Performance-based Advertising While many graphical ads were originally used for branding purposes with less of a focus on conversion, the developments in behavioral and contextual adver
Trang 1Video Capabilities
Google’s $1.65B acquisition of video sharing site YouTube gives insight into the value placed on video property Traditional media companies have also moved onto the Internet by offering TV episodes online and with Internet designed webisodes However, monetization of Internet videos has trailed its growth Various companies have experimented with pre-roll, post-roll and in-video ads Google has
experimented with in-video ads on select YouTube videos in which the ad is overlaid
on the bottom 20% of the video soon after it is launched If the user does not click
on it, it simply disappears Additionally, Google has experimented with an e-commerce platform with the launch of a new service that allows viewers to buy music and games from selected partners featured on YouTube videos With this service, YouTube viewers who want to buy, for example, a song featured in a music video can click on an icon that takes them to selected e-commerce partners, including Amazon.com and Apple's iTunes store YouTube gets a share of the revenues from every transaction We think this performance-based model is a good move for Google to help monetize YouTube
Mobile Ads
An even younger industry is mobile phone advertising The development of the iPhone and the advent of Google’s Project Android have placed a growing interest in the field
Performance-based Advertising
While many graphical ads were originally used for branding purposes with less of a focus on conversion, the developments in behavioral and contextual advertising have put more pressure on ad networks to deliver conversions Additionally, an abundance
of inventory is making advertisers more focused on conversions We expect this model to gain market share
Email Marketing
Ad networks have entered the realm of email marketing by placing advertisements in emails sent by other companies to their customers As in the other categories, ROI is enhanced by careful pairing of the ad with a related company or email content Email marketing is a preferred method of advertising with its easy trackability and ROI calculation Furthermore, unlike other advertisements, email is pushed to targeted customers rather than assuming that specific websites will pull these customers to the ad
Ultimately, we believe successful ad networks are going to need to be able to provide
a diversity of advertising platforms to its marketers with clear targeting capabilities
We believe the development of a
non-intrusive video ad delivery
system with contextual
advertising capabilities will be
valued by the ad network space
Success in mobile ads will be
dependent on targeting,
non-intrusiveness, and ability to load
on slow-loading platforms
We see payment structures
shifting with objectives to
include CPA models in addition
to CPMs
We believe marketers will turn to
targeted email distribution given
its high usage and push vs pull
ad model
Trang 2Creating Ad Networks Could Be the Answer to an Ever-Fragmenting Audience
While portals were once the dominant source of news and information, Yahoo!, AOL and Microsoft only accounted for ~27% of total minutes spent online in October
2008 vs 42% in 2002 We believe portals will become more significant players in ad networks as they turn to networks to grow their user reach, leverage user information through behavioral targeting, and leverage their existing capabilities to sell, place, and analyze display ads
Figure 15: Total Minutes Spent on Portals in October 2002 and 2008
millions
0 10,000 20,000 30,000 40,000 50,000 60,000
Yahoo! Sites AOL Media Netw ork Microsoft Sites
Oct '02 Oct '08
19% Decline
Source: ComScore data and J.P Morgan estimates
User Information Should Lead to Dominance
Accurate and rich user information is among an Internet company’s most valuable assets Additionally, the ability to leverage accurate user information to deliver relevant content to users is the key to increasing conversion rates We think large cap companies are particularly well suited to running ad networks, as they can lever their user information with that of the publisher network to provide well targeted advertising This should increase user conversion and monetization capabilities A combination between any of the search players, a large publisher network, and a company with behavioral targeting capabilities would make sense, in our view
One Platform for Multiple Advertising Products=Higher Ad Dollar Allocation
From the standpoint of an advertiser, advertising campaign management would be easier with a single ad firm offering multiple products (search, graphical, cost-per-lead, cost-per-action, in-game advertising, mobile advertising, video) Publishers could benefit from the scale of various advertisers across verticals and the higher CPMs accompanying better targeted ads
Minutes spent on portals has
declined over the last 6 years,
despite 30% growth in total
minutes spent on the Internet
If a company had demographic,
search query and web
