Internet TrendsMarch 18, 2008

mary.meeker@ms.com / david.joseph@ms.com / anant.thaker@ms.com

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Please refer to the notes at the end of the report.

2

Internet Trends

• Usage Patterns

• Social Networking

• Widget-ization + Component-ization

• Measurability + Transparency + Customer Satisfaction

• Video

• Monetization

• Mobile

• Emerging Markets

• Recession

3

Changes in Usage Patterns

4

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

2005E 2006E 2007E 2008E 2009E 2010E 2011E

IP T

raffi

c (T

B /

mon

th)

Total Consumer Business

Global IP Traffic

Consumers Leading Way –58% CAGR in IP Traffic, 2005E-2011E

Source: Cisco Systems, Global IP Traffic Forecast and Methodology; Mobility segment (0.1% of traffic in 2007) not displayed

Consumer IP traffic surpasses Business

5

Consumer Information Technology –Advancing Faster Than Enterprise

Source: Interview with Vauhini Vara, ‘The Wall Street Journal’, 3/18/08

Fifteen years ago, enterprise technology was higher-quality than consumer technology. That's not true anymore. It used to be that you used enterprise technology because you wanted uptime, security and speed. None of those things are as good in enterprise software anymore [as they are in some consumer software].

Douglas MerrillGoogle Chief Information Officer, 3/18/08

6

YouTube + Facebook Page Views > Yahoo! or Google –Massive Transition in Available Ad Units & Supply > Demand

2002

10

8

6

4

2

0

Dai

ly P

age

View

s (%

)

2003 2004 2005 2006 2007 2008

Alexa Global Traffic – Relative Page Views

Source: Alexa Global Traffic as of 3/12/08

7

Worldwide Online Category Growth vs. Penetration

Social Networking –Fast Growth + Low Penetration

Visitor Growth by Category (1/07-1/08)

Cat

egor

y Pe

netr

atio

n (%

of O

nlin

e U

sers

)

Source: comScore ‘Digital World – State of the Internet’ 3/08

8

Social Networking –Significant Share Gains of Internet Traffic

Rank Web site2005 (1)

12345678910

yahoo.commsn.com

google.comebay.com

amazon.commicrosoft.commyspace.comgoogle.co.uk

aol.comgo.com

Traffic rank is based on three months of aggregated historical traffic data from Alexa Toolbar users and is a combined measure of page views / users (geometric mean of the two quantities averaged over time).

Rank Web site2008 (2)

12345678910

yahoo.comyoutube.com

live.comgoogle.com

myspace.comfacebook.com

msn.comhi5.com

wikipedia.orgorkut.com

Alexa Global Traffic Rankings

(1) Rankings as of 12/31/05, excludes Microsoft Passport; (2) Rankings as of 3/12/08Source: Alexa Global Traffic Rankings, Morgan Stanley Research

9

6%14%

8%

22%

35%

16%

All OtherCommunicationsSocial ConnectionsShopping & TravelEntertainment & LeisureWork, Business & Education

Worldwide Share of Online Time (1)

Category didn’t exist 3

years ago 16%

38%37%

23%

0%

10%

20%

30%

40%

Yahoo! Mail Facebook%

of T

otal

Min

utes

Age 15-24 Age 44+

Connecting – Younger Users Via Social Networks + Older Users Via E-Mail? (2)

Social Networking –Connectivity Changing…Is E-Mail Becoming Archaic?

Source: (1) comScore ‘Digital World – State of the Internet’ 3/08; (2) comScore global 1/08

10

Next Generation Assets –YouTube + Facebook + Skype + PayPal

Users Y/Y Growth Comments

258MM(1) +94%

#3 site in global minutes; 51% of users go to YouTube weekly or more; 50% watch all videos to the end; ongoing copyright challenges; 52% of 18-34 year-olds share videos with friends / colleagues often(1,3)

101MM(1) +305%

#4 site in global minutes; 67MM+ active users; >50% of active users return daily; 20K applications + 95% of Facebook members have used at least one(1,4)

276MM(2) +61%

$1.67 annualized revenue per registered user (+9% Y/Y) on peer-to-peer network; 1.6B Skype Out minutes (+10% Y/Y); 11.9B Skype-to-Skype minutes (+25% Y/Y)(2)

57MM(2) +16%

Payment volume +35% Y/Y; On-eBay / off-eBay payment volume +17% / +66% Y/Y (to 44% of TPV); Average transaction size of $68.88 (+10% Y/Y)(2)

Source: (1) comScore global 1/08; (2) eBay CQ4, Morgan Stanley Research; (3) YouTube; (4) Facebook

11

Social Networking –Changing the Way People Think About ‘Presence’

12Source: USC Annenberg School: Digital Future Report 2007

0%

20%

40%

60%

80%

100%

Internet Television Radio Newspaper PersonalSource

% o

f Use

rs A

ge 1

7+ R

espo

ndin

g Im

porta

nt /

Very

Impo

rtant

Internet – Importance as Source of Information

73%80%

68%63% 63%

Internet + Personal Sources = Most Importance Sources of Information…Essence of a Social Network

13

Facebook –Rapid User / Usage Growth

0

20

40

60

80

100

120

Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08

Tota

l Uni

que

Visi

tors

(MM

)

0

5

10

15

20

25

Tota

l Min

utes

(B)

Total Unique Visitors (MM) Total Minutes (B)

Facebook Global Traffic

Source: comScore global 1/08, Facebook 3/08, Morgan Stanley Research

• 101MM visitors +305% Y/Y (67MM+ active users), 20B minutes (#4 globally behind Yahoo!, Live, and YouTube), +363% Y/Y; 250K new registrations per day since 1/07; >50% of active users return daily (Facebook 3/08, comScore 1/08)

