Gridley at-business-insider-2012-creating-value-in digital-world

DIGITAL CHALK TALK: Creating Value in Today’s
Increasingly Digital World

November 28, 2012

Agenda
I. Where Value is Being Created in Digital

II. Summary of IPO Performance

III. What’s Happening in Digital New York

IV. Quick Gridley Commercial

2

I. Where Value is Being Created in Digital

Tectonic Shifts Underlying Digital Continue
(Website)
2000 5%
2010 (eCRM, Website) 2015 (eCRM, Website,
Syndicated Channels,
Owned 7% Content)
media Owned 10%
media Owned
media
90% 80% 60%
Paid Media Paid Media Paid Media
(Advertising)

13% 30%
5% Earned Earned (PR, Blogging,
Earned media media Video Sharing, Wiki,
(PR, Twitter, Facebook, Bookmarking, Social
media Blogs, video sharing)
(PR, Word of Mouth) Networking, Crowdsourcing,
Co-Creation, Commenting etc.)

Growth of Social Growth of Mobile
1,005 10%
Gobal Social Network Users

% of Global Internet Traffic
(Millions)

373

1%

Source: Strategy Analytics. 2007 2012 Source: KPCB 2009 May 2012

4

Unprecedented Time for Enormous Value Creation
• Traditional industry leaders are highly vulnerable like never before

Open Source Open Architecture Cloud Computing New Business Models

• Innovation at record speeds – Approximately $130 Billion of value created in 3 years
Private Public

5

Computing Platform Shifting Underlies Much of the Value
Reallocation in Digital

• Windows loses 40% of
market in less than four
years

• Open Source grows to
1/3 of market

6

Volatility is Inevitable as Emerging Digital Leaders
Develop Their Business Models in the Public Eye
Company Year Founded Value One Year Ago Value Today

2002 $6.2 Billion $11.6 Billion


2004 $561 Million $1.2 Billion

2007 $6.0 Billion < $1.0 Billion



Sources: Second Market and CapIQ as of November 25, 2012

7

Key Players Positioned to Attack Emerging Growth
Markets
Mobile

$500

$450 Commerce Advertising /
Market Cap ($ in billions)

$400 Marketing
$350

$300

$250
Payments Content
$200

$150

$100
Social
$50

$0
Newscorp
Apple
Microsoft

Yahoo
Facebook

Discover
eBay

Omnicom
WPP

AOL
NY Times
Visa

Time Warner
Amazon

Alliance Data
CBS

Publicis
Mastercard
Google

Oracle

Viacom

IPG
IBM

Disney

Dentsu
Salesforce
eCommerce led Services led Payments led Content led Platform driven Technology led

8

Social is Chewing Through Multiple Markets
Net Subscriber Adds for Cable TV Commerce
Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 • Developing models that tie social
0.0
connectivity into the path to purchase
(0.1)
Δ Subscribers (millions)

(0.2)

(0.3) Payments
(0.4) • Infrastructure underlying social commerce
(0.5) still primitive
(0.6)

(0.7)
Source: One Touch Intelligence.

Monthly Active Facebook Users Worldwide AdTech/Mkt
1000 • Facebook alone represents about 1/3 of total
impression volume
800

• Facebook recently announced plan to extend
Users (millions)

600
data outside of its properties for ad targeting
400
Content
200
• Scalable business historically limited to
0 gaming
December 2004 October 2012
Source: Facebook S-1

9

2012 Was the Year of Social M&A
Notable M&A Notable Private Financings
Acquirer Target Company
$1.2BN $100MM

$85MM
$1BN

$53MM

$745MM
$50MM

NA
$40MM

NA
$32MM

NA $25MM

10
© 2012 Gridley & Company LLC

Can We Take Mobile Seriously Yet?
3.0
Desktops+Notebooks
Smartphones+Tablets Commerce
• Certain retailers seeing 30%+ of transactions
Global Installed Base (Billions)

2.5
originating from mobile form factors
Q2:13E: Projected Inflection Point
Smartphones + Tablet Installed Base >
AdTech/Mkt
2.0
Total PCs Installed Base
• Very young category
• Integration of marketing and payments
1.5
Content

• Scalable business historically limited to
1.0 gaming

Payments
0.5
• Industry titans chasing opportunity to
reimagine mobile payments, especially in-
store
0.0
2009 2010 2011 2012E 2013E 2014E 2015E

Note: Notebook PCs include Netbooks. Assumes the following lifecycles: Desktop PCs – 5 years: Notebook PCs – 4 years; Smartphones – 2 years; Tablets – 2.5 years.
Source: Morgan Stanley Research, 2012.

