Economy + Internet Trends
March 20, 2009
mary.meeker@ms.com / collis.boyce@ms.com / mayuresh.masurekar@ms.com / liang.wu@ms.com
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Economy + Internet Trends Outline
• Economy 1. Recession – a long time coming, how long will it last? 2. Advertising Spending – closely tied to GDP growth • Technology / Internet 1. Digital Consumer – Undermonetized social networks / video / VoIP driving powerful usage growth + material disruptions for traditional players that may accelerate in recession 2. Mobile – Innovation in wireless products / services accelerating 3. Emerging Markets – Pacing next wave of technology adoption 4. Cloud Computing – Access / storage need / virtualization driving change • Closing Thoughts 1. Companies with cogent business models that provide consumer value should survive / thrive – consumers need value more than they have needed it in a long time…
2
Economy
Recession = Long time coming, how long will it last? Ten years of inflated growth to be followed by ____? Hope for six more tough months but plan for 3-5 years Advertising Spending = Closely tied to GDP growth. Challenges for Internet but likely not as draconian as 2000-2002 Commerce = Slowing but Amazon.com + iTunes data illustrate material online share gains from offline, recession / mobile should accelerate share gains
3
10 Years Ago –
I Don’t Want to Miss a Thing, Aerosmith = Billboard Top 5 Song of 1998
Source: YouTube.
4
Roots of Economic Challenge?
10+ Years of Rising Home Ownership + Declining Interest / Savings Rates
USA Homeownership Rates vs. Interest Rates vs. Personal Savings Rates, 1965-2008
70%
June 2004: US home ownership = 73MM
20%
68%
January 1993: HUD began promoting broader home ownership. US home ownership = 62MM
66%
12% 64% 8% 62%
60%
4%
58% 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007
U.S. Home Ownership Rate U.S. Interest Rate U.S. Personal Savings Rate U.S. Home Ownership Rate 30-year (1965-1995) Trendline
0%
Note: HUD is Department of Housing & Urban Development. Interest rate is the overnight federal funds rate. All data as of 12/31/08. Source: Federal Reserve, DOC Bureau of Economic Analysis (BEA), Morgan Stanley Research.
U.S. Interest Rate & Personal Savings Rate
16%
U.S. Home Ownership Rate
5
Market & Regulatory Pressure Made Home Buying More Accessible…1998
In addition to a buoyant economy, the overall housing industry owes its enduring vigor to innovations in mortgage finance that have helped not only expand homeownership opportunities, but also reduce market volatility. Under market and regulatory pressure to make home buying more accessible to low-income and minority households, financial institutions have revised their underwriting practices to make lending standards more flexible. In the process, they have developed several new products to enable more incomeconstrained and cash-strapped borrowers at the margin to qualify for mortgage loans. - 1998 State of the Nation’s Housing Report
Note: Quoted in Gary Gorton’s NBER Working Paper Series “The Panic of 2007” (Working Paper 14358), p.5. Source: Harvard University, Joint Center for Housing Studies, 1998.
6
10 Years of Rising Home Prices – Up ~2x at Peak
USA Real Home Price & Building Cost Indexes, % Change 1965 - 2008
80%
% Change From 1965 Level
60%
40%
20%
0%
-20% 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007
U.S. Real Home Price Index
U.S. Real Building Cost Index
7
Note: Real home prices & building costs are adjusted for inflation; Source: Robert Shiller.
Systemic Leverage Helped Pace ‘Easy Money’
Debt at Record Level + Sharp Ramp Up in Foreign Ownership of US Treasuries
400%
U.S. Total Credit Market Debt as % of GDP & Foreign Ownership % of U.S. Treasuries, 1920 - 2008
70%
2008: 3.6x GDP
60%
1933: 3.0x GDP
Total Debt as % of GDP
50%
300%
40%
250%
30%
200%
20%
150%
10%
100% 1920
0%
1928 1936 1944 1952 1960 1968 1976 1984 1992 2000 2008
U.S. Total Debt, % of GDP Foreign Ownership of US Treasuries, % of Total Market Capitalization
Note: Foreign ownership of US treasuries data N/A before 1965. Source: Federal Reserve, Ben Wattenberg, The Statistical History of the United States, From Colonial Times to the Present, Bridgewater, Morgan Stanley Research.
Foreign Ownership of U.S. Treasuries, % of Total Market Cap
8
350%
Excessive Debt Levels = 2008 & 1933
Corporate Debt Much Lower on Relative Basis Now
U.S. Total Credit Market Debt as % of GDP, 1929 – 2008 & Sector Share Breakdown
350%
% Share of Total Debt 1933 2008 1984 - 2008 Net Increase Amount ($T) $14.4 11.9 8.8 8.5
300% U.S. Credit Market Debt / GDP (%)
Government + GSE 24% 18 51 7 33% 27 22 18 Households Corporates
250%
GSE Financials
200%
Financials
150% Government Corporates 50% Households 0% 1929 1934 1939 1944 1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 Households Corporates Financials GSE Government
9
100%
Note: GSE (Government Sponsored Enterprises) debt includes various agency-backed mortgages; Source: Federal Reserve, Ben Wattenberg, The Statistical History of the United States, From Colonial Times to the Present, Morgan Stanley Research.
USA Debt Mix Shift –
Mortgages / ABS / GSE Up to 23% of Debt vs. 7% 2 ½ Decades Ago
1984 U.S. Total Debt: $7T Total Mortgage / ABS / GSE Debt: $0.5T 2008 U.S. Total Debt: $53T Total Mortgage / ABS / GSE Debt: $12T Mortgage Pools 9% ABS Issuers 8% Other 20% GSE 6%
Mortgage Pools – 4% ABS Issuers – 0% Other – 22% GSE – 3% Household 26% Government 25%
Government 16% Household 27% Corporate 14%
Corporate 19%
Note: Debt amounts are nominal, ABS is Asset Backed Security, GSE is Government Sponsored Enterprise. Source: Federal Reserve, Morgan Stanley Research.
10
USA Mortgage Delinquency @ Record High 7.88%
USA Residential Mortgage Delinquency Rates, CQ1:98 – CQ4:08
20% Delinquency Rates (%)
15%
10%
5%
0% 1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
All U.S. Mortgages
Prime Mortgages
Subprime Mortgages
Note: National delinquency rate of 7.88% and Q/Q jump of 89 basis points in CQ4:08 are the highest since CQ1:1972, when data first became available; Average national mortgage delinquency rate from 1972-2007 is 4.70%; Source: Mortgage Bankers Association.
11
Unemployment Benefits At 38-Year High and Rising
U.S. Unemployment Rates & Total Benefits Paid, 1971 - 2009
$6,000 12%
$5,000 Real Benefits Paid ($MM)
10%
$4,000
8%
$3,000
6%
$2,000
4%
$1,000
2%
$0 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
0%
Real Benefits Paid
Unemployment Rate
12
Note: Unemployment Insurance : Benefits Paid Through State Programs are inflation adjusted, but not seasonally adjusted, while Civilian Unemployment Rates (16 yr+) are seasonally adjusted. Source: Bureau of Labor Statistics. Morgan Stanley Research.
Unemployment Rates
Michigan Unemployment @ 11.6%, Up Nearly 2x Y/Y
USA @ 7.6%, On Way to California Level of 10.1%?
U.S. State Unemployment Rates, 1/08 vs. 1/09
13% 11.6% 11% Jan-08 10.4% 10.3% 10.1% 9.9% Jan-09
1/09 National Average
9.7%
9.4%
9.3%
9.2%
Unemployment Rate
9% 7.3% 7% 5.7% 5% 6.3% 6.1% 5.3% 5.0% 5.3% 4.8% 5.9%
8.8%
8.7%
8.7%
8.6%
8.6%
5.7%
6.0% 5.5% 5.3% 5.2%
3%
N ev ad a ng to n D C In di an a C ar ol R in ho a de Is la nd C al ifo rn ia O re N go or n th C ar ol in a ig an hi o y eo rg ia G si pp i ck tu Te es s nn O ee
M ic h
M is si s
ut h
Note: 2/09 preliminary U.S. national unemployment rate was 8.1%. Source: Bureau of Labor Statistics. Morgan Stanley Research.