• 55K+ regional / work-related / collegiate / high school networks (>50% outside of college); Fastest growing demographic is those 25+ years old; 85% market share of 4-year US universities (Facebook 3/08)

• 14MM+ photos uploaded daily; 6MM+ active user groups on site (Facebook 3/08)

• Top non-US active users: UK (8MM+), Canada (7MM+), Turkey, Australia, France, Sweden, Norway, Columbia, and South Africa (Facebook 3/08)

14

Application Installs (% Active Users)

Facebook –Top Applications

• In 5/07, Facebook opened its platform to third-party developers, allowing anyone to create widgets for use on Facebook pages

• 20K applications, 859MM installations, 34MM usages per day since APIs opened – may be unprecedented ramp (adonomics.com 3/08)

• Early to understand that individuals had the ability to innovate faster than it could, while users would govern quality / value as they customized their profiles

Super WallTop FriendsFunWallSuperPoke!MoviesLikenessVideoHug MeiLikeQuizzes

Company

RockYou!

Slide

Slide

Slide Flixster

RockYou!

Facebook

RockYou!

iLike

N/A(2)

28MM (8%)

26MM (7%)

25MM (9%)

21MM (2%)

20MM (3%)

16MM (2%)

16MM(1)

13MM (2%)

12MM (3%)

12MM (1%)

(1) Active user data unavailable; (2) E. Diep / J. Winterhalter; Source: adonomics.com 3/12/08

15

• Facebook offers a social network that is both standardized + self-controlled / flexible – a highly personalized first-stop portal for online connectivity – users can program their pages with growing number of drag-and-drop applications (aka widgets)

• Users like the ability to express themselves + connect with friends in a protected environment where they know / trust people in their network + don’t feel exploited / spammed by intrusive ads

Source: MySpace, Facebook

Less instrusive ads

?

Cleaner UI

?

Personalized ad platform

Facebook –Why is it Growing Faster than MySpace?

‘Friends’ section more prominent

Personalized News Feed

16

Facebook –‘Presence’ Via Mobiles 24x7

Source: Facebook; C. Messina on flickr

17

User restaurant rating entered

Facebook prompt…

…Appears on Facebookprofile / News FeedBecoming a ‘fan’

appears on News / Mini-Feed Source: Facebook, New York Times

Facebook Ads –Monetizing Word of Mouth / Conversations

18

$6.00

$8.05

$4.64

$2.26$3.23

$1.68

$0

$3

$6

$9

Global US Non-US

Ave

rage

$ S

pent

Paid downloads All downloads

Paid38%

Free62%

Nine Inch Nails Radiohead• In Rainbows ‘pay what you want’ online

release – higher profit to the band than traditional record?

• Ghosts I-IV online release – 800K transactions + $1.6MM sales in first week (1)

Music –Monetizing Word of Mouth

Global Downloads (2)

Source: (1) Billboard 3/14/07, screenshots from Nine Inch Nails website; (2) comScore study 11/5/07, screenshots from Radiohead website

19

Widget-ization + Component-ization of Web –Users in Control of What They Want When They Want It

20

Not Your Father’s ‘Widget’

Source: ReadWriteWeb, RockYou!, Yahoo!, Weather Channel, Google, Amazon.com, Facebook

A Web widget can be best described as a mini application that can add functionality to your web page, blog, social profile, etc. If you find a widget that you like, you simply copy and paste some code and add it to the HTML of your web page. Photo galleries, news, videos, advertising, mp3 players and pregnancy countdown tickers! You name it, there is probably a widget that does it.

David Lenehan, ReadWriteWeb

Rock You –‘Super Wall’ for Facebook

Yahoo! –Finance for iPhone

Weather Channel –Forecast for iGoogle Amazon.com –

‘Giver’ for Facebook

21

iGoogle + Yahoo! Mobile

Source: Google, Yahoo!

Search

Gmail

Movie showtimes

YouTubevideos

Weather

News

Maps

Wikipedia

Add a tab + customize ‘gadgets’

3rd party widgets in Yahoo! Go 3.0

22

The BBC! –@ www.bbc.com + Facebook + YouTube…

Source: BBC

23

In Recession, Measurability + Transparency + Customer Satisfaction May Be More Important Than Ever

24

Personalization + Targeting Improvements –Driving Material Revenue

What other customers are

thinking

What other customers are buying

What other customers are doing

What other customers are saying

Google ads: Improvements in relevance

Amazon.com recommendation engine: Leveraging data

Source: Amazon.com, Google

25

1. iphone2. badoo3. facebook4. dailymotion5. webkinz6. youtube7. ebuddy8. second life 9. hi5 10. club penguin

Google Zeitgeist –Predictive Power of Data

Fast Gainers by Quarter - 2007

Source: Google Year-End Zeitgeist, 2007

Fastest Rising (global)1. iphone2. webkinz3. tmz4. transformers 5. youtube6. club penguin 7. myspace8. heroes 9. facebook10. anna nicole smith

Fastest Rising (US)

26

Lots of Servers…Lots of Interactions…Lots of Data

Source: The Financial Times 1/5/08

Google Data Center – The Dalles, Oregon

27

Search Impact –Still Early Stage & 66% Y/Y Google Query Growth (CQ4)

% of New Online Customers for Online Retailers / Marketing Spend Mix (2005)

