Member of the FINRA and SIPC. San Francisco Chicago New York Minneapolis Boston Google/DoubleClick Partner Summit The Opportunity in Non-Premium Display Advertising June 22, 2006 William Morrison 415-249-1989 [email protected]Robert Coolbrith 415-249-6363 [email protected]Please see analyst certification (Reg. AC) and other important disclosures on slides 40-41 of this report
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Member of the FINRA and SIPC.
San Francisco ChicagoNew York MinneapolisBoston
Google/DoubleClick Partner Summit
The Opportunity in Non-Premium Display AdvertisingJune 22, 2006
Please see analyst certification (Reg. AC) and other important disclosures on slides 40-41 of this report
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Premium vs. Non-Premium Display
� Premium�Guaranteed time and place�Exclusive opportunities�High-touch, upfront sales�Typically sold by internal sales force�High average CPM (~$10 to $50+)�10% of display inventory, 82% of display revenue�Low sell through usually reflects selling constraints, not intrinsic value
� Non-Premium�No placement guarantees�Typically sold by ad networks or spot marketplaces/exchanges�Low average CPM (~$0 to $2.00)�90% of display inventory, 18% of display revenue�“Fast, cheap and out of control”
Source: ThinkEquity LLC estimates
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The Opportunity in Non-Premium Display
� Ad Dollars Are Moving Online, But Challenges Persist �Large allocation gap: 8% of $$ online vs. 20-30% of consumer usage in U.S.�But wait, Online-DR 15% penetrated, Online-Brand 4% penetrated�Non-premium inventory growing faster (~15-20%) than premium (~3-5%)
� Challenges for Brand Marketers/Agencies�The Web is fragmenting at an accelerating pace = more complexity & more cost�Agency/brand marketer comfort zone: Tier 1 “premium” inventory�Comfort zone inventory isn’t growing (as quickly as it had been)
� Challenges for Premium Publishers�Bursty traffic � unpredictable inventory �supply uncertainty�Impressions (per page view) & premium CPMs maxed out�Low sell through often reflects selling constraints, not intrinsic value of inventory
� The Solution�Break out of the comfort zone, embrace alternatives �Key alternative: non-premium display
Source: ThinkEquity LLC estimates
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What Happened? Why Are We Here?
Source: Netcraft and ThinkEquity LLC
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Hostnames Active
187 Million Registered Websites, 4.031026 More To Go
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The Tipping Point – October 16, 2006
Dan Rosensweig, Yahoo!, COO
“I will talk about the inventory glut, and it has definitely been a huge change……It is going to change the market dynamics.”
“I think there's going to be a glut for a while and there will be a transition…but I think in the end our assets will ultimately help us take advantage of that
opportunity.”
“Can you give us a sense of how much more inventory is in the marketplace from the likes of MySpace and YouTube and what impact that could have on your business?”
“Is that something you look at and adjust pricing?”
Analyst Question:
Source: Thomson
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Social Media Taking Share from Portals…and Search
Source: Alexa
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Source: comScore, Compete, IAB, and ThinkEquity LLC
� Potential impact on premium sales/pricing unclear
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Supply: Inventory Management
� Better Inventory Management Needed�Publishers could potentially sell more premium or targeted ad programs
�Enables secondary premium strategies via “synthetic” delivery guarantees
− Guaranteed delivery of fungible inventory from multiple sources− Even with more inventory complexity, guarantees might be easier to provide
�Will be built into next-generation ad sales platforms to enable “reservations”
� Yahoo! APT�DoubleClick AdX 2.0?
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Supply: Yield Management
� Secondary Premium�Raise inventory yield via creation of new products
� May be sub-optimal due to supply-side allocation
�Requires relatively few changes in market participant behavior
�Impact on spot/non-premium and premium sales unclear
� Spot Markets (Ad Exchanges)
�Raise inventory yield via marketplace mechanics� Probably optimal due to demand-side allocation and real-time bidding
�Impact on premium/forward sales unclear
�Requires changes in market participant behavior.
� Yield Optimizers
�Raise inventory yield via continuously refined prediction of buyer behaviors
� May be sub-optimal due to supply-side allocation�Limited incremental impact on premium/forward sales
�Requires relatively few changes in market participant behavior
�Model may evolve to resemble spot market.
