The State of the Internet Economy

1
The State of the Internet Economy

• OMMA Global Hollywood Conference
• March 23, 2009

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Topics

• Some Key Internet Metrics
• State of eCommerce
• State of Online Advertising

3
comScore Customer Knowledge Platform
A 360View 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

• DEMOGRAPHICS
• Self-reported and validated
• Appended Segments (e.g. Claritas, Acxiom)
• Individual Household Level
  
  

• WEB VISITING VIEWING
• All Web Site/Page Click Stream
• Content Viewed
• Search Engine Queries
• Keyword Used

• SURVEYS
• E-mail or Contextual Pops
• Behavior-activated Surveys
• Observation of All Surveys Taken Across All
  Suppliers
  
  

• ONLINE TRANSACTIONS
• All Secure Session Activity
• Purchases and Subscriptions
• Price Paid, Shipping Handling, Promotions
• Applications/Configurations

• MARKETING STIMULI
• Online Ads
• Referral Links

• OFFLINE PURCHASING
• Linked using Name and Address
• Client CRM Databases
• Retailer Loyalty Card Data
• IRI Scanner Panel Data

• TV VIEWING
• Link to Digital Set Top TV Data using name and
  address

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Online Population U.S. losing share Rest of
world dominating
Online Population Growth Over Time
Online Population by Geography
Total
Rest of the World
Rest of the World
US
US
US
There are approximately 1 Billion people online
today 83 are located outside the US.
Source comScore World Metrix 2008
4
5
Internet Changing? Time Spent Online Shifts from
Portals towards Social Networking, Entertainment
Gaming
-15
25
2
15
16
-1
24
-26
2
-2
31
5
6
Total Searches Increased 39 vs. YA Led by
Google Searches which Grew 52 vs. YA
Total Internet 39 19 Billion
Google Sites 52 11 Billion
14 Billion
Non-Google 24 8 Billion
7 Billion
6 Billion
6
7
Social Networking has become mainstream. Facebook
growth outpacing MySpace
MySpace vs. Facebook Social Networking UVs (000)
(U.S. Internet Audience)

MySpace 3 70 million
69 MIllion
Facebook 77 57 Million
35 Million
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8
Key Social Networking Players Continue to
Experience Growth in 09 All Showing Double
Digit YoY Growth
Additional Key Social Networking UVs (000)
(U.S. Internet Audience)

LinkedIn 110
Digg 25
Bebo 21
Tagged 217
Twitter 1085
8
9
Visitors to Twitter.com Growing Explosively
Worldwide 733 10 Million
U.S. 1085 4 Million
(1,176)
(186)
9
10
U.S. Online Video People Consuming More Video
than YA, Time Spent per Video Increasing due to
More Long-Form Content
51
6
20
43
10
11
Ad Networks have High Reach Levels with Far Lower
CPMs Reach 65 of U.S. Internet Audience with
any of the Top 10 Networks
74.2
89.8
73.3
85.0
82.1
55.9
81.4
54.6
74.3
42.3
72.5
36.6
71.7
29.9
71.5
18.0
68.7
8.9
65.3
5.8
Feb09 comScore data
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The eCommerce Economy
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Validation of comScore Sales Data Comparison of
comScore to U.S. Department of Commerce
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
-4.9comScore -3.5

Billions
comScore Estimate (Total Non-Travel Event
Tickets Estimated Auction Fees)
Excludes travel and event tickets, but includes
auction fees and autos
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2008 eCommerce Growth Substantially Lower than
Preceding Years
Online Consumer Dollar Sales Growth
Excluding Auctions, Autos and Managed Travel
(Billions)
Source comScore
7
221
17
200
20
171
9
22
12
143
26
13
117
29
20
93
26
72
33
6
21
24
Travel
24
26
26
Non-Travel
14
15
Online sales growth decelerated throughout 2008
while retail sales were held up by inflation
(esp. in energy) until Q4 2008
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
(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 De
pt Stores -7
Clothing -8 Furniture -13
15
16
Have we hit bottom?eCommerce Sales in February
Grew 2 vs. YA Flat Compared to Last Month
25
23
23
23
19
17
13
11
Billions ()
Growth
6
2
2
-3

Notes Scale adjusts to monthly increments for 2
009 Seasonally adjusted to account for February
2009 having one fewer day than February 2008
(Leap Year)
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The good news Internet is important to 6 in 10
consumers, with 50 citing an increase compared
to a year ago
Importance of Internet
Source comScore Survey January 2009
Q How important has the Internet become in
providing you with information to help you make
buying decisions?
Q How has this changed versus a year ago?
65
50
Very Important
Significantly Increased
Slightly Important
Somewhat Increased
Versus a year ago
Past 3 months
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18
Five in ten people are surfing the Internet more
to deal with stress due to the economy.Same rate
as TV
Q. Which of the following are you doing more of
to deal with stress due to the current state of
the economy?

