The Us Internet Economy

MEASURING THE DIGITAL WORLD

The Internet Economy
Gian Fulgoni
Chairman
comScore, Inc.

March, 2009

Proprietary and Confidential Do not distribute without written permission from comScore

comScore’s Business:
Digital Marketing Intelligence

Leading Digital Marketing
Intelligence Platform
Digital Media and Commerce
Digital Media and Commerce

Internet Plus

Traditional Media
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+
Deep Consumer Insights
TV
Radio

+
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Buying Behavior

Audience Measurement Audience Measurement

Proprietary and Confidential Do not distribute without written permission from comScore 2

comScore Customer Knowledge Platform:
A 360°View of 2 Million Global Internet Users

■ Designed to be representative of the online population
■ Projectable to the total U.S. population
■ TRUSTe certified for information privacy & security

WEB VISITING & VIEWING DEMOGRAPHICS
– All Web Site/Page Click Stream – Self-reported and validated
– Content Viewed – Appended Segments (e.g. Claritas,
– Search Engine Queries Acxiom)
– Keyword Used – Individual & Household Level

ONLINE TRANSACTIONS SURVEYS
– All Secure Session Activity – E-mail or Contextual “Pops”
– Purchases and Subscriptions – Behavior-activated Surveys
– Price Paid, Shipping & Handling, – Observation of All Surveys Taken
Promotions Across All Suppliers
– Applications/Configurations

MARKETING STIMULI TV VIEWING OFFLINE PURCHASING
– Online Ads –Link to Digital Set Top TV – Linked using Name and Address
– Referral Links Data using name and address – Client CRM Databases
– Retailer Loyalty Card Data
– IRI Scanner Panel Data


Online Population:
U.S. versus Rest of World

Online Population Online Population
Growth Over Time by Geography

Total Rest of the
World

US

US

There are approximately 1 Billion people online today; 83% are located outside the US.
There are approximately 1 Billion people online today; 83% are located outside the US.

Source: comScore World Metrix, July 2008


There’s a New Number One Online

Internet Users Age 15+ (MM)

China, Japan, Korea, and India combined to
China, Japan, Korea, and India combined to
represent 29% of the total Worldwide online
represent 29% of the total Worldwide online
population; this total is 76% larger than the US
population; this total is 76% larger than the US
online population
online population

Source: comScore World Metrix, October 2008


Unique Visitors to Top Global Properties

Total Worldwide
US Audience Non-US Audience
Unique Visitors (MM)

83% 722.5

83% 636.4

77% 542.2

63% 271.0

80% 244.3

The top 10 Global Properties
The top 10 Global Properties
73% 236.8 attract a majority of Unique
attract a majority of Unique
Visitors from outside the US
Visitors from outside the US
55% 174.4

75% 171.2

67% 159.8

75% 144.8

Source: comScore World Metrix, July 2008


The Economy’s Impact on eCommerce


Validation of comScore Sales Data: Comparison of
comScore to U.S. Department of Commerce

Quarterly U.S. eCommerce Sales Estimates
Quarterly U.S. eCommerce Sales Estimates
Source: comScore and U.S. Department of Commerce (DOC)

Q4 2008

$ Sales
DOC: $37.1B
comScore: $39.3B

% Change vs. YA
DOC: -4.9%
$Billions

comScore: -3.5%

comScore Estimate = (Total Non-Travel – Event Tickets + Estimated Auction Fees)
Excludes travel and event tickets, but includes auction fees and autos

2008 eCommerce Growth Substantially Lower than
Preceding Years

Online Consumer Dollar Sales Growth
Online Consumer Dollar Sales Growth
Excluding Auctions, Autos and Managed Travel ($Billions)
Excluding Auctions, Autos and Managed Travel ($Billions)

Source: comScore
+7%

+17% $221
$200
+20%

+22%
$171 +9%
+12%

+26% $143
+13%
+29% $117
+20%
$93
+26%
$72 +33%
+21% +6%
Travel +24%

+24%
+26% +26%
Non-
Travel


Online sales growth decelerated throughout
2008 while retail sales were held up by
inflation (esp. energy) until Q4 2008