W as hi
So
K en
13
Rising Unemployment
Higher Mortgage Defaults…
Initial Claims For Unemployment Insurance Y/Y Growth
14
Residential Mortgage Delinquency Rates Y/Y Growth
40%
U.S. Residential Mortgage Delinquency Rates vs. Initial Claims For Unemployment Insurance Y/Y Growth, 1973 - 2008
100%
30%
80%
60% 20% 40% 10% 20% 0% 0% -10%
-20%
-20% 1973
-40% 1976 1980 1983 1987 1990 1994 1997 2001 2004 2008
U.S. Residential Mortgage Delinquency Rates Y/Y Growth U.S. Initial Claims For Unemployment Insurance Y/Y Growth
Note: Both mortgage delinquency rates and initial claims for unemployment insurance are seasonally adjusted. Source: Mortgage Bankers Association, Bureau of Labor Statistics, Morgan Stanley Research.
…Higher Unemployment / Mortgage Defaults Rising Personal Bankruptcy Filings…
U.S. Weekly Personal Bankruptcy Filings, Y/Y Growth, 2000 - 2009
150%
100%
50%
0%
-50%
-100% 2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Note: “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005” went into effect on 10/17/05, causing anomalies in the Y/Y growth series from late 2005 through early 2007. Source: Lundquist Consulting, US Census, Administrative Office of the US Courts, Morgan Stanley Research, Betsy Graseck, Cheryl Pate and Justin Kwong.
15
… Consumer Confidence Falling
Overall Consumer Spending Survey Results – 6/06 - 2/09
Would you say your overall spending over the next 90 days will be more than last year, less than last year, or the same as last year? – 60% survey respondents now saying they’ll spend less money
60%
Spending More Spending Less
2/09 61%
50%
40%
30%
20%
10%
0%
Jun-06 Nov-06 Mar-07 Jun-07 Sep-07 Jan-08 Apr-08 Jul-08 Sep-08 Dec-08 Feb-09
Note: Survey based on responses of 2,715 U.S. consumers. Source: Changewave, 2/18/09.
16
Average Consumer Wealth Destruction = ~25% Through CQ4:08 – 56%+ of USA Household Assets in Real Estate + Stocks
USA Household Asset Breakdown, C2007A Real Estate & Equities Market Performances, % Change from CQ1:07
10%
Credit Market Instruments 7%
% Change from CQ1:07
Others 3%
0%
Deposits 12%
-10%
Real Estate 38%
-20%
Pension Reserves 22%
-30%
Equities + Mutual Funds 18%
-40% CQ1:07 CQ3:07 CQ1:08 CQ3:08 S&P/Case-Shiller Home Price Index S&P 500 Index
Note: Median household income in 2007 was $50,233, per U.S. Census Bureau. 56% accounts only real estate + equities / mutual funds; many pension funds also invest in the U.S. equities market, thus actual exposure to these asset classes will likely be higher. The total value of all USA household’s real estate + equities + mutual funds + pension fund reserves declined 25% from the peak in CQ2:07; the Y/Y decline in CQ4:08 is -21%; the Y/Y decline of total household assets in CQ4:08 is -15%. Source: Federal Reserve; Standard & Poor's; Morgan Stanley Research. 17
Difficult Retail Environment
Abercrombie & Fitch Same-Store Sales Y/Y % Change, 1/08 – 2/09
10% 6% 5% Comparable Store Sales Y/Y % Change Comparable Store Sales Y/Y % Change 0% 0% -2% -5% -10% -10% -15% -20% -20% -25% -30% Jan Mar May Jul Sep -20% -24% -28% Nov -30% Jan -11% -14% -1% -3% -7% 5% 0% -2%-1% -5% -10% -15% -20% -25% -30% Jan Mar May Jul Sep Nov Jan 0% -1%-1%-1% -2%-3% -2% -3% 3% 2% 2% 1% 10%
UK Retail Same-Store Sales Y/Y % Change, 1/08 – 2/09
Note: Same-store sales are sales in stores open more than one year. Source: Abercrombie & Fitch, British Retail Consortium.
18
Retail Sales + e-Commerce Growth Rates Slowing
Adjusted Retail Sales vs. Adjusted E-Commerce Sales Y/Y Growth, CQ3:01 – CQ4:08
40%
30%
Y/Y Growth
20%
10%
0%
-10% CQ3:01
CQ3:02
CQ3:03
CQ3:04
CQ3:05
CQ3:06
CQ3:07
CQ3:08
US Adjusted Retail E-Commerce Sales
US Total Retail Sales
19
Note: E-Commerce adjusted for eBay by adding eBay US gross merchandise volume and subtracting eBay US transaction revenue; Source: US Dept. of Commerce (CQ4:08), Morgan Stanley Research.
Corporate Sales – Increasingly Below Plan Since CQ1:06
Overall Corporate Sales Survey Results, CQ1:01 – CQ4:08
How is your company doing with regard to meeting its sales plan revenue objectives for the current quarter? Are you coming in above plan, even, or below plan?
60%
CQ3:01 50%
50%
Above Plan
Below Plan
CQ4:08 51%
40%
30%
20%
10%
0% CQ1:01
CQ4:01
CQ3:02
CQ2:03
CQ1:04
CQ4:04
CQ3:05
CQ2:06
CQ1:07
CQ4:07
CQ3:08
Note: Survey based on responses of 3,029 U.S. respondents. Source: Changewave, 12/5/08.
20
Material Revenue Growth Declines – TMT Companies
Intel + Nokia = Accelerating -20%+ Declines
75% 60% Y/Y Revenue Growth 45% 30% 15% 0% -15% -30% CQ1:07 CQ3:07 CQ1:08 Microsoft Intel Disney Viacom* Yahoo! Google AT&T Verizon CQ3:08
Cisco News Corp Amazon.com
TMT Companies Revenue Y/Y Growth, CQ1:07 – CQ1:09E
CQ1:09E Nokia Time Warner eBay
21
Note: CQ1:09E figures based on FactSet consensus estimates; CQ4:08 for VIA is an estimate. Source: Company data, FactSet, Morgan Stanley Media Research.
Technology Revenue – So far, a 2001 Redux of 5 Flat / Down Sequential Quarters…Now 4…This Time, Secular Outlook Worse
Global Technology Sector Revenue & Y/Y Growth, CQ1:98 – CQ4:08
700
35% 30%
600
Average Y/Y Growth = 11%
25% 20% 15% 10% Y/Y Growth
22
500 Revenue ( $B)
400
300
5% 0% -5%
200
100 -10% 0 CQ1:98 -15% CQ3:99 CQ1:01 CQ3:02 Revenue CQ1:04 CQ3:05 Y/Y Growth CQ1:07 CQ3:08
Note: Revenue and Y/Y Growth compiled from 570 publicly traded global technology companies. Source: FactSet, Morgan Stanley Research.
USA Manufacturing Contracting Rapidly –
12/08 PMI Index Lowest Level Since 1980, 2/09 PMI = 35.8
80
U.S. PMI (Purchasing Managers Index), 1/48 – 2/09
70 PMI > 50 = Expansion
60-year Average = 52.7
60 ISM PMI Index (%)
50
40 PMI 2000 Total USA Internet Traffic
Internet Traffic per Month
100,000 IP Traffic (Terabytes per month)
80,000
100,000 TB / Mo (Global)
60,000
40,000
20,000
25,000 TB / Mo
30,500 TB / Mo (USA)
33,000 TB / Mo
0 USA Internet Backbone, 2000 Year End YouTube, 5/08 China P2P Video Streaming, 1/08
Note: Monthly traffic are estimates by Cisco. Source: Cisco, Approaching the Zettabyte Era, 6/08.