Source comScore Survey January 2009
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Search engines, followed by online coupon sites,
have become very important to consumers when
shopping
Importance of Online Sites
Source comScore Survey January 2009
Q In the past 3 months, how important have the
following sites become when shopping?
67
54
42
39
35
19
20
All income segments are turning to coupon sites
more so than they did last year
Number of Unique Visitors to Coupon Sites and
Growth vs. Yr Ago
Source comScore
Percent Growth
Unique Visitors
11
4
4
20
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The Internet Advertising Economy
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Growth in Online Advertising Slowed in 2008
Total Online Advertising Billions and Chg vs
YA
23
11
18
13
29
24
27
Q4?
Source PricewaterhouseCoopers and the Internet
Advertising Bureau (IAB)
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Search Spending Continued to Grow Strongly
Through Q2 2008
Total Search Advertising Billions and Cha
nge vs YA
24
30
30
29
37
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Growth in Online Display Advertising Slowed in
2008and Shifted Dramatically to
Pay-for-Performance

Total Online Display Advertising
(CPM CPC) Billions and
Chg vs YA
Nielsen says CPM-based display advertising
in Q3 and Q4 08 declined by -6 vs Y/A.
5
Source CMR Data include static and rich display
but do not include paid search or video ads
25
Challenges Emerging for Display Advertising
Beyond the Economy

• 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

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What We Need for Online Display Advertisings
Renaissance

• Use of the correct metrics
• Forget the click
• Measure attitudinal and behavioral results
• Show offline impact
• More focus on branding campaigns in all
  verticals
  
• More creativity needed
• Improved targeting
• Rich media and video
• Longer formats
• Focus on moving massive CPG dollars online

27
The Right Metrics are CriticalClicks Understate
Campaign ROI
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Whither the Click?Decline in Online Ad
Click-Through Rates
In 2008, comScore measured click rates as less t
han 0.1
Sources Doubleclick, eMarketer, Eyeblaster, ABI
Research estimates

29
Clicks on Display Ads Are a Misleading Metric
and Dont Reflect Brand-Building Effects

• Recommendation Only use to evaluate direct
  response ad campaigns (or Search)
  
• Clicks dont reflect a campaigns sales impact,
  nor the cumulative (latent) impact of ads
  
• Clicks dont tell you anything about brand
  building effects

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Beyond the click 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

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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
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Display Ads Lift Site Visitation Across All
Verticals
33
Display ads dont 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
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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
34
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Online is important but you cant 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
35
36
For Retailers, 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 (000)
Exposed
of Households Reached
Total Sales Lift Index
200
198
100
37
Summary of online advertising impact on CPG
brand sales in retail stores

• Categories we have analyzed
• Cookie Mixes, Cereal, Frozen Snacks, Pizza, Tea,
  Toothpaste, Juice Drinks, Deodorants, Snack Bars,
  Pasta, Meals and many more

Average lift was 36
or Unit Sales Lift Caused by Online Ads
82 of campaigns showed a positive sales or unit
lift
Offline Sales Effectiveness Studies
Source comScore CPG Ad Effectiveness Study
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Most traditional CPG marketing programs have
negative ROI, but because of low CPMs, we expect
that many Internet ad campaigns will generate
positive ROI
Incremental Profit Per Traditional
Marketing Dollar Spent

Source IRI Mix Drivers Studies
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Pre-Scanning Market Research in CPG Brand Sales
Measured By Bi-monthly Store AuditsBusiness
could look quite stable ..
40

But, weekly scanner data revealed that beneath
the surface, lay huge volatility caused by weekly
newspaper ads, in-store promotions and temporary
price reductions
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CPG Marketing Spending (as a of Sales)In 1995,
U.S. CPG Sales were 500B with 100B spent on
Marketing
Based on POS Scan Data, CPG ManufacturersSpendin
g Shifted Dramatically Towards Newspaper Ads,
In-Store Displays and Price Reductions
40B Incremental Per Year
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23
22
15
Trade Marketing
13
12
13
5
Consumer Promotion
4
5
4
6
eMarketing
1
6
Advertising/Media
5
4
5
1978
1995
2000
2003
Source Accenture
Scanning Introduced
42
What We Need for Online Display Advertisings
Renaissance

• Use of the correct metrics
• Forget the click
• Measure attitudinal and behavioral results
• Show offline impact
• More focus on branding campaigns in all
  verticals
  
• More creativity needed
• Improved targeting
• Rich media and video
• Longer formats
• Focus on moving massive CPG dollars online