1%3%3%5%7%10%

11%

29%36%

0%

10%

20%

30%

40%

50%

Search

engin

e mark

eting

Organic

traffic

Catalog

sAffil

iate p

rogram

s

Compa

rison

-shop

ping e

ngine

s

Email to

pros

pecti

ng lis

ts

Traditio

nal p

ortal

deals

New po

rtal d

eals

Other

% C

usto

mer

s ac

quire

d fr

om s

ourc

e

Source: The State of Retailing Online 2006 (Forrester Research), comScore global 12/07, Morgan Stanley Research

28

Amazon.com –Continues to Gain Online + Offline Share

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

CQ1:02 CQ1:03 CQ1:04 CQ1:05 CQ1:06 CQ1:07

Y/Y

Gro

wth

US Adjusted Retail E-Commerce Sales

Amazon.com North America Revenue

Amazon.com vs. US Retail E-Commerce Sales(1)

~23ppts

(1) Adjusted for eBay by adding eBay US gross merchandise volume and subtracting eBay US transaction revenue; Source: Amazon.com (CQ4:07), US Dept. of Commerce (CQ4:07), Morgan Stanley Research

CQ1 CQ2 CQ3 CQ4

Revenue 32% 35% 41% 42%

Active Customers 15 17 17 19

TTM Revenue / Active Customer 12 13 15 17

Units 23 25 32 33

Key Y/Y Growth Metrics – C2007

29

2006Rank Company

2006 Online Global Sales (US$MM) Y/Y Growth

2006 Online Global Sales as % of Total Sales

1 Amazon.com $10,710 26% 100%

2 Staples 4,900 29 27

3 Office Depot 4,300 13 29

4 Dell 3,965 * 6 7

5 HP Home & Home Office 3,055 * 8 3

6 OfficeMax 2,849 * 11 32

7 Sears Holdings 2,376 * 10 4

8 CDW 2,001 13 29

9 SonyStyle.com 1,690 * 4 0.5

10 Newegg.com 1,500 15 100

11 Best Buy 1,425 * 12 4

12 J.C. Penney 1,300 25 7

13 Wal-Mart 1,260 * 20 0.4

14 QVC 1,257 24 18

15 Apple Computer 1,136 * 39 6

While Only 13% of Top 15 Online Retailers areInternet Pure-Plays, Biggest $ Grower = Amazon.com

* Denotes ‘Internet Retailer’ estimate; Source: Internet Retailer Report (2006)

30

Video

31

• YouTube - 258MM unique global visitors, +94% Y/Y, 25B minutes, +146% Y/Y(1); other video distribution models: Hulu, Fancast, veoh, Joost, Sling Media, VUDU…

• YouTube accounted for 56% of unique US video viewers + 33% of videos watched online in 1/08(2)

0

50

100

150

200

250

300

Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08

Tota

l Uni

que

Visi

tors

(MM

)

0

5

10

15

20

25

30

Tota

l Min

utes

(B)

Total Unique Visitors (MM) Total Minutes (B)

YouTube Global Traffic

Source: (1) comScore global 1/08; (2) comScore Video Metrix (US) 1/08, Morgan Stanley Research

Ongoing Traction of Online Video

32

YouTube Content –Pro, Semi-Pro, Amateur + Combos

Source: Google, YouTube 2/08

Most Viewed Videos Most Viewed Channels

33

YouTube –The New Portal(s)?

Source: Google, YouTube 3/08

News & Politics - Most Viewed

• ‘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. There should be ways to monetize the litigation away…

Sports - Most Viewed

34

Online Content – Coming from Anywhere / Anytime,BTW, Try to Find Dan Aykroyd’s ‘Bass-O-Matic’ Online...

Source: Avenue A | Razorfish 2008 Digital Outlook Report, YouTube

There's a sea change occurring in creative circles these days - or maybe it could be called an identity crisis. What does is mean when the star-studded Golden Globes ceremony gets cancelled because the Writers Guild of America wants a share of Internet revenue? When one of the top spots of 2007 was filmed by an amateur for $27.00? When an obscure Colorado blender company - Blendtec -can create a viral sensation without even hiring an agency?

Joseph CrumpAvenue A | RazorfishExecutive Creative Director

3535

CBS Television

CBSSports.com

CBS Mobile

2007 Football Season

• Plasma Screen TV – HD Quality Event • PC Screen – Fantasy, Stats, and Injury Reports• Mobile Screen – Highlights, Scores

ThursdayKickoff

Patriots vs.Colts

NFLSundays

TV + Internet + Mobile (CBS) –Complimentary Platforms

2007 Football Season

Source: CBS Sports Interactive

36

Monetization

37

Newspapers include Classifieds. Promotions ($116B) include: incentives ($30B), promotional products ($27B), point-of-purchase ($19B), specialty printing ($9B), coupons ($7B), premiums ($7B), promotional licensing ($7B), promotional fulfillment ($6B), product sampling ($2B), and in-store marketing ($2B). Households may use multiple advertising mediums.

Direct TelephonePromotionsNewspapers

ClassifiedsDirect MailBroadcast TVCable TVInternet / OnlineRadioYellow PagesOutdoor

$11011646156144272120167

1071155656

1141128071

113114114

$1,0321,011

81826053239032728817214163

2007 Advertising Spending ($B) Households (MM)

Ad Spending / Household ($)Medium

TotalAverage

$46947

$4,774477

US Internet Ad Spend = $288 Per Home vs. $818 for Newspapers?