47
Online Video – Traction High + Increasing
• YouTube - 363MM unique global visitors, +40% Y/Y, 48B minutes, +92% Y/Y ; other video distribution models: Hulu, Fancast, veoh, Joost, Sling Media, VUDU… • YouTube = 68% of unique US video viewers + 43% of videos watched online + 30% (2) of total minutes
(1)
YouTube Global Traffic
400 350 Total Unique Visitors (MM) 300 250 200 150 100 50 0 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 10 0 40 30 20 Total Minutes (B) 60 50
Total Unique Visitors (MM)
Total Minutes (B)
48
Source: (1) comScore global 1/09; (2) comScore Video Metrix (US) 1/09, Morgan Stanley Research
YouTube –
New Portal(s) = Video Distribution Channel + Social Network
• ‘Organize the world’s information and make it universally accessible and useful’ – in the most effective way for high customer satisfaction – sort by most active / discussed / recent / responded / viewed / etc.. More / more content providers should get on board, after all, users are voting it’s what they want. • Monetize away litigation - with new ad formats + finger printing advances + revenue shares?
News & Politics - Most Viewed
Sports - Most Viewed
Source: Google, YouTube.
49
Video Monetization – YouTube = 4x Y/Y. • Mobile facebook users on average 50% more active than non-mobile facebook users. • 1MM users commented on their friends’ status changes on mobile within the first 24 hours of this feature’s launch.
Source: Facebook presentation at Palm’s CES keynote.
63
VoIP –
Skype = #2 Global ‘Carrier’ + 8% of Cross-Border Calling Minutes
Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Company China Mobile Vodafone China Telecom America Movil Telefonica Moviles China Unicom T-Mobile Orange China Unicom / Netcom Mobile Telesystem Bharti Airtel AT&T Mobility Telecom Italia Mobile Verizon Wireless PT Telkom (2) AT&T NTT DoCoMo Turkcell NTT Sprint / Nextel BT (UK) (2) Verizon (3) BSNL Deutsche Telekom France Telecom Total* Wireless Wireline
(1)
Type Wireless Wireless Wireline Wireless Wireless Wireless Wireless Wireless Wireline Wireless Wireless Wireless Wireless Wireless Wireless Wireline Wireless Wireless Wireline Wireless Wireline Wireline Wireless Wireline Wireline
Region China Europe China LatAm Europe / LatAm China Europe / USA Europe China Europe India USA Europe / LatAm USA Asia USA Japan Europe Japan USA Europe USA India Europe Europe
Subscribers (MM) 450 280 210 173 172 133 127 118 107 88 77 75 71 71 61 56 54 51 44 42 38 36 36 35 33
Y/Y Growth 22% 10 -10 18 20 13 8 12 -4 9 59 14 6 11 36 -10 2 12 -0 -9 -2 -10 24 -6 -1
Blended ARPU (US$) $12 35 8 11 41 6 21 44 10 12 7 51 27 52 5 80 66 17 34 53 38 85 7 29 43
Y/Y Growth -8% 5 4 -5 -6 -13 -11 0 30 13 -15 0 -4 1 -20 3 -11 13 -0 -5 4 3 -15 -2 14
Market Cap ($B) $186 108 28 50 91 15 59 65 15 9 25 148 27 89 11 148 76 11 68 7 14 89 -59 65
Skype (5) 405MM Registered Users (+47% Y/Y)
2.6B 10% $25 -1% $1,250B 2.1B 16 25 -3 977 0.6B -7 28 5 486 Note: Subscribers / ARPU data as of CQ3:08. Market Cap as of 1/15/08. *total excludes duplicates (mkt val); (1) China Netcom merged with China Unicom in 11/08; (2) AT&T & Verizon’s wireline ARPU is revenue per RGU (revenue generating unit) and include business lines; (3) BSNL is owned by the Indian government, thus with no market value. (5) Subscriber figure for Skype is registered user amount as of CQ4:08. Source: company reports, Morgan Stanley Research.
64
Unified Communications For Consumers –
Skype = Voice / Video / SMS On Your PC / Netbook / Cell Phone & More
Skype on PC / Laptop Skype on Netbooks / Internet Tablets
Skype on … 3 SkypePhone Skype on Smartphones Cordless Phone Wi-Fi Phone
Source: Skype / eBay.
65
Unified Communication For Consumers –
Google Voice Gives User One # + VoIP + Voicemail Transcription + SMS
• Google Voice – Launched on 3/11/09, gives user a single telephone number, to which all calls to user’s home / office / cellphone can be forwarded • Voicemail transcription + SMS + future integration with Gmail • VoIP calls can be initiated if user calls his / her own Google Voice number
Source: Google.
66
Online Content Consumption Mix in 5 Years?
• Consumer or professional generated?
−
40% of USA consumers create entertainment (edit movies / music / photos...)(1)
• Consumer enhanced professional content?
- Anchored with first-class pro content…augmented with first-class user-generated content that’s ranked / reviewed / ‘edited’…supplemented by all-comers usergenerated content that’s ranked / reviewed…all presented in a holistic / widgeted way - Clean combo of = wsj.com + bbc.co.uk + digg + techmeme + youtube + nytimes.com/technology + allthingsd + facebook + twitter…
Note: (1) Based on a survey of 2,200 U.S. consumers in Deloitte’s 2007 State of the Media Democracy report. Source: Deloitte.
67
Consumers Expect – Wisdom of Crowds / Rankings / Searchability
• Digg - 20MM unique visitors, +56% Y/Y, 44MM minutes, +74% Y/Y in 1/09 • User-driven editorial / selection of content (news, videos, images, etc.) through sharing / discovery / democratization – vs. traditional media determining front-page / lead stories • Users in control – search for preferred content + find what others deem relevant / interesting
Source: comScore global 1/09, Digg.com.
68
Consumers Expect – Real-Time News / Opinions / Updates / Social Networking
• Twitter – 6M global unique visitors, +4x Y/Y, 50MM minutes, +6x Y/Y in 1/09 • Real-time micro-blogging / social networking / search, each text entry (tweet) limited to 140 characters • Large ecosystem with complementary sites (twitpic, etc.) + 3rd-party applications on facebook / iPhone / Android… Follow / Blog On Twitter.com… On Facebook… And On iPhone
Source: comScore global 1/09, Twitter.com, Morgan Stanley Research.
69
Consumers Expect –
Citizen Journalism
• User-generated content (news, videos, images, etc.) uploaded directly to UReport site • Fox News selectively airs popular stories that have been vetted • Competitors: CNN’s iReport; MSNBC’s First Person
Upload from anywhere – UReport iPhone app
Searchability
User rating / popularity
Source: Foxnews.com.
70
Consumers Expect – Fun / Images / Insight from Others
• Youniverse.com – 322K unique visitors, +204% Y/Y, 3MM minutes, +386% Y/Y in 12/08. • Finds one’s visual DNA by asking users to select pictures in response to a series of questions. • Social networking – ability to find other people who share your visual DNA. • Market Research – enables advertisers to mine user preference data; • In 9/08, Hotels.com launched a Youniverse Visualiser to find out customers’ preference of the trip to provide hotel recommendations.
Find friends who share the visual DNA
Find hotels via Hotels.com Visualiser
Source: comScore global 12/08, Youniverse.com, Hotels.com, Morgan Stanley Research. 71
Consumers Expect – Location-Aware Social Networking
• Loopt – shows users where friends are located and what they are doing via maps on their mobile phones / can share location updates, geo-tagged photos and comments with friends in their mobile address book or on online social networks, communities and blogs • Loopt Mix – opt-in discovery feature to help users connect with new people nearby who share common interests and affiliations • Available on 100+ handset models / 7 national carriers in the USA • Other location-based mobile social networking products include: Google Latitude, Joyity, Local, etc. See Friends’ Location Find Interesting Explore Places With Geoon Your Map People Nearby tagged Photos / User Reviews
Source: Loopt, Morgan Stanley Research.
72
Consumers Expect – Real-Time Video Streaming On Their Mobiles`
• CBS Sports NCAA March Madness On Demand iPhone App • $4.99 to stream every NCAA March Madness game on demand • Live video streaming on Wi-Fi connection, live audio streaming on 3G / EDGE • Also features game recaps / video highlights on demand / bracket information / real-time scores / stats / headlines. March Madness in Your Palm Bracket Information Recaps / Highlights Live Scores / Stats
Source: CBS Sports, Apple iTunes.
73
Consumers Expect – Price Transparency…in $34
Source: Media Dynamics, 6/08, Morgan Stanley Media Research.