navigation data on a user, we
believe it could provide
advertising that is more user
relevant and could tailor the ads
to the user as he/she navigates
the web
Trang 3Figure 16: Online Advertising Services by Company
Service AOL GOOG MSN YHOO
Search
Ad Network
Ad Serving***
Traffic Exchange***
Targeting Lead Generation Affiliate Marketing***
Rich Media Mobile Email
***Assumes DoubleClick/Performics acquisition Source: J.P Morgan estimates, Company data
Cost Synergies
Entering the ad network space would allow large cap Internet companies to lever their existing sales force, technology, and publisher relationships in expanding their product offering The sales team could expand its offering of graphical advertising to include properties on the ad network Technology used to place graphical ads on owned and operated properties and for behavioral targeting could be extended for use
on network sites Finally, search network relationships could be leveraged in building the ad network
Scale Is Critical to Build a Market-Leading Product
While we have established that the goal of ad networks should be to increase their exposure to an overlapping user base across a variety of properties for targeting, such
an undertaking requires scale
¾ Small companies must choose between generalization across a variety of
publishers or going deep into a few verticals Both options carry risk, as generalization limits targeting capabilities while focusing on limited verticals exposes companies to industry risk (for example, the current mortgage industry weakness)
¾ Large cap companies, however, have the resources to be both broad and
Trang 4Table 15: US Search Market Share, September 2008
millions
Source: ComScore
Strategic Acquisitions Provide Fast-Paced Industry Entrance
Recent acquisitions have positioned it well to quickly gain market share With the acquisition of DoubleClick, Google gains ownership of two key technologies:
¾ the DART suite: a comprehensive set of technologies that enable
advertisers to effectively manage their online advertising campaigns while providing publishers with the ability to dynamically place ads on their sites
¾ the DoubleClick Advertising Exchange: a platform for buyers to gain
immediate access to inventory with goal-based bid rules, defined budgets, targeting, and frequency caps on inventory purchases, while sellers increase overall yield by reducing unsold and undervalued inventory
DoubleClick has relationships with both publishers and advertisers that enable it to serve hundreds of billions of ad impressions per year In 2004 (the most recent full-year data available), DoubleClick served over 800 billion online ad impressions (we expect it will serve ~2 trillion+ impressions in F’08) Beginning with display advertising tests within the AdSense for Content environment, Google has been exploring the serving of graphical advertisements for a couple of years But we believe the acquisition of DoubleClick emphasizes the importance that Google places
on entering the ad network market
Figure 17: Graphical Ad Market Will Represent an Estimated 36% of Total in 2010
% of industry revenues
Graphical Adv ertising 36%
Search Adv ertising 64%
Source: J.P Morgan estimates, Company Reports, ComScore, Nielsen//NetRatings, IDC, IWS, IAB
Trang 5MSN
Rich Targeting and Performance-based Advertising Capabilities
With the acquisition of aQuantive, Microsoft obtained the DRIVE performance media platform, which provides premium advertising solutions to aQuantive advertisers and agencies With selective inventory from only the top 250 publishers, DRIVEpm offers brand protection to its advertisers The collection of visitor data over several years and CPA payment options allows for behavioral targeting and performance-based capabilities While the selectivity of the publisher network will likely limit its scale, this premium network will offer a point of differentiation from competitive networks
Figure 18: DRIVEpm Ad Network
DRIVEpm Network
Top 250 Publishers
Remnant Inventory
Behavioral Targeting CPA Solution
Advertiser and Agency Clients
Source: aQuantive reports and J.P Morgan estimates
AdECN Should Improve Monetization
Microsoft acquired AdECN, which serves as a hub for ad networks to buy and sell display advertising in a real-time auction marketplace Advertisers will get more access to inventory to enable better matching to their requirements and increasing ROI Publishers should be able to increase their yield through increased volume of available inventory With both parties benefiting, AdECN should provide better monetization through higher CPMs for Microsoft remnant and non-premium inventory
Partnerships Are Growing MSN’s Display Reach Outside Its O&O Properties
Agreements to provide advertising on Facebook and Digg have expanded MSN's advertising network beyond its owned and operated properties and have allowed MSN to capitalize on the growing social networking trend Facebook and Digg are two fast growing social networks The challenge that we believe Microsoft will face will be providing targeting capabilities sufficient to monetize such a diverse user and content base
Trang 6Yahoo!
