Interactive Advertising Outlook 2009

A Report to the JP Morgan Chase Virtual Advertising Summit

Cyberspace, New YorkJanuary 26, 2009

IAB’s Mission Remains…

2

The Interactive Advertising Bureau is dedicated to the growth of the interactive advertising marketplace, of interactive’s share of total marketing spend, and of our members’ share of total marketing spend.

GROWTH

Membership Sample

Our ~400 Members Represent 86% of Measured U.S. Interactive Advertising

Revenues

2009 Themes

• Interactive continues to grow despite strong economic headwinds

• Medium girded by its breadth of options, from above-the-line to below-the-line

• Consumers increasingly embracing digital media in all forms

• Share shift by marketers from offline to online to tap into the variety, reach, targetability, and effectiveness of interactive media

• Emerging platforms provide new opportunities for marketers to engage and learn from their customers

2008 First Nine-Month Revenues Totaled Over $17 BillionFirst Nine‐Month Revenues — 2007 vs. 2008

$ millions

Source: IAB Internet Advertising Revenue Report, 2008 Second-Quarter and First Six-Month Results October 2008, and Q3 November 2008 combined

Historical Quarterly Revenue Trends

Quarterly $ Revenue Growth Comparisons — 2000‐2008 YTD

2000 20022001 20042003 2006 200820072005

$ millions

Source: IAB Internet Advertising Revenue Report, 2008 Second-Quarter and First Six-Month Results, October 2008

Since the third quarter of 2002, revenues have increased 21 of the past 24 consecutive quarters. Quarterly Revenue growth remains strong on a cumulative year-over-year percentage and dollar basis.

Seasonal Trends Relatively Strong Through First 9 months

$4.6B

$8.1B

$7.1B $7.3B

$9.6B

$12.5B

$16.9B

$6.0B

$21.2B

62%

38%

26%

74%

74%

26%

77%

23%

28%

72%

71%

29%

70%

30%

28%

72%

28%

72%

$ millions

Source: IAB Internet Advertising Revenue Report, 2008 Second-Quarter and First Six-Month Results, October 2008

Email2%

Search44%

Display*33%

Classifieds14%

Lead Gen7%

2008 First Six-Month Revenues: $11.5 Billion

YOY % Search & Display Spend Grow

Source: IAB Internet Advertising Revenue Report, 2008 Second-Quarter and First Six-Month Results, October 2007, 2008 * Display-related advertising includes Display Banner Ads, Rich Media, Digital Video and Sponsorship

(32% in ’07)

(41% in ’07)

Interactive is the fastest-growing displaymedium

Media Sector Percentage ChangeTelevision Media 2.1%

Magazine Media -3.9%

Newspaper Media -10.0%

Internet (Display Ads Only) 7.0%Radio Media -8.8%

Outdoor -0.5%

FSIs 0.9%

Total -1.7%

Percentage Change in Measured Ad Spending:Jan‐Sept 2008 vs. Jan‐Sept. 2007.

Source:  “TNS Media Intelligence Reports U.S. Advertising Expenditures Declined 1.7 Percent in First Nine Months of 2008 ,” TNS Media Intelligence Press Release, Dec. 11, 2008.  Note TNS does not track search advertising revenue.  URL:  http://www.tns‐mi.com/news/12112008.htm

US Online Social Network Ad Spending Projected to Grow

Source: eMarketer, December 2008

$ millions

Key Growth Drivers

Drivers of Interactive Ad Growth Include Rising Broadband Penetration…

US Broadb

and Hou

seho

lds

(in m

illions

)

Source:  JupiterResearch Internet Access Model, 3/07 (US Only)

Consumers Time Spent Online Keeps Increasing

Aver

age W

eekly

Hou

rs O

nlin

e

Source:  USC Annenberg School Center for the Digital Future, The 2008 Digital Future Report, and previous Digital Future Report releases. 