77
Online CPMs Challenge = Significant Ramp of ‘New’ Social Inventory
CQ4 Unique Users ('000) Total Internet Y/Y Growth Google.com (2) Y/Y Growth Yahoo! Y/Y Growth MySpace Y/Y Growth Microsoft Y/Y Growth AOL Y/Y Growth YouTube Y/Y Growth
(4)
CQ4 Total Pages Viewed (MM) 6,701,135 11% 114,137 1% 311,673 -1% 127,360 -10% 216,661 -8% 80,232 129,440 62%
CQ4 Total Minutes (MM) 4,063,148 10% 60,381 6% 355,942 6% 55,591 12% 568,438 18% 117,919 133,930 98%
CQ4 Annualized Global Ad Revenue per User $50.07 (1) -1% $28.05
(3)
CQ4 Ad Revenue per 1,000 Page Views $1.86 (1) 9% $29.58 (3) 21% $3.73 (3) 1% $1.12 (3) 4% $3.06 16% $4.42 $0.46 -8%
(5)
996,143 23% 481,450 18% 558,135 14% 122,338 14% 641,771 20% 269,705 351,457 48%
3% $8.33
(3)
-12% $4.68 (3) -18% $4.14 -11% $5.27 $0.68 1%
Note: (1) ZenithOptimedia C2008E, 12/08; (2) Assumes 90% of Google Sites excl. YouTube revenue is from Google.com; (3) Net revenue estimates (ex-TAC), Microsoft does not breakout TAC;( 4) comScore restated AOL metrics in 1/08; (5) Negative growth due to YouTube Page Views’ 62% Y/Y growth is much higher than our estimated revenue growth, youtube.com’s minutes 2x of google.com. (6) comScore adjusted their global Internet unique visitors estimates in 7/08, resulting in a higherthan-normal users Y/Y growth and lower / flat ad revenue per user growth. Source: Morgan Stanley Research.
78
Ad Supply > Ad Demand – Ad Impressions Growing Rapidly…CPMs Declining
U.S. Banner Ad Impressions & CPM, CQ1:05-CQ2:08 U.S. Rich Media Impressions & CPM, CQ1:05-CQ2:08
1,000,000
$3.50 $3.00
40,000 35,000 30,000
$40 $35 $30 $25 $20 $15 $10 $5 $0
CPM
79
900,000 800,000 Impressions (MM)
Impressions (MM)
700,000 600,000 500,000 400,000 300,000 200,000
$2.50 $2.00
CPM
25,000 20,000 15,000 10,000 5,000 0
3/ 05 9/ 05 3/ 06 9/ 06 3/ 07 9/ 07 3/ 08
$1.50 $1.00 $0.50
100,000 0
3/ 05 9/ 05 3/ 06 9/ 06 3/ 07 9/ 07 3/ 08
$0.00
Banner Ads Impressions
Banner Ads CPM
Rich Media Impressions
Rich Media CPM
Source: Internet Advertising Bureau (IAB), Nielsen NetRatings, Morgan Stanley Research.
Search Should Continue to Become More Important –
35% Y/Y Google Query Growth, 12/08
% of New Online Customers for Online Retailers / Marketing Spend Mix % Customers acquired from source
40%
35% 30% 27%
30%
20%
18% 13% 11% 6% 7% 6% 5% 4% 4% 3% 4% 2% 2% 4% 2%
N/A
10%
9% 7%
1%
N/A
1%
N/A
1%
0%
g ct co in g m lis pa ts ris on en gi ne s tra ffi c ra m s tis in g ea ls ds s ar ke tin s at al og ra ad ve r or ta ld pr og ld ea l an ic po rta nn e
pr os pe
O rg
Sw ee
in e
ew
en g
na
et w gi st ra tio n
in e
ia t
Af fil
O ffl
cia ln
N
itio
ar ch
Em ai lt
Tr ad
Se
Sh
op p
in
2006
2007
80
Source: The State of Retailing Online 2007 / 2008 (Forrester Research), comScore global 12/08, Morgan Stanley Research.
C
ore
So
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on
o
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sit es he rW eb sit es
Ba
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lp
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m
C
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Search =
Dramatic Share Gains of Online Ad Spending
U.S. Internet Advertising Mix
100%
14% 7% 12%
U.S. Internet Ad Spend % Mix
80%
15% 10% 9%
60%
20%
40%
47% 52%
20%
15%
0% 2002 2003 2004 2005 2006
Rich Media
2007
Search Advertising Classified Advertising
Banner Ads E-mail and Other
Source: IAB, search spending adjusted by our estimates, Morgan Stanley Research.
81
Paid Search Placement = Top ROI For Marketers
0% Paid Placement Organic SEO Email marketing TV advertising Print mag ads Direct mail Conferences and exhibitions PR Contextually targeted text ads Search KW graphical ads Web graphical display Print newspaper Affiliate mktg Paid inclusion Radio ads Print yellow page Telemarketing Web rich media POS promo Paid listings on shopping dir Coupons Online yellow pages Other 10% 20% 30% 40% 50% 60%
Survey Question: "What are the top-three mostefficient forms of advertising or marketing you spend money on in terms of the return on investment (ROI) or return on ad spend (ROAS) that they yield?“ (ranked 1-3)
Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Nov 08-Jan 09. Global Results. N=317.
82
Search Engine Marketing (SEM) = Taking Budgets Away From Other Advertising Forms
0% Print magazines advertising Direct mail Print newspaper advertising Web site development TV advertising Conferences and exhibitions Print yellow page advertising Radio advertising Email marketing Web graphical display advertising Affiliate Marketing Public relations Online yellow page advertising Paid listings on shopping directories Web rich media advertising Coupons Telemarketing Point-of-sale promotions Out of Home Other
Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Nov 08-Jan 09. Global Results. N=317.
5%
10%
15%
20%
25%
30%
Survey Question: "From which marketing/IT programs are you shifting budget away and moving it to your search marketing programs?"
83
Video Search – Advertisers Showing Rising Interest
Survey Question: Would you be interested in contextually targeted advertising attached to video search results? Breakdown: If yes, how interested are you in the following? (Scale of 1-5, 1=lowest, 5=highest)
0%
20%
40%
60%
80%
100%
Survey Result:
Video Based 7% 11%
27%
33%
22%
NO – 46% YES – 54%
1
2
3
4
5
Text Based 7% 10%
29%
34%
20%
Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Nov 08-Jan 09. Global Results. N=229.
84
Performance-Based Advertising Gaining Share
+20% Y/Y in CH1:08 vs. +12% for CPM-Based Revenue
60%
U.S. Internet Ad Revenue Share by Pricing Model, 2000 - 2007
51% 47%
% Share of Total Revenue
45%
37%
41%
41%
30%
21%
15%
10%
12%
0% 2000 2001 2002 Performance 2003 2004 CPM 2005 Hybrid 2006 2007
Search Revenue Share
Note: Performance based advertising includes search, lead-generation, among others; Hybrid pricing model includes a mix of impression-based pricing plus cost-per-click, sale, lead / straight revenue share; Source: IAB, Morgan Stanley Research.
85
Advertisers = Willing to Bid More For Behavioral Targeting
Survey Question:
Survey Result:
Are you willing to bid more for clicks based on behavioral information such as in-market consumers (i.e. consumers currently shopping for a specific product)? YES – 75% NO – 25%
Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Nov 08-Jan 09. Global Results. N=229.
86
E-Commerce USA Online Penetration = 4-6% and Rising
Categories’ Online Penetration of US Retail Market, 2007 >20%
Computer products Other event tickets Books Music / video Gift cards / certificates 45% 27% 24% 24% 21%
10 - 20%
Toys / video games Baby products Consumer electronics Office supplies Flowers / cards Jewelry Apparel / footwear Movie tickets 19% 19% 18% 13% 12% 11% 10% 10%
2x Internet Users – Illustrates ‘Up Sell’ Opportunity
• • Global mobile subscribers exceed Internet users by > 2x As mobile Internet usage penetration increases, we expect these figures to converge
Internet Users – 1.4B 2007 Mobile Subscribers – 3.3B 2007
ROW 13%
ROW 6% Latin America 10% North America 18%
North America 8%
Latin America 11% Europe 25%
Asia / Pacific 42%
Europe 24%
Asia / Pacific 43%
Note: ROW = Rest of World; Source: ITU, Morgan Stanley Research
95
Japan Shows Way in Mobile Internet Usage – Mobile Nearly Matches PC
Japan Internet Users by Access Device
100% 90%
81% 81% 83%
% of Japan Internet Users
80% 70% 60% 50%
40% 58%
73%
40% 30% 20% 10% 0% 2002 2003 2004 2005 2006 2007
% using PC
% using Mobile
Source: Japan Ministry of Internal Affairs and Communication.
