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Ten Questions
Internet Execs Should Ask & Answer
November 16, 2010
Web 2.0 Summit –
San Francisco, CA
mary.meeker@ms.com / scott.devitt@ms.com / liang.wu@ms.com
www.morganstanley.com/techresearch
1)
Globality
2)
Mobile
3)
Social Ecosystems
4)
Advertising
5)
Commerce
6)
Media
7)
Company Leadership Evolution
8)
Steve Jobs
9)
Ferocious Pace of Change in Tech
10) Closing Thoughts
2
Question Focus Areas
3
1.
Globality
Do you know which players in which countries
do what you do better (or at least differently) than you do?
Do you study / implement it?
Top Internet Markets –
46% of Users in 5 Countries –
China, USA, Brazil, India, Russia
Note: *Penetration is per 100 inhabitants.
Source: 1) Internet user stats per International Telecommunications Union; 2) time spent data per comScore global 12/09.
USA
240MM users, +4% Y/Y
76% penetration*
Brazil
76MM users, +17% Y/Y
39% penetration*
Russia
60MM users; +31% Y/Y
42% penetration*
India
61MM users; +18% Y/Y
5% penetration*
China
384MM users; +29% Y/Y
29% penetration*
2009 -
1.8B Global Internet Users, +13% Y/Y(1); 18.8T Minutes Spent, +21% Y/Y(2)
4
5Note: 3G includes CDMA 1x EV-DO and Rev. A / B, WCDMA, HSPA; Source: Informa WCIS+, Morgan Stanley Research.
Top Mobile Internet Markets –
~670MM 3G Subscribers (+37% Y/Y), CQ2
Global 3G Stats:
Subscribers = ~670MM Penetration = 14% Growth = 37%
Rank Country
CQ2:10
3G Subs
(MM)
3G
Pene-
tration
3G Sub
Growth
Y/Y Rank Country
CQ2:10
3G Subs
(MM)
3G
Pene-
tration
3G Sub
Growth
Y/Y
1 USA 136.6 48% 31% 16 Malaysia 7.9 26% 32%
2 Japan 106.3 96 12 17 Canada 7.3 32 62
3 Korea 38.8 80 15 18 Saudi Arabia 7.0 17 55
4 Italy 34.3 42 28 19 Turkey 6.8 11 --
5 UK 29.5 38 34 20 South Africa 6.7 14 33
6 Germany 26.5 26 30 21 Portugal 5.7 36 15
7 Spain 24.7 46 22 22 Sweden 5.5 45 25
8 Indonesia 19.2 12 57 23 Netherlands 5.5 28 33
9 France 18.8 32 32 24 Austria 5.1 46 29
10 Australia 16.7 65 31 25 Israel 4.9 51 36
11 Poland 15.4 35 27 26 Philippines 4.8 6 82
12 China 14.5 2 941 27 Egypt 4.0 7 38
13 Brazil 13.3 8 148 28 Greece 3.9 20 25
14 Taiwan 11.3 44 69 29 Singapore 3.9 55 41
15 Russia 9.6 5 81 30 Romania 3.8 13 20
Unusually High Level of Global Innovation –
Facebook & Tencent Learning From Each Other’s Playbooks
Largest Social Network in English-Speaking
Countries –
620MM visitors, +51% Y/Y in 9/10
Real Identity –
Sharing among real-world
friends / pictures / events
Facebook
Largest Social Network in China –
637MM
active IM users, +31% Y/Y in CQ3
Virtual Identity –
$1.4B virtual goods revenue
(from users customizing their avatars /
purchasing game items…) in 2009, +94% Y/Y
Tencent
Virtual identity
& customizable
avatars
Real pictures
& real names
Source: Facebook, comScore (global unique visitors for Facebook), Tencent. 6
7
2.
Mobile
Ramping faster than any ‘new new thing’
–
is your business leading or lagging?
20
40
60
80
100
120
Q1 Q3 Q5 Q7 Q9 Q11 Q13 Q15 Q17 Q19
Quarters Since Launch
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iPhone + iTouch NTT docomo i-mode AOL Netscape
8
iPhone + iTouch vs. NTT docomo i-mode vs. AOL vs. Netscape Users
First 20 Quarters Since Launch
Note: *AOL subscribers data not available before CQ3:94; Netscape users limited to US only. Morgan Stanley Research estimates
~65MM+ netbooks have shipped in first 11 quarters since launch (10/07). Source: Company Reports , Morgan Stanley Research.
Data as of CQ3:10.