11

Mobile M&A Growing Up Quickly, Albeit on Small Volume
Notable M&A Notable Private Financings
Acquirer Target Company

$200MM
$1BN

$70MM
$183MM

$50MM

$50MM
$35MM

NA
$20MM

NA $16MM

Source: CapIQ

12
© 2012 Gridley & Company LLC

POS – A Major Battleground in Mobile
Market Research / Account Marketing
Data Analytics

Digital Commerce

Consumer

Payments

eReceipts

13

Keys to Value Creation in the Digital Economy

Durable and extensible Ability to evolve
Enduring brand
platforms quickly

Technical barrier or consumer lock-in

14

Digital Bellwethers – Apple vs. Google
Stock Price Performance Market Cap ($ billions)

250% % Price Δ
Apple Google
YTD 39.7% 3.5%
200% 1-Year 50.9% 12.3% $528
3-Year 176.7% 14.6%
5-Year 245.1% 6.8%
150%

100%
$220
50%

0%

Apple Google
(50%)

(100%)
Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12
Apple Google S&P 500

15

Digital Bellwethers – Apple vs. Google

• Aggressive acquirer to maintain mindshare in key • Took advantage of unfocused
sectors
consumer electronics players in
• Intelligently consolidated capabilities across mobile to build a platform
adtech stack company

• Remained true to its closed
environment philosophy
• Acquired its way into largest growth markets –
mobile and payment • Remained relatively agnostic to
application

− Used M&A as a tool to fill
• Took a long term bet on online video, just starting
to realize value today holes in building platform
services
• Considerable resources to experiment in new
areas

− $45bn in cash • Considerable firepower to adapt

• Has aggressively invested as core search business − $120bn in cash
matures

16

Commerce Leaders – Amazon vs. eBay

% Price Δ
Amazon eBay
YTD 32.7% 58.0%
110% 1-Year 16.5% 60.8% $104
3-Year 72.8% 103.1%
5-Year 190.1% 48.8%
90%
$62
70%

50%

30%

Amazon eBay
10%

(10%)

(30%)
Amazon eBay S&P 500

17

Commerce Leaders – Amazon vs. eBay

• Saw mobile and local services • Very selective but strategic
early and made smart about owning key commerce
acquisitions across the path to assets
purchase

• Recognized opportunity to
“facilitate” commerce and
acquired GSI Commerce

• Most notable acquisitions
• Grew Paypal into a payments
platform that is portable to intended to maintain high
mobile and offline barrier through brand and price

• Aggressively moving into
• Made considerable investments
against its “partner” strategy as hardware and offline as mobile
core eBay commerce business emerges as an important
stagnated facilitator of commerce

18

Digital Content Leaders - Yahoo vs. AOL

% Price Δ
Yahoo AOL
YTD 14% 134.9%
1-Year 19% 140.8%
70% 3-Year 20% 41.5%
5-Year (31%) NA
$22
50%

30%

10%

(10%) $3

(30%)
Yahoo AOL
(50%)

(70%)
Yahoo AOL S&P 500

19

Digital Content Leaders - Yahoo vs. AOL
• Aggressive acquirers in technology early, but fragmentation of content and adtech difficult
to counteract

• Rebirth of both companies with new management teams

• Jury still out on sustainability of models

− Yahoo – “Productizing” around mobile platform

− AOL – Assembling a stable to top tier content brand

• Large stock moves to date driven by one-time events Didn’t participate in
shift to mobile