A Clear Fit in the Ad Network Space
Yahoo! is particularly well positioned to provide targeted advertising to a network, in our view As one of the top-ranked websites by unique visitors (according to comScore), Yahoo! has a wealth of information about visitor habits and preferences
Figure 19: Top Sites by Unique Visitors and % Reach, October 2008
thousands
0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000
Google Sites Yahoo! Sites Microsoft Sites AOL Media
Netw ork
Fox Interactiv e Media
65%
58%
48%
Source: ComScore data
Yahoo! has made strategic acquisitions to build off of its existing assets and to gain dominance in this space
¾ Its acquisition of Right Media, in addition to its owned and operated pages, has made it a destination for the buying and selling of inventory
¾ The acquisition of Blue Lithium has provided Yahoo! with behavioral targeting technology, visitor information off its owned and operated sites, advanced analytic reporting, and a sales force more accustomed to direct response sales
These additions should have a smooth integration, as Yahoo! already possesses a sales force accustomed to selling display and contextual advertising, has experience with behavioral targeting with SmartAds, and has entered the ad network arena with newspaper partnerships and agreements with eBay and Comcast The acquisition of Blue Lithium builds on these earlier efforts and has now made it a significant player
in the ad network space
Trang 7Ad Exchanges: A New Marketplace
Ad Exchanges: A Response to Audience Fragmentation
One of the largest deterrents to the graphical advertising market has been the increase
in the difficult to monetize non-premium inventory Social networking, blogs, photo sharing, and email have all increased inventory levels but are difficult to monetize given their non-targeted user base and lack of focus on ads Ad exchanges focus on better monetizing this portion of inventory through aggregation and an open market While portals were once dominant, Yahoo!, AOL, and Microsoft only accounted for
~27% of minutes spent online in August 2008, down from 42% in August 2002 Much of this decline can be attributed to audience fragmentation, a result of increases
in non-premium inventory Meanwhile online gaming and social networking websites have experienced double-digit Y/Y growth rates in minutes spent online
Figure 3: Non-Premium Inventory Growth
Billions
6.8B minutes, Aug 13% Y/Y Growth
6.8B minutes, Aug 13% Y/Y Growth
MySpace
18.2B minutes, Aug 28% Y/Y Growth
MySpace
18.2B minutes, Aug 28% Y/Y Growth
YouTube
8.5B minutes, Aug 78% Y/Y Growth
YouTube
8.5B minutes, Aug 78% Y/Y Growth
Online Gaming
16.1B minutes, Aug 44% Y/Y Growth
Online Gaming
16.1B minutes, Aug 44% Y/Y Growth
Source: comScore and J.P Morgan estimates
We believe this audience fragmentation hampered the development of the graphical advertising market, as it resulted in the following challenges:
• Audience fragmentation makes it difficult for advertisers to reach their target audience through only a few publishers;
• Small publishers have difficulty attracting advertisers due to limited scale; and
Trang 8The Rise of the Ad Exchange
The ad exchange is a real time marketplace with an auction-based system where the participants – advertisers and publishers – transact on a common platform to purchase and sell online graphical advertising The publishers place remnant inventory on the exchange for the advertisers to purchase through bidding on a user-friendly interface Network barriers are lowered and all participants interact on a common platform, while the outside relationships are not disturbed Ad exchanges
do not compete with ad networks, targeting technologies, or publishers, but rather serve as another way for the exchange of inventory within these groups
Figure 4: Ad Exchange Linkages
Ad Exchange
Bid Optimization
Rich Media Vendors Contextual Networks
Other Ad Exchanges
Targeting Technologies
Display Networks
Large Publishers
Agency Side Ad Servers
Source: www.clickz.com (Article: Ad exchanges are the future)
Key features of ad exchanges:
• Transparent and dynamic pricing landscape due to open bidding process;
• Reduced operational friction due to improved clarity of placement of ad serving
