Beyond 2008, we expect the international paid search market to grow at a 20% CAGR through 2011.. Morgan estimates, Company reports, comScore, Nielsen//NetRatings, IDC, IWS We Think Goog
Trang 1Google Is Most Used by Young, High Income Participants
Although Google dominates all demographic levels, our survey found it had its largest market share among those aged 18-41, and those with incomes over $100K The majority of Yahoo!, MSN and AOL users in our study fell into the over-42 age group MSN and AOL had their largest market shares among users with income levels of $50K-$99K, while the market share for Yahoo! was highest among those who earned $49K or less
Table 7: Market Share by Age and Income Level
% of participants
Ages Incomes:
All 18-41 42+ $0-$49K $50-$99K $100K+
AOL 6.6% 4.8% 8.0% 5.9% 7.3% 6.9%
Ask 2.0% 2.5% 1.7% 2.5% 2.2% 0.0%
Google 59.0% 67.1% 52.2% 55.9% 60.4% 70.1%
MSN 7.7% 5.1% 9.5% 7.4% 7.7% 6.9%
Yahoo 20.0% 18.0% 22.7% 24.1% 17.6% 12.6%
Other 3.1% 2.2% 3.7% 3.2% 2.9% 2.3%
Don't Use/Don't Know 1.5% 0.3% 2.2% 1.0% 1.8% 1.1%
Source: J.P Morgan research
62% of Respondents Would Be Willing to Consider Switching Search Engines
When asked what improvements by other search engines would cause them to switch from their preferred brand, only 38% of respondents stated that nothing would cause them to switch, as they were satisfied with their current search engine This was consistent with last year’s survey responses Again, the most frequently selected improvement was results that better matched the search term, with 45% of respondents stating that this would cause them to switch search engines Other factors that would cause respondents to consider switching search engines were faster response speeds to searches (28%), the user friendliness of the site (27%), and the ability to preview web content (23%)
Table 8: Factors that Would Cause Search Engine Switching
% of participants
All AOL Ask Google MSN Yahoo Other Results that better match my search
term 45.0% 42.0% 25.0% 48.6% 33.3% 43.3% 34.8% Results that include video, web,
music and oother forms of information
11.5% 12.0% 18.8% 11.5% 14.0% 9.6% 13.0%
A more uncluttered easy to navigate site 26.5% 20.0% 31.3% 24.9% 36.8% 29.9% 17.4% The ability to preview web content 22.6% 24.0% 25.0% 21.9% 22.8% 26.1% 8.7%
Trang 2The international market is now larger than the domestic market, reaching $15.0B in F’08 As such, we believe the international markets will be a key growth driver in the upcoming year We think the largest driver will be query growth While we expect the US to experience query growth of 19% Y/Y, we believe international markets will see a 25% Y/Y lift in the number of queries However, offsetting these gains are likely declines in foreign currency exchange rates As such, we see international RPS declines of 8% Y/Y in USD, which should mostly offset the higher query growth
We are now modeling F’09 paid search revenue growth of 15% Y/Y to $17.2B
Beyond 2008, we expect the international paid search market to grow at a 20%
CAGR through 2011
Table 9: J.P Morgan’s International Search Advertising Revenue Forecast
Units as indicated
Internet Population (M) 817 903 988 1,072 1,153 1,239 7.8% Queries / Month / User 33 41 49 57 63 69 12.2% Number of Queries (M) 326,900 441,315 582,536 728,170 873,804 1,031,089 21.0% RPS (per 1,000 searches) $19.07 $23.19 $25.74 $23.63 $24.39 $24.93 -1.1%
% Coverage 37.2% 38.3% 38.5% 38.5% 38.5% 38.6% 0.1%
% Clickthrough Rate 17.2% 18.4% 19.1% 19.8% 19.8% 20.5% 2.4%
$ Revenue / Click 0.30 0.33 0.35 0.31 0.32 0.32 -3.5%
Y/Y Growth 90.1% 64.2% 46.5% 14.8% 23.9% 20.6%
Source: J.P Morgan estimates, Company reports, comScore, Nielsen//NetRatings, IDC, IWS
We Think Google Will Continue to Take Market Share