Notable M&A Deals Outside of Publishing
2005 2006 2007 2008 2009 2010 2011 2012

20

The Enterprise - Oracle vs. Salesforce vs. IBM

% Price Δ
Oracle Salesforce IBM
200% YTD 18% 45.2% 3.5%
1-Year (2%) 29.9% 2.8%
3-Year 36% 125.1% 48.8% $215
5-Year 47% 172.4% 86.2%
150%
$146

100%

$20
50%
IBM Oracle Salesforce

0%

(50%)
Nov-09 Apr-10 Aug-10 Dec-10 May-11 Sep-11 Jan-12 May-12 Oct-12
Oracle Salesforce IBM S&P 500

21

The Enterprise - Oracle vs. Salesforce vs. IBM

• Historically reluctant to adapt • Broke from historical stance of
to enterprise cloud models staying agnostic to applications

• Has recently made numerous
acquisitions to evolve product
and business model
• Aggressively acquiring
vertically oriented data assets to
maintain category leadership

• Leverages early leading cloud based applications to
methodically build out sales/service suite

22

II. Summary of IPO Performance

Current State of Digital IPO Market
• Challenging market for digital/internet IPOs this year

− Facebook performance brought into question consumer internet valuations

− Platform dependencies exasperated downward pressure

• M&A very risky strategic tool for newly public companies today

− New digital companies having to compete for scarce assets against much
larger competitors

− Lack of financial fundamentals in most targets today brings new levels of risk
to shareholders

• Numerous consumer internet companies required to change business model
while being public

− Zynga, Groupon, DemandMedia

• Enterprise marketing remains relatively healthy

− Performance dictated by company fundamentals

24

Digital IPOs in 2012 vs. 2011
2012YTD U.S. Digital IPOs 2011 U.S. Digital IPOs
($ in millions) Offer Current Performance ($ in millions) Offer Current Performance
Date Company Size Market Value Since IPO Date Company Size Market Value Since IPO

Oct 11 Workday, Inc. $732.6 $8,311.0 85.2% Dec 15 Zynga, Inc. $1,000.0 $1,842.3 (76.5%)
Oct 10 Shutterstock, Inc. 76.5 868.0 52.4% Dec 12 Jive Software, Inc. 161.3 879.8 14.0%
Oct 02 LifeLock, Inc. 141.3 703.6 (9.4%) Nov 16 Angie's List, Inc. 114.3 636.5 (15.3%)
Sep 19 Trulia, Inc. 102.0 464.8 0.0% Nov 03 Groupon, Inc. 700.0 2,596.6 (80.2%)
Aug 01 Eloqua, Inc. 92.0 609.3 53.7% Aug 10 Carbonite, Inc. 71.9 239.1 (6.8%)
Jul 25 E2open, Inc. 70.3 350.8 (6.7%) Jul 19 Zillow, Inc. 79.6 846.9 26.7%
Jul 19 Kayak Software 91.0 1,526.6 52.3% Jun 28 HomeAway, Inc. 248.4 1,741.7 (22.4%)
May 17 Facebook, Inc. 16,006.9 56,652.1 (31.2%) Jun 16 Bankrate, Inc. 336.8 1,187.6 (20.9%)
Mar 28 CafePress Inc. 85.5 92.2 (71.6%) Jun 14 Pandora Media, Inc. 234.9 1,425.3 (47.3%)
Mar 28 Millennial Media Inc. 132.6 1,034.8 1.6% May 25 The Active Network, Inc. 165.0 285.3 (68.6%)
Mar 22 Vipshop 71.5 663.1 101.7% May 18 LinkedIn Corporation 352.8 11,560.4 139.1%
Mar 21 ExactTarget, Inc. 161.5 1,359.6 5.1% May 10 FriendFinder Networks Inc. 50.0 20.1 (93.7%)
Mar 21 Vantiv, Inc. 500.0 2,766.8 26.5% Apr 20 Responsys, Inc. 79.4 318.1 (45.7%)
Mar 14 Demandware, Inc. 88.0 819.3 72.3% Apr 13 Zipcar, Inc. 200.5 303.7 (57.9%)
Mar 01 Yelp, Inc. 107.3 1,281.2 34.9% Jan 25 Demand Media, Inc. 174.0 726.6 (49.8%)
Feb 23 Bazaarvoice, Inc. 113.8 653.3 (21.2%) Mean (27.0%)
Feb 17 Brightcove, Inc. 55.0 278.5 (9.0%) Median (45.7%)
Feb 09 Synacor, Inc. 34.1 $149.1 10.0%
Mean 15.4%
Median 5.1%

