PwC

IAB internet advertising revenue report

2014 first six-months results

www.pwc.com

www.iab.net

PwC PwC

Agenda

2

October 2014

Survey methodology

2014 first six-months results

First six-months and quarterly trends

Advertising formats

Pricing models

Industry category spending

About PwC

PwC PwC

Survey Methodology

3

October 2014

Survey Scope

The IAB Internet Advertising Revenue Report is part of an ongoing IAB mission to provide an accurate barometer of Internet advertising growth.

To achieve differentiation from existing estimates and accomplish industry-wide acceptance, key aspects of the survey include:

• Obtaining historical data directly from companies generating Internet/online/mobile advertising revenues;

• Making the survey as inclusive as possible, encompassing all forms of internet/online advertising, including websites, consumer online services, ad networks, mobile devices and e-mail providers; and

• Ensuring and maintaining a confidential process, only releasing aggregate data.

Methodology

Throughout the reporting process, PwC:

• Compiles a database of industry participants selling internet/online and mobile advertising revenues.

• Conducts a quantitative mailing survey with leading industry players, including web publishers, ad networks, commercial online service providers, mobile providers, e-mail providers and other online media companies.

• Acquires supplemental data through the use of publicly disclosed information.

• Requests and compiles several specific data items, including monthly gross commissionable advertising revenue by industry category and transaction.

• Identifies non-participating companies and applies a conservative revenue estimate based on available public sources.

• Analyzes the findings, identifies and reports key trends.

PwC PwC

Half year revenues totaled $23.1 billion in 2014

4

October 2014

Online advertising revenue increased 15.1% in HY 2014.

In b

illi

on

s

$20.1

$23.1

HY 2013 HY 2014Source: IAB Internet Advertising Revenue Report, HY 2014

PwC PwC 5

October 2014

Half year revenues totaled $23.1 billion in 2014

Online advertising revenue increased 15.1% in HY 2014.

In b

illi

on

s

$20.1

$23.1

HY 2013 HY 2014

15.1%

Source: IAB Internet Advertising Revenue Report, HY 2014

PwC PwC 6

October 2014

Second quarter revenues totaled $11.68 billion in HY 2014

Revenue in Q2 2014 was 13.8% higher than in Q2 2013.

In b

illi

on

s $10.3

$11.7

Q2 2013 Q2 2014Source: IAB Internet Advertising Revenue Report, HY 2014

PwC PwC 7

October 2014

Second quarter revenues totaled $11.68 billion in HY 2014

Revenue in Q2 2014 was 13.8% higher than in Q2 2013.

In b

illi

on

s $10.3

$11.7

Q2 2013 Q2 2014

13.8%

Source: IAB Internet Advertising Revenue Report, HY 2014

PwC PwC 8

October 2014

Strong Growth between Q1 2014 and Q2 2014

Revenue in Q2 2014 was $264 million higher than in Q1 2014.

In b

illi

on

s

$11.4 $11.7

Q1 2014 Q2 2014Source: IAB Internet Advertising Revenue Report, HY 2014

PwC PwC

Source: IAB Internet Advertising Revenue Report, HY 2014

9

October 2014

Strong Growth between Q1 2014 and Q2 2014

Revenue in Q2 2014 was $264 million higher than in Q1 2014.

In b

illi

on

s

$11.4 $11.7

Q1 2014 Q2 2014

2.3%

PwC PwC

$0

$1

$1

$2

$2

$3

Source: IAB Internet Advertising Revenue Report, HY 2014

10

October 2014

In the early 2000s, internet advertising hit a bubble Quarterly growth comparison, 1996-2002

In b

illi

on

s

’97 ’98 ’99 ’00 ’01 ’02 ’96

PwC PwC

$0

$2

$4

$6

$8

$10

$12

$14

Source: IAB Internet Advertising Revenue Report, HY 2014

11

October 2014

Since 2003, 78% of quarters have experienced positive growth over the prior quarter Quarterly growth comparison, 1996–HY 2014

In b

illi

on

s

$11

Revenues have remained above $11 billion for

three consecutive quarters.

’97 ’98 ’99 ’09 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’10 ’11 ’12 ’13 HY ’14 ’96

PwC PwC

Source: IAB Internet Advertising Revenue Report, HY 2014

12

October 2014

First six-months 2014 shows record revenues Historical revenue mix, first half vs. second half

In b

illi

on

s

$3.3 $4.6 $5.8 $7.9

$10.0 $11.5 $10.9 $12.1 $14.9

$17.0 $20.1

$23.1

$4.0 $5.0

$6.8

$9.0

$11.2 $11.9 $11.8

$13.9

$16.8

$19.5

$22.7

?

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Last 6 months

First 6 months

* CAGR: Compound Annual Growth Rate

PwC PwC

Source: IAB Internet Advertising Revenue Report, HY 2014

13

October 2014

Mobile shows the strongest growth Advertising formats – HY 2014 results and growth rates

$9.1

$1.3

$0.9

$5.3

$1.5

$3.9

$0.4 $0.7

4%

1%

7%

76%

13%

4% 4%

9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

$-

$1

$2

$3

$4

$5

$6

$7

$8

$9

Search Classifieds &Directories

LeadGeneration

Mobile Digital VideoCommercials

Banners Ads Sponsorship Rich Media

HY 2014 Revenue HY 2014 vs. HY 2013 % Growth

In b

illi

on

s

PwC PwC

Source: IAB Internet Advertising Revenue Report, HY 2014

14

October 2014

Historical trends in internet advertising formats Revenue share by major ad formats, 2006–HY 2014

