Future of Digital 2014

A Research Service By Business Insider

The Future Of Digital: 2014

intelligence.businessinsider.com

Henry BlodgetCEO & Editor-in-Chief

Emily Adler

Senior Research Editor

Marcelo Ballvé

Editorial Director

Cale Weissman

Reporter

Hope King

Reporter

Nicholas Quah

Research Associate

John Greenough

Research Analyst

Jessica Smith

Research Associate

Tony Danova

Senior Research Analyst

Mark Hoelzel

Research Analyst

John Heggestuen

Research Analyst

Cooper Smith

Senior Research Analyst

BI Intelligence

There are now nearly 3 billion people online

Source: International Communication Union, Google

0

1

1

2

2

3

3

1990 1994 1998 2002 2006 2010 2014E

Bill

ions

Global Internet Population

Four billion to go

Global Population

Internet Population

0

1

2

3

4

5

6

7

8

1990 1994 1998 2002 2006 2010 2014E

Bill

ions

Global Internet Population

Source: International Communication Union, Google

Attention is shifting to digital, especially mobile

Source: eMarketer, April 2014

45%

25%

17%

9%7%

4%

37%

18%

11%

4%2%

23%

TV Online Radio Print Other Mobile

US Consumer Media Consumption Share

2009 2010 2011 2012 2013 2014

This is a generational shift

Source: Ofcom

0 10 20 30 40 50 60 70 80 90 100

Total

Aged 16-24

Aged 25-34

Aged 35-44

Aged 45-54

Aged 55-64

Aged 65-74

Aged 75+

Digital Is Reaching The New GenerationTop Five Media Mentions Among all Adults, 2013

Watch TV

Read Newspapers/Magazines

Listen To The Radio

One law of media…

Money follows eyeballs.

Ad spending is moving to digital (and mobile)

Source: IAB, U.S. Census Bureau, Strategy Analytics, BI Intelligence estimates

Offline

All Other Online

Mobile

$0

$60

$120

$180

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Bill

ions

U.S. Advertising

Print ads have fallen off a cliff

Source: Newspaper Association Of America *Estimate

$-

$10,000

$20,000

$30,000

$40,000

$50,000

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

Mill

ions

Newspaper Ad Revenue (Print vs. Online)

Print Online

Google is now bigger than all newspapers, magazines

Source: Google, NAA, PIB

$0

$10,000

$20,000

$30,000

$40,000

$50,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Mill

ions

Google vs. Magazine vs. Newspaper Ad Revenue, US Data, 2004-2013

Google (US)

US Magazines

US Newspapers

Google now dwarfs “big media”

Source: Company Filings, BI Intelligence estimates

$30

$18 $16

$14

$5 $5 $3 $2

$70

TimeWarner

Facebook CBS Viacom Gannett Yahoo AOL New YorkTimes

Google

Bill

ions

Estimated 2014 RevenueSelect Media Companies

Google is almost half the size of all global TV advertising

$174

$70

Global TV Ad Revenue Google

Bill

ion

s

Estimated 2014 Ad RevenueGoogle vs. Global TV Ad Market

Source: Google, PWC

For many years TV folks have (rightly)

laughed off digital concerns

Time to stop laughing.

Ratings are falling…

Source: Nielsen

5.1

5.2

5.3

5.4

5.5

5.6

5.7

5.8

5.9

6

6.1

6.2

2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Nie

lsen H

ousehold

Rating

(% O

f H

ousehold

s

With T

V S

ets

Watc

hin

g)

Primetime Household TV Ratings

Big 4 U.S. TV Networks Average

Pay TV subscriptions are dropping…

Source: Leichtman Research Group

Cable

Satellite

Telephone

Total

(800)

(600)

(400)

(200)

-

200

400

600

Q12012

Q22012

Q32012

Q42012

Q12013

Q22013

Q32013

Q42013

Q12014

Q22014

Q32014

Net

Additio

ns I

n T

housands

Pay-TV Net Additions (US)

Facebook reaches more young people than free TV

Source: Nielsen, January 2013

58%

73%

83%89%

63%

68%

63%

42%

Age 18-24 Age 25-34 Age 35-54 Age 55+

Perc

ent

Reach

Facebook vs. TV Daily Reach(US)