25

Social Consumer IPOs
Stock Price Performance Commentary
60%

40%
• Doubled down with M&A and investment
20% in an unsustainable model

0% • Negative publicity was too hard to
overcome
(20%)

(40%)
• Dismal M&A strategy; paid $180mm for
OMGPOP, wrote it off shortly thereafter
(60%)
• Realization of platform risk and consumer
(80%) behavior shift in a short period of time

(100%)
IPO 30 60 90 120 150 180 210 240
Offer days days days days days days days days
Price
• Jury is out on quality of long term business
Groupon Zynga Facebook revenue growth model

• Company aggressively experimenting

26

Lead Gen / Content IPOs

80%

60%
• Had successfully built a content business
around high value verticals such as finance
40%
and insurance
20% • Disappointing recent quarter as company
makes adjustments to its revenue model
0%

(20%)

(40%)
• Content farm = Unsustainable business
model
(60%)
• Pivoting towards AOL strategy

(80%)
IPO 60 120 180 240 300 360 420
Offer days days days days days days days
Price
Bankrate Demand Media Kayak • Successful exit three months after IPO

27

Marketing Automation IPOs
140%

120%
• Has struggled to counter pricing issues at
100% large enterprise end of the market
80%

60%

40%
• Successfully transitioned business away
20%
from traditional email marketing
0%
• Growing at north of 40%
(20%)

(40%)

(60%) • Successfully created B2B marketing
IPO 60 days 120 180 240 300 360
Offer days days days days days automation category
Price
Responsys ExactTarget Eloqua

28

Exciting Value Creators for 2013
MOBILE

Broadcast Ad Models
All categories discovering
new ways to employ data to
Early Ad Model
enhance consumer
experience and revenue

Local + Social Apps

Location specific apps

Niche Utilities

Transaction based models

29

SOCIAL

Broad Interest Networks
• Enterprise & Social
integrating within
Platforms develop broader suites
• Emergence of Niche
Enterprise Tools
Networks

Single channel management tools

Niche Networks

Context based environments

30

eCOMMERCE

Retailing Online
• Evolution of new consumer
models
Creation of online only businesses
• “Convergence” a major area
of investment among
Niche Commerce
commerce leaders and VCs

Development of new business models

Convergence

Tight integration offline and online

31

MARKETING SERVICES

Email Marketing
• Data driven capabilities fuel
nearly all M&A and investments
Primitive digital capabilities in Mktg Services
• Currently in an integration
phase – putting all of the pieces
New Channels together

Development of leading single channel solutions

Multi-Channel/Mktg.
Automation

Data based models to drive higher ROI

32

III. What’s Happening in Digital NY

Gridley’s Guide to Digital NY

• Unique and comprehensive report for investors, buyers and entrepreneurs looking for one place to
quickly get up to speed on New York’s exciting, explosive digital ecosystem
• We decided to put together this report last year after people kept asking us about all of the “digital
momentum” in NY. There was a feeling that lots was going on, but people didn’t really understand
just what “it” was and how extensive “it” was. We aim to answer those questions here
• For an “easy to use” website that lays out the information in this report (and more) in a fun,
creative way, visit www.gridleyco.com or www.gridleydigitalny.com

34

A Word About the New York Scene
• New York now consistently #2 tech hub behind SF Bay Area