Quarterly eCommerce Growth vs. YA
Quarterly eCommerce Growth vs. YA
Source: comScore
Q4 Y/Y Growth by Category:
Sport and Fitness: +16%
Consumer Electronics: +3%
Apparel and Acces.: +2%
Furniture & Home: -10%

Quarterly Retail Sales Growth vs. YA
Quarterly Retail Sales Growth vs. YA
(exc. Food Service and Auto)
(exc. Food Service and Auto)
Source: U.S. Department of Commerce
Q4 Y/Y Growth by
Retailer Types:
Gen Merch: -2%
Sports: -3%
Electronics: -5%
Dept Stores: -7%
Clothing: -8%
Furniture: -13%


The Internet is important to at least 6 in 10 consumers,
with 50% citing an increase vs. year ago

Importance of Internet
Source: comScore Survey January 2009

Q: How important has the Internet become Q: How has this changed versus
in providing you with information to help a year ago?
you make buying decisions?

65%

50%
Very Important
Significantly Increased

Slightly Important
Somewhat Increased

Past 3 months Versus a year ago


Five in ten people are surfing the Internet more to deal
with stress due to the current state of the economy

Q. Which of the following are you doing more of to deal
with stress due to the current state of the economy?



As the economic hardship worsened in 2008, there was a
dramatic increase in people conducting
financial/economic-related searches across the web

Number of Unique Searchers (MM) for Each Term: December 2008 vs. YA
Source: comScore

Y/Y % +27% +58% +100% +83% +160% +157% +223%
change


Search engines, followed by online coupon sites, have
become very important to consumers when shopping

Importance of Online Sites

Q: In the past 3 months, how important have the following sites become when shopping?

67%

54%

42%
39%
35%


On the positive side, energy prices have plummeted,
but food and beverage prices continue to rise

Percent Changes in Price versus Last Year
Source: U.S. Bureau of Labor Statistics

21%


People earning less than $50k have the highest
unemployment rate, while those earning $50k-$100k
are most concerned about losing their jobs

Job Loss Concerns by Income Segments
Source: comScore

Q: Are you concerned about losing your job?

Extremely concerned
27% 36%
40%
Somewhat concerned

Neither

Somewhat unconcerned

Extremely unconcerned

I have already lost my job


Two in ten people believe the U.S. economy will
improve in the next 3 months; but double that number
believe it will worsen

U.S. Economy Predictions by Income Segments

Q: In the next 3 months, do you think the U.S. economy will…

Under $50k $50k - $99,999k $100k or more

24% 28%
19%
Significantly/Slightly Improve

Significantly/Slightly Worsen

42% 42% 46%
-18% -14% -27% Net Pessimistic


Was Q4 ‘08 the bottom? eCommerce sales in
January grew 2% vs YA; seasonally-adjusted
retail sales grew 1% from Dec. 08 to Jan. ‘09

eCommerce Sales (Billions $) and % Growth vs. YA
eCommerce Sales (Billions $) and % Growth vs. YA
Source: comScore
Source: comScore

+25%

+23% +23%
+23%

+19%
+17%
Billions ($)

% Growth
+13%

+11%

+6%


eCommerce Continues to Gain Market Share from
Retail Stores

eCommerce and Retail Sales Growth in January 2009 vs. YA
Source: comScore for eCommerce &
U.S. Department of Commerce for Retail (DOC)

% change vs. YA

eCommerce (source: comScore) +2%
Retail (source: DOC)

Retail & Food Service -10%

Retail excl. Autos -7%

Furniture & Home Furniture Stores -14%

Electronics Stores -8%

Food & Beverage Stores +2%

Apparel & Accessories Stores -10%

Sporting Goods, Hobby, Book & Music -6%
Stores


Spending growth slows in upper income segment
and strengthens in middle income segment

Online Spending vs. YA by Income Segment
Online Spending vs. YA by Income Segment
Source: comScore
Source: comScore

Online Retail Bracket Share of
Income Segment Spending Chg. vs. YA Online Retail
Spending in Jan ‘09
Q4 2008 Jan ‘09