Four TV Networks

Facebook

Netflix now has more US subscribers than HBO

Source: Netflix, SNL Kagan

HBO

Netflix

0

10

20

30

40

4Q2011 1Q2012 2Q2012 3Q2012 4Q2012 1Q2013 2Q2013 3Q2013 4Q2013 1Q2014 2Q2014 3Q2014

Mill

ions O

f U

S S

ubscrib

ers

Paid Domestic Subscribers — Netlix v. HBO

YouTube reaches more 18-34s than any cable network

0

200

400

600

800

1000

1200

1400

2010 2011 2012 2013 2014E

Mill

ions

YouTube “Ratings”

Digital video revenue is no longer a joke…

Source: BI Intelligence estimates, Company Filings

Netflix

YouTube

Hulu

$0

$2

$4

$6

$8

$10

$12

2006 2007 2008 2009 2010 2011 2012 2013

Bill

ions

Estimated Digital Video Revenue

iTunes and Netflix already dwarf small cable networks

Source: News Reports, Company Filings

iTunes

Netflix

AMC Networks

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

2007 2008 2009 2010 2011 2012 2013

Bill

ions

Cable Network vs. Digital Content Revenue 2007-2013

YouTube is closing in on broadcast-network revenue

Source: News Reports, BI Intelligence estimates, Company Filings

$-

$2

$4

$6

$8

$10

$12

2007 2008 2009 2010 2011 2012 2013

Bill

ions

YouTube Ad Revenue vs. CBS Ad Revenue And AMC Networks Revenue

CBS Ad Revenue

YouTube Ad Revenue

AMC Networks Revenue

(Some) live sports are now being streamed

Source: Ooyala 2014

34.5

7.1

3.5

42.8

11

17.1

10.5

16.9

2.64.1

2.85.1

Desktop Tablet Mobile Connected TV

Tim

e S

pent

Per

Pla

yIn

Min

ute

s

Time Spent Watching Online Video By Content TypeGlobal

All Live Events

Sports

VOD

TV now has to share attention with digital

Source: Millward Brown, 2014

83(55%) 65

(63%)

20(45%)

68(45%)

38(37%)

24(55%)

Smartphone Laptop Tablet

Tim

e S

pent

In M

inute

s

(Perc

enta

ge O

f T

ota

l T

ime)

Daily Time Spent With Devices, While Watching TV Or Using The Device IndependentlyAges 16 - 44, United States Only

Without TV

With TV

So, eyeballs are leaving TV

But, so far, TV money is

hanging in there

TV still massive, digital video still a blip

Source: Nielsen, IAB

$0

$20

$40

$60

$80

2007 2008 2009 2010 2011 2012 2013

Total TVAd Spend(Billions)

US Ad Spend, 2007-2013TV Vs. Online Video

TV Ad Spend

Online Video Ad

So no worries in TV land?

Yes, worries.

It’s a generational shift — look what Millennials are doing

Source: Ofcom

TV

TV

TV

Print

Print

Radio

Radio

Radio

Computer

3

Computer

Smartphone

Smartphone

All Adults Aged 75+ Aged 16-24

“Media you would miss most”

Use A Smartphone

Go Online On AComputer/Laptop/Netbook/Tablet

Listen To The Radio

Read Newspapers/Magazines

Watch TV

Money follows eyeballs…

Source: Mary Meeker, IAB, eMarketer

5%

38%

25%

12%

20%19%

43%

22%

10%

4%

Print TV Web Radio Mobile

2013 U.S. Ad Spending vs. Consumer Time Spent By Media

So it’s only a matter of time.

What’s going on in digital?