Source: PricewaterhouseCoopers, IAB, Jupiter Research, McCann-Erickson, Morgan Stanley Research

7%5

-7-14

4-56

26-317

3%

Y/Y Growth

38

Source: (1) Google, Morgan Stanley Research (calculated as reported gross ad revenue multiplied by US % share of gross revenue)(2) Yahoo!, Morgan Stanley Research (calculated as gross Marketing Services revenue multiplied by US % share of gross revenue);

(3) Internet Advertising Bureau (IAB) / PriceWaterhouseCoopers (PWC) Internet Advertising Revenue Reports (calculated as difference between total IAB US ad revenue and sum of Google, Yahoo! gross ad revenue), Morgan Stanley Research. Assuming that

TAC of Google and Yahoo! was included in others total, this segment would have been up ~20% Y/Y

0

500

1,000

1,500

2,000

2,500

3,000

CQ4:06 CQ4:07

US

Ad

Rev

enue

($M

M)

Google, US Gross Ad Revenue (1) Yahoo!, US Gross Ad Revenue (2) Others (3)

37%

21%

42%

19%

US Online Ad Revenue Mix

39%42%

Google + Yahoo! = ~61% of US Online Ad Revenue,Other Players Would Have Grown ~14% Y/Y in CQ4:07 but Grew ~20% Owing

to Google / Yahoo! Affiliate Assist

39

• Google generated $4.8B in gross ad revenue in CQ4; it PAID OUT $1.4B to 1,000s of partners like AOL, Ask Jeeves, EarthLink, + HowStuffWorks(1)

• Yahoo! generated $1.6B in gross ad revenue in CQ4; it PAID OUT $429MM to 1,000s of partners like CNN, ESPN, + The Wall Street Journal (2)

Google + Yahoo! Share Significant Portion of Revenue with Partners + Affiliates

Source: (1) Google gross Advertising revenue, Morgan Stanley Research; (2) Yahoo! gross Marketing Servicesrevenue, Morgan Stanley Research; (3) Internet Advertising Bureau (IAB) / PriceWaterhouseCoopers (PWC)Internet Advertising Revenue Reports (calculated as difference between total IAB US ad revenue and sum of

Google, Yahoo! gross ad revenue), Morgan Stanley Research

40

Ad Inventory Monetization – Upside Potential Though Lots of ‘New’ Inventory (Social Networking + Video) to Process

Total Internet 791,288 5,867,641 3,545,500 $42.62 (1)

Y/Y Growth 10% 9% 11% 19%

Google 561,202 461,014 221,693 $21.16 (2)

Y/Y Growth 21% 75% 114% 34%

Yahoo! (3) 478,686 316,576 334,766 $8.85 (2)

Y/Y Growth -1% -8% 2% 17%

Time Warner 270,623 64,304 128,208 $7.98

Y/Y Growth 21% -7% -16% -7%

Microsoft 528,848 236,826 458,433 $3.68

Y/Y Growth 5% 5% 9% 25%

MySpace 106,620 150,841 52,288 $2.99

Y/Y Growth 38% 45% 50% 85%

eBay 243,790 85,689 54,037 $0.87

Y/Y Growth 2% -16% -2% 64%

YouTube 205,596 62,322 61,566 $0.72

Y/Y Growth 185% 346% 333% --

Source: (1) ZenithOptimedia C2007E, 10/07; (2) Denotes net revenue estimates (ex-TAC); (3) Yahoo! reported 477MM unique users (+14% Y/Y) at the end of CQ3, excl. Yahoo! Japan. We use comScore global data for consistent comparisons across companies. Note: comScore data is based on ages 15+;

comScore global 9/07, ZenithOptimedia, Google, Yahoo!, Time Warner, Microsoft, eBay, Morgan Stanley Research

CQ3E Annualized Global Ad Rev. per User

Total Minutes (MM)

Total Pages Viewed (MM)

Unique Users (000s)

41

Advertising Age US Internet Advertising –Companies With >$50MM in Spending, 2006

Source: Advertising Age, Morgan Stanley Research

Advertiser 2006 ($MM) 2005 ($MM) Y/Y Growth CommentsAT&T $169 $58 189% -#4 behind Network TV, Newspaper & Radio

-Shift to Internet from Newspapers.

Dell 138 159 (13) -#3 behind Cable TV & Magazines-Shift to Cable TV, Network TV & Magazines from Internet.

Walt Disney 133 91 47 -#6 behind Network TV, Cable TV, Newspapers, Magazines & Radio-Shift from Newspapers & Network TV to Internet.

Verizon 124 144 (14) -#5 behind Newspapers, Network TV, Cable TV & Radio-Shift from Newspapers to Internet.

General Motors 118 103 15 -#5 behind Network TV, Magazines, Cable TV & Newspapers-Shift from Newspapers & Cable TV to Internet.

Ford Motor 99 55 80 -#5 behind Network TV, Magazines, Cable TV & Newspapers-Shift from Newspapers to Internet.

Time Warner 91 168 (46) -#6 behind Network TV, Cable TV, Magazines, Newspapers & Radio-Shift from Internet to all others.

Microsoft 82 103 (21) -#2 behind Magazines-Shift to Newspapers & Outdoor from Internet.

American Express 81 29 180 -#4 behind Magazines, Network TV & Cable TV-Shift to Internet from magazines & network TV

Sony 74 44 66 -#5 behind Network TV, Cable TV, Newspapers & Magazines-Shift from Newspapers & Magazines to Internet.

Wal-Mart 61 34 79 -#4 behind Network TV, Cable TV & Magazines-Shift to Internet from Network TV.

General Electric 61 47 28 -#6 behind Network TV, Newspapers, Cable TV, Radio & Magazines-Shift from Network TV to Internet.

Target 57 37 54 -#5 behind Network TV, Newspapers, Magazines & Cable TV-Shift from Newspapers & Magazines to Internet.