96
Opera Mobile Web Browser = Strong Mobile Internet Growth ~20MM Global Users, 7.6B Page Views (+325% Y/Y, Accelerating), 1/09
Global Opera Mini Browser Pages Transcoded per Month, 1/06 – 1/09
8,000
A full web experience + 50% faster
−
6,000
−
Web content is then compressed to reduce the size of data transfer Fully-rendered web pages sent to your phone Advantage: full web rendering and faster browsing on simpler phones
5,000
− −
4,000
3,000
2,000
1,000
0 1/06 5/06 9/06 1/07 5/07 9/07 1/08 5/08 9/08 1/09
97
Source: Opera Software, Morgan Stanley Research.
Total Pages Transcoded per Month (MM)
Remote Server first preprocesses requested web pages
7,000
Western Europe + North America Hit 3G Penetration Inflection Point in 2007 – 2008, Global in 2010
3G* Enabled Handset & Penetration by Region, 2007 – 2013E
(All connection numbers in 000s)
2007
80,558 17% 72,691 72% 57,679 21% 48,027 4% 11,095 2% 5,980 2% 3,082 1% 279,113 8%
2008
153,064 31% 90,949 86% 86,135 29% 81,928 5% 21,193 4% 15,042 4% 9,455 2% 457,765 12%
2009E
255,379 49% 102,851 93% 121,338 39% 150,020 8% 34,650 6% 33,120 8% 20,611 5% 717,971 16%
2010E
355,360 67% 111,544 97% 155,759 47% 277,333 13% 67,171 10% 58,151 13% 38,898 8% 1,064,215 22%
2011E
430,425 80% 116,917 98% 186,090 54% 444,346 18% 116,047 16% 94,173 21% 71,846 15% 1,459,844 29%
2012E
487,109 88% 121,234 99% 221,214 62% 655,544 25% 174,103 22% 137,913 31% 122,082 24% 1,919,200 36%
2013E
528,030 94% 124,191 99% 262,947 71% 933,717 33% 246,432 30% 186,896 42% 168,742 32% 2,450,956 44%
Western Europe 3G Penetration Japan 3G Penetration North America 3G Penetration Asia / Pacific (ex. Japan) 3G Penetration Middle East & Africa 3G Penetration Eastern Europe 3G Penetration South & Central America 3G Penetration Total 3G Penetration
Note: Regions ranked by 2008 absolute numbers of 3G-enabled devices in use. 3G* technologies include WCDMA, HSPA, TDSCDMA, 1xEV-DO, LTE and WiMax. Source: OVUM, Morgan Stanley Research.
98
Apple Changed Mobile Game…With Impressive UI + 2.5G! i – NOT – A - Phone
99
Apple iPhone 3G – Winning Consumers Via Simple + Useful Applications
Catchy Tunes?
Speak Mandarin?
Shazam will listen and find the song for you.
Lonely Planet Mandarin Phrasebook will say it for you.
Source: Apple.
100
Apple iPhone – Digital Content Ecosystem Augmented by iTunes Store
iTunes App Store on PC App Store on iPhone
Source: Apple
101
iTunes App Store – Rapid Ramp to 25K Apps, 74% Paid(1)
25,000
iTunes App Store # of Apps, Paid vs. Free, 7/11/08 – 3/11/09
Paid Apps Free Apps M/M Growth
120%
20,000
Total Apps Available
100%
5,761
80%
M/M Growth
15,000
4,228
60%
10,000
2,994 2,238 16,476 10,978 7,110 5,009
40%
5,000
1,036 747 1,476
1,480 3,442
20%
0
173 391 At Launch (07/11/08)
410 787
2,256
0%
1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 7 Month Later Later Later Later Later Later Later Later (08/11/08) (09/11/08) (10/11/08) (11/11/08) (12/11/08) (01/11/09) (02/11/09) (03/11/09)
Note: (1) Apple announced on 3/17 that there’re 25K+ apps, chart shows data through 3/11/09, when there were 22K apps available102 Source: Apple iTunes, Morgan Stanley Research.
iTunes App Store –
14% Games, 12% Books, 11% Entertainment + 800MM Downloads (~13 per User)
# of Paid Apps
2,001 2,675 1,716 1,474 1,662 1,023 1,064 905 802 664 559 594 577 422 399 366 176 151 237 88
Category
Games Books Entertainment Utilities Education Lifestyle Travel Reference Productivity Sports Music Navigation Healthcare & Fitness Business Photography Finance Social Networking News Medical Weather
# of Apps
3,326 2,837 2,587 2,067 1,929 1,404 1,258 1,177 1,027 895 838 727 704 601 534 511 404 343 280 127
% of Total
14% 12 11 9 8 6 5 5 4 4 4 3 3 3 2 2 2 1 1 1
Paid as % of Category Total
60% 94 66 71 86 73 85 77 78 74 67 82 82 70 75 72 44 44 85 69
Average Price of Paid Apps
$2.23 3.82 1.44 2.66 5.16 2.21 5.09 6.52 3.59 3.11 3.90 6.88 2.94 9.08 2.32 5.11 2.31 1.89 22.01 3.02
Total
23,576
17,555
74%
$3.93
103
Note: Data as of 3/20/09, only showing apps available. Downloads per person assumes 50% are new downloads / 50% are update downloads. Apple announced that total apps / downloads reached 25K / 800MM as of 3/18. Source: Apple iTunes, Morgan Stanley Research.
Apple iPhone –
Data Usage 6-10x Higher than Average USA Mobile Users App Downloads per iPhone 100x Higher than non-iPhones
Mobile Content Consumption
100% Average U.S. Mobile Users % of U.S. Mobile Subscribers 80% 79% 70% 60% 66% 66% 57% 54% 40% 40% 39% 38% 37% 29% 20% 14% 9% 0%
ai l ar ch es * or es ki ta ng ur an tG In ui st de an s tM es sa Pe gi rs ng on al Ba nk in g M ob ile Vi O de nl in o e Sh op pi ng us ic Em am N ew s
iPhone Users
10%
8%
9%
7%
5%
9% 4% 3% 3%
G
Se
M
si ng ro w B
eb
W
So ci al
N
Note: KPCB iFund estimates 14MM total weekly app downloads for 12MM iPhone users, and 3MM weekly mobile app downloads on 250MM non-iPhones, thus translating into mobile application downloads 100x higher on iPhone. Source: comScore M:Metrics, 8/08 Survey of U.S. mobile subscribers, *Games category per KPCB estimates.
R
et w
104
USA Mobile Carriers – Data ARPU Growth Offsetting Declining Voice ARPU
Average U.S. Wireless Carrier ARPU (Average Revenue Per User) Breakdown, CQ1:05 – CQ3:08
$60 $50 $50 $50
$49
$47
$46
$45
$46
$44
$43
$43
$43
$41
$40
$40
$40
$39
$30
$20 $10 $10 $11 $12 $12
$10 $3 $0 1Q05 2Q05 3Q05 4Q05 $4 $5 $5
$6
$6
$7
$8
$8
$9
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
Voice ARPU
Data ARPU
Total Average ARPU
Source: Simon Flannery, Morgan Stanley Research.