We estimate that Google has a 74% dollar market share currently (including revenues from AOL, Ask, and other affiliates) We believe its share will continue to grow at an accelerated pace in 2009 now that 1) the AOL and Ask TAC rates are locked in under a new multiyear contract, 2) Yahoo! is comping its monetization gains from Project Panama, and 3) we think advertisers are more likely to cut their spend with the other search engines and stick with the leader in a recession On a query volume basis, we also expect Google to continue to excel in market share gains 2008 saw Microsoft attempt everything from creating contests to increase search volume to actually paying users to purchase items through Microsoft search ads Despite this, Google’s US core search market share increased to 62.9% in September 2008 from 58.4% in December 2007
Trang 3Figure 8: US Core Search Market Share, September 2008
62.9%
20.2%
8.5%
4.1%
4.3%
Google Sites Yahoo! Sites Microsoft Sites AOL LLC Ask Netw ork
Source: comScore and J.P Morgan estimates
Figure 9: US Core Search Market Share, December 2007
58.4% 22.9%
9.8%
4.6%
4.3%
Google Sites Yahoo! Sites Microsoft Sites AOL LLC Ask Netw ork
Source: comScore and J.P Morgan estimates
Search Advertising Likely to Be Winner in Macroeconomic Aftermath
Although we acknowledge that all types of advertising, including search, will likely
be hit by advertising budget reductions in 2009, we think search advertising will be the long-term winner in the reshuffling of budget allocations We believe the weak macroeconomic environment has forced advertisers to test performance-based search advertising at an accelerated pace Even after economic strength returns, we think advertisers will stick with their new allocations based on better metrics and higher measurable returns Specifically, we see newspaper and radio advertisements suffering the most from these budget shifts
Trang 4Table 10: Percent Change in Measured US Ad Spending, 1H’08
· Syndication - National 10.20%
· Spanish Language TV -0.10%
· Consumer Magazines -1.80%
· B-to-B Magazines -5.90%
· Local Magazines -2.80%
· Sunday Magazines 4.80%
· Spanish Language Magazines 7.10%
· Local Newspapers -7.10%
· National Newspapers -9.50%
· Spanish Language Newspapers -11.00%
· National Spot Radio -7.40%
OUTDOOR 1.80% FSIs 2.00% TOTAL -1.60%
Source: TNS Media Intelligence and J.P Morgan estimates
Trang 52009 Graphical Advertising Outlook
2008 was a difficult year, as display advertising pricing (CPMs) was pressured not only from a non-premium inventory glut but also from lower ad budgets spent on premium slots Unfortunately, we see these trends continuing into 2009 Specifically,
we think 2009 growth will be impacted by:
• Lower ad budgets given macroeconomic weakness and shifts towards performance-based advertising;
• Continued pressure on non-premium inventory pricing as social networks and other non-traditional sites struggle to find a monetization model that works;
• Difficult comps due to the 2008 Olympics and political campaigns; and
• Continued trouble finding an appropriate way to monetize video inventory without alienating viewers
Having said this, we see pockets of strength for publishers who provide better targeting capabilities and who effectively use ad networks and ad exchanges to better monetize non-premium inventory
We Expect the Global Graphical Advertising Market to Grow 6.7% in F’09
We now think 2009 will be a weak year for graphical advertising publishers, as we expect the graphical ad sector to under-perform performance-based advertising in a down economy On the back of estimated 14% Y/Y growth in 2008, we believe global graphical advertising revenues will grow 7% in F’09 From a metrics standpoint, we believe page views will grow 10% Y/Y while RPMs decline ~3%
Y/Y We expect the global Internet population growth to remain strong at 7% Y/Y, reaching 1.3B in 2009 We expect the global graphical advertising market to grow at
an 11% CAGR through 2011
Table 11: J.P Morgan's Global Graphical Advertising Revenue Forecast
Units as indicated
Internet Population (M) 593 710 820 924 1,020 1,113 1,205 1,295 1,380 1,471 6.9% Pages Viewed / User / Day 33 34 36 37 38 39 40 41 43 44 2.7% Total Pages Viewed (B) 7,209 8,897 10,724 12,607 14,275 15,986 17,793 19,590 21,510 23,539 9.8% RPM (per 1,000 pages) $1.02 $0.75 $0.81 $0.87 $0.97 $1.07 $1.09 $1.06 $1.09 $1.13 1.2%