News Corp 56 48 16 -#6 behind Network TV, Cable TV, Radio, Newspapers & Magazines-Shift from Network TV, Radio & Magazines to Internet.

Toyota Motor 56 33 67 -#4 behind Network TV, Magazines & cable TV-Shift to Internet from Cable TV & Magazines.

Procter & Gamble 54 34 61 -#5 behind Network TV, Cable TV, Magazines & Newspapers-Shift from Cable TV & radio to Internet.

Capital One Financial 53 33 61 -#3 behind Network TV & Cable TV-Shift to Internet from Network TV & Cable TV.

Total $1,504 $1,221 23%

42

Mobile

43

Rising Adoption of Newer Task-Driven Wireless-Enabled Devices

Nintendo Wii

20MM consoles since 11/06 launch – raised bar with motion sensors + playability

Apple iPhone

4MM units in < 200 days; browser market share already 50% > Windows Mobile – raised bar with ease-of-use + functionality

Microsoft Xbox 360

10MM Xbox Live members (+100% Y/Y) since 11/02 launch – raised bar with online playability

3 Skype Phone

Opportunity to leverage large Skypeuser base of 276MM (+61%Y/Y) + create a true web-enabled VoIP, social networking, digital presence phone

Amazon.com Kindle

With free EV-DO + 100K books + newspaper / magazine / blogsubscriptions, can Amazon do with books what Apple with tunes? First batch sold out in 5.5 hours…

Garmin + TomTom PND

18MM+ units sold in C2007 (+125% Y/Y) – lower price points + innovative features such as spoken street names have driven NA / Western Europe PND penetration of 11% in C2007

Source: Nintendo (CQ4), Microsoft, Amazon.com, Apple, 3, eBay (CQ4), Garmin, TomTom, Net Applications 12/07, Morgan Stanley Research

44

Notebooks Retrofitting to Cloud Via 3G –PCs Retrofitted to Internet Via Dial-Up ~1995 Deja Vu?!

• Global cellular modem shipments projected to rise from 5MM in 2006E to 68MM+ in 2012E (CAGR of 53%). Primary drivers – rising proliferation of 3G networks + large notebook populations. (ABI Research, 5/07)

• Global WiFi unit shipments estimated at 66MM in C2007E (Synergy Research Group)

Source: ABI Research (Cellular modem shipments includes PC Cards / ExpressCards, USB modems, internal modems + 3G/Wi-Fi routers);Synergy Research Group (Access Points, Wireless Gateways / Routers, Wireless Client Adaptors, VoWLAN phones)

45

• Mobile Internet represents a new computing cycle- Mainframe Minicomputer PC PC Internet Mobile Internet

• Unlike past cycles, US is follower, not leader− 85% of mobile subscribers, 87% of mobile data subscribers in non-US markets

(2007E); China is #1 in both

• Uncharted / new sources of usage generated for / from Mobile Internet platform− Killer application(s) for mobile? Social Networking / Presence? Video? Location-

Based Services? Browser? email? SMS? Music? Games? Search? Ringtones? Camera? Blogs?

• Why now? 1) handsets becoming small functional computers; 2) cheaper / faster / more data; 3) more content

− 450MM (48%) of handsets shipped (21% of base) Mobile Internet ready (can run Java or BREW applications…), 2006E

− 2.9B subscribers with <2.5G (~50Kbps) network access; 311MM 3G subscribers have broadband-like services (browsing, full track music), 2007E

− Mobile content improving steadily - consumers are spending billions on it

Source: Informa, Morgan Stanley Research

Mobile –A New Computing Cycle

46

3 Skype Phone Launcher –‘Presence’ is Key

Chat Contacts Call

Source: 3, Skype

47

i – NOT – A - Phone

Source: Apple

48Source: Company reports, Morgan Stanley Research

Cumulative Unit Shipments

Cum

ulat

ive

Uni

t Shi

pmen

ts (0

00)

iPod Touch + iPhone = Very Fast Ramp –Touch is Trojan Horse? Importance of WiFi?

4949

Global Mobile Awards 2008 Winners –Name That Company?!

Source: GSM Association

Best Mobile Handset or DeviceSonyEricsson: W910 Walkman Phone3UK: 3 Skypephone - Highly Commended

Best Broadcast CommercialSafaricom: M-PESA 'Send Money Home' campaign

Best Mobile AdvertisingCrossmedia Avenue: AMF Pension – the MMS campaign

Best Use of Mobile for Social & Economic DevelopmentGrameenphone: CellBazaar

Best Network Quality InitiativeRAD Data Communications: LA-130 Cell Gateway - Cost-Effective HSPA Backhaul

Best Service Delivery Platform Aepona: Aepona Telecom Web Services Platform

Best Billing and Customer SolutionBharti Airtel: mChek on Airtel – Mobile Payments Service

Best Roaming Product or ServiceSyniverse Technologies: Syniverse Datanet

Best Mobile GameCellufun: Call of the PharaohGlu Mobile: My Hangman

Best Mobile Music ServiceOmnifone: MusicStation

Best Mobile Video Servicemywaves: mywaves

Best Mobile Social Networking ServiceBuzzCity: myGamma.com

Best Mobile Infotainment Portal for News / EntertainmentYahoo! Connected Life: Yahoo! Go for Mobile 2.0

Best Mobile Enterprise Product or ServiceMicrosoft: Windows Mobile 6

Best Mobile Messaging ServiceSeven: System Seven 7.0

The GSMA Chairman's AwardSunil Bharti Mittal, Founder, Chairman & Group CEO Bharti Enterprise

50

Source: Left Chart - Morgan Stanley Research estimates: includes revenue from Google, eBay, Yahoo!, Yahoo! Japan, Amazon.com, T-Online, InterActive, Time Warner (AOL only, ex-access), Microsoft (MSN only, ex-access), and Rakuten. CQ4:05 annualized revenue for Rakuten, and T-Online. Right Chart – Morgan Stanley

Research estimates, Global Data. Informa (5/05), Ovum (5/05). Data excludes IVR. (1) Personalization includes ringtones, wallpapers, and screensavers. If SMS / MMS were added to Mobile Internet—it would add $55B to total revenue and would account for 74% of total revenue.

