Search Economy and Trends

Moderator:Sandeep Aggarwal, Managing Director

Sr. Internet Analyst at Collins Stewart LLC

Panelists:Heather Dougherty, Research Director Hitwise

Jaideep Singh – CEO of Spock.comKevin Lee – Chairman & CEO / Co-Founder of Didit

Sean Walsh – VP of Online Marketing at Luxurylink.com

Panel: Search Economy and Trends

$MM 2004 2005 2006 2007 2008E 2009E 2010E '07-'10 CAGR

Total Worldwide Advertising $543,600 $569,100 $604,600 $639,700 $667,900 $695,593 $722,560 4.1% Y/Y Change 11.0% 4.7% 6.2% 5.8% 4.4% 4.1% 3.9%

WW Internet Ad Spend $16,500 $21,000 $28,000 $35,663 $44,399 $54,569 $66,259 22.9%Growth Rate 38% 27% 33% 27% 24% 23% 21%

WW Internet as a % of Total 3.0% 3.7% 4.6% 5.6% 6.6% 7.8% 9.2% Y/Y Increase in Penetration 59 bps 65 bps 94 bps 94 bps 107 bps 120 bps 133 bps

Source: Universal McCann; IAB & PricewaterhouseCoopers; Collins Stewart LLC estimates

Secular Growth Trends in Internet Advertising

• Worldwide advertising is approximately $700bn industry

• Internet advertising is $45bn industry

• Internet advertising is expected to grow 5x of overall advertising industry growth for next several years

• Internet advertising will be 9%+ of the total advertising in 2010 (up from 3% in 2004)

Ad Revenue ($MM) 2004 2005 2006 2007E 2008E 2009E 2010ETotal $16,500 $21,000 $28,000 $35,663 $44,399 $54,569 $66,259Search $6,627 $8,864 $11,867 $15,923 $20,237 $25,256 $31,149Classifieds $2,265 $2,724 $3,817 $4,405 $5,323 $6,371 $7,480Referrals/Lead Gen $495 $1,007 $1,740 $2,063 $2,562 $3,153 $3,913Email $266 $314 $449 $569 $709 $855 $1,017Display Related Ads $6,846 $8,073 $10,128 $12,704 $15,569 $18,935 $22,700

Banners Ads $4,517 $5,594 $7,439 $8,646 $10,453 $12,565 $14,761Rich Media/Video ads $1,064 $1,388 $1,738 $2,843 $3,717 $4,759 $6,102Sponsorships $1,064 $965 $951 $1,214 $1,398 $1,612 $1,836Slotting Fees $202 $125 $0 $0 $0 $0 $0

Ad Revenue (Y/Y Growth) 2004 2005 2006 2007E 2008E 2009E 2010ETotal 38% 27% 33% 27% 24% 23% 21%Search 58% 34% 34% 34% 27% 25% 23%Classifieds 49% 20% 40% 15% 21% 20% 17%Referrals/Lead Gen 131% 103% 73% 19% 24% 23% 24%Email 0% 18% 43% 27% 25% 21% 19%Display Related Ads 18% 18% 25% 25% 23% 22% 20%

Banners Ads 20% 24% 33% 16% 21% 20% 17%Rich Media/Video ads 38% 31% 25% 64% 31% 28% 28%Sponsorships 16% -9% -1% 28% 15% 15% 14%Slotting Fees NA NA NA NA NA NA NA

Ad Revenue (% of Total) 2004 2005 2006 2007E 2008E 2009E 2010ETotal 100% 100% 100% 100% 100% 100% 100%Search 40% 42% 42% 45% 46% 46% 47%Classifieds 14% 13% 14% 12% 12% 12% 11%Referrals/Lead Gen 3% 5% 6% 6% 6% 6% 6%Email 2% 1% 2% 2% 2% 2% 2%Display Related Ads 41% 38% 36% 36% 35% 35% 34%

Banners Ads 27% 27% 27% 24% 24% 23% 22%Rich Media/Video ads 6% 7% 6% 8% 8% 9% 9%Sponsorships 6% 5% 3% 3% 3% 3% 3%Slotting Fees 1% 1% 0% 0% 0% 0% 0%

Source: Collins Stewart LLC estimates

Search Will Continue Dominate Internet Advertising

Fireside Chat with Search Industry Experts

• Sean Walsh – VP of Online Marketing at Luxurylink.com

• Heather Dougherty, Research Director Hitwise

• Kevin Lee – Chairman & CEO / Co-Founder of Didit

• Jaideep Singh – CEO of Spock.com

Sean WalshVice President, Online Marketing

What is LuxuryLink.com?5-Star Vacation Packages at Auction

My Professional Background

•VP, Online Marketing for Countrywide Financial•Director, Online Marketing for Sony Connect•Various Web Development / Product Mgt. Positions•Began as Aerospace Engineer for Hughes Space & Comm.

