The State of Advertising –Trends, Opportunities and Challenges

February 1, 20111:00 pm EST / 10:00 am PST

Overview

• About our Sector Snapshot Program

• Growthink’s Bottom Line**– Mr. Troy Centazzo, Managing Director

• The View from the Trenches– Mr. Mike Mothner, Founder and CEO,

WPromote– Mr. Trevor Shanski, Founder and President,

eWORDofMOUTH

**See Bonus Pack in Back

About Our Sector Snapshot Program

1. 45 Minute Webinar2. Questions/comments as we go:

– Type in utilizing GoToWebinar toolbar

3. After Call: – Survey feedback

– Within 2 hours after the call, you will receive, via email, copies of the reviewed slides

**This presentation does not constitute a general offering or solicitation to purchase or acquire securities.

Print Advertisements in Newspapers and Magazines; Short and Long-Form Commercials and Sponsorships on Radio and Television; Billboards and Signs; Public Relations; Direct Mail and Catalogs; Tiny Classified Ads;

Network Marketing

The Ad Universe (Pre-Internet)

Massive Opportunity for Emerging Firms:Advertisers Have Not Yet Shifted Spend to Meet Consumer Behavior

• The Guru Speaks

• Why? • Advertiser concerns about social media and mobile ad ROI• Natural lag time for ad spend to catch up with new offerings• Internal disagreement over social media management (marketing? PR? IT?)• Advertisers are now “drinking out of a fire hose” with so many options

Represents an Incremental $50B Global Opportunity

Represents an Incremental $50B Global Opportunity

Source: (Then) Morgan Stanley Analyst, Mary Meeker, in her presentation at the Nov, 2010

Web 2.0 Summit

Sector on Fire:The M&A Wave and Venture Investment Acquisition Experian Buys In To Social Media Marketing Jan 17, 2011 N/A

Venture Capital SnagFilms Raises $10 Million From Comcast, NEA; Will Expand Beyond Docs Jan 17, 2011 $10,000,000

Acquisition Travel Organizer TripIt Sold To Concur For Up To $120 Million Jan 13, 2011 $120,000,000

Acquisition RockYou Buys Social Game Developer Playdemic Jan 13, 2011 N/A

Acquisition After Absorbing Adify, Cox Digital Buys IB Local Jan 13, 2011 N/A

Acquisition LivingSocial Expands Abroad By Buying A Stake In Let’s Bonus Jan 13, 2011 N/A

Acquisition Daily Deals By Newspapers: Archant Buys A Local Groupon Clone Jan 13, 2011 N/A

Venture Capital Primesense Raises Undisclosed Amount From Silver Lake Partners Jan 12, 2011 N/A

Venture Capital Baynote Closes $13M From SingTel Innov8 Jan 12, 2011 $13,000,000

Venture Capital Formspring Raises Over $12 Million In First Round Jan 12, 2011 $11,500,000

Venture Capital Adknowledge Raises $200 Million In Debt, Equity Financing Jan 12, 2011 $200,000,000

Venture Capital Tumblr Raises $30 Million In New Round Led By Sequoia Dec 17, 2010 $30,000,000

Venture Capital As Regulatory Scrutiny Intensfies, Ad Targeter eXelate Adds To Second Round Dec 16, 2010 $16,000,000

Acquisition AOL Acquires Display Ad Tool Pictela; Project Devil Gets Full Roll Out Dec 16, 2010 N/A

Venture Capital Twitter Raises $200 Million In Funding Round Led By Kleiner Perkins Dec 15, 2010 $200,000,000

Venture Capital As Video Space Heats Up, SpotXchange Closes $12 Million Round Dec 15, 2010 $12,000,000

Venture Capital Social Net For Gay Men Fab Gets $1.75 Million More From WaPost, Others Dec 13, 2010 $1,750,000

Venture Capital Social Ad Targeter Media6degrees Raises $17 Million Second Round Dec 13, 2010 $17,000,000

Source: Content Next Media, Inc., Paid Content.org, http://paidcontent.org/deals/#item_4899, retrieved January 31, 2011.

Growthink’s Bottom Line

1. Emerging Ad Business Models We Like

2. Promising Strategies for Corporate Advertisers

3. Areas of Opportunity for Advertising and Marketing Companies and Agencies

Emerging Ad Business Models We Like

• Technology and service providers that…

…help marketers sort through

the thousands of options they now

have to assist decision making

1

…enable companies to

upgrade their customer databases

and integrate with

communications

2

…can rapidly scale with

proprietary access to / technology

for Facebook Ads

3

…provide video technology to enhance online

/ mobile presence and

user experience

4

Promising Strategies for Corporate Advertisers

• There is still a significant opportunity to optimize a Web 2.0 platform with limited investment

We’re not really focused on the Fortune 1000+ here; they’re investing heavily in these areas.