− $5.6 billion invested in Digital NY companies since 2006

− ~200 Digital NY companies have raised $5 million+ of outside
capital

− ~150 investors focused on Digital NY

• Leading digital/internet companies moving into area

− Twitter opens office in late 2011

– eBay building an innovation center in the City

• NY has distinct competencies that are attracting talent

– Wall Street

– Madison Avenue

– Retail

35

NY’s Emergence as a Tech Hub
• New York City has become a true digital media innovation center

Q3 2012 Internet VC Funding by Top Cities Q3 2012 Internet VC Deals by Top Cities
Total of Top Cities = $1,853 million Total of Top Cities = 175
Total Including Others = $2,672 million Total Including Others = 372

San Francisco, 69
Others
31%
San Francisco
31% Bay Area
Palo Alto, 13
Bay Area 98
San Mateo, 9
$1,171M Sunnyvale, 6
Palo Alto Los Altos, 1
3% Others, 197

Los Angeles San Mateo New York, 52
5% 3%
Boston Los Altos Sunnyvale
7% New York 5% 2% Boston, 16
13% Los Angeles, 9

−Source: CB Insights “Venture Capital Activity Report”

36

The Past Six Years Have Shaped Much of NY’s
Digital Media and Technology Landscape
• Notable events in NY since 2007:
Development of brand
names across broad set of
verticals

/
/ ($275 million)
($3.1 billion) Closes deal and ($315 announces
Mayor Bloomberg million) acquisition of
announces HQ move leads
/ to NY in September Raises series A
Opens a starts up city-funded
Googleplex in New business incubator in tech VC funding announces
($680 million) round
York City programs and deal quantity acquisition of
April December June September For $183
July January February million
2007 2007 2007 2008 2009 2011 2011 March

2012

January September November September June June
August December
2007
2007 2007 2008 2009 2010 2011 2012
Raises series
Mayor Bloomberg offers
A round
Raises series A $100 million and land to
Acquires develop a top announces
is founded round announces spin-offs of: Announces
engineering school to acquisition of
October 2007 For $125 million acquisition of
encourage tech
comes to New York development, to bring
New York City to the
forefront of innovation. for $745 million
Raises Series B Raises series Raises Series A for $30 billion
round A round round announces
acquisition of

announces
acquisition of
Raises series A round ($524 million)

37

NY Ecosystem Has Very Different Roots and Growth
Opportunities Than Silicon Valley
Internet Services Wall Street

Leadership
Talent
Operational Engineering
Efficiencies Talent
Data Services Advertising

Key Creative
Customers Talent

Strategic Strategic
Acquirers Business Partnerships
Fashion Media
Development

38

Explosion of Seed Investment
Seed VC Deals
42

26
24

15 15
13 13

8 9 9

4
2

Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012
Source: CB Insights

Seed Programs / Super Angel / Seed VC Traditional VC with Formal Seed Programs

39

Private Digital NY Sale Transactions >$100 million
Since January 2010 (Disclosed deals / rumored pricing available)
Transaction
Date Acquirer / Target Value ($MM)
6/4/2012 salesforce.com, inc Buddy Media, Inc. $745
6/16/2011 (NYSE:CRM)
DG FastChannel MediaMind 524
6/3/2010 The Hearst Technologies Inc.
iCrossing, Inc. 425
6/13/2011 Corporation
Google AdMeld 400*
2/6/2011 AOL Huffington Post 315
1/19/2011 Affinion Web Loyalty 296
8/26/2012 IAC Search & About.com, Inc. 300
11/1/2011 Media, Inc.
Yahoo! Inc. interclick, inc. 264
2/3/2010 (NasdaqGS:YHOO) HotJobs.com, Ltd.
Monster 225
1/25/2010 Worldwide, Inc.
Dentsu Innovation 200*
3/21/2012 Zynga, Inc. InternactiveInc.
OMGPOP, 183
11/12/2012 (NasdaqGS:ZNGA) Ziff Davis Media
j2 Global, Inc. 165
9/8/2011 (NasdaqGS:JCOM) Inc. Survey, LLC
Google Inc. Zagat 151
6/17/2010 (NasdaqGS:GOOG) Register.com, Inc.
Web.com Group, 135
Inc.
Source: Capital IQ, TechCrunch, public filings, and press releases. *rumored value
40