Desktop Internet
AOL*
v 2.0 Launched 9/94
Mobile Internet
NTT docomo i-mode
Launched 6/99
Mobile Internet
iPhone + iTouch + iPad
Launched 6/07
~120MM+
~32MM
~9MM
Desktop Internet
Netscape*
Launched 12/94
~27MM
Apple iPhone + iTouch + iPad Ramp –
The Likes of Which We Haven’t Seen Before
Mobile Operating Systems –
Attackers (Apple & Google) Driving Market Excitement & Momentum
Global Unit Shipment Share of Smartphones by Operating System,
Symbian (Nokia) / BlackBerry (RIM) / iOS
(Apple) / Android (Google) / Others, 1Q06 –
3Q10
9
Note: iOS
excludes iPod Touch and iPad shipments as they are not smartphones. *Others include Windows Mobile, Palm OS &
WebOS, Linux and other proprietary smartphone OSes. Call outs on
the left side represent market shares in CQ1:06; call outs
on the right side represent market shares in CQ3:10. Source: Gartner.
0%
20%
40%
60%
80%
100%
CQ1:06 CQ4:06 CQ3:07 CQ2:08 CQ1:09 CQ4:09 CQ3:10
Q
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(
%
) Others*
BlackBerry
(RIM)
Symbian
(Nokia)
Android
(Google)
iOS
(Apple)
62%62%
31%31%
7%7%
37%37%
6%6%
15%15%
25%25%
17%17%
0
100
200
300
400
500
600
700
2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E
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Desktop PCs Notebook PCs Smartphones
10
Smartphone > PC Shipments Within 2 Years –
Implies Very Rapid / Land Grab Evolution of Internet Access
Global Unit Shipments of Desktop PCs + Notebook PCs vs. Smartphones, 2005 –
2013E
2012E: Inflection Point
Smartphones > Total PCs
Note: Notebook PCs include Netbooks. Source: Katy Huberty, Ehud Gelblum, Morgan Stanley Research.
Data and Estimates as of 11/10
0
5,000
10,000
15,000
20,000
25,000
30,000
2Q06 4Q06 2Q07 4Q07 2Q08 4Q08 2Q09 4Q09 2Q10
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Mobile Page Views
Desktop Page Views
11
Mixi’s
(Japan’s Leading Social Network) Monthly Page Views, Mobile vs. PC, CQ2:06 –
CQ3:10
Japan Social Networking Trends Show How Quickly Mobile Can
Overtake Desktop Internet Access –
Mixi Mobile Page Views = 84% vs. 17% Four Years Ago
Note: Mixi is one of Japan’s leading social networking sites on PC and mobile with 22MM registered users as of 10/31/10. It
monetizes mobile usage via sales of avatars, customized homepages and other premium services.
Source: Company reports, Morgan Stanley Research
84%84%
16%16%83%83%
17%17%
12
3.
Social Ecosystems
Would you rather be Apple, Google or…Facebook?
Will their future directions help / hurt your business?
13
MobileSocialNetworking
Facebook Apple iPhone
/ iTouch / iPad
Source: PC World, comScore (global user data for Facebook and Google as of 9/10), Facebook, Apple, Google (as of CQ3).
SearchGoogle
Facebook / Apple / Google =
Platforms of Different Types…Each with Rapid Innovation
620MM users620MM users
+51% Y/Y+51% Y/Y
550K+ Apps550K+ Apps
500MM+ Downloads500MM+ Downloads
120MM+ users120MM+ users
+111% Y/Y+111% Y/Y
300K+ Apps300K+ Apps
6.5B+ Downloads6.5B+ Downloads
940MM users940MM users
+11% Y/Y+11% Y/Y
CQ3: CQ3: CPCsCPCs
+2% Q/Q +2% Q/Q
Paid ClicksPaid Clicks
+16% Y/Y+16% Y/Y
14
4.
Advertising
Ripe for innovation –
will your business benefit?
Media Time Spent vs. Ad Spend Still Out of Whack
Internet / Mobile (upside…) vs. Newspaper / Magazine / TV (downside…)
Note: Time spent data per NA Technographics
(2009), ad spend data per VSS, Internet advertising opportunity
assumes online ad
spend share matches time spent share, per Yahoo!. Source: Yahoo!
Investor Day, 5/10.
% of Time Spent in Media vs. % of Advertising Spending, USA 2009
1515
~$50B~$50B
Global
Opportunity
12%
16%
31%
28%
26%
9%
39%
13%
0%
10%
20%
30%
40%
50%
Print Radio TV Internet
%
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Time Spent Ad Spend
16
Advertising Dollars Follow Eyeballs –
Ad Revenue per User = $46 in 2009E vs. $0 in 1994E
Source: Global online ad revenue per Juniper Communications (1995), ZenithOptimedia
(2009). Internet users per
MS estimate (1995) and comScore (2009). We note that comScore reports a lower global Internet user # than
International Telecommunications Union.