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Demand-side Innovation
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Demand: What Do Advertisers/Agencies Want?
� Collective Media 2009 Ad Network Study
� What is the primary reason you use ad networks?�Efficiency – 72%�Reach – 68%�Targeting – 61%�Optimization – 46%
� What’s the primary reason you use portals?�Reach – 61% �Targeting – 14%�Efficiency – 13%�Optimization – 3% �Sponsorships – 2%
Source: Collective Media Ad Network Study, 2009
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Demand: What Do Advertisers/Agencies Want?
� What best differentiates one ad network from another?�Quality of Inventory – 23%�Targeting – 19% �Price – 9% �Optimization – 7%�Reach – 3%
� What’s the primary reason you limit or don’t use ad networks?�Lack of Transparency – 58% �Editorial control – 42%�Ad position – 46%�Audience duplication – 36%�Available ad formats – 17%�Client dictates – 9%
Source: Collective Media Ad Network Study, 2009
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Demand: Efficiency
� Two factors need to be addressed:�Price of media inputs
� Price to efficacy gap for premium vs. non-premium
− Shrinking, but still significant�Operating costs and complexity
� Price of offline campaign vs. online campaign execution
− 15-20% of media spend for online vs. 2-3% for offline� Lack of standards (formats, business documents, impression data, EDI)
� Responses
� Secondary premium inventory bundling− Publisher automation does the heavy lifting
� Transparent spot marketplaces with heuristic bidding
− Bring your own bidder to multiple liquidity pools
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Demand: Transparency
� Transparency is an important condition for advertiser buy-in, now more than ever�Mix-and-match professional and UGC content within “premium” environments
�International vs. domestic traffic sourcing
�Buyers will likely require transparency to page-level content
� Good news � Obfuscation is no longer really an option
�Yield improvement relies on improved transparency
�Media verification is making obfuscation difficult or impossible� Possibility: verify in real-time and revend or serve PSA
� Good news � Product/channel management should minimize publisher roadblocks
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Demand: Scalability
� Scale is the primary reason that advertisers use both networks and portals�High reach and (sometimes) frequency without unwanted complexity
� Targeted reach needs to be achieved more efficiently vs. vertical site buys
�Complexity grows more than linearly with increasing reach
� New platforms also need to empower and leverage small/local buyers
�Small buyers can take advantage of targeting and justify higher per-unit prices
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Demand: Targetability
� Third-party data brokers have found a model that works�Up-front payment garners high-quality, actionable consumer insights
�No need to “boil the ocean”
�Optimal monetization mechanism still an open question: exchange vs. feed
� Inference modeling also seems promising
�Media consumption “look-alikes”
�Social network neighbors � “birds of a feather”
� Increasing ecosystem transparency � site, page, context, user
� Challenge for buyers and secondary premium sellers:
�Assembling (and making use of) multiple data sources
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Demand: Flexibility
� Fulfillment of forward contracts to agency, not account
� Possible creation of real-time markets within agencies to optimize allocation
� Option to revend in real time to minimize waste
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Market Opportunity
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Market Forecast
Source: IAB, Zenith Optimedia, company reports, ThinkEquity LLC estimates
Search & Contextual Premium Display Non-Premium Display Other
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The White Elephants in the Room…
Rep. Rick Boucher (D-VA) Rep. Joe Barton (R-TX)
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…or Are They Killer Whales?
Rep. Rick Boucher, Chairman
“Consumers should be able to opt-out of first party u se of the information and for its use by third parties or subsidiaries who are part of the company's normal first party marketing
operations, or without whom the company could not provide its service.”
“Consumers should be able to opt-in to use of the in formation by third parties for those parties' own marketing purposes.”
House Subcommittee on Telecommunications and the Internet: Hearing on Behavioral Advertising, June 18, 2009
“I hit the delete button every week and erase the co okies on my computer . I’m always amazed at how much information is taken from me.”
“I think I have the right to know what information websites are gathering about me and what they’re doing with it. And poll after poll shows that the public agrees with me.”