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Search Mobile Banner Ads Rich Mediaand Digital

Video

Classifieds LeadGeneration

Sponsorship

2006 2007 2008 2009 2010 2011 2012 2013 HY 2014

% o

f to

tal

re

ve

nu

e

PwC PwC 15

October 2014

Mobile represents a significant percentage of advertising formats

For the half year in 2014, Mobile revenue totaled $5.3 billion

39%

28% 10%

51%

47%

2%

23%

Search Display Other

Mobile Search Mobile Display Mobile Other

Source: IAB Internet Advertising Revenue Report, HY 2014

PwC

Search and display drive mobile advertising Mobile format ad revenue by category, Q2 2014 and HY 2014

1,428 51%

1,337 47%

54 2%

Q2 2014

Search Display-related Other

Total – $2.8 Billion

Total – $5.3 Billion Source: IAB Internet Advertising Revenue Report, HY 2014

2,733 51%

2,498 47%

103 2%

HY 2014

Search Display-related Other

16

October 2014

PwC

Distributing Mobile across formats demonstrates its importance to Search and Display

39%

28%

10%

23%

Search Display Other Mobile

Source: IAB Internet Advertising Revenue Report, HY 2014

17

October 2014

51%

39%

10%

Search Display Other

Formats – HY 2014 (Mobile separated)

Formats – HY 2014 (Mobile included)

PwC PwC

Social media demonstrates continued growth Social media ad revenues, 2012 – HY 2014

Source: IAB Internet Advertising Revenue Report, HY 2014

18

October 2014

$1.2

$1.7 $1.9

$2.6

$2.9

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

1H 2012 2H 2012 1H 2013 2H 2013 1H 2014

CAGR* 54%

In b

illi

on

s

* CAGR: Compound Annual Growth Rate

PwC PwC

Source: IAB Internet Advertising Revenue Report, HY 2014

19

October 2014

Pricing models Internet ad revenues by pricing model, HY 2013 vs. HY 2014

33%

65%

2%

HY 2013

Impression-based Performance-based

Hybrid

34%

65%

1%

HY 2014

Impression-based Performance-based

Hybrid

Total – $20.1 billion

Total – $23.1 billion

PwC

Historical pricing model trends Internet ad revenues by pricing model, 2005–HY 2014

46% 48%

45%

39% 37%

33% 31% 32% 33% 34%

41%

47%

51%

57% 59%

62% 65% 66% 65% 65%

13%

5% 4% 4% 4% 5% 4% 2% 2% 1%

0%

10%

20%

30%

40%

50%

60%

70%

2005 2006 2007 2008 2009 2010 2011 2012 2013 HY 2014

CPM Performance Hybrid

% o

f to

tal

re

ve

nu

e

Note: Pricing model definitions may have changed over the time period depicted both within the survey process and as interpreted by respondents Source: IAB Internet Advertising Revenue Report, HY 2014

October 2014

20

PwC

Internet ad revenues by major industry category $20.01 B in HY 20123 vs. $23.1 in HY 2014

21%

13% 12%

9% 8%

7% 6%

5% 5% 4%

21%

13% 12%

9% 9%

7% 7%

5% 5% 4%

Retail FinancialServices

Auto Telecom LeisureTravel

PackagedGoods

Tech /Computing

Media Pharma &Healthcare

Entertain-ment

1H 2013 1H 2014

% o

f to

tal

re

ve

nu

e †

† Amounts do not total to 100% as minor categories are not displayed. Source: IAB Internet Advertising Revenue Report, HY 2014

October 2014

21

PwC PwC October 9, 2013

PwC New Media Group

As business, accounting, and tax advisors to many of the world’s leading Entertainment, Media, and Communications (EMC) and Technology (Tech) companies, PwC (www.pwc.com) has an insider’s view of trends and developments driving the industry. With approximately 1200 practitioners serving EMC and Tech clients in the United States, PwC is deeply committed to providing clients with industry expertise and resources. In recent years, our pioneering work in EMC and Tech has included developing strategies to leverage digital technology, identifying new sources of financing, and marketplace positioning in industries characterized by consolidation and transformation. Our experience reaches across all geographies and segments of the EMC and Tech sectors, including broadband, wireless, the Internet, music, film, television, publishing, advertising, gaming, theme parks, computers and networking, and software. With thousands of practitioners around the world, we are always close at hand to provide deep industry expertise and resources.

PwC’s New Media Group was the first practice of its kind at a Big Four firm. Currently located in New York, Los Angeles, Boston, Seattle and the Bay Area, our New Media Group includes accounting, tax and consulting professionals who have broad and deep experience in the three areas that converge to form new media: advanced telecommunications, enabling software and content development/distribution.

Our services include:

• Business assurance services

• Web audience measurement and advertising delivery auditing and advisory

• IAB Measurement Certification Compliance auditing

• Privacy policy structuring, attestation and compliance advisory

• Mergers & Acquisition assistance

• Tax planning and compliance

• Capital sourcing and IPO assistance

22

October 2014

PwC PwC October 9, 2013

For information about our New Media Group, contact one of the following PwC professionals: New York

David Silverman Partner, Assurance Services 646.471.5421 david.silverman@us.pwc.com York

Russ Sapienza Partner, Advisory Services 646.471.1517 russell.j.sapienza@us.pwc.com Michael Altschul Director, Advisory Services 646.471.4903 michael.altschul@us.pwc.com

23

PwC New Media Group Contacts

October 2014

PwC

www.pwc.com/e&m

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