Search Engine Optimization

(SEO); Educational

Content; Web-based lead gen; Public Relations

1

Collecting customer info;

CRM/Data management;

Loyalty programs

2

Yes, social media

campaigns, but done right (not just a Facebook

page)

3

Video added to your website, mobile, social

strategy

4

Large ROI Potential

Areas of Opportunity for Advertising and Marketing Companies

• A young company must cut through the crowded marketplace for advertising and marketing offerings

Don’t underestimate the importance of hiring your first head of

sales & marketing

1

Establishing credibility

for prospective customers –client logos,

PR, education, content

2

Create channel partnerships

early with complementary

firms with access to targets

3

Want to exit?Understand

evolving strategies of

acquirers and set milestones; Advisory Board

4

Despite what the engineering team says, the coolest technology won’t sell itself.

Areas of Opportunity for Advertising and Marketing Agencies

• Continued willingness of enterprise-level clients to work with small, highly creative agencies; huge need in middle market for integrated marketing and “social media” advice

If you haven’t yet integrated digital and

social media services, you’re at risk of future

extinction

1

Develop“white label”

channel partnerships

with technologies /

services

2

Market your firm as well as

you market your clients –

become the industry experts

3

Want to exit?Know the key acquisition

metrics of the leading buyers and focus on milestones.

4

Acquisition interest will likely be there upon reaching critical mass; there’s a massive amount of capital available for acquisitions.

The Coming M&A Wave: Unprecedented Capital for Sector Acquisitions

And These Are Just the “Usual Suspects,” Not Tier 2 - 3 Buyers

Who Doesn’t Want to Enter the Marketing, Advertising and Data Services Business?

Another Look:The M&A Wave and Venture Investment Acquisition Experian Buys In To Social Media Marketing Jan 17, 2011 N/A

Venture Capital SnagFilms Raises $10 Million From Comcast, NEA; Will Expand Beyond Docs Jan 17, 2011 $10,000,000

Acquisition Travel Organizer TripIt Sold To Concur For Up To $120 Million Jan 13, 2011 $120,000,000

Acquisition RockYou Buys Social Game Developer Playdemic Jan 13, 2011 N/A

Acquisition After Absorbing Adify, Cox Digital Buys IB Local Jan 13, 2011 N/A

Acquisition LivingSocial Expands Abroad By Buying A Stake In Let’s Bonus Jan 13, 2011 N/A

Acquisition Daily Deals By Newspapers: Archant Buys A Local Groupon Clone Jan 13, 2011 N/A

Venture Capital Primesense Raises Undisclosed Amount From Silver Lake Partners Jan 12, 2011 N/A

Venture Capital Baynote Closes $13M From SingTel Innov8 Jan 12, 2011 $13,000,000

Venture Capital Formspring Raises Over $12 Million In First Round Jan 12, 2011 $11,500,000

Venture Capital Adknowledge Raises $200 Million In Debt, Equity Financing Jan 12, 2011 $200,000,000

Venture Capital Tumblr Raises $30 Million In New Round Led By Sequoia Dec 17, 2010 $30,000,000

Venture Capital As Regulatory Scrutiny Intensfies, Ad Targeter eXelate Adds To Second Round Dec 16, 2010 $16,000,000

Acquisition AOL Acquires Display Ad Tool Pictela; Project Devil Gets Full Roll Out Dec 16, 2010 N/A

Venture Capital Twitter Raises $200 Million In Funding Round Led By Kleiner Perkins Dec 15, 2010 $200,000,000

Venture Capital As Video Space Heats Up, SpotXchange Closes $12 Million Round Dec 15, 2010 $12,000,000

Venture Capital Social Net For Gay Men Fab Gets $1.75 Million More From WaPost, Others Dec 13, 2010 $1,750,000

Venture Capital Social Ad Targeter Media6degrees Raises $17 Million Second Round Dec 13, 2010 $17,000,000

Source: Content Next Media, Inc., Paid Content.org, http://paidcontent.org/deals/#item_4899, retrieved January 31, 2011.

