The Internet Money Math
Business Models on the Web
Rina Shainski, General Partner, Carmel Ventures
www.carmelventures.com
MIT Forum, 25 December 2007

Carmel Areas of Interest
Investment Areas
Next gen. Infrastructure
applications for Telco & Mobile
Digital Home and IPTV
TeraOp Displays
Next Gen. Enterprise Software
Internet & Digital Media
On-line Advertising
Confidential 2

Internet Media
Interactive, Flexible and Measurable
Measurable indication of user interest: page views, minutes
Variety of business models – all convertible into page views
clicks and actions
Collaborative and Viral (UGC, Social Networks)
Ease of update – always fresh
Ease of access – just a click or two away
Internet advertising, as of 2007 is growing faster than other types
of media
Confidential 3

US advertising market ($M)
Internet advertising spending is taking money from the print media
Source: T Weisel Partners.

‘06 US media consumed (hrs/wk)& total ad spend ($B)
Billions
Hours
Source: Jupiter research
Online ad spending was disproportionate to the time spent surfing the net in
the US in 2006.
Confidential 7

Ad-funded value chain
•CPM
•Page Views
•CPC
•CPA
•Minutes
Ads$$$
Content
Confidential 8

How ad $$ are split
An advertiser has a $1 budget and hires
Advertiser
an Agency to manage the spending
and creative strategy.
$1.00
The agency gets a percent of the
Agency
Budget as a fee for its services, then
decides how to allocate the remainder.
$0.15-0.18
The agency could choose to purchase inventory from
an Ad Network. The Network owns a collection of inventory
Ad Network
it purchased from Publishers. Alternatively , the agency
$0.05-$0.07
could purchase inventory directly from a
Publisher or Engine.
Ad Server & Technology
A 3rd party typically places the ad on the site and
$0.01-$0.02
sends information back to the Agency on how
the ad performs.
Engines
Publisher
Comparison Search
The Publisher or Engine displays the ad on
$0.32-$0.40
shopping $0.32-
their site, where visitors will see or otherwise
interact with it. $0.04-$0.06 $0.40
Source: CIBC World Markets Corp.
Confidential 9

Internet business models – variety and creativity
Free Service – Ad-funded (Facebook, Myspace, eSnips)
Free Service – Ads & Referral fees (Tripadvisor, MyThings)
Freemium – Free & Premium services (Skype, Linkedin)
Transactional – Ebay, Kasamba, Zopa (p2p lending)
Subscription – eHarmony (dating), Games (Blizzard)
Ad-networks – Google, Quigo, Kontera

The Penny Gap- “freemium” content
But really…..
toughest part of a new venture - it's getting your users to pay you anything at all. The
biggest gap in any venture is that between a service that is free and one that costs a
penny.
At some point, the cost to acquire a paying customer is so high, it makes sense to
consider shifting from a pay model to a free model.
Source: Josh Kopelman, First Round Capital
Confidential 11

Getting Started – simple ad-funded model
Annual Expenses Breaking Even – Ad-funded model
Staff: Revenues 2.4M 100%
5-8 employees at 100k-120k 500k-960k Marketing - -
Infrastructure: 10K-15K/mo 120k-180k Cogs* 1.2M 50%
Other (legal, admin) 150k – 200k Expenses 1.2M 50%
Total: 770k-1240k EBIDTA - 0%
* Assuming ad sales through ad-network
Reaching 2.4M Annual Revenues
At $1 CPM need 2.4B PV annually = 200M PV monthly; which at 5PV/visit needs 40M monthly visits
What Impacts CPM – wide range $0.5 - $20
Demographics (age, gender, ethnicity)
Category (health, weather, finance, cars)
US vs International
Direct or through ad-network

Top 50 US Properties ( September ‘07)
Rank Property Unique Visitors (000) Rank Property Unique Visitors (000)
Total Audience 182,362
1 Yahoo! Sites 136,180 26 Shopzilla.com 25,023
2 Google Sites 131,538 27 Best Buy 24,807
3 Microsoft Sites 119,194 28 Craigslist 24,427
4 Time Warner 119,084 29 Yellowpages.com 24,221
5 Fox interactive media 81,325 30 Disney Online 23,822
6 ebay 80,510 31 Sears sites 23,522
7 Amazon sites 59,058 32 Monster Worldwide 23,390
8 Wikipedia sites 55,157 33 Bank of America 23,354
9 Ask network 51,636 34 Gannet sites 22,272
10 New York Times Digital 47,997 35 ESPN 22,186
11 Apple Inc 43,775 36 Expedia 21,796
12 Viacom Digital 42,796 37 EW Scripps 21,045
13 Wal-mart 42,462 38 Real.com 20,242
14 Target Corporation 41,933 39 Photobucket.com 19,628
15 CNET Networks 35,731 40 United Online 19,305
16 Weather Channel, The 34,124 41 WebMD Health 18,346
17 Facebook 33,660 42 Lycos Sites 18,335
18 Adobe Sites 31,848 43 Circuit city stores Inc 18,268
19 AT&T 29,843 44 The Mozilla Corp 17,981
20 Verizon Comms 29,072 45 JC Penny 17,976
21 CBS 28,714 46 Artistsdirect 17,743
22 Gorilla Nation 26,556 47 Overstock.com 17,478
23 Comcast 26,479 48 NFL 17,397
24 Superpages 25,603 49 Hearst Corp 17,122
25 Glam media 25,394 50 CareerBuilder 17,021
Category
Source: ComScore Media Metrix
Demographics
Confidential 13