Rep. Joe Barton, Ranking Member
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What a Third Party, Opt-In World Would Look Like
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Important Disclosures
Companies Mentioned In This Report
Analyst CertificationI, William Morrison, hereby certify that all of the views expressed in this research report accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research report.
The analyst(s) responsible for preparing this report has/have received compensation based on various factors, including the firm's total revenues, a portion of which is generated by investment banking activities. ThinkEquity LLC and/or an affiliate received compensation for investment banking services from DG FastChannel, Inc. in the past 12 months. ThinkEquity LLC makes a market in Google, Inc., Yahoo!, Monster Worldwide, Inc., WebMD Health Corp., Focus Media Holding Limited, Bankrate, Inc., ValueClick, Inc., DG FastChannel, Inc., comScore, Inc., Marchex Inc., The Knot, Inc., Move, Inc., TheStreet.com, Inc., SourceForge, Inc., eHealth, Inc., Amazon.com, Inc., VistaPrint Ltd., and Blue Nile, Inc. securities; and/or associated persons may sell to or buy from customers on a principal basis.
"Buy," "Hold," and "Sell" are not defined ThinkEquity LLC ratings and should not be construed as investment opinions. Rather, these ratings are used illustratively to comply with applicable FINRA and other securities regulatory organization regulations.
ThinkEquity LLC has made affirmative disclosures concerning each of the covered securities mentioned in this report, including analyst holdings (if any), rating definitions and overall ratings distributions. These disclosures can be found in the most recent complete research report for each of the respective companies. Reports are available upon request.
Rating definitionsThe ThinkEquity LLC rating system is based on a stock's expected total return over a 12-month investment horizon. Ratings on coverage are defined as follows:Buy: Appreciation potential of 20% or more over the next 12 months. Analyst has a high level of conviction that the company's business fundamentals are intact and that the company will meet or exceed earnings projections. Valuation is considered reasonable considering the company's potential.Accumulate: Appreciation potential greater than 0% and less than 20% over the next 12 months. Typically good companies, with fundamentals and earnings visibility intact, but current valuation limits upside potential.Source of Funds: Stock is expected to decline as much as 20% over the next 12 months, due to a single or combination of factors including excessive valuation, negative sector sentiment, and/ or reduced earnings expectations.Sell: Stock expected to decline 20% or more over the next 12 months. Company fundamentals are deteriorating, leading to material downward revisions in earnings projections and valuation.
Name Exchange Symbol Price Rating PTGoogle, Inc. NASDAQ GOOG $420.09 SoF $325.00
Yahoo! NASDAQ YHOO $14.71 Acc $16.00
comScore, Inc. NASDAQ SCOR $12.11 Acc $13.00
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Important Disclosures
This report does not purport to be a complete statement of all material facts related to any company, industry, or security mentioned. The information provided, while not guaranteed as to accuracy or completeness, has been obtained from sources believed to be reliable. The opinions expressed reflect our judgment at this time and are subject to change without notice and may or may not be updated. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. This notice shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state in which said offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state. This research report was originally prepared and distributed to institutional clients of ThinkEquity LLC. Recipients who are not market professionals or institutional clients of ThinkEquity LLC should seek the advice of their personal financial advisors before making any investment decisions based on this report. Additional information on the securities referenced is available upon request. In the event that this is a compendium report (covers more than six ThinkEquity LLC-covered subject companies), ThinkEquity LLC may choose to provide specific disclosures for the subject companies by reference. For more information regarding these disclosures, please send a request to: Director of Research, ThinkEquity LLC, 600 Montgomery Street, San Francisco, California, 94111. Stocks mentioned in this report are not covered by ThinkEquity LLC unless otherwise mentioned. Member of the FINRA and SIPC. Copyright 2008 ThinkEquity LLC
Risks to Price TargetscomScore: Potential risks to our price target include customer concentration, increasing competition, macroeconomic weakness, and potential changes in media buying behavior. Google: Potential risks to our price target include a more rapid than expected recovery in the macroeconomic outlook or the search advertising market.Yahoo!: Potential risks to our price target include incremental weakness in premium display online advertising, loss of market share in key products or services provided to either consumers or marketers, incremental weakness in the macroeconomic outlook or the outlook for online advertising in particular.