105
Global Wireless Data ARPU –
Japan in Clear Lead, USA Catching Up Faster Than Others
Data ARPU as Percentage of Total, CQ1:05 – CQ3:08
40%
37% 35% 33% 31% 32% 39% 39%
Data ARPU as % of Total
30%
26% 26% 26% 26%
28%
28%
29%
29%
24% 21% 22% 20% 16% 15% 11% 12% 13% 18% 18%
20%
10%
6% 7%
9%
10%
0% CQ1:05
CQ3:08 Blended ARPU (US$) :
CQ3:05 Japan
$54
CQ1:06
CQ3:06
CQ1:07
CQ3:07
CQ1:08
CQ3:08
Western Europe
$37
Asia (ex. Japan)
$5 - $37
USA (iPhone)
$51 ($95)
Note: Western Europe is the weighted average of UK, Germany, Spain, Italy & France; Asia (ex. Japan) is the weighted avg of China, India, Indonesia, S. Korea, Thailand, Philippines, Malaysia and Singapore. Blended ARPU includes both pre-paid and contract plans. Asia (ex. Japan)’s blended ARPU ranges from $5 (Philippines), $10 (China), to $18 (Malaysia) and $37 (S. Korea). USA (iPhone) ARPU is contract only, per AT&T. Latin America data ARPU is ~13% of total in CQ3:08. Source: Morgan Stanley Research. 106
Symbian Dominates Smartphones But Losing Share – Apple / RIM Gaining Ground
40
Quarterly Worldwide Smartphone Sales by Operating System
Units Shipped (MM)
35 30 25 20 15 10 5 0 CQ1:06 CQ2:06 CQ3:06 CQ4:06 CQ1:07 CQ2:07 CQ3:07 CQ4:07 CQ1:08 CQ2:08 CQ3:08
CQ3:08 Dist.of Smartphone Sales
Symbian
14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 EMEA
RIM
Microsoft
Apple
Linux
Palm
Others
North America
APAC ex. Japan
Japan
Latin America
Source: Gartner.
107
Technology / Internet
3) Emerging Markets – Pacing next wave of technology adoption – leading players in many emerging markets aren’t the usual suspects…
108
Broadband + Mobile + Internet = Especially High Global Growers
2002 Y/Y Growth Rate 78% 20 26 12 12 8 2 2 5 2007 Y/Y Growth Rate 23% 20 16 11 8 6 3 1 -0 Global Market Size 349MM 3,319MM 1,352MM 8,016MM 900MM 761MM 22K 6,501MM 1,277MM 2007 Net Additions 64MM 563MM 182MM 804MM 66MM 40MM 1K 77MM -4MM
Category Broadband Subscribers Mobile Subscribers Internet Users(1) Financial Cards(2) Installed PCs Cable / Satellite TV Subscriptions GDP per Capita Population Telephone Lines
Note: (1) Include mobile Internet users, based on ITU’s compilation of country reports, surveys and estimates; (2) Includes credit / debit / ATM / charge cards in circulation; Source: Morgan Stanley Research.
109
Top 10 Emerging Markets = to Surpass Top 10 Developed Markets in Internet Users in 2008
Top 10 Emerging Markets vs. Top 10 Developed Markets – Internet Users
700 600 Internet Users (MM) 500 400 40% 300 30% 200 100 0 2001 2002 2003 2004 2005 2006 2007 2008E Top 10 Emerging Markets Top 10 EM Y/Y Growth Top 10 Developed Markets Top 10 DM Y/Y Growth 20% 10% 0% 80% 70% 60% 50% Y/Y Growth
Note: Emerging / developed markets as defined by IMF; Top 10 chosen based on largest GDP. Top 10 emerging markets: China, India, Russia, Brazil, Mexico, Turkey, Indonesia, Iran, Poland, and Saudi Arabia; Top 10 developed markets: U.S., Japan, Germany, U.K., France, Italy, Spain, Canada, South Korea, and Australia; Source: IMF, ITU, Morgan Stanley Research. 110
Top 10 Emerging Markets = 2x Top 10 Developed Markets in Mobile Subscribers in 2008
Top 10 Emerging Markets vs. Top 10 Developed Markets – Mobile Subscribers
1,800 1,600 50% 1,400 Mobile Subs (MM) Y/Y Growth 1,200 1,000 30% 800 600 400 10% 200 0 2001 2002 2003 2004 2005 2006 2007 2008E 0% 20% 40% 60%
Top 10 Emerging Markets Top 10 EM Y/Y Growth
Top 10 Developed Markets Top 10 DM Y/Y Growth
Note: Emerging / developed markets as defined by IMF; Top 10 chosen based on largest GDP. Top 10 emerging markets: China, India, Russia, Brazil, Mexico, Turkey, Indonesia, Iran, Poland, and Saudi Arabia; Top 10 developed markets: U.S., Japan, Germany, U.K., France, Italy, Spain, Canada, South Korea, and Australia; Source: IMF, ITU, Morgan Stanley Research. 111
TMT (Technology / Media / Telecom) Update = China #1 + Rest of BRIC Gaining Ground
2004
Rank 1 2 3 4 5 6 7 8 9 10 Country USA China Japan Germany UK India France Italy S. Korea Canada Relative Weighting 9.0 8.2 6.5 5.7 5.5 5.3 5.2 5.2 5.1 5.1 Rank 1 2 3 4 5 6 7 8 9 10
2007
Country China USA Japan Germany India UK France Russia S. Korea Brazil Relative Weighting 8.9 8.8 6.1 5.6 5.6 5.3 5.3 5.2 5.2 5.2
From our database on market sizing of global TMT (Technology, Media & Telecommunications) products and services. We measure market sizes and growth rates for core TMT metrics: GDP per capita (PPP), telephone lines, cable / satellite TV households, installed PCs, mobile subscribers, internet users, financial cards(1), and broadband subscribers. We do this for the 52 most important economies based on purchasing power / economic strength, as measured in terms of population / GDP per capita. We standardized each country’s position in the global market in each category and adjusted values to reflect a positive scale. The relative ratings and ranks were then determined by calculating an average of Z-scores across categories. For example, in the United States in 2007, standardized and adjusted values of 6.58 in GDP per capita, 7.57 in telephone lines, 10.79 in installed PCs, 7.30 in mobile subscribers, 8.55 in cable subscribers, 9.60 in Internet users, 10.91 in financial cards, and 9.45 in broadband subscribers, produces a relative weighting of 8.84. Note: Red indicates countries moving out of the top 10 TMT countries; Green indicates countries moving into the top 10 and highlights China / India Source: Morgan Stanley Research
112
Internet User Net Additions –
China, Brazil, Pakistan, Columbia, India, Iran, Russia Impressive
2007 Net Internet Users Added (000's)
73,000 9,800 7,400 5,500 5,395 5,000 5,000 4,311 3,900 3,553 3,188 3,000 2,620 2,424 2,400 2,248 2,003 2,000 1,915 1,580
Rank
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Country
China United States Brazil Pakistan Colombia India Iran Russia Germany France Vietnam Canada Egypt Indonesia United Kingdom Mexico Thailand Nigeria Poland Venezuela
2007 Y/Y Growth
53% 5 17 46 80 7 28 17 10 12 22 12 44 23 6 11 18 25 14 38
Penetration Level
16% 73 26 11 25 7 32 21 52 55 21 85 12 6 66 22 20 7 42 21
Note: Penetration is per person. Source: ITU, Morgan Stanley Research.
113
Mobile Subscriber Net Additions – ‘Emerging’ Markets Providing Growth
2007 Net Mobile Subs Added (000's)
86,228 67,570 44,346 21,062 19,326 18,032 13,596 12,910 12,046 11,499 11,237 10,654 9,313 8,891 8,718 8,225 8,073 7,306 6,645 6,565
Rank
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Country
China India Pakistan Brazil Russia Indonesia United States Iran Egypt Germany Mexico Thailand Turkey Argentina Saudi Arabia Vietnam Nigeria Philippines Peru Algeria
2007 Y/Y Growth
19% 41 129 21 13 28 6 77 67 13 20 26 18 28 44 53 25 17 76 31
Penetration Level(1)
41% 21 50 64 120 36 85 42 41 118 65 78 90 103 117 28 28 57 55 80
Note: (1) Penetration is per person; mobile subscribers include all active SIM card subscriptions; people in many countries outside of the US use more than one SIM cards on a regular basis, which may results in greater than 100% penetration levels. Source: Morgan Stanley Research.