Trang 62009 (down from 7.2% in 2008) as social networking sites and blogs begin to mature and reach saturated penetration levels By our estimates, page view growth will be driven by an increase of 2.5% in Internet users and an increase of 3.9% in usage per Internet user We are modeling RPMs to be roughly flat in 2009, driven by a 2% decline in sell-through, offset by a 2% increase in CPMs We expect the US graphical advertising market to grow at a 9.4% CAGR from 2008 through 2011
Table 12: J.P Morgan's US Graphical Advertising Revenue Forecast
Units as indicated
Internet Population (M) 203 211 217 222 227 231 2.2% Pages Viewed / User / Day 45 47 49 51 52 54 3.4% Total Pages Viewed (B) 3,341 3,608 3,868 4,120 4,338 4,563 5.7% Impressions / Page 0.50 0.60 0.62 0.61 0.62 0.63 0.5% Total Impressions (B) 1,671 2,165 2,398 2,492 2,689 2,875 6.2% CPM (per 1,000 impressions) $3.50 $3.31 $3.32 $3.39 $3.50 $3.62 3.0% RPM (per 1,000 pages) $1.75 $1.99 $2.06 $2.05 $2.17 $2.28 3.5%
Y/Y Growth 23.0% 22.6% 10.9% 6.3% 11.4% 10.6%
Source: J.P Morgan estimates, Company reports, comScore, Nielsen//NetRatings, IDC, IWS, and IAB
International Growth Less of a Driver in 2009
International markets will likely suffer not only from lower ad spend due to the macroeconomy but also from lower foreign currency exchange rates We think this will offset increased broadband penetration and increased ad spend moving online
We think page view growth will hold up and reach 11.1% Y/Y in 2009, down only slightly from 12.5% in 2008 However, we are modeling RPM declines of 3.7% Y/Y
We expect the international graphical advertising market to grow at a 12.2% CAGR from 2008 through 2011
Table 13: J.P Morgan’s International Graphical Advertising Revenue Forecast
Units as indicated
Internet Population (M) 817 903 988 1,072 1,153 1,239 7.8% Pages Viewed / User / Day 37 38 39 40 41 42 2.8% Total Pages Viewed (B) 10,934 12,378 13,925 15,470 17,172 18,975 10.9% RPM (per 1,000 pages) $0.73 $0.80 $0.82 $0.79 $0.82 $0.85 1.2%
Y/Y Growth 28.1% 24.1% 15.3% 7.0% 15.2% 14.5%
Source: J.P Morgan estimates, Company reports, comScore, Nielsen//NetRatings, IDC, IWS, and IAB
Ad Prices Are Trending Down
We have seen ad prices fall across almost all categories, at all sizes of publishers, and across all verticals We think social networks are still the weakest in terms of CPMs, with PubMatic estimating the average CPM at $0.21 at the end of 3Q’08 As we have watched MySpace and Facebook struggle to find a better means of monetization, we think this will be a long process before an efficient marketing plan is established Thus, we expect the social network vertical to continue to underperform
Trang 7Figure 10: Website Ad Price Averages by Vertical
units in dollars
0.00 0.20 0.40 0.60 0.80 1.00 1.20
Entertainment Business &
Finance
Gaming Sites New s Social
Netw orking
Sports Technology
1Q08 2Q08 3Q08
Source: PubMatic AdPrice Index Quarterly Report Q3 2008
We also think it will take time for generalized non-targeted inventory to catch up to the monetization of targeted premium inventory PubMatic estimates that the value of
ad inventory for small-sized websites (less than 1M page views per month) was more than triple the value of large-sized websites (over 100M page views per month) in 3Q’08, with values of 61 cents and 18 cents, respectively
Figure 11: Website Ad Price Averages by Publisher Size
units in dollars
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
Source: PubMatic AdPrice Index Quarterly Report Q3 2008
Trang 8growth in 2009 Additionally, we believe demand for performance-based display advertising will grow in this difficult environment
While increasing user reach is half the battle, we recognize that many page views are meaningless to advertisers unless user information can be gathered and ads are targeted In order to most effectively target the ads, publishers need to have access to user behavior on multiple sites to collect data and to repeatedly show ads to the same user We believe companies with targeting capabilities will be able to command a premium CPM Revenue Science estimates that there is a 15x CPM premium for behaviorally targeted ads