1995E 2009E
Global Internet Ad Revenue $55MM $54B
Ad Revenue per User $9 $46
Global Internet Users 6MM 1.2B
Facebook’s
620MM Users (+51% Y/Y) + Under-Monetized ‘Like’
Connections Offer Significant New Ad Opportunities
Note: Facebook’s
user figure reflects global unique visitors in 9/10, per comScore.
Top 20 brand / product pages ranked by # of
people who opted in to ‘like’
the page, excludes ‘people’
(like Vin Diesel / Lady Gaga) and ‘activities’
(like ‘I ♥
Sleep’). Data as of
11/10/10. *Equivalent TV shows based on # of total viewers during the 2009 –
2010 season.
Source: Facebook, Nielsen Media Research, comScore.
Rank Top 20 Brands / Products
# of People Who Like
This (Millions)
Equivalent TV
Shows* TV CPM Range ($)
1 Texas Hold’em Poker (Zynga) 27.2 American Idol
2 Facebook 25.2 NCIS
3 YouTube (Google) 19.6 --
4 Starbucks 16.9 -- ~$30
5 Coca-Cola 16.7 --
6 Mafia Wars (Zynga) 14.4 --
7 Oreo (Kraft) 13.2 --
8 Skittles (Mars) 12.4 --
9 Red Bull 11.1 The Good Wife
10 Disney 10.3 Glee ~$25
11 Victoria’s Secret (Limited Brands) 9.1 --
12 Converse All Star 8.8 --
13 iTunes (Apple) 7.9 --
14 Windows Live Messenger (Microsoft) 7.6 Fringe
15 Pringles (P&G) 6.7 --
16 iPod (Apple) 6.6 -- ~$20
17 ZARA 6.5 --
18 NBA 6.0 --
19 Starburst (Mars) 5.9 Scrubs
20 Dr Pepper 5.8 Vampire Diaries
17
Twitter’s 102MM Users (+74% Y/Y) Increasingly
in Touch with Brands + Media Players
Note: Twitter user figure reflects global unique visitors to Twitter.com
in 9/10, per comScore. Top 20 brands ranked by # of
followers, excludes celebrities like Ashton Kutcher
and Britney Spears. Data as of 11/05/10.
Source: TwitterCounter.com, comScore.
Rank Top 20 Brands # of Twitter Followers
1 Oprah 4.5MM
2 CNN Breaking News 3.6MM
3 New York Times 2.7MM
4 Google 2.6MM
5 E! Online 2.5MM
6 The Onion 2.4MM
7 People Magazine 2.2MM
8 Time Magazine 2.2MM
9 NBA 2.1MM
10 Mashable 2.1MM
11 Martha Stewart 2.0MM
12 Whole Foods 1.8MM
13 NPR 1.8MM
14 InStyle
Magazine 1.8MM
15 NFL 1.8MM
16 BBC Click 1.8MM
17 Zappos! 1.8MM
18 Good Morning America 1.7MM
19 Woot 1.6MM
20 CBS News 1.6MM
18
19
Online Ad CPM Dislocation?
27%
21%
11%
10%
8%
3%
2%
2%
2%
2%
0% 5% 10% 15% 20% 25% 30%
Social Networking
Portals
Entertainment
eMail
News / Information
Sports
Online Gaming
Lifestyles
Business / Finance
Retail
Share of Total US Online Display Ad Units
$0.55
$2.69
$4.53
$0.89
$5.63
$6.35
$2.70
$2.72
$10.41
$2.59
$0.00 $2.00 $4.00 $6.00 $8.00 $10.00 $12.00
CPM ($)
Share of Total USA Online Display Ad Units + CPM,
by Top Publisher Categories –
3/10
Source: comScore presentation “Insights into Online Display Advertising Growth”
(6/10).
Where are the Great Online Ads?
Apple / Google / Yahoo! / Facebook / Twitter / Others Say ‘Watch This Space!’