Focused Digital Expertise Underlies
Gridley’s Investment Banking Services
Advertising /
Content
Marketing

Social eCommerce

Comprehensive Investment
Banking Services
• Private Company Sales

SaaS • Private Company Equity Enterprise
Financing

• Public Company Buyside

Point-of-Sale Mobile

Payments

42

Strategic Thought Leadership is Well Known
Industry Frequent Annual Gridley Hosted
Quarterly Publications
Guides Industry Speaker Events

• 2012 Business Insider:
IGNITION
• DFJ Gotham Annual Investors
Meeting
• IAB Marketplace: Mobile
• Women’s Mobile Network
• Highly respected
newsletter about industry • 2011 Business Insider: • January Conference
trends and corporate IGNITION
finance / M&A activity • OMMA Display
• Market Research Council
Luncheon
• Capital RoundTable
• SIIA Midmarket Growth
Conference
• In-depth review of the
digital NY ecosystem, • OMMA Mobile
including recent startups • Summer Networking
• Digital Hollywood NYC:
and the firms investing in Media Disruption Event & Golf Outing
them
• ad:tech NYC 2010

43

Selected Recent Gridley Transactions
Gridley clients include industry leaders and premier emerging growth companies

Undisclosed Undisclosed Undisclosed Undisclosed Undisclosed Undisclosed Undisclosed $20,500,000

Digital Agency

Acquired by Acquired by Acquired by Acquired by Acquired by Acquired by Acquired by Acquired by
Pending SAS GfK Channel Intelligence, Inc. Minicom Digital Signage Oversee.net TeleTech Holdings The Dolan Company
Advisor Advisor Advisor Advisor Advisor Advisor Advisor Advisor

Undisclosed Undisclosed Undisclosed Undisclosed Undisclosed Undisclosed $20,000,000 $367,000,000

Acquired by Acquired Acquired Acquired by Acquired Acquired Investment by Acquired by
WPP Group plc FetchBack Inc. M3 Mobile Marketing MDC Partners Inc. Pepperjam Silverlign Group Inc. TZP Group LLC Roper Industries, Inc.
Advisor Advisor Advisor Advisor Advisor Advisor Placement Agent Advisor

$157,000,000 Undisclosed Undisclosed Undisclosed Undisclosed Undisclosed $113,189,337 $17,450,000
Email Business of Ad Serving Business of PrePay Intelligent Network
Solutions Business Unit of

Acquired Acquired by Acquired by Sold to Sold to Sold to Secondary Offering Acquired by
e-Dialog, Inc. WPP Group plc Quest Software One to One Interactive, Inc. Aegis plc Parthenon Capital LLC Verisign
Advisor Advisor Advisor Advisor Advisor Advisor Co-Manager Issued Fairness Opinion

Undisclosed Undisclosed $138,000,000 Undisclosed $58,000,000 Undisclosed $55,200,000 Undisclosed
Advisory Communications Marketing One to One, Inc.
Systems, Inc. (ACS) d/b/a
d/b/a

Acquired by Acquired by Acquired Acquired by Acquired Acquired by Acquired by
Schulman, Ronca, & Valassis Follow-On Offering Carlson Marketing Group
ISIS Equity Partners, Inc. Modem Media, Inc. Performics, Inc. ARAG Group
Bucuvalas, Inc.
. Communications, Inc.
Advisor Advisor Advisor Advisor Advisor Advisor Co-Manager Advisor

44

QUESTIONS?

Peg Jackson Linda Gridley Pratik Patel
Managing Director President & CEO Director
212-400-9709 212-400-9710 212-400-9712
peg.jackson@gridleyco.com linda.gridley@gridleyco.com pratik.patel@gridleyco.com

Gridley & Company LLC
10 East 53rd Street, 24th Floor
New York, NY 10022
212.400.9720 tel
212.400.9717 fax
Twitter: @gridleyco
www.gridleyco.com

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