Mobile Internet - Revenue CompositionC2005E - $19B

Enterprise Services

10%

Search / 41116% Other Info &

Infotainment24%

Games10%

Music & Video

4%

Gambling1%

Personalization (1)

35%

Commerce61%

Payments3%

Advertising36%

Top 10 Internet Companies - Revenue CompositionC2005 - $42B

Broadband – Vendor / Seller PaysMobile – User Pays…Make Up on Volume?!

51

Still Early in 3G+ Ramp But…2009 Should Be Inflection Point @ ~20% of Subscribers

Note: 2.5G can be compared to ‘narrowband’ Internet access, while 3G can be compared to ‘broadband ’ Internet access.2G: Analog & TDMA, cdmaONE, PDC, iDEN; 2.5G: GPRS/EDGE, CDMA 2000-1x;

3G: W-CDMA/HSDPA/HSUPA, CDMA 2000-1x-EV-DO/Rev A, TD-SCDMASource: iSuppli

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2005E 2006E 2007E 2008E 2009E 2010E

Subs

crib

ers

(B)

0%

5%

10%

15%

20%

25%

30%

% o

f Tot

al W

irele

ss S

ubsc

riber

s

2.5G and Below Subscriptions 3G and Above Subscriptions % 3G and Above Penetration

Global 3G+ Penetration

52Source: AT&T

Wireless Data Revenue Ramping Nicely –+58% Y/Y @ AT&T, CQ4

0.0

0.4

0.8

1.2

1.6

2.0

CQ4:06 CQ1:07 CQ2:07 CQ3:07 CQ4:07

Wire

less

Dat

a R

even

ue ($

B)

0%

5%

10%

15%

20%

25%

% o

f Wire

less

Ser

vice

Rev

enue

Wireless Data Revenue Data % of Wireless Service Revenue

Wireless Data Revenue

• ~12% of devices are integrated devices, with ARPU >2x the 2G base

• ~13% of devices are 3G, which drives 20% higher ARPU than 2G base

AT&T – CQ4 Wireless Data Y/Y Revenue Growth

• Internet access: >40%

• Messaging: >50%

• E-mail: >60%

• Data access: >70%

• MediaBundle: >70%

53

0

200

400

600

800

1,000

1,200

1,400

1,600

Mobile Subscribers Mobile Data Subscribers

Subs

crib

ers

(MM

)

Asia Pacific Europe ROW LatAm N. America

25%

20%18%

5

10

15

20

25

30%

Mobile Data as % of Revenue(leading carrier in region)

Source: Informa, Company Reports. Includes SMS; (1) Leading carriers by wireless subscribers in Asia Pacific, Europe, and North America are: China Mobile, Vodafone (Europe only), and AT&T, respectively.

Asia / Europe Lead –Mobile Internet Adoption + Carrier Revenue, 2007E

54

Emerging Markets

55

Asia Pacific40%

Europe29%

LatAm11%

N. America8%

ROW12%

Mobile Subscribers – 3.3BC2007E (2)

Asia Pacific

43%

Europe26%

ROW7%

N. America16%

LatAm8%

Internet Users – 1.3BC2007E (1)

Source: (1) ITU, Euromonitor, Morgan Stanley Research; (2) Informa, Morgan Stanley Research

Mobile Users 2x+ > Than Internet Users –N. America = 8% of Mobile / 16% of Internet Users

56

Rank CountryRelative

Weighting

2004

Rank CountryRelative

Weighting

12345678910

12345678910

USAChinaJapan

GermanyUK

IndiaFranceItaly

S. KoreaCanada

9.08.26.55.75.55.35.25.25.15.1

USAChinaJapan

GermanyIndiaUK

FranceBrazilRussia

Italy

8.78.76.35.75.55.45.35.35.35.2

2006

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: nominal GDP per capita (current USD); telephone lines; cable subscribers; installed PCs; mobile phones in use; Internet users and credit/debit cards in use. For each economy, we calculate past / present / potential global market weightings across seven TMT metrics - we call this our relative weighting and we use it to measure / rank a country’s propensity for TMT products and services. We standardized each country’s position in the global market in each category and adjusted the values to reflect a positive scale. The relative ratings and ranks were determined by calculating an average of z-scores across categories. For example, in the United States in 2004, standardized and adjusted values of 6.4 in GDP per capita, 8.4 in telephone lines, 11.3 in installed PCs, 7.6 in mobile subscribers, 8.9 in cable subscribers, 10.7 in Internet users, and 9.6 in credit/debit cards produces a relative weighting of 9.0. 2010E relative weightings derived by assuming 2003-2004 growth CAGR for each category to 2010, and ensuring category penetrations were not exceeded.