Smartphone sales are still booming

Source: IDC, Strategy Analytics, BI Intelligence estimates

Samsung

Apple

Xiaomi

Lenovo

Huawei LG

ZTE

Coolpad

Nokia

SonyMotorola

HTC

BlackBerry

Other

-

50

100

150

200

250

300

350

2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 2Q14

Mill

ions

Global Smartphone Shipments By Vendor

PCs

Tablets

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14

Thousands

Global Computer Shipments

Tablets have carved out a chunk of PC sales

Source: Gartner, IDC, Strategy Analytics, Company Releases

“Phablets” are replacing small smartphones

Source: BI Intelligence estimates

Phablets

Tablets

Smartphones (Non-Phablet)

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2006 2008 2010 2012 2014E 2016E 2018E

Mill

ions

Global Annual Shipments By Device

Nearly half of TVs are now connected

Source: Leichtman Research Group, BI Intelligence estimates

27.7

35.7

43.8

50.1

56.5 61.1

65.7 68.6

71.4 72.6

24%

31%

38%

44%

49%53%

57%60%

62% 63%

2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E

U.S. Households With Connected TVPercentage Of Households; Number Of Households In Millions

“Wearables” are overhyped but growing

Source: BI Intelligence estimates

Smartwatches

Fitness Bands And Other Activity Trackers

Rest Of Wearables Market

0

20

40

60

80

100

120

140

160

2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E

Mill

ions O

f U

nits S

hip

ped A

nnually

Global Wearable Device Unit Shipments Forecast

35% CAGR

We Are Here

Cars are increasingly connected

Source: SBD, GSMA

In-vehicle services

Hardware

Telematics service providers

Telecom service providers

€ 0

€ 5,000

€ 10,000

€ 15,000

€ 20,000

€ 25,000

€ 30,000

€ 35,000

€ 40,000

€ 45,000

2009A 2010A 2011A 2012A 2013E 2014E 2015E 2016E 2017E 2018E

Mill

ions

Connected Car Revenue Forecast

300 million PCs are still sold each year

Source: Gartner, IDC, BI Intelligence estimates

Lenovo

HP

Dell

Acer

Other

0

20,000

40,000

60,000

80,000

100,000

1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14

Thousands

Global PC Shipments By ManufactureriPad released Windows 8 released

Should you be “mobile only?”

No!

It’s a “multi-screen” world

Source: Gartner, IDC, Strategy Analytics, Company Filings, BI Intelligence estimates

Personal Computers

Smartphones

Tablets

Smart TVs

Wearables

0

1

1

2

2

3

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E

Units

Bill

ions

Global Internet Connected Device Shipments

You should be “mobile, too.”

~60% of online devices are now smartphones or tablets

Source: BI Intelligence estimates

Personal Computers (Desktop And Notebook)

Smartphones

Tablets

Smart TVs

Wearables

0

1

2

3

4

5

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

Num

ber

Of

Devic

es I

n U

se (

In B

illio

ns)

Global Internet Device Installed Base

Other8%

Visit Websites14%

Games8%

Social Networking15%

Talk26%

Text20%

Email9%Breakdown Of The Average

Smartphone Owner's Daily Time-SpendOn Average, U.S. Smartphone Owners Spend 58 Minutes Daily On Their Phones

We spend an hour a day on our smartphones

Source: Experian Marketing Services, May 2013

We spend ½ hour on tablet each time we use it

Source: Google, August 2012

43

39

30

17

TV PC/Laptop Tablet Smartphone

Average Minutes Spent Per Interaction By Device

More than ¼ of Internet traffic is mobile

Source: StatCounter, BI Intelligence estimates

0%

25%

50%

75%

100%

Dec-08 Jan-10 Feb-11 Mar-12 Apr-13 May-14

Global Internet Traffic ShareDesktop Vs. Mobile

Mobile has extended the digital day to 18/7

Source: Google Analytics, Business Insider

9/1/12 9/15/12 9/29/12 10/13/12 10/27/12 11/10/12 11/24/12 12/8/12 12/22/12 1/5/13

Mobile Visits Desktop Visits

Each device has a different “prime time”

Source: comScore, Telefonica, Macquarie Capital (USA), December 2011

Where are we in the

mobile device cycle?