20Source: Advertising Age. 20
AdAge Top 25 Advertising Campaigns in Twentieth Century
Rank Company Commercial Ad Agency Year
1 Volkswagen Think Small Doyle Dane Bernbach 1959
2 Coca-Cola The pause that refreshes D'Arcy Co. 1929
3 Marlboro The Marlboro Man Leo Burnett Co. 1955
4 Nike Just do it Wieden & Kennedy 1988
5 McDonald's You deserve a break today Needham, Harper & Steers 1971
6 DeBeers A diamond is forever N.W. Ayer & Son 1948
7 Absolut Vodka The Absolut Bottle TBWA 1981
8 Miller Lite Beer Tastes great, less filling McCann-Erickson Worldwide 1974
9 Clairol Does she...or doesn't she? Foote, Cone & Belding 1957
10 Avis We try harder Doyle Dane Bernbach 1963
11 Federal Express Fast talker Ally & Gargano 1982
12 Apple Computer 1984 Chiat/Day 1984
13 Alka-Seltzer Various ads Jack Tinker & Partners; Doyle Dane Bernbach; Wells Rich, Greene 1960s, 1970s
14 Pepsi-Cola Pepsi-Cola hits the spot Newell-Emmett Co. 1940s
15 Maxwell House Good to the last drop Ogilvy, Benson & Mather 1959
16 Ivory Soap 99 and 44/100% Pure Proctor & Gamble Co. 1882
17 American Express Do you know me? Ogilvy & Mather 1975
18 U.S. Army Be all that you can be N.W. Ayer & Son 1981
19 Anacin Fast, fast, fast relief Ted Bates & Co. 1952
20 Rolling Stone Perception. Reality. Fallon McElligott Rice 1985
21 Pepsi-Cola The Pepsi generation Batton, Barton, Durstine & Osborn 1964
22 Hathaway Shirts The man in the Hathaway shirt Hewitt, Ogilvy, Benson & Mather 1951
23 Burma-Shave Roadside signs in verse Allen Odell 1925
24 Burger King Have it your way BBDO 1973
25 Campbell Soup Mmm mm good BBDO 1930s
21
5.
Commerce
’Wal-Mart in your pocket’…location-based
services…group buying power…flash sales…
deep discounts…transparent pricing…real-time alerts
/ ratings…virtual goods...immediate gratification…
Products must be fast + easy + fun.
Have you ever seen ‘constant improvement’
in products like we are seeing now?
Is your business keeping pace?
Do humans want everything to be like a game?
0%
1%
2%
3%
4%
5%
6%
7%
Q3:00 Q3:01 Q3:02 Q3:03 Q3:04 Q3:05 Q3:06 Q3:07 Q3:08 Q3:09 Q3:10 Q3:11 Q3:12
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eCommerce Penetration Linear Trendline (y=0.094x + 0.9895, R^2=0.9599)
22
USA eCommerce % Share(1)
of Total Retail Sales, CQ3:00 –
CQ4:12E
Note: (1) Adjusted for eBay by adding back eBay US gross merchandise volume;
Source: US Dept. of Commerce (CQ4:09), Morgan Stanley Research.
eCommerce
Penetration
4% in CQ2:10
Mobile
eCommerce
Penetration?
Online Commerce Gaining Share vs. Offline –
Online at ~5% of USA Retail, Mobile Should Get to Same Level Much Faster
23
Location-Based Services –
Enable real-time physical retail / service opportunities
Transparent Pricing –
Instant local + online price comparison could disrupt retailers
Discounts –
Invitation-only time-based selective sales gaining traction
Immediate Gratification –
OTA (over-the-air) instant digital product + content delivery
Transparent Pricing
ShopSavvy Android App
Comparison shopping
among online + local stores
Location-Based Services
Priceline.com
iPhone App
Finds hotel deals
in your area
Discounts
Gilt iPhone App
Designer handbags
Up to 70% Off
Mobile Revolutionizing Commerce
–
With Constant Product Improvements
Immediate Gratification
iTunes Store on iPhone
Music / video / apps
delivered wirelessly
Source: Company Reports, Morgan Stanley Research.
24
6.
Media
What does the extraordinary ramp in on-demand
video usage mean for your business?
Streaming Video Gaining Material Market Share
of Internet / Mobile Usage
25
Note: *Peak hours are the periods during which bandwidth utilization is heaviest. They typically occur in the evening and last
3-5 hours. (e.g., peak hours for Netflix = 8-10pm). RTMP stands for real-time messaging protocol (Instant messaging). Real-
time entertainment represents streamed / buffered audio and video content. Source: Sandvine
Fall 2010 Global Internet
Phenomena Report, Morgan Stanley Research.