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

TMT (Technology / Media / Telecom) Update =China / India / Russia / Brazil Gaining Ground

57

China Led in TMT Users in Many Categories - 2006

CategoryMarket Leader

Leader Number

(000)China Rank

(2006)

China Number

(000)China Rank

(2001)

Population China 1,314,100 1 -- 1

GDP (PPP) per Capita Ireland $44,676 43 $7,722 45

Credit / Debit Cards China 1,131,674 1 -- 3

Mobile Subscriptions China 445,754 1 -- 1

Telephone Lines China 367,786 1 -- 2

Installed PCs USA 212,977 2 102,068 4

Internet Users USA 182,779 2 137,000 3

Cable / Satellite TV Subs. China 155,483 1 -- 1

Source: Morgan Stanley Research TMT database

58

Leading TMT Markets by Category

Category2006 Growth

Rate Market Size

Mobile Subscribers 24% 2,693MM

Internet Users 15 1,120MM

Credit/Debit Cards in Use 11 4,881MM

Installed PCs 8 818MM

GDP per Capita (PPP) 7 $10,426

Telephone Lines 6 1,362MM

Cable / Satellite TV Subscriptions 6 664MM

Population 1 6,446MM

Source: Morgan Stanley Research TMT database

59

Majority of Visitors To Top Global Web Sites =From Outside US

0

100

200

300

400

500

600

Microso

ft

Yahoo

!Goo

gle (1

)You

Tube

eBay AOL

Wikipe

dia

Amazon

Fox I

nterac

tive

Apple

CNETG

loba

l Uni

que

Visi

tors

(MM

)

US Non-US

Top Properties Worldwide

(1) Excludes YouTube; Source: comScore 1/08, Morgan Stanley Research

78% 72%

68% 56% 77%64% 48%

77% 77%

78% 76%

60

0%

20%

40%

60%

80%

100%

C1995E C1996E C1997E C1998E C1999E C2000E C2001E C2002E C2003E C2004E C2005E C2006E C2007E

North America Europe Asia/Pacific China Latin America Rest of World

Geographic Distribution of Internet Users (MM)

275 390 490 620 723 850 975 1,12040 74 117 182 1,320

China – Global Leader in Internet Users210MM in 2007 – 16% of total vs. <1% in 1995

Source: Morgan Stanley Research, ITU, Euromonitor, CNNIC

6161

2006Internet InternetUsers 2006 Users Worldwide

Country (000s) Growth Penetration Share

1 USA 182,779 3% 61% 16% 2 China 137,000 23 10 12 3 India 72,746 41 7 6 4 Japan 67,489 2 53 6 5 United Kingdom 43,752 6 72 4 6 Germany 40,039 6 49 4 7 Italy 35,370 9 61 3 8 South Korea 34,592 4 72 3 9 Brazil 34,174 23 18 3

10 Russia 32,841 40 23 3 11 Indonesia 32,744 45 15 3 12 France 31,520 11 51 3 13 Canada 22,304 5 68 2 14 Mexico 19,614 16 19 2 15 Spain 18,060 11 41 2

Total 1,119,949

Internet Users – Top 15 Markets

Source: Morgan Stanley Research TMT database, ITU, Euromonitor

6262

2006Mobile Mobile

Subscriptions 2006 Subscriptions WorldwideCountry (000s) Growth Penetration Share

1 China 445,754 18% 34% 17% 2 USA 232,793 12 78 93 Russia 151,937 20 106 64 India 137,369 82 12 55 Brazil 100,661 17 54 46 Japan 94,936 5 74 47 Germany 81,242 9 99 38 Italy 77,605 11 133 39 United Kingdom 69,557 7 115 3

10 Indonesia 58,654 47 26 211 Mexico 56,765 22 55 212 Turkey 51,659 19 71 213 France 51,442 7 84 214 Pakistan 48,543 124 31 215 Spain 46,339 10 105 2

Total 2,693,087

Mobile Subscriptions – Top 15 Markets

Source: Morgan Stanley Research TMT database, Informa

63

Recession

64

Serious Risks / Challenges Posed by Competition + Recession…

Source: Morgan Stanley Economics Research

• Impact of US subprime woes / tightening credit / rising commodity prices / global unrest should not be underestimated – depth / duration may surprise on downside + revenue should become increasingly difficult to garner. Leading Internet companies will be stress-tested to prove competitive advantages vs. offline companies – measurability / transparency / customer satisfaction should assist.

• Average GDP growth rate forecasts for 2008 have fallen to 1.1% from 3.0% in 6/07 – a 63% reduction in rate of growth. Average annual GDP growth over past decade = 3.1%. When first car of a moving train slows…the cars that trail follow…

• US less relevant to global economy - US share of global GDPhas declined steadily since 1999 from 22% of GDP to 19% in 2007

65

…Serious Risks / Challenges Posed by Competition + Recession

Source: Morgan Stanley Economics Research

• Courtesy of aggressive monetary / fiscal stimulus + support fromoverseas growth, Morgan Stanley economists believe US recession could be mild + short…but they are becoming increasingly pessimistic about pace of recovery into 2009

• Main culprits – deepening credit crunch + supply shock of higher energy and food prices + growing consumer caution…all in the face of declining household wealth

• Aggressive Federal Reserve ease + significant pending fiscal stimulus may not offset credit crunch…consequently, policymakers are considering array of responses designed to alleviate burden on troubled homeowners + forestall or at least cushion economic downturn

66

10

20

30

40

50

60

70

80

90

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Diff

usio

n In

dex:

Em

ploy

ees

On

Priv

ate

Non

farm

Pay

rolls

(% R

isin

g, 3

-mon

th)

-400

-300

-200

-100

0

100

200

300

400

Priv

ate

Non

farm

Pay

rolls

(diff

eren

ce, 3

-mon

th m

ovin

g av

erag

e)