Developed mobile markets are nearing maturity

Source: comScore

18%

72%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Jan 10 Jun 10 Nov 10 Apr 11 Sep 11 Feb 12 Jul 12 Dec 12 May 13 Oct 13 Mar 14

(as a

perc

enta

ge o

f th

e m

obile

popula

tion)

U.S. Smartphone Penetration

The action is now in China, India, and emerging markets

Source: Mediacells via The Guardian

0

50

100

150

200

250

300

Mill

ions O

f S

mart

phones

Smartphone Sales In 2014 Will Be Driven By New Users In Emerging Markets

Sales To New Smartphone UsersIn 2014

Smartphone Upgrades In 2014

Top 11 Markets

Other Markets

China is already twice the size of the US market

Source: China Internet Network Information Center

Mobile Users

Total Users

US Users

0

100

200

300

400

500

600

700

June06

Dec 06 June07

Dec 07 June08

Dec 08 June09

Dec 09 June10

Dec 10 June11

Dec 11 June12

Dec 12 June13

Dec 13 June14

Mill

ions O

f In

tern

et

Users

Chinese Internet Users

Prices are dropping fast

Source: BI Intelligence estimates

$100

$150

$200

$250

$300

$350

2010A 2011A 2012A 2013E 2014E 2015E 2016E

Avera

ge S

elli

ng P

rice

Global Smartphone Average Selling Price Forecast

iPhone sales growth has slowed (iPhone 6 will help)

Source: Company Filings

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

0

10,000

20,000

30,000

40,000

50,000

60,000

3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14

YoY

Sale

s G

row

th

Unit S

ale

s (

Thousands)

iPhone Sales

Unit Sales

YoY Growth

Chinese companies sell ~25% of smartphones in world

Source: Canalys, IDC, Strategy Analytics, BI Intelligence, Company Reports

0

10

20

30

40

50

60

70

80

90

1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14

Mill

ions

Selected Local Manufacturers From China Global Quarterly Smartphone Shipments

Xiaomi

Huawei

Lenovo

ZTE

Coolpad

Global tablet growth has hit a wall

Source: IDC, Strategy Analytics, BI Intelligence estimates

Year-Over-Year Growth

-100%

-50%

0%

50%

100%

150%

200%

250%

300%

3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14

Global Tablet Shipments Quarterly Year-Over-Year Growth

Sequential Growth

(iPad now experiencing “negative growth”)

Source: Apple

-50%

0%

50%

100%

150%

200%

0

5,000

10,000

15,000

20,000

25,000

30,000

2Q10 4Q10 2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 2Q14

YoY

Sale

s G

row

th

Unit S

ale

(T

housands)

iPad Sales

Unit Sales

YoY Growth

Why have tablet sales cratered?

1. Long upgrade cycle

2. Phablet cannibalization

3. Need keyboard for serious input

4. Price

What about the

platform war?

We have a winner!

Apple is strong in the US, where it’s a two-horse race

Source: comScore

Android

AppleBlackBerry

Windows Phone

Other

0%

20%

40%

60%

80%

100%

Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14

US Smartphone Platform Market Share

But, globally, it’s an Android world

~85% of smartphones run Google’s Android

Source: IDC, Strategy Analytics, BI Intelligence estimates

Android

iOS

Microsoft

BlackBerry

Other

0%

25%

50%

75%

100%

1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14

Share

of

Glo

bal U

nit S

hip

ments

Global Smartphone Market Share By Platform

~65% of tablets run Android

Source: BI Intelligence estimates

Android

Apple

Amazon

BlackBerry

NookWindows

0%

25%

50%

75%

100%

3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14

Global Tablet Market Share By Platform

~70% of all new computing gadgets run Android

Source: Gartner, IDC, Strategy Analytics, Company Filings, BI Intelligence estimates

Android

Windows

Apple

BlackBerry

Other

0%

20%

40%

60%

80%

100%

1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14

Global Computing Platform Market Share

Android used to lag Apple

badly with app developers.

Not anymore.