Under $50,000 -17% -9% 19%

$50,000 - $99,999 -10% 2% 46%

$100,000 or more 17% 8% 34%

Total -3% +2% 100%


The North American
Online Advertising Industry


Growth in Online Advertising Slowed in 2008

Total Online Advertising
$ Billions and % Chg vs YA

+23% +18% +13% +11%
7 +29% +24% +27% 5.9 5.8 5.9
5.7
6 5.2
4.9 5.1
5
4
3
2
1
0
Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08
Source: PricewaterhouseCoopers and the Internet Advertising Bureau (IAB)


Search Spending Continued to Grow Strongly Through
Q2 2008, Accounting for 40%+ of all Online Ad
Dollars

Total Search Advertising
$ Billions and % Change vs YA
$8.00
+24%
+30%
+30% $5.06
+29% $4.71
+37% $4.10
$3.64
$4.00 $3.16

$0.00
H1 06 H2 06 H1 07 H2 07 H1 08


Growth in Online Display Advertising Slowed in 2008
and Shifted Dramatically to Pay-for-Performance

Total Online Display Advertising
(CPM + CPC)
$ Billions and % Chg vs YA

$3.03 $3.01
$2.93 $2.93
$2.82 $2.86 +8% +5%
$2.70 +12% +9%
3 +19% +16%
+17%

2
Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08
Source: CMR
Data include static and rich display but do not include paid search or video ads

Nielsen reports that CPM-based display advertising in Q3 08 declined by -6% vs Y/A.


Challenges Emerging for Display Advertising

■ An expanding glut of online inventory that's putting further stress on
prices and making it even harder to monetize content.
Ad Age 2009

■ CPMs for ad-network-sold ads are dropping, some by as much as 50%
year-over-year, says a recent study from Pubmatic
MediaPost 2009

■ One issue Martin Nisenholtz [SVP of Digital Operations at New York Times
Corporation] hammered home was the abundance of inventory coming
from social networks, which has driven prices down
NY Times and paidcontent.org

■ Numerous factors have conspired to lower display ad prices in recent
months. They include the glut of social network ad inventory, the rise of
vertical ad networks, and doubts about the branding effectiveness of
traditional IAB standard ad formats.
ClickZ


The Right Metrics are Critical

Cookie Deletion Understates Campaign ROI


The Cookie Deletion Problem: Overstated Audiences
and Campaign Reach but Understated Frequency

A comScore Study of Yahoo and DoubleClick Cookies

■ 30% of Internet users delete their cookies in a month
– This rate corroborated by independent studies from Belden, Jupiter and Nielsen

■ These deleters do so an average of 4 times a month
– 5 different cookies for same site in a month on one computer

■ True for 1st party site cookies and 3rd party ad serving cookies
■ Cookie deletion creates major problems:
– Up to 2.5 times overstatement of unique visitors in server logs
– 2.5 times overstatement of reach and a similar understatement of frequency in ad
server log
– Leads to an understatement of campaign ROI because one loses “visibility” into
cookied computers


The Right Metrics are Critical:
Clicks Understate Campaign ROI


Decline in Online Ad Click-Through Rates

2.50%

2.50%

2.00% In 2008, comScore measured
click rates as less than 0.1%

1.50%
1.12% 2002
2006
1.00%

0.41%
0.50% 0.20%

0.00%
Rich Media Non-Rich Media

Sources: Doubleclick, eMarketer, Eyeblaster, ABI Research estimates


Clicks on Display Ads Are a Misleading Metric
and Don’t Reflect Brand-Building Effects

■ Recommendation: Only use to evaluate direct
response ad campaigns (or Search)
■ Clicks don’t reflect a campaign’s sales impact, nor
the cumulative (latent) impact of ads
■ Clicks don’t tell you anything about brand building
effects


The Impact
of Display and Search Advertising


Measuring the Holistic Impact
of Online Ad Campaigns

■ 200+ studies conducted to assess the impact of Paid Search and
Online ads on Online and offline sales
■ Real world analysis: comScore panelists divided into two matched
groups (exposed and non-exposed to advertising)
– Search only
– Display ads only
– Search and Display ads together
– Neither