North America Downstream Fixed-Access
Peak Hour* Traffic Share by Application, 9/10
Streaming Video Up to ~37% of Internet
Traffic
During Traditional “TV Hours”
36% 32%
27% 41%
18% 6%
6%
10% 10%
4% 3%
8%
0%
20%
40%
60%
80%
100%
Jan 2010 Sep 2010
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Web Browsing Real-Time Entertainment
P2P Filesharing Secure Tunneling
Gaming Social Networking
Real-Time Communications Other
North America Mobile Peak Hour* Traffic
Share by Application, 9/10 vs. 1/10
Mobile Video = 41% of Peak Hour Traffic,
Up from 27% in January
6%
6%
8%
10%
21%
23%
26%
0% 5% 10% 15% 20% 25% 30%
RTMP
Flash Video
BitTorrent
YouTube
Netflix
HTTP
Other Traffic
Downstream Traffic Share during Peak Hours, by Application (9/10)
Streaming Video
Other Web Traffic
26
Hours of YouTube Content Uploaded per Minute, 6/07 –
11/10
Source: YouTube blog, Morgan Stanley Research.
YouTube Content Growth Accelerating (+2x Y/Y) –
35 Hours of Content Added Every Minute
0
10
20
30
40
6/07 12/07 6/08 12/08 6/09 12/09 6/10
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Hours Uploaded per Minute
27
7.
Internet Company Leadership Evolution
Shocking changes over just 6 years…
are you prepared for next half decade of change?
2010 2004
Market Revenue Market Revenue
Rank Company Region Value ($B) ($MM) Rank Company Region Value ($B) ($MM)
1 Apple USA $290 $46,709 1 eBay USA $71 $3,271
2 Google USA 197 23,612 2 Google USA 50 3,189
3 Amazon.com USA 76 24,508 3 Yahoo! USA 52 3,575
4 Tencent CHN 41 1,822 4 IAC/Interactive* USA 38 4,188
5 eBay USA 40 8,727 5 Yahoo! Japan JPN 33 1,101
6 Baidu CHN 40 641 6 Apple USA 22 8,279
7 Yahoo! USA 22 6,460 7 Amazon.com USA 16 6,921
8 Yahoo! Japan JPN 21 2,941 8 Rakuten JPN 9 445
9 Priceline.com USA 21 2,338 9 Monster USA 3 846
10 Salesforce.com USA 15 1,241 10 WebMD USA 2 134
11 Rakuten JPN 10 3,204 11 Shanda CHN 3 157
12 Alibaba.com CHN 10 568 12 NCSoft KOR 2 280
13 Akamai USA 9 860 13 Index JPN 2 357
14 Netflix USA 9 1,670 14 NHN KOR 1 253
15 NHN KOR 8 1,062 15 For-side.com JPN 1 85
Total $809B $126B Total $304B $33B
28
Global Public Internet Companies –
Significant Changes Over Last 6 Years
Note: 2010 Market value data as of 11/11/2010; 2004 data as of 11/11/2004. 2010 Revenue is latest calendar year revenue (C2009A)
Source: FactSet.
Top Global 15 Publicly Traded Internet Companies by Market Value
–
2010 vs. 2004
2 of 2010 Top 15 Companies (Alibaba, Baidu) Went Public Post 2004
29
8. Steve Jobs
What’s his ‘secret sauce?’
Does your company have it?
30
Larry Ellison (June 2004): Steve Jobs is the most brilliant person in our industry, and what is
most remarkable about Steve, I think, is his incredible aesthetic sense. He has the
mind of an engineer and the heart of an artist
— that's a very unusual combination, an enormous advantage when you do consumer
products. Look at the iPod...I think the iPod is a beautiful design and I think the iMac is a
brilliant design. He's done a tremendous amount of innovation on
the integration of
hardware design and software design.
Bill Gates (May 2007):
…We build the products that we want to use ourselves. And so he’s
[Steve Jobs] really pursued that with incredible taste and elegance that has had a huge
impact on the industry. And
his ability to always come around and figure out where that next
bet should be has been
phenomenal.
Apple literally was failing when Steve went back and re-infused the innovation and risk-
taking that have been phenomenal.
Steve Jobs –
‘…mind of an engineer and the heart of an artist…’
Note: Ellison quote from interview with Walt Mossberg & Kara Swisher at AllThingsD: D2 Conference, June 2004.
Gates quote from interview with Steve Jobs, Walt Mossberg & Kara
Swisher at AllThingsD: D5 Conference, May 2007.
Source: AllThingsDigital, www.peoplesoft-planet.com
31
9. Ferocious Pace of Change -
What’s Next in Tech?
When do consumers / enterprises
& incumbents / attackers need you?
Mobile Connectivity Drives New Ways to Do LOTS
of Things
Faster / Better / Cheaper from Palm of Hand
More Connected
–
Real-time connectivity / 24x7 / in palm of hand…
More Affor