a mass scale. Traditional Marketing Funnel Social Media Marketing Loop Awareness Awareness Interest Interest Recomm- endation Decision Decision Action Action________________________________________________Source: eMarketer, Blackstone. Blackstone 19
  21. 21. Social Mobile Video $40 $30II. Industry Themes $20 $10 $0 1995 1999 2003 2007 2012 Audience Consolidation Targeting /The Shifting Display Ecosystem Has Resulted in Dramatic Share Shifts in Advertising / M&A RTB Data / Analytics Underlying industry dynamics have resulted in significant display advertising share shifts from static, non-targeted premium channels to RTB and Social formats.Net U.S. Online Display Ad Revenues Net U.S. Social Network Ad Spending(% of Total Display Ad Revenues, 2011 – 2014) (% of Total Social Ad Revenues, 2011 – 2014) 2011 2012E 2013E 2014E 2011 2012E 2013E 2014E 14.0% 16.8% 17.7% 17.1% 70.9% 68.8% 65.6% 63.5% 13.8% 16.5% 19.8% 21.7% 5.5% 8.3% 11.1% 12.7% 10.8% 9.1% 8.1% Social Games 7.5% Social Games 5.5% 6.7% 7.0% 7.4% 4.5% 4.4% 4.3% 4.4% 4.3% 5.3% 5.8% 6.1% 4.3% 4.0% 3.8% 3.7% 1.8% - - -Total Top Five - % of Total Display 47.4% 50.8% 53.7% 54.4% Total Top Five - % of Total Social 88.0% 89.1% 89.5% 89.7%________________________________________________Source: eMarketer. Blackstone 20
  22. 22. Social Mobile Video $40 $30II. Industry Themes $20 $10 $0 1995 1999 2003 2007 2012 Audience Consolidation Targeting /Facebook Represents an Exciting, Although As Yet Unproven, Advertising Platform / M&A RTB Data / Analytics Facebook’s data and potential targeting mechanisms hold significant promise for advertisers. Marketer response, however, has been mixed thus far.Facebook Targeting Framework Facebook Advertising ROI vs. Competitors (% Surveyed) Superior 17.1% Inferior 38.3% 44.5% YOU About the Same Targeting Mechanisms Facebook Advertising Feedback from C-Level Executives (Based on Citigroup Facebook Advertiser Survey) Demographic data  Retargeting  Primary customer data Facebook Advertising Partner View Facebook Advertising Partner View Personal information CEO of Major eCommerce Platform Mixed CEO of Online Ad Agency Mixed CEO of Leading Online Luxury CEO of Large Online Ad Agency Interest graph Goods Retailer Negative Group Negative CEO of Digital Ad Agency Mixed CMO of Online Ad Agency Positive Exec at Large Online Auction / CMO of Large Global Beverage Mixed Positive Commerce Site Company Exec at Large Online Community Site Negative CMO of Global Bank Mixed Targeting Channels Exec at Consumer / Business Printing Mixed CMO of Leading CPG Company Mixed Site Veteran Online Advertising Executive Negative CEO of Online Travel Company Negative Exec at Online Ad Platform Positive CMO of Online Automotive Retailer Mixed Exec at Leading Hot Beverage CEO of Large Ad Agency Firm Negative Positive Facebook Facebook Facebook Facebook Zynga.com Third-Party Smartphone Company Online Newsfeed Mobile Apps Exchange Sites Apps Exec at Large Ad Agency Firm Positive________________________________________________Source: Blackstone, Wall Street Journal, Citigroup. Blackstone 21
  23. 23. Digital Marketing Industry Themes: Video Social Mobile Video $40 $30 $20 $10 $0 1995 1999 2003 2007 2012 Consolidation / Audience M&A Targeting / RTB________________________________________________ Data / AnalyticsNote: Digital Advertising Revenue refers to U.S. spending; $ in billions.Source: Business Insider, IAB, eMarketer, Blackstone. Blackstone 22
  24. 24. Social Mobile Video $40 $30II. Industry Themes $20 $10 $0 1995 1999 2003 2007 2012 Audience Consolidation Targeting / / M&A RTBA Huge Opportunity, One that Online Video Is Ideally-Suited to Target, Exists in Display & Brand Advertising Data / Analytics A significant gap exists between the relative share of online and offline branding, implying a $13.0bn untapped market opportunity in the U.S. alone.U.S. Market Opportunity (2011) Online Becoming ‘The New Primetime’($ in billions) 70 Prime Time % People 15+ Using Medium $152.0bn $31.0bn100% 60 Direct Direct 50 (1) (1) Response Response 40 TV ($27.0bn, 18%) ($19.0bn, 61%) 30 75% 20 10 Internet Implied 0 Gap Midnight 2 AM 4 AM 6 AM 8 AM 10 AM 12 PM 2 PM 4 PM 6 PM 8 PM 10 PM ($13.0bn, 43%) 50% Harder to Reach Audiences in the New Media Model ADS TARGET AUDIENCE MEDIA (2) Branding Traditional Fewer ads… Reached more people… With undivided attention. Media ($125.0bn, 82%) 25% (2) Branding (2) Branding ($12.0bn, 39%) [__] More ads… Reaching fewer people… Paying less attention. New Media 0% U.S. Offline U.S. Online Media Spend Media Spend________________________________________________Source: IAB, Wall Street research, comScore, Blackstone.(1) Offline DR includes direct mail and directories. Online DR includes classifieds, e-mail, lead generation, and search.(2) Offline Branding includes outdoor, print, radio, and TV. Online Branding includes banner ads, rich media, sponsorships, and video. Blackstone 23
  25. 25. Social Mobile Video $40 $30II. Industry Themes $20 $10 $0 1995 1999 2003 2007 2012 Audience Consolidation Targeting /“Over-the-Top” Video Is Reaching Mass Adoption / M&A RTB Data / Analytics As consumers begin to view more content online, “over-the-top” video revenues are on the rise. U.S. Primetime TV Viewing(1) Global Digital Video Revenue(2) (% of 18-49 TV set users during 8-9 PM hour, multiple responses permitted) ($ in billions) 120% $5.0 100% 6% 6% 7% 8% $4.0 17% 16% 80% 26% $3.0 60% $2.0 40% 82% 83% 64% 20% $1.0 0% $0.0 2004 2008 2012 2006 2007 2008 2009 2010 2011 Live TV Recorded TV Video game Streaming video Netflix Youtube Hulu________________________________________________(1) Source: GfK, BII Research.(2) Source: Company filings, Wall Street research, BII Research, Blackstone. Blackstone 24

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