on a website;
• Enhanced efficiency due to simplification and standardization of business processes;
• Improved liquidity of ad inventory;
• Interests of smaller niche players safeguarded, as existing relationships and budget sizes exert no influence, and each bidder has equal access to the media;
• Increased role of technology to automate and provide a common platform; and
• Elimination of intermediaries and their margins
The Value of an Ad Exchange
For Advertisers:
An advertising exchange establishes a transparent and automated clearinghouse, easing pricing concerns The advertiser can place different bids for each ad
Trang 9impression after evaluation of the perceived value against the buy criteria Thus, the advertisers gain from:
• Smarter spending;
• Better ROI; and
• Access for inventory for targeting purposes
For Publishers:
The ad exchange model should usher in more competition and enhanced technologies for targeting This should drive the demand for inventory upwards, resulting in higher CPMs The publisher can set a floor price for the impressions to be accepted
by the exchange and will gain as yields optimize when highest bids win in a real-time auction The benefits for the publishers are:
• Better targeting;
• More valuable inventory;
• Higher prices; and
• Better yield
Key Takeaways
• Exchanges should increase CPMs for publishers, as they provide an open auction market to a large population of advertisers
• Advertisers should gain easier access to a broad range of inventory, which can
be used for targeted advertising
• The major Internet players should become ad exchange operators as they strive to provide a one-stop solution to all of an advertiser’s needs
Trang 102009 eCommerce Outlook
2008 saw Amazon, the standard-bearer of eCommerce, continuing to consolidate market share, as the company demonstrated that it remains a formidable competitor, driven by a combination of a broad product selection, low prices and a focus on customer service
Macroeconomic weakness proved a significant headwind to growth in eCommerce, especially in the second half of the year, and we expect that much of 2009 could see significantly reduced growth as a result of the slowdown in the economy and in consumer spending
At the same time, we think it is likely that online shopping will continue to take market share away from offline retail channels in the coming year, especially as the retail landscape experiences upheaval and the dislocation of several incumbent players Additionally, we think broadband penetration will continue to rise, and we see broadband penetration as a key catalyst for the growth of eCommerce
2009 eCommerce Forecast
We think US growth in eCommerce (including eBay GMV) will experience weaker Y/Y growth rates as economic conditions worsen At the same time, we expect a greater proportion of retail sales to continue to shift online, driven by (1) increases in product selection, (2) continued Y/Y improvements online for brick-and-mortar retailers, (3) volatility and uncertainty in the offline retail space, and (4) further improved efficiencies from site optimization
Table 17: US eCommerce Forecast
units as indicated
Total shopping sessions / year (M) 2,497 2,847 3,289 3,618 3,878 4,020 4,324 4,724 6.8%
Total eCommerce revenue (US $M)) 98,644 117,419 141,437 164,612 174,525 182,902 204,302 225,549 8.9%
Source: Department of Commerce, Internet World Stats, company reports, J.P Morgan estimates
Note: includes eBay US GMV
Given the unprecedented global scale of the current slowdown, we are projecting significant slowdowns in eCommerce growth across the world’s regions Further, the Y/Y growth in dollar-denominated volume of eCommerce is likely to suffer due to the stronger dollar; whereas much of F’07 and F’08 benefited from an FX tailwind, the conversion will hurt dollar volume growth rates in F’09 In some places, the impact of the FX tailwind is quite dramatic: e.g., our projection for Korean eCommerce is to post a mid-teens Y/Y rise in local currency terms in F’09, but, assuming current exchange rate levels are maintained through the coming year, the dollar-denominated volume would decline at a low-double-digit rate