Opportunities for Early Stage Investors

• Trends in venture investing have been challenging for many traditional VCs, but provide opportunities that have never existed before for: • start-ups seeking capital, and • angel investors seeking access to quality deals

• The AngelList provides first-of-its-kind access to angels and deals• Requirements to join: Accredited; Active seed stage investor

“In The Trenches” – Q&A with Emerging Firms

WPromote - Online Advertising / Marketing Firm

• Interview with Mike Mothner, Founder and CEO• Founded WPromote in 2001• Provides online marketing services to clients ranging

in size from small businesses to the Fortune 500• Rated as #1 Search Engine Marketing Firm

Worldwide (topseos.com) and winner of numerous industry awards

• Competes with thousands of marketing services agencies, consultants and other providers

• 60 employees• 35,000 clients

WPromote – Representative Agency Clients

eWORDofMOUTH – Referral-based marketing services

• Interview with Trevor Shanski, Founder and President• Founded eWORDofMouth in 2004• Provides a software-based product (SaaS) for

companies to rapidly attract new customers and contacts by sourcing them from their existing customers

• Customers receive a promotion through email to provide their friends’ email and/or mobile info; they then receive a promotion

• Fully managed solution with creative services –reporting, ROI

• Leverages referrals and word of mouth• Incorporates social media programs

eWORDofMOUTH – At a Key Inflection Point

• Recently focused on client acquisition after finalizing software technology and raising seed round

• Clients and pipeline:

Conclusions

1. Massive changes in consumer behavior and most advertisers have not been able to adjust quickly.

2. There are SO many opportunities / ways / means / to reach out and interact with customers. This is good and bad.

3. Because of the global speed and reach of new media (i.e., Twitter’s coverage of Egypt), there will be bigger and faster winners (i.e., Facebook, Groupon, et al.) and more spectacular busts than ever before.

To Learn More

• Questions / Discussion

• Return our survey

• Contact:– Stacey Polychronis: 310-954-2013

– Email: stacey.p@growthink.com

Bonus Pack

The State of Advertising –Trends, Opportunities and Challenges

Audience Question!

3.4 million years ago

GT’s Brief History of Advertising

Paleontologists recently discovered that hominid species likely showed each other how to

use stone tools, leading to countless Tupperware parties

Paleontologists recently discovered that hominid species likely showed each other how to

use stone tools, leading to countless Tupperware parties

4000 BC

“Lost and Found” ads and signs posted on papyrus in Ancient Greece and Rome

“Lost and Found” ads and signs posted on papyrus in Ancient Greece and Rome

Middle Ages

Signs posted with images to represent services availableSigns posted with images to represent services available17th Century

Handbills and ads in weekly newspapers

Handbills and ads in weekly newspapers

19th Century

Oct, ‘94

The start of the “Creative Revolution,” the modern period

of advertising

The start of the “Creative Revolution,” the modern period

of advertising

The Last 3 Years

Sponsorships of radio programs; celebrity endorsements. Mary Pickford paves the way for Kim Kardashian’s $10k tweets.

Sponsorships of radio programs; celebrity endorsements. Mary Pickford paves the way for Kim Kardashian’s $10k tweets.

Web 1.0 – about 1.75Web 1.0 – about 1.75

1960s – 90s

Early 20th Century

Mail order ads and the first agencies appear

Mail order ads and the first agencies appear

?? Sources: Wikipedia; Growthink Research.

Infographic- Forecasting the Near Term Consumer Environment (the US Example)

Americans continue to spend less time reading printed newspapers, books, magazines, phone directories and maps. They also spend less time

listening to radios and seeing movies in traditional movie theaters.

…data collection on

and “crunching” of

consumer behavior

…tools for advertisers to understand customer

behaviors and target them

...calls for privacy and the

protection of consumer

information

Consumers increasingly rely on

the Internet to make buying decisions: 56% to inform

their buying decisions and 11% use the Web and smartphones to find lowest price (Cisco, 1/11).

Word of Mouth recommendations from friends are still by far the most trusted form of advertising

Google dominates search, with a 67% share (ComScore, Dec. 2010)

67%

UNPRECEDENTEDUNPRECEDENTED UNPRECEDENTEDUNPRECEDENTED UNPRECEDENTEDUNPRECEDENTED

The Coming Year of Mobile: SmartphoneShare to 50%, Apps, Location-based, Instant

Ads, Commerce, Banking

How People Spend Their Time:

•TV• Internet

• Social Media• Mobile• Games

How People Spend Their Time:

•TV• Internet

• Social Media• Mobile• Games

35 hrs of new content / min (source: Morgan Stanley)

Continued Macroeconomic Uncertainty:* Unemployment, real estate values, government deficits and spending cuts,

Continued Macroeconomic Uncertainty:* Unemployment, real estate values, government deficits and spending cuts,

Still The Fastest Growing Company Ever?

i, i Sir! Fastest Product Ramp Ever?