Total private nonfarm payrolls, 3 month moving avg. of M/M changeDiffusion index: employees on private nonfarm payrolls

Source: Morgan Stanley Economics Research

US Payrolls Have Moved Into Recession Territory

67

Asia / China Gaining Share of Global GDP

22% 23%

22%

10%

7% 7% 6%

3%

29%

19% 18%

11%

7% 6% 6%

3%

0

5

10

15

20

25

30

35

Asia ex-Japan

US EU-15 Other LatAm EmergingEurope

Japan Dollar bloc

% o

f Glo

bal G

DP

Note: Based on PPP, World GDP based on current prices.Per IMF definitions, ‘Dollar bloc’ includes Australia, Canada, New Zealand;

Source: IMF, Morgan Stanley Research

China

11%

16%

% GDP Share in 1999 % GDP Share in 2007E China GDP Share

68

Disclosure Section

The information and opinions in Morgan Stanley Research were prepared by Morgan Stanley & Co. Incorporated, and/or Morgan Stanley Dean Witter C.T.V.M. S.A. and their affiliates (collectively, "Morgan Stanley").For important disclosures, stock price charts and rating histories regarding companies that are the subject of this report, please see the Morgan Stanley Research Disclosure Website at www.morganstanley.com/researchdisclosures, or contact your investment representative or Morgan Stanley Research at 1585 Broadway, (Attention: Equity Research Management), New York, NY, 10036 USA.

Analyst CertificationThe following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Mary Meeker.Unless otherwise stated, the individuals listed on the cover page of this report are research analysts.

Global Research Conflict Management PolicyMorgan Stanley Research has been published in accordance with our conflict management policy, which is available at www.morganstanley.com/institutional/research/conflictpolicies.

Important US Regulatory Disclosures on Subject CompaniesThe 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), Intuit (common stock), Microsoft (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 29, 2008, 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, CNET, Dice Holdings, Inc., eBay, Google, GSI COMMERCE, Yahoo!.As of February 29, 2008, 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, Intuit, Yahoo!.Within the last 12 months, Morgan Stanley managed or co-managed a public offering of securities of Dice Holdings, Inc., GSI COMMERCE, Intuit, TechTarget, Inc..Within the last 12 months, Morgan Stanley has received compensation for investment banking services from eBay, Google, Intuit, Microsoft, TechTarget, Inc..In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from Amazon.com, CNET, Dice Holdings, Inc., eBay, Google, GSI COMMERCE, Intuit, Microsoft, TechTarget, Inc., Yahoo!.Within the last 12 months, Morgan Stanley & Co. Incorporated has received compensation for products and services other than investment banking services from CNET, eBay, Microsoft.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, CNET, Dice Holdings, Inc., eBay, Google, GSI COMMERCE, Intuit, Microsoft, TechTarget, Inc., 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: CNET, eBay, Google, Intuit, Microsoft.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 & Co. Incorporated is a director of Microsoft, Yahoo!.Morgan Stanley & Co. Incorporated makes a market in the securities of Amazon.com, CNET, drugstore.com, eBay, Google, GSI COMMERCE, Intuit, Microsoft, TechTarget, Inc., Yahoo!.Certain disclosures listed above are also for compliance with applicable regulations in non-US jurisdictions.

69

STOCK RATINGSDifferent securities firms use a variety of rating terms as well as different rating systems to describe their recommendations. For example, Morgan Stanley uses a relative rating system including terms such as Overweight, Equal-weight or Underweight (see definitions below). A rating system using terms such as buy, hold and sell is not equivalent to our rating system. Investors should carefully read the definitions of all ratings used in Morgan Stanley Research. In addition, since Morgan Stanley Research contains more complete information concerning the analyst's views, investors should carefully read Morgan Stanley Research, in its entirety, and not infer the contents from the rating alone. In any case, ratings (or research) should not be used or relied upon as investment advice. An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings) and other considerations.Global Stock Ratings Distribution(as of February 29, 2008)For disclosure purposes only (in accordance with NASD and NYSE requirements), we include the category headings of Buy, Hold, and Sell alongside our ratings of Overweight, Equal-weight and Underweight. Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, and Underweight are not the equivalent of buy, hold, and sell but represent recommended relative weightings (see definitions below). To satisfy regulatory requirements, we correspond Overweight, our most positive stock rating, with a buy recommendation; we correspond Equal-weight to hold and Underweight to sell recommendations, respectively.

Disclosure Section

Coverage Universe Investment Banking Clients (IBC)

Stock Rating Category Count % of Total Count % of Total IBC % of Rating Category

Overweight/Buy 1039 44% 322 45% 31%

Equal-weight/Hold 974 41% 300 42% 31%

Underweight/Sell 356 15% 100 13% 28%

Total 2,369 722

70

Data include common stock and ADRs currently assigned ratings. An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings) and other considerations. Investment Banking Clients are companies from whom Morgan Stanley or an affiliate received investment banking compensation in the last 12 months.

Analyst Stock RatingsOverweight (O). The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.Equal-weight (E). The stock's total return is expected to be in line with the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.Underweight (U). The stock's total return is expected to be below the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.More volatile (V). We estimate that this stock has more than a 25% chance of a price move (up or down) of more than 25% in a month, based on a quantitative assessment of historical data, or in the analyst's view, it is likely to become materially more volatile over the next 1-12 months compared with the past three years. Stocks with less than one year of trading history are automatically rated as more volatile (unless otherwise noted). We note that securities that we do not currently consider "more volatile" can still perform in that manner.Unless otherwise specified, the time frame for price targets included in Morgan Stanley Research is 12 to 18 months.

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