Android “fragmentation” problem is improving

Source: Google

OtherFroyo

Gingerbread

Honeycomb

Ice Cream Sandwich

Jelly Bean

Kit Kat

0%

20%

40%

60%

80%

100%

9/15/12 11/15/12 1/15/13 3/15/13 5/15/13 7/15/13 9/15/13 11/15/13 1/15/14 3/15/14 5/15/14 7/15/14

Jelly Bean And Kit Kat Are Now ~80% Of Android

Android now more popular with developers than iOS

Source: Developer Economics, Q3 2014

Android 42%

iOS32%

BlackBerry 103%

Windows Phone10%

Other13%

Mobile Developers' Main Platform

Android will soon overtake iOS in app revenue

Source: Jana, App Annie, BI Intelligence estimates

$0

$1

$2

$3

$4

4Q13 2Q14 4Q14E 2Q15E 4Q15E 2Q16E

Bill

ions

Estimated App RevenueApple App Store Vs. Google Play

Android is catching up to iOS in developer payouts

Source: Jana, App Annie, BI Intelligence estimates

Apple App Store

Google Play

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

3Q13 4Q13 1Q14 2Q14

Bill

ions

Estimated App Developer PayoutApple App Store And Google Play

Android now generates more global ad traffic than iOS

Source: Opera Mediaworks

Android

iOS

BlackBerry

Symbian

Other

0%

20%

40%

60%

80%

100%

2Q12 4Q12 2Q13 4Q13 2Q14

Share

Of

Tra

ffic

Global Mobile Ad Traffic Share By Platform

The key digital media trends…

Mobile

Social

Native

Video

Programmatic

Most digital growth is now mobile

Source: comScore, April 2014

Smartphone131

Smartphone442Tablet

11

Tablet124

0

200

400

600

800

1000

1200

Dec-10 Dec-13

Bill

ions O

f M

inute

s

Time Spent By Digital Platform Per MonthU.S., December 2010 Vs. December 2013

1,040% Growth

237%

7%

Desktop

401

Desktop

429

Messaging apps are exploding

Source: Company Statements, News Reports, BI Intelligence estimates

0

100

200

300

400

500

600

Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14

Mill

ions

The Messaging Wars — MAUs For Top Apps (Monthly Active Users - Global)

Social networks and sharing are exploding

Source: BI Intelligence estimates based on data from company filings, comScore, Global Web Index, Totem and news reports

Facebook

TwitterTumblr

Instagram

Snapchat

Google Plus

LinkedInPinterestVine 0

500

1,000

1,500

2010 2011 2012 2013 2014E

Mill

ionsSocial Network MAUs (Global)

Mobile video is booming…

Source: Cisco, 2013

0

1

2

3

4

5

6

7

8

2011 2012 2013 2014 2015 2016 2017

Mill

ions o

f T

era

byt

es P

er

Month

Global Mobile Video Traffic Will Continue To Surge

Mobile video has enabled the rise of the YouTube stars

Source: Company Filings

35 million viewers

8 million viewers

1 million viewers

Social and music are now mostly mobile

Source: Company Filings

Pandora

Facebook

Twitter

0%

25%

50%

75%

100%

2008 2009 2010 2011 2012 2013

Mobile Usage: Pandora, Twitter, Facebook

Mobile is driving all of Facebook’s growth

Source: Company Filings

Advertising (Non-Mobile)

Mobile Advertising

Payments And Fees

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

Q1 10 Q3 10 Q1 11 Q3 11 Q1 12 Q3 12 Q1 13 Q3 13 Q1 14 Q3 14

Bill

ions

Facebook Revenue By Segment (Global)

Mobile is now a third of eCommerce traffic

Source: Monetate

PC

Tablet

Smartphone

0%

25%

50%

75%

100%

2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 2Q14

Ecommerce Website Traffic By Device

PayPal powers $30 billion in mobile payments

*PayPal counted a small portion of Braintree’s transaction volume as its own in the last 12 days of Q4 2013.Source: PayPal

PayPal Mobile

Braintree Mobile*

$0

$5

$10

$15

$20

$25

$30

$35

2008 2009 2010 2011 2012 2013

U.S

. D

olla

rs I

n B

illio

ns

PayPal Mobile Transaction Volume(Including Braintree 2013)

Venmo is (finally) replacing friend-to-friend payments

Source: PayPal, BI Intelligence

$81$105

$141

$194

$314

$468

$700

Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014

Mill

ions O

f D

olla

rs

Venmo Payment Volume

Ad growth is mobile, social, video, native, programmatic

Source: BI Intelligence estimates based on data from BIA/Kelsey, IAB, IDC, and Magna Global Note: Formats overlap. Mobile includes all ad formats that appear on mobile.