US Top 50 Ad Focus Ranking (September ‘07)
Rank Property Unique Visitors (000) Reach % Rank Property Unique Visitors (000) Reach %
Total Audience 182,362 100%
156,962
1 advertising.com** 86% 26 Vibrant Media** 72,273 40%
155,430
2 Yahoo! Ad Network** 85% 27 eBay.com 69,272 38%
139,496
3 Google Ad** 76% 28 Myspace.com 68,746 38%
134,754
4 Blue Lithium** 74% 29 Gorilla Nation 66,605 37%
134,227
5 Yahoo! 74% 30 CPX Interactive** 66,319 36%
133,430
6 ValueClick** 73% 31 Undertone Networks** 60,564 33%
131,898
7 Tribal Fusion** 72% 32 MSN.COM 58,678 32%
131,088
8 Specific Media** 72% 33 PrecisionClick** 56,093 31%
123,992
9 Google 68% 34 YouTube.com 53,521 29%
115,172
10 Casale Media Network** 63% 35 AdDynamix** 51,882 28%
107,573
11 AOL Media 59% 36 Ask Networks 51,636 28%
105,266
12 DRIVEpm** 58% 37 Amazon 49,775 27%
103,586
13 MSN-windows live 57% 38 Business.com 46,148 25%
96,608
14 Traffic marketplace** 53% 39 Mapquest.com 45,592 25%
95,012
15 Yahoo.com 52% 40 Kontera** 44,164 24%
93,829
16 interCLICK** 51% 41 eBay.com 43,123 24%
90,690
17 24/7 real Media** 50% 42 Walmart.com 39,902 22%
90,684
18 Tremor Media 50% 43 about.com 39,873 22%
88,826
19 AOL Media 49% 44 The Nabbr Network 35,917 20%
84,206
20 adconion media** 46% 45 Facebook 33,660 18%
82,955
21 Colective media** 45% 46 Vizi Media** 27,556 15%
81,368
22 Burst Media** 45% 47 Real cities 26,486 15%
79,907
23 AdBrite** 44% 48 Superpages 25,603 14%
78,592
24 Centro 43% 49 CNN 25,581 14%
73,863
25 ADSDAQ** 41% 50 Weather.com 25,176 14%
Source: ComScore Media Metrix
** Denotes ad network
Confidential 14

Web Analytics - example
Source: quantcast.com
Confidential 16

Web Analytics - example
Source: quantcast.com
Confidential 17

Important Metrics
CPM – cost per mille – wide range of values $0.5-$20
Page Views - PV
CPC, CPA – cost-per-click cost-per-action
typically used between ad-networks and advertisers
Uniques/mo – correlates with reach and exposure
PV/Unique – important for cost of user acquisition
CTR – correlates with response
Visits/mo; PV/Visit - CPM*(Visits/mo*PV/Visit)/1000 = revenues/mo

The rise & rise of social networks
2005 2007
Rank Web site Rank Web site
1 yahoo.com 1 yahoo.com
2 msn.com 2 google.com
3 google.com 3 youtube.com
4 ebay.com 4 live.com
5 amazon.com 5 msn.com
6 microsoft.com 6 myspace.com
7 facebook.com
7 myspace.com
8 wikipedia.org
8 google.co.uk
9 hi5.com
9 aol.com
10 orkut.com
10 go.com
Source: Alexa
•Consumption patterns are changing
•New major players have gained traction quickly, in UGC and social networks
Confidential 19

Opportunities in social networks, targeting & video
By 2011, 50% of all online adults and 84% of online teens in the US
will use social networking each month
Behavioral Targeting:
•Advertisers want to engage larger audiences with fewer ad impressions
•Publishers want to better monetize their “long tail” for less.
•Individuals want to see more personalized ads
Source: emarketer.com
Confidential 20

Content Partners with Distribution
Content owners partner with on-line distribution channels.
New distribution technologies: AJAX, RSS, and Widgets
Source: avenue a razorfish
Confidential 21

Summary
Advertising budgets are shifting from traditional media to on-line
Internet advertising is expected to keep on growing
Social Network ads, targeted ads, display ads and video ads are
expected to lead the growth
Variety of successful business models
Lots of opportunities and lots of competition
Easy to start but challenging to grow big – distribution is key!
Monetization drives value
Many small exits side-by-side with big and huge successes
Confidential

Thank You
Rina Shainski, General Partner, Carmel Ventures
rinas@carmelventures.com