Travel Search Volume Trend

Hotel Vacancy Trend

New Hotel Investment Trend

A Few Interesting Quotes

“Wait a minute. What did you just say? You’re predicting $4-a-gallon gas? That’s interesting. I hadn’t heard that.” —George W. Bush, Washington, D.C., Feb. 28, 2008

Treasury's Paulson says US economy is healthy, transitioning to moderate growth March 1, 2007WASHINGTON (AFX) - The US economy is 'healthy' and transitioning to a soft landing after blockbuster growth in early part of last year, Treasury Secretary Henry Paulson said today.'For a number of months now I have believed that the US economy is successfully transitioning to a moderate and sustainable rate of growth, and yesterday's data supports this view,' he said in a speech to the Economic Club of Washington.

US inflation rate “still relatively contained”, Paulson July 4, 2008LONDON – Treasury Secretary Henry Paulson said inflation that strips out food and fuel costs in the US remains in check and he praised the job Federal Reserve chairman Ben S Bernanke is doing conducting monetary policy.

“Inflation is contained”…Oh, really?!

What’s my point?

1. The American Economy is in worse shape than many would have you believe.

2. American consumer demand is entering a protracted downcycle.

3. Consumer spending is 70% of US GDP.

4. The benefits of the offline to online advertising shift cannot overcome this downward force.

5. Therefore, it is prudent for all of us search marketers to pay close attention to the true health of the American economy and its consumers. Track your acquisition costs closely!

Heather DoughertyResearch Director, Hitwise

Hitwise - Who We AreOnline Competitive Intelligence ServiceMonitor the largest worldwide sample of Internet users – 25 million Report on the most online businesses (1M+ Websites)Provide daily delivery of information to drive better business decisionsFounded in 1997 with profitable operations in the US, UK, Australia, New Zealand, Hong Kong and SingaporeAcquired by Experian in 20071,400+ Clients Worldwide

Searches on Google increased 10% in July 08 over previous year

Share of Searches by Search Engine - July 06 to July 08

Google

Yahoo! Search

MSN Search Ask

Others

0%

20%

40%

60%

80%

100%

Jul-0

6Aug

-06

Sep-0

6Oct

-06

Nov-0

6Dec

-06

Jan-

07Fe

b-07

Mar-0

7Apr

-07

May-0

7Ju

n-07

Jul-0

7Aug

-07

Sep-0

7Oct

-07

Nov-0

7Dec

-07

Jan-

08Fe

b-08

Mar-0

8Apr

-08

May-0

8Ju

n-08

Jul-0

8S

ha

re o

f S

ea

rch

es

* MSN Search includes Live.com

Google’s traffic is increasing while maintaining repeat visitors

Google's Market Share of Visits by New & Returning Visitors

0%

1%

2%

3%

4%

5%

6%

7%

Oct-07

Nov-07

Dec-07

Jan-08

Feb-08

Mar-08

Apr-08

May-08

Jun-08

Jul-08

Mo

nth

ly M

ark

et

Sh

are

of

Vis

its

NewReturning

Impact of search varies widely among industries

Willingness to purchase search traffic also a factorShare of Paid Search Traffic by Industry

4 Weeks Ending Aug. 9, 2008

0% 5% 10% 15% 20% 25% 30%

Newspapers

Employment

Grocery & Alcohol

Food & Bev Brands

Banks & FIs

Auto Manuf

Retailers

Share of Paid Traffic

Didit transforms clients’ businesses through the application of digital media technology & strategy. Didit is the industry leader in search engine marketing, keyword targeted media and auction-media.

Didit was co-founded by industry thought leader, SEMPO board member, Kevin Lee. Kevin’s years of SEM expertise provide the foundation for Didit’s proprietary Maestro search campaign technology. Didit’s unparalleled results and client growth have earned Didit recognition not only among marketers but also as part of the 2007 Inc 500 (#137) as well as a #12 position on Deloitte’s Fast 500.