Figure 12: Behavioral Targeting Effects on CPM
0 200 400 600 800 1000 1200 1400 1600
Web impressions Percent
80 70 12 10 8 6 4 2 0
Tier 3
< $1
Tier 2
$1-10
Tier 1
~$10.00 - 12.00
Exchange model potential benefits
~$0.75 - 1.50
Traditional optimized
ad network
$0.50 - 1.00
Source: Revenue Science Presentation
Figure 13: Internet Now Ranks Second in Time Consumption but Trails Significantly in Ad Spend
37%
7%
19%
8%
9%
29%
0%
5%
10%
15%
20%
25%
30%
35%
40%
TV Internet Magazine Radio New spaper
Yout h Adults
& Teens
Time Spent Vs Ad Spend Time Spent
37% 38%
7%
19%
8% 8%
20% 32%
0%
5%
10%
15%
20%
25%
30%
35%
40%
TV Internet Magazine Radio New spaper
Time Spent Ad Spend
Largest Do wnside Largest Upside
Source: After TV: Nielsen Media Research Custom Survey 2008 and Samir Arora Glam Media Presentation
Trang 9Ad Networks on the Rise
What Are Ad Networks?
We see an ad network defined by the following:
¾ transacts, serves, tracks and reports the distribution of advertiser ads to publisher pages;
¾ enables marketers to advertise on multiple publisher sites through one central location;
¾ publishers enjoy the benefit of advertising revenue without investing in a sales force or as a source to sell remnant inventory;
¾ varies in the ability to target a specific audience and in methods of payment (CPM, CPC, and CPA); and
¾ revenues are determined by revenue share agreements
The definition of ad networks is fuzzy, with lead generation sometimes included However, we are differentiating between the ad network and lead generation space
We are defining lead generation as much more targeted and deep into specific verticals As a result, we believe this commands much higher CPMs While we believe this is also an interesting ad model, we believe it deserves a more detailed consideration and will thus exclude it from this discussion
A Significant Market Opportunity
We estimate that the global graphical advertising market as a whole will grow at an 11% CAGR through 2011 The sector should benefit from 1) increased online viewership as more people turn to the Internet as a source of content and 2) increased RPMs as audience targeting improves
Additionally, increasing keyword prices and the ability of networks to provide response advertising in addition to branding campaigns will likely drive more marketers to ad networks On the publisher side, as the long tail of information is increasing, more publishers are looking to monetize their content We estimate that the top 20 ad networks will earn approximately $7B+ in revenue in 2008 (~24% of
Lead generation is more vertical
specific and performance
oriented than ad networks
Trang 10Table 14: Ad Networks by Page Views
millions
Google Ad Network 201,429 -17.5%
ValueClick Networks 31,504 38.6%
Traffic Marketplace 18,513 -27.8%
Casale Media - MediaNet 10,720 12.0%
ADSDAQ by ContextWeb 5,252 3.7%
Source: ComScore and J.P.Morgan estimates
The Future of Ad Networks
The ad network space is becoming increasingly competitive as new ventures are launched and as Google, Yahoo!, AOL, and Microsoft enter the space through acquisitions We believe differentiation will be key to success Following are capabilities that we see important to market leadership
Behavioral Targeting
We believe advertisers used to pay for audiences on websites but will now start to pay for specific users Marketers appear to value targeted advertising, as evidenced
by Google’s well targeted search ads generating RPQs of more than double Yahoo!'s
We expect this same principal will apply to graphical advertising and note that Revenue Science estimates a 15x CPM premium for behaviorally targeted ads
Figure 14: Behavioral Targeting Effects on CPM
0 200 400 600 800 1000 1200 1400 1600
Web impressions Percent
80 70 12 10 8 6 4 2 0
Tier 3
< $1
Tier 2
$1-10
Tier 1
~$10.00 - 12.00
Exchange model potential benefits
~$0.75 - 1.50
Traditional optimized
ad network
$0.50 - 1.00
Source: Revenue Science Presentation
Behavioral targeting should
increase CPMs and drive
volume