-500 Million Users-$50B valuation-$50M in bank-OpenGraph

-Person of Year!

-500 Million Users-$50B valuation-$50M in bank-OpenGraph

-Person of Year!

Consumer Behavior, 2011

Consumers and “Traditional” Media – Drifting Apart?

Change in Average Time Spent Per Day with Media Types by US Adults

2009: -13.2%2010: -9.1%

2009: -12.0%2010: -9.1%

2009: -3.9%2010: -2.0%

2009: +5.1%2010: -1.1%Flat Over Last 5 Years

Source: eMarketer, Dec. 2010.

Includes Video

So What Are Consumers Spending Their Time Doing?

For the first time, Americans now spend as much time on the Internet as they do watching TV (13 hours per week)*

Share of Time Spent on Internet (2010) (on PCs and Laptops)

Share of Time Spent on Internet (2010) (on PCs and Laptops)

Social Networks / Blogs: 22.7%, up 43% from 2009

Games: 10.2%, up 10%

from 2009

Email: 8.3%, down

28% from 2009* Note: A recent meta-study by eMarketer concluded that US adults spent 40% of their time with media watching TV and 24% on the

Internet. Sources: The Nielson Company; eMarketer (2010).

Up 121% Over Last 5 Years45% Have a DVR

So What Are Those Consumers Spending Their Time Doing?

Time spent on mobile devices – increasingly smartphones and tablets –is rising the fastest compared to other media

Sources: eMarketer (2010); Falaki, Hossein et al. 2010. Diversity in Smartphone Usage. MobiSys’10

Share of Time Spent on Smartphones (US & UK)Share of Time Spent on Smartphones (US & UK)

Research Has Shown Much Diversity:

• 50% of time spent keeping in touch with others (email, text, phone calls)• 20% - media (music, videos, pictures) and games)• 12% browsing the internet• 2% on “productive” activities

So What Are Those Consumers Spending Their Time Doing?The Rapid Rise of Cell Phones (and now Tablets) in the US and Around the World

Sources: ITU World Telecommunications; Forrester Research, Inc.; Nielson; Forrester Research, Inc.

US = ͠͠100%

US = ͠͠45%

Mobile Subscriptions per 100 Inhabitants (2000-10)

Projected Growth of Tablet Sales, US Adults

The Bottom Line:This ‘Aint the Consumer You Marketed to….Three Years Ago

20082008 20112011

The State of the Media and Advertising Industry

What the %$#* Just Happened?Recent Carnage Across the Traditional Media Industry

Source: Media Finder, Growthink research.

A Partial Shift to Online:What Sector Analysts Predict for the Advertising Industry

Sources: eMarketer (Dec, 2010); StrongMail (Nov, 2010), AdWeek (Sept.,2010); Booz & Co. and Grocery Manufacturers Association, 11/10

On Right: Survey of US CPG Manufacturers, August, 2010.

About Growthink

Comprehensive Service Offerings for Early‐Stage Clients  

• Strategy and Management Consulting and Execution; Business Planning

• Help Clients Raise Capital

• Help Clients Sell their Businesses and Non-core Business Units

• Market Research

• Help Clients Find Business Partners and Alliances

• SEO & SEM Strategy and Consulting

Experienced, Senior Team – Founding Partners

Growthinkʹs co‐founder and CEO, Jay has led Growthinkʹs emergence as the countryʹs largest strategic advisory and investment banking firm to emerging and middle market companies. 

In his 17 years of experience in corporate finance and capital formation, Jay has worked with dozens of growth and middle market companies, including clients such Porsche AG, Paramount Pictures, Infospace, Deutsche Bank and McKesson.

Jayʹs entrepreneurial experience was gleaned from building and selling two companies: Hyannis Ice Cream, Inc., and Least Cost Routing, Inc. At Hyannis Ice Cream, Jay built and then sold a small seasonal startup into a leading regional distributorship with over an 80% share in its market niche. At Least Cost Routing, Jay positioned the firm to profit from the Telecommunications Act of 1996, building the firmʹs switch and operational infrastructure. He lives in Los Angeles with his wife and two sons

Education

• MBA, Anderson School of Management, UCLA • BA, Stanford University  (with Distinction and with Departmental Honors)

Jay TuroCEO

Dave LavinskyPresident

A  co‐founder  of  Growthink,  Dave  has managed more than 150 client engagements across  all  of  Growthinkʹs practice  areas, with  a  specialty  practice  and  expertise  in marketing.      He  also  leads  the  firm’s Publishing Division.