114
Non-US Markets Lead Usage Penetration in Many Categories
E-commerce: Germany Online Gaming: China Broadband: S. Korea Mobile Payments + TV: Japan
Online Advertising: UK
Social Networking: Brazil / S. Korea
Microtransactions via SMS: Philippines
Source: Morgan Stanley Research
115
Technology / Internet
4) Cloud Computing – Access + storage need + virtualization driving change
116
Storage Growth +62% in 2007E – Consumer > Professional Demand
Global Storage Sold Annually
120,000
100,000
80,000
Petabytes
60,000
40,000
20,000
0 2003E 2004E 2005E 2006E 2007E 2008E 2009E 2010E
Home
Professional
Source: Seagate, Katy Huberty, Morgan Stanley Research
117
Cloud Computing – Consumer + Enterprise Adopt ‘Software-as-a-Service’ Model
Amazon.com Salesforce.com
Source: Amazon.com, Salesforce.com, Morgan Stanley Research
118
‘A Giant Supercomputer’ – A Datacenter Behind the Cloud
Google Data Center – The Dalles, Oregon
Source: Getty Images
119
Google Zeitgeist – Predictive Power of Data Underutilized
Fastest Rising (global)
1. 2. 3. 4. 5. 6. 7. 8. 9. sarah palin beijing 2008 facebook login tuenti heath ledger obama nasza klasa wer kennt wen euro 2008
Trendsetters 2008 – Going Green
Fastest Rising (US)
1. 2. 3. 4. 5. 6. 7. 8. 9. obama facebook att iphone youtube fox news palin beijing 2008 david cook
10. jonas brothers
10. surf the channel
Economy – Layaway Makes a Comeback
Politics – U.S. Presidential Election
Source: Google Year-End Zeitgeist, 2008.
120
Amazon Web Services – Providing Cheap / Reliable Storage in Cloud
• Simple Storage Service (S3) – Provides a simple web services interface that can be used to store (for as low as $0.12 per GB per mo.) / retrieve any amount of data, at any time, from anywhere. 29B+ objects stored by the end of CQ3, +32% Q/Q. • Elastic Compute Cloud (EC2) – Provides resizable compute capacity in the cloud, with users paying only for capacity they actually use (starting $0.10 / instance-hour).
450 Total Registered Developers (000) 400 350 300 250 8% 200 150 100 50 0 CQ2:05 CQ3:05 CQ4:05 CQ1:06 CQ2:06 CQ3:06 CQ4:06 CQ1:07 CQ2:07 CQ3:07 CQ4:07 CQ1:08 CQ2:08 Total Registered Developers (000) Q/Q Growth
121
Amazon Web Services
16% 14% 12% 10% Q/Q Growth
6% 4% 2% 0%
Source: Amazon.
Closing Thoughts
1) Companies with cogent business models that provide consumer value should survive / thrive – consumers need value more than they have needed it in a long time
122
2% of Public Tech Companies Create 100% of Wealth* –
A Look at Some of Biggest Winners of Our Day
Great Management Team, Constant Culture Improvement X X X X X X X X XX X X X X X X X
Huge Market Apple Cisco Dell eBay Google Intel Microsoft Yahoo! X X X X XX X X X
Simple, Focused Mission X X X X XX X X X
Active, Missionary Founders X O X X X X X X
Insane Customer Focus X X X X X X X X
Big Annuity Gross -Like Strong (1) Margin Model Board 34 65 18 77 83 56 79 81 X X X X X X XX X X X X X X X X X
Source: (1) F2009E for Dell; F2008E for Apple, Cisco, eBay, Google, Intel; F2007A for Microsoft, Yahoo! Morgan Stanley Research, Morgan Stanley “The Technology IPO Yearbook’
123
Top 15 Global Internet Companies
Global Top Internet Companies by Market Value
(US$ in Millions, except per share data, as of 3/19/09)
3/19/09 Rank Company 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Google Amazon.com Yahoo! eBay Yahoo! Japan Softbank Activision Tencent Baidu Rakuten Electronic Arts Alibaba NHN NetEase Expedia
Market
C2008 2006 11% -16 -35 -30 -48 -54 25 233 79 -52 -4 -38 33 -12
Total Return % 2007 50% 135 -9 10 13 6 72 113 246 6 16 -97 1 51 2008 -56% -45 -48 -58 -10 -14 -42 -15 -67 28 -73 -80 -57 17 -74 2009 YTD 5% 34 11 -15 -38 -28 14 3 32 -26 11 38 -2 1 -10
52-Week High $602 92 30 33 548 21 19 9 383 672 55 2 252 27 26 Low $247 35 9 10 229 7 8 4 101 414 14 0 59 15 6
Region Price (US$) Value ($MM) Revenue ($MM) US US US US Japan Japan US China China Japan US China Korea China US $324 69 14 12 251 13 10 7 173 464 18 1 101 22 7 $102,288 29,414 18,836 15,345 14,188 13,158 12,915 11,964 5,920 5,802 5,699 5,034 4,583 2,772 2,121 $21,796 19,166 7,209 8,541 2,633 27,891 3,026 998* 469 2,757 4,480 439* 1,658* 424 2,937
Note: * denotes Morgan Stanley estimate; ~60% of Softbank’s C2008 revenue was coming from their mobile operator business. Source: FactSet; Morgan Stanley Research. Data as of 3/19/09.
124
Old Media (TV) / New Media (Internet + Mobile) – Complementary Platforms
2007 Football Season
2007 Football Season
CBS Television CBSSports.com CBS Mobile
Thursday Kickoff Patriots vs. Colts
NFL Sundays
• • •
Plasma Screen TV – HD Quality Event PC Screen – Fantasy, Stats, and Injury Reports Mobile Screen – Highlights, Scores
Source: CBS Sports Interactive.
125
Younger Generation (18-41) – Spend Most Time on Internet / Cell Phone vs. Other Media
% of Media Consumption Younger Generation (Age 18 - 41)
Newspaper - 3% Magazine - 4% Video Game - 6% Internet - 25% Movie - 11% Radio - 14% TV - 22% Cell Phone - 15%
Cell Phone - 13% Radio - 13% Newspaper Internet - 13% - 12%
Seniors (Age 63+)
Magazine - 8% Video Game - 2%
Movie - 8%
TV - 38%
Total Hours of Media Usage Per Week: 49 Hours
Total Hours of Media Usage Per Week: 37 Hours
Note: Data per Forrester Research’s 2007 North American Technographics Consumer Benchmark Survey; Age 18-41 data is the average of age 18-27 & 28-41. Source: Forrester Research. 126
Media Time Spent vs. Ad Spend Out of Whack –
Internet / Mobile (upside…) vs. Newspaper / Magazine / TV (downside…)
% of Time Spent in Media vs. % of Advertising Spending, USA 2008E
35%
32% 32%
% of Total Media Consumption Time or Advertising Spending
30% 25% 20%
17% 25%
20%
15% 10% 5%
9%
13%
8%
7%
6% 6%
= 8-12% Industry Average
2007 Total Ad Spending ($MM) $5,230 3,207 3,016 3,010 2,962 2,525 2,457 2,409 2,293 2,246 1,903 1,791 1,758 1,739 1,737 1,632 1,628 1,508 1,491 1,423 2007 Internet Ad Spending ($MM) $81 136 189 212 98 164 29 49 141 47 71 79 57 53 72 12 23 36 72 34 Internet % of Total (2) 2% 6 9 10 6 10 2 3 10 5 5 7 5 5 7 2 3 3 18 4
Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Company Procter & Gamble AT&T Verizon General Motors Time Warner Ford GlaxoSmithKline Johnson & Johnson Walt Disney Unilever Sprint Nextel General Electric Toyota Chrysler Sony L'Oreal Sears Kraft Foods Bank of America Nissan
Industry Consumer Telecom Telecom Automotive Media Automotive Healthcare Consumer Media Consumer Telecom Conglomerate Automotive Automotive Technology Consumer Retail Consumer Financial Automotive
Note: (1) 8% is the average of the top 100 US ad spenders in 2007, per Ad Age. Data via TNS, which excludes search revenue. We use IAB and ZenithOptimedia data to estimate that in the U.S., online ad spend (including search) = ~12% of total ad spend; (2) Percentage of total measured advertising spending, which is smaller than the total ad spending figures provided. 132 Source: Advertising Age, “100 Leading National Advertisers” 6/08; Morgan Stanley Research
Key to Progress = Learning to Speak Different Languages and Walk Miles in Moccasins – Google / P&G Employee Swap
• P&G employees were surprised during a Tide brand meeting when a Google job-swapper didn't realize Tide's signature orange-colored packaging is a key part of the brand's image. • Google employee caused a stir when she showed P&G staffers some Google data indicating online searches for word "coupons" are up ~50% over past 12 months. • When P&G unveiled an ambitious promotion for the Pampers brand, the Google team was stunned to learn that Pampers hadn't invited any "motherhood" bloggers -- women who run popular Web sites about child-rearing -- to attend the press conference. P&G’s ‘The Talking Stain’ Campaign Engages YouTube Viewers
Source: The Wall Street Journal 11/28/08, Advertising Age, P&G.