■ Passively measured behavior and / or surveys
– Linked to in-store buying through CRM databases, retailer loyalty cards (we have
125 Million card dataset accessible), credit card data, IRI scanner panel


Site visitation lift: not only is there significant impact within the 1st
week, with or without a click, but past the 1st week, there is
significant lift that would be missed by only counting clicks or
immediate actions

Results from comScore Campaign Effectiveness Studies

A dvertiser Site R each
6.6%
5.8%
4.8%
4.5%
3.9%
3.5%
3.1%
2.1%

% Lif t: 65.0% % Lif t: 53.8% % Lif t: 49.1% % Lif t: 45.7%

Week o f f irs t Weeks 1-2 af ter Weeks 1-3 af ter Weeks 1-4 af ter
ex p o s ure f irs t ex p o s ure f irs t ex p o s ure f irs t ex p o s ure
Co ntro l Tes t


Display ads don’t just increase site visiting: Trademark Searches
also continue to see a lift over the 4 weeks after exposure to an ad

Results from comScore Campaign Effectiveness Studies

% Making a TM/Brand Search
0.9%

0.7%
0.6%
0.5%
0.5%
0.4%
0.3%
0.2%

% Lif t: 52.3% % Lif t: 46.0% % Lif t: 40.3% % Lif t: 38.1%

Week o f f irst Weeks 1-2 af ter Weeks 1-3 af ter Weeks 1-4 af ter
exp o sure f irst exp o sure f irst exp o sure f irst exp o sure
Co ntro l Test


Observing subsequent Search activity is important, because media
often works best when multiple approaches are used. Here we see
clear synergies between Search and Display in driving Online sales

% Making A Purchase on the Advertiser Site
(Retail Only) 5.1%
2.4% 1.9%
1.0% 1.5% 1.1%

Display Only Search Only Search & Display
% Lift: +42% % Lift: +121% % Lift: +173%

Online $$ per 000 Exposed
(Retail Only)
$6,107

$2,724 $2,723
$994 $1,263 $1,548

Display Only Search Only Search & Display
% Lift: +27% % Lift: +76% % Lift: +124%

Control Test

Online is important but you can’t ignore offline buying either. The sales
lift generated offline by online advertising is significant and would
certainly not be captured by a CPC or cookie-based model

Higher offline sales lifts are found for Search advertising vs. Display,
but when combined, the synergy provides even more lift

Incremental Impact on Offline Sales per (000) Exposed


The higher reach of Display ads often helps lift sales
more than Search

The overall number of people reached by Display ads is
typically much higher than Search
As a result, even though the sales lift among those exposed to a
Search ad is higher, the total dollar sales gained from Display
ads is often larger than Search due to the smaller lift acting on a
larger base

Incremental Impact on Offline Sales per
% of Households Reached (000) Exposed Total Sales Lift Index

119%
81% 200
200% 198
198%
82%

100
100%

11% 8% 16%

Search & Search Only Display Only
Search & Search Only Display Search and Search Only Display Only Display
Display Only Display


Summary of Findings
■ The high degree of cookie deletion renders most studies that rely
on cookie-based metrics inaccurate:
– As a measure of consumers’ behavioral response to advertising
– As a measure of a campaign’s reach and frequency
– As a measure of a campaign’s ROI
■ Panel-based measurement is needed.
■ The number of clicks on display ads is not an accurate predictor
of the effectiveness of online display ads.
■ Display ads have a substantial branding impact:
– Even with no clicks or minimal clicks, online display ads can generate
substantial lift in site visitation, trademark search queries, and lift in both
online and offline sales.
■ Higher offline sales lifts are found for search advertising vs.
display, but when combined the synergy provides even more lift.


Implications

■ Pay-for-performance display ad campaigns that are
based on clicks are a bargain for the advertiser and a
“give-away” for the publisher
■ Display ad campaigns should generally be considered
as an overlay to search campaigns
■ More research needs to be conducted to evaluate the
role of reach and frequency and creative in generating
a ROI from display ad campaigns


The Us Internet Economy

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