Dave was  the  founder and President of Emerge  Juice & Nutrition Systems, a health food manufacturing and marketing  firm.  Dave  also  launched  the  Marketing Services division of New York‐based  consulting  firm PIRA Energy Group. At PIRA, Dave  helped  develop the  original  business  plan  for  KeySpan Energyʹs Energy  Service  Division,  which  now  has  revenues exceeding $1 billion annually.

Dave  also  has  professional  management  consulting, marketing consulting and market  research experience with  FIND/SVP,  BPA  International  and  The  NPD Group.

Education

• MBA, Anderson School of Management, UCLA • BA, University of Virginia

World Renown Experts in the Fields of Online Marketing, Web 2.0 and Social Media

Experienced, Senior Team

Troy is a Managing Director at Growthink, where he leads the investment banking practice and also consulting engagements for the firm’s clients.  Troy brings to Growthink more than 15 years of experience advising corporations at all stages of development, from start‐up firms to Fortune 500 companies.

Troy joins Growthink’s Los Angeles office after serving as the founding Principal of MBL, an advisory and investment firm that assisted clients in all areas of business, including developing their strategies and raising capital.  Also a seasoned entrepreneur, he helped found, manage and invest in several start‐up companies, primarily in the New Media , consumer products, and technology sectors while at and before MBL.

Troy additionally worked as an Associate in the Investment Banking and Merchant Banking Divisions at Donaldson, Lufkin & Jenrette (DLJ, now CS First Boston).   

Education

• JD, Law School; MBA, Darden School, University of Virginia (Winner, The Faculty Award; Raven Society)• BA, Brown University (Honors; Class Co‐President)

TroyCentazzoManaging Director; 

Practice Lead, Venture 

Investment Banking & Strategy

Business Strategy, IB, Strategic 

Options, Branding

Business / Growth Strategy, Lead Gen Web 2.0 Publishing 

Group

cute Referral‐based Social 

Media Marketing System

Full Partnership – Capital, Strategy, Sales, Branding

Designed, Funded and Launched the first 

Wellness Channels on YouTube, Twitter, Facebook, MySpace

App for Venue / Ticket Sales

Business Strategy, Plan

Led sale to American Capital Partners 

(ACP)

Evaluated

Video Chat Technology for Social/Mobile

Business Plan, Financials, Investor Presentation

Currently creating Business Plan and 

Presentation for VCs

$20M Build‐Up of PR Agencies

Social Media Strategy, Business Plan, Capital 

Raise

Developer of Social Media Games

Business Strategy, Plan, FM – Secured Funding

* Note that several of these engagements involved Growthink professionals at affiliate or additional firms. 

TechTechClientClient

Mobile AppMobile AppClientClient

Chinese MMOG Chinese MMOG DeveloperDeveloper

(85 Employees)(85 Employees)

CONVERGENCE:  Digital Marketing and Lead Gen / Ad Tech / Social Media / Gaming –Recent Engagements and Hands‐On Experience*

Market StrategyNew Production Release

Co‐Founder, Business Plan and Cap Raise for 

Integrated Movie/Gaming Entertainment Centers

Regional Regional Theater Theater ChainChain

Business Model Restructuring and Market 

Strategy; Financing

Leading Leading Game Game

DeveloperDeveloper

Inspired InstrumentsDigital/MIDI/Gaming 

Guitar

Corporate Advisory

The Communications The Communications BoardBoard

Social Shopping Technology

Investment Banking / Financial Advisory

cute Film Exhibition / Digital Conversion of Theaters

Business Plan for $1B Debt/Equity 

Nick on the GoBusiness Plans and 

Executive Summaries for Investors 

* Note that several of these engagements involved Growthink professionals at affiliate or additional firms. 

Executed Joint Venture (M&A)

Social Media Platform 

Business Plan, Deck

Domain Parking and Monetization

Business Plan; IRAcquired in 2009

Web Portal for Car Enthusiasts

Developed strategy resulting in industry‐leading site traffic

Digital “Want Ad” Platform for Social Media/Mobile

Business Plan, Financials, Investor Presentation

CONVERGENCE:  Digital Marketing and Lead Gen / Ad Tech / Social Media / Gaming –Recent Engagements and Hands‐On Experience*

Mobile Game Monetization Platform

Business Model; Ongoing Capital Raise