133
While CPMs / CPCs May be Under Near-Term Pressure, If Targeting / ROI Continue to Improve (as they should) There Should Be Long-Term Upside
Estimated CPMs
Source: Yahoo! Investor Presentation, 3/08.
134
History Proves That Ads Follow Eyeballs, It Just Takes Time
1996 – Morgan Stanley Global Estimates in ‘The Internet Advertising Report’ 2007 – We’re @
Internet Users: 1.35B(1)
Online Ad Revenue: $41B(2)
Ad Revenue per User: $30(3)
Note: (1) ITU, Morgan Stanley Research estimate, comScore reports a lower number for global unique visitors due to their sampling method; (2) ZenithOptimedia; (3) Using comScore’s #s, global online ad revenue per unique user would have been ~$53; Source: ITU, ZenithOptimedia, Morgan Stanley Research. 135
We are Undergoing the Greatest Media Transformation in History
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Amazon.com = Greatest Advertiser / Agency of Past Decade?
• Online advertising underperforms relative to potential – 76% of USA consumers find Internet ads more intrusive than print ads, 64% pay more attention to print ads than those online, per Deloitte. • Amazon.com turns intrusive ads into useful / desirable information
Demo: Step 1: Show your interests in a camera
Step 2: Amazon.com returns with ‘ads’ for compatible lens / battery / memory card, etc.
Source: Deloitte, Amazon.com.
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Advertising Age – Best Campaigns 1900-2000 – Most Fertile Decades = 1950-1980
25%
20%
% of Top 100 Ads
15%
10%
5%
0% 1900s 1910s 1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s
Source: Advertising Age, Wikipedia Note: 2 ads before 1900 are included in 1900s decade. Alka-Seltzer ads are included in 1960s decade.
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These Campaigns Were Really / Really Awesome – They Sold Lots of Product
Rank Company 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Volkswagen Coca-Cola Marlboro Nike McDonald's DeBeers Absolut Vodka Miller Lite Beer Clairol Avis Federal Express Apple Computer Alka-Seltzer Pepsi-Cola Maxwell House Ivory Soap American Express U.S. Army Anacin Rolling Stone Pepsi-Cola Hathaway Shirts Burma-Shave Burger King Campbell Soup Commercial Think Small The pause that refreshes The Marlboro Man Just do it You deserve a break today A diamond is forever The Absolut Bottle Tastes great, less filling Does she...or doesn't she? We try harder Fast talker 1984 Various ads Pepsi-Cola hits the spot Good to the last drop 99 and 44/100% Pure Do you know me? Be all that you can be Fast, fast, fast relief Perception. Reality. The Pepsi generation The man in the Hathaway shirt Roadside signs in verse Have it your way Mmm mm good Ad Agency Doyle Dane Bernbach D'Arcy Co. Leo Burnett Co. Wieden & Kennedy Needham, Harper & Steers N.W. Ayer & Son TBWA McCann-Erickson Worldwide Foote, Cone & Belding Doyle Dane Bernbach Ally & Gargano Chiat/Day Jack Tinker & Partners; Doyle Dane Bernbach; Wells Rich, Greene Newell-Emmett Co. Ogilvy, Benson & Mather Proctor & Gamble Co. Ogilvy & Mather N.W. Ayer & Son Ted Bates & Co. Fallon McElligott Rice Batton, Barton, Durstine & Osborn Hewitt, Ogilvy, Benson & Mather Allen Odell BBDO BBDO Year 1959 1929 1955 1988 1971 1948 1981 1974 1957 1963 1982 1984 1960s, 1970s 1940s 1959 1882 1975 1981 1952 1985 1964 1951 1925 1973 1930s
Source: Advertising Age.
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We are Undergoing the Greatest Media Transformation in History
Where is the great creative? Great creative sells great products. Great creative (in a new medium) for great products helps create great companies.
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Great Internet Creative – The Time is Now…
• When the going gets tough, the tough get going. - Joe Kennedy (1888-1969) • Necessity is the mother of invention. - Plato (~400BC) • Speed up in a slowdown. - Google (2008)
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The Internet – What Would William Bernbach or Leo Burnett Do?
• Rules are what the artist breaks; the memorable never emerged from a formula. - William Bernbach (1911-1982) • Just do it. - Wieden & Kennedy (1988)
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Disclosure Section
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Important US Regulatory Disclosures on Subject Companies
The following analyst, strategist, or research associate (or a household member) owns securities (or related derivatives) in a company that he or she covers or recommends in Morgan Stanley Research: Mary Meeker - Amazon.com (common stock), eBay (common stock), Yahoo! (common stock). Morgan Stanley policy prohibits research analysts, strategists and research associates from investing in securities in their sub industry as defined by the Global Industry Classification Standard ("GICS," which was developed by and is the exclusive property of MSCI and S&P). Analysts may nevertheless own such securities to the extent acquired under a prior policy or in a merger, fund distribution or other involuntary acquisition. As of February 27, 2009, Morgan Stanley beneficially owned 1% or more of a class of common equity securities of the following companies covered in Morgan Stanley Research: Amazon.com, eBay, Google, GSI COMMERCE, WebMD Health Corp., Yahoo!. As of February 27, 2009, Morgan Stanley held a net long or short position of US$1 million or more of the debt securities of the following issuers covered in Morgan Stanley Research (including where guarantor of the securities): Amazon.com, eBay, GSI COMMERCE. Within the last 12 months, Morgan Stanley has received compensation for investment banking services from Dice Holdings, Inc., eBay, Google, GSI COMMERCE. In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from Amazon.com, Dice Holdings, Inc., eBay, Google, GSI COMMERCE, TechTarget, Inc., WebMD Health Corp., Yahoo!. Within the last 12 months, Morgan Stanley & Co. Incorporated has received compensation for products and services other than investment banking services from eBay, Google. Within the last 12 months, Morgan Stanley has provided or is providing investment banking services to, or has an investment banking client relationship with, the following company: Amazon.com, Dice Holdings, Inc., eBay, Google, GSI COMMERCE, TechTarget, Inc., WebMD Health Corp., Yahoo!. Within the last 12 months, Morgan Stanley has either provided or is providing non-investment banking, securities-related services to and/or in the past has entered into an agreement to provide services or has a client relationship with the following company: eBay, Google. The research analysts, strategists, or research associates principally responsible for the preparation of Morgan Stanley Research have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues. An employee or director of Morgan Stanley is a director of Yahoo!. Morgan Stanley & Co. Incorporated makes a market in the securities of Amazon.com, Dice Holdings, Inc., drugstore.com, eBay, Google, GSI COMMERCE, TechTarget, Inc., WebMD Health Corp., Yahoo!. Certain disclosures listed above are also for compliance with applicable regulations in non-US jurisdictions.
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Disclosure Section
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(as of February 28, 2009)
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Coverage Universe
Investment Banking Clients (IBC)
Stock Rating Category
Count
% of Total
Count
% of Total IBC
% of Rating Category
Overweight/Buy Equal-weight/Hold Not-Rated/Hold Underweight/Sell Total
714 1003 33 507 2,257
32% 44% 1.5% 22%
216 246 9 100 571
38% 43% 1.6% 18%
30% 25% 27.3% 20%
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Disclosure Section
Analyst Stock Ratings
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