-0.4%

15.1%

2.3%

42.6%

18.0%

34.7% 35.7%

Desktop Display Desktop Video Desktop Search Mobile Social Native Programmatic

Advertising Revenue Growth (US)

CAGR 2013 - 2018

Mobile is a “green field”

Source: eMarketer

$1 $1 $1$3

$10$12

$1 $1 $1$3

$15

$30

$1 $1 $1

$4

$19

$46

Latin America Middle East andAfrica

Eastern Europe Asia-Pacific Western Europe North America

Annual Mobile Ad Spend Per Mobile Internet UserBy Region

2011 2012 2013

Social is booming

Source: BI Intelligence estimates, BIA/Kelsey

Non-Mobile

Mobile

$-

$2

$4

$6

$8

$10

$12

$14

$16

2013 2014E 2015E 2016E 2017E 2018E

Bill

ions

FORECAST: Social Media Advertising Spend(US)

“Display” ad spending is still respectable, but…

Source: Company Filings, BI Intelligence estimates

Google

Other

Yahoo

AOL

Microsoft

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

2Q06 4Q06 2Q07 4Q07 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 2Q14

TotalDisplay

AdvertisingRevenue(Millions)

US Display Advertising, 2006-2014 (Quarterly)

Growth is shifting to “native”…

Source: BI Intelligence estimates, IAB

$1.0 $1.3 $1.9 $2.7 $3.9

$5.7

$0.8 $1.0 $1.3

$2.0

$2.7

$3.4

$2.9

$5.6

$7.5

$9.2

$10.7

$11.9

$0

$5

$10

$15

$20

$25

2013 2014E 2015E 2016E 2017E 2018E

Bill

ions

Native Advertising Revenue (US)

Desktop And Mobile

Native-Style Display Sponsorship Social

And “programmatic”

Source: BI Intelligence estimates, Magna Global, IDC

$6

$8

$12

$18

$23

$28

2013 2014E 2015E 2016E 2017E 2018E

Ad S

pend I

n B

illio

ns

FORECAST: Programmatic Ad Spend (U.S.)

Google is still the digital advertising king

Source: Company Filings Note: Based on GAAP revenue.

Google

Facebook

Yahoo

AOL

$0

$4

$8

$12

$16

$20

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14

Bill

ions

Digital Advertising Revenues (Global)

Google’s YouTube dominates digital video and video ads

Source: Company Filings, BI Intelligence estimates

YouTube

Tremor

YuMe

TubeMogul

$0

$250

$500

$750

$1,000

$1,250

$1,500

$1,750

Q1 2011 Q3 2011 Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014

Revenue I

n M

illio

ns

Global Digital Video Advertising Revenue(Select Companies)

Google’s Chrome browser is crushing Firefox and IE

Source: StatCounter

Other

Safari

Firefox

Internet Explorer

Chrome

Opera0%

10%

20%

30%

40%

50%

60%

2010 2011 2012 2013 2014

Global Web Browser Usage Share

Google’s Android has peak-Windows-like market share

Source: IDC, Strategy Analytics, BI Intelligence estimates

Android

iOS

Microsoft

BlackBerry

Other

0%

20%

40%

60%

80%

100%

1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14

Share

of

Glo

bal U

nit S

hip

ments

Global Smartphone Market Share By Platform

Google93%

Bing3%

Yahoo2%

Other2% Europe Search Market Share

Oct. 2014

In Europe, Google has peak-Windows-like search share

Source: StatCounter

Basically, Google is swallowing the world…

Source: Google, 2014 Is An Estimate

$-

$10

$20

$30

$40

$50

$60

$70

2009 2010 2011 2012 2013 2014E

Bill

ions

Google Global Annual Revenue

(And people are noticing!)

Source: StatCounter

(For Microsoft, DOJ attack was the beginning of the end)

Source: StatCounter

Have Google and Facebook won?

Not necessarily.

Money follows eyeballs.