9.4 9.811.1

12.513.5 14

15.3

0.02.04.06.08.0

10.012.014.016.018.0

2001 2002 2003 2004 2005 2006 2007

Search Is Now Habitual

Source:  “Almost Half of All Internet Users Now Use Search Engines on a Typical Day,” Pew Internet & American Life Project Data Memo, August 6, 2008  Link:  http://www.pewinternet.org/PPF/r/258/report_display.asp

85% 89% 84%91% 91% 89%

29% 31% 30%41%

49%

88%90%

42%38%

41%

0%10%20%30%40%50%60%70%80%90%

100%Ja

n-02

May-

02Se

p-02

Jan-

03Ma

y-03

Sep-

03Ja

n-04

May-

04Se

p-04

Jan-

05Ma

y-05

Sep-

05Ja

n-06

May-

06Se

p-06

Jan-

07Ma

y-07

Sep-

07Ja

n-08

May-

08

Used Search Engine Ever Used Search Engine Yesterday

Perc

enta

ge o

f US

Onl

ine

Adu

ltsU

sing

Sea

rch

Engi

nes

During 2008, US Search Volumes Grew by 15-26% Each Month

Source:  comScore qSearch, quoted in “ComScore:  YouTube Now 25 Percent of All Google Searches,” TechCrunch, Dec. 18, 2008, http://www.techcrunch.com/2008/12/18/comscore‐youtube‐now‐25‐percent‐of‐all‐google‐searches/ 

23%

15%18% 17% 19% 19%

26%

20%22%

19%19%

0%

5%

10%

15%

20%

25%

30%

Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08

US Core Search Growth Rates, Year‐On‐Year

Perc

enta

ge G

row

th R

ate

of U

S C

ore

Sear

ches

,Ye

ar-o

n-Ye

ar

Digital Video Is Now a Mainstream Medium

US Mon

thly Video

 Streams Served

(Billions)

Source:  “Nielsen: 9.5B Video Streams in November,” NewTeeVee.com, Dec. 30, 2008; “Nielsen Online's VideoCensus: Networks Failing To Reach Men Online,”  MediaPost Onlline Media Daily, Feb. 15, 2008.

6.20

9.50

0.001.002.003.004.005.006.007.008.009.00

10.00

December-07 November-08

Key November 2008 Data (Nielsen):Streams Served:  9.5 billionUnique Viewers:  124.3 millionStreams/Viewer:  76.8 streamsTime per Viewer:  177.9 minutes

Smartphones Are Unleashing Mobile’s Potential

As of 2Q 2008, in the US:• More than 26 million mobile subscribers use a

smartphone device• Smartphones represent 16% of recent mobile device

acquisitions• 57% of smartphones are acquired by personal users• 30% of smartphone users are likely to upgrade their

device in the coming year

Source:  “Nielsen Proivdes iPhone 3G and Smartphone Statistics,” Nielsen Mobile Press Release, October 16, 2008.  URL:  http://www.nielsenmobile.com/html/press%20releases/iPhone3GandSmartphoneStats.html

Social Media Sites Already Exceed Television’s Reach

Source:  comScore as reported in “Top Social Media Sites of 2008 (Facebook Still Rising),” TechCrunch, Dec. 31, 2008.

221.5200.2

126.2113.7

86.869.2 63.9 58.1 46.4 45.6

0

50

100

150

200

250

Blogger

Faceboo

kMyS

paceWordpre

ss

Windows L

ive Space

sYahoo

Geocities

Flickr HI5

Orkut

SixApart

Worldwide Audience for Top 10 Social Media Sites, November 2008

•Total Social Media Audience:  691M, or 69.4% reach•Facebook’s audience grew 116% from Nov 07‐Nov 08 

Mon

thly

Glo

bal U

niqu

e Vi

sito

rs(in

Mill

ions

)

Consumers want the Internet to be ad-supported

• For both mobile and PC video, 70% of consumers prefer ad-supported models over consumer-paid models. (IBM study across 6 major international markets)

• 67% of US consumers ages 25-34 and 75% of consumers aged 13-24 would “be willing to be exposed to online ads in exchange for free content.” 66% of all Internet users would click on more online ads if they were better targeted to them. (Deloitte)

Source:  “IBM Study Shows Consumers Will Accept New Forms of Advertising If Companies Follow Their Rules,” IBM Press Release, Nov. 17, 2008, URL:  http://www‐03.ibm.com/press/us/en/pressrelease/26077.wss; Deloitte Study quoted in “Survey:  More online ads, free content,” Forbes, December 26, 2007, link:  http://techland.blogs.fortune.cnn.com/2007/12/26/survey‐more‐online‐ads‐free‐content/

Challenges

• Measurement standardization/simplification• Cross-media measurement• Antiquated media-mix modeling• Overuse/misapplication of DR standards and

methodologies• Creative shabbiness