Search click growth is finally decelerating

Source: Google

20%23%

26%

31%

26%25%

17%

Q1 13 Q3 13 Q1 14 Q3 14

Google Paid Clicks GrowthGlobal, Year-Over-Year

US desktop search queries are now shrinking

Source: comScore Note: Explicit user initiated search queries only.

10%

12%

14%

10%

7%

4%

0%

-3%-5%

-7% -8% -7% -7%

Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14

Total Monthly Search Query Growth U.S., Year-Over-Year; Desktop Only

“No one uses Facebook anymore” — Gen Z-er

Source: Piper Jaffray

42%

33%

27%

23%27%

30%

31%

27%

12%

17%

27%

30%

Fall 2012 Spring 2013 Fall 2013 Spring 2014

The Most Important Social Networks To US TeensPercent Of Respondents Who Say The Network Is Most Important

Facebook

Twitter

Instagram

Why do teens love Instagram?

0

50

100

150

200

250

300

2010 2011 2012 2013 2014E

Mill

ions

Instagram

“Because parents see that camera icon and think it’s a photo app. They don’t know it’s a social network.”

What’s Tumblr for?

0

50

100

150

200

250

300

350

2010 2011 2012 2013 2014E

Mill

ions

Tumblr

“Fandom. And depressed and creepy people.”

What about phone calls? Do people talk anymore?

0

200

400

600

800

2010 2011 2012 2013 2014E

Mill

ions

WhatsApp

“No. Everyone has phone numbers, but they’re for texting.”

Digital is the medium for the

new generation.

Digital will grow for decades.

So, what’s next?

Connected cars — we spend 1.2 hours a day in them

Source: Bureau Of Labor Statistics

8.8 hours

7.6 hours

2.5 hours

1.2 hours1.1 hours1.1 hours

1.7 hours

0

12

24

Average Daily Time Spent Per PersonU.S. Employed Citizens ages 25 to 54

Other

Household Activities

Eating And Drinking

In The Car

Leisure And Sports

Sleeping

Working

Wearables (someday)

Source: BI Intelligence estimates

Smartwatches

Fitness Bands And Other Activity Trackers

Rest Of Wearables Market

0

20

40

60

80

100

120

140

160

2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E

Mill

ions O

f U

nits S

hip

ped A

nnually

Global Wearable Device Unit Shipments Forecast

35% CAGR

We Are Here

Smartwatches, like Apple Watch, should do okay

Source: BI Intelligence estimates

Total SmartwatchMarket

Apple Watch

0

20

40

60

80

100

120

140

2013 2014 2015E 2016E 2017E 2018E 2019E 2020E

Mill

ions

Apple Watch Annual Shipments Forecast2015-2020

Fitness bands will remain niche

Source: NPD Group, BI Intelligence estimates; Annual Data From April Through March

Fitbit

Jawbone

Nike

Other

-

500

1,000

1,500

2,000

2,500

3,000

3,500

2010-2011 2011-2012 2012-2013 2013-2014

Thousands O

f F

itness B

ands S

old

Fitness Band Hardware Annual Unit SalesBy Device Maker, US Only

“Internet of Things” — 20B connected devices by 2020

Source: BI Intelligence estimates

Enterprise

Government/Infrastructure

Home

-

5

10

15

20

25

2014E 2015E 2016E 2017E 2018E 2019E

Bill

ions o

f D

evic

es

Estimated Number of InstalledIoT Devices by Sector

We’ll fill our houses with smart devices

Source: ABI Research, TechNavio, Pike Research, BI Intelligence estimates

Smart Home Energy

Smart Home Security

Smart Appliances

Other Systems

0

500

1,000

1,500

2,000

2012 2013 2014E 2015E 2016E 2017E 2018E 2019E

Mill

ions

Global Connected Home Device ShipmentsBy Device Category

And companies will buy them by the billions

Source: BI Intelligence estimates

-

1

2

3

4

5

6

7

8

9

10

2014E 2015E 2016E 2017E 2018E 2019E

Bill

ions o

f D

evic

es

Global Enterprise Device Growth

Five-Year (2014-2019) CAGR 49%

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