What does Didit do?

Google’s share of wallet keeps growing:

Spending based on marginal profit

Q1'06 Actuals

Q2'06 Actuals

Q3'06 Actuals

Q4'06 Actuals

Q1'07 Actuals

Q2'07 Actuals

Q3'07 Actuals

Q4'07 Actuals

Q1'08 Actuals

Q2'08 Actuals

64%

68%

69%

71%

70%

71%

72%

73%

73%

74%

34%

28%

25%

22%

22%

22%

22%

20%

21%

20%

0%

3%

5%

5%

6%

5%

5%

6%

6%

5%

Goog Yahoo Microsoft

If the Google Yahoo deal is approved then look at the shifts and allocation.

MonetizationClick ShareCPC Escalation

20

SEMPO: Most Advertiser Respondents Could Still Tolerate Further Price Rises, at Moderate Levels

• Over three-quarters of respondents said they could tolerate further rises in paid placement prices• 21% report they cannot afford to pay more for leads/conversions because they are currently at maximum

efficiency, a slight decrease from 2006, and on par with 2005• Even among advertisers who report the capacity to increase ad expenditure, more than half can afford 30% or less• Despite increasing ad spend and year-to-year growth in the value of search engine marketing, we are likely

nearing a pricing plateau as advertisers near their maximum efficacy.

6%

18%

2%

5%

1%1%

17%

21%

16%

10%

4%

0%

10%

20%

30%

Nothing 10% more 20% more 30% more 40% more 50% more 60% more 70% -90%more

Tw ice asmuch

Three timesas much

Don't know

% o

f Adv

ertis

er R

espo

nden

ts

Ability to Afford Further Price Escalation in Paid Placement Ads"Given the current efficiency you experience with Paid Placement programs, and the quality of the leads that this tactic

generates, how much more could you afford to pay for the leads / conversions this channel provides before you could not justify the expense?"

Advertisers n=240Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08.

Global Results. Copyright © 2008

RESEARCH HIGHLIGHTS

21

Faced With Escalating Keyword Prices, Advertisers Would Increase Program Efficiency

26%17%

2%

72%65%

20% 21%13% 11% 13%

23% 22% 22%13% 13%

1%13%

13%15%16%21%22%

67%74%

2%

19%13%

28%

15%22%25%

70%77%

0%

20%

40%

60%

80%

100%

Improve site'seff iciency atconverting *

Improve our bidmgmt programs

Shift morebudget to

niche searchad netw orks

Rely more onmore

sophisticatedsoftw are

Increase thenumber ofkeyw ordsw e bid on

Rely more onoutside SEMagencies

Supplementcost from

brand budgets

Rely less onoutside SEM

agencies

Grin and bearit; w e can stillafford to pay

more

Decreasebudget for Paid

Placement

Cease PaidPlacementprogramsaltogether

% o

f Adv

ertis

er R

espo

nden

ts

All Advertisers Advertisers of <500 Employees Advertisers of 500+ Employees

Reaction to 2-Year Steady Increase in Paid Placement Costs "How would you likely react to hypothetical scenario where the cost of Paid Placement steadily increased for the next

two years?"

Advertiser n=240

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08.

Global Results. Copyright © 2008

• Paid placement advertisers would address price rises by improving the efficiency of their programs before cutting back on spending

• Improving site conversion efficiency and improving the overall efficiency of bidding programs would be first steps in maintaining paid placement programs

RESEARCH HIGHLIGHTS

This year, while the search engines may try to add tools into their interfaces, chances are complexity will increase:

• Keyword-targeted display (contextual)• Re-targeted search display ads and text• Keyword-targeted Video and Rich Media• Better control over syndication networks• Mobile? CPC, CPCall, CPM, CPA, CPSMS?• Real-time cookie/profile driven adserving• Blending of search and display• MSFT/YHOO merger, Goog/Yahoo alliance?

What does Didit do?

PEOPLE SEARCHPEOPLE SEARCH

24

Funding Venture backed with $8 million raised through Clearstone and Opus Capital

SPOCK IS THE LEADER IN PEOPLE SEARCH

TeamStrong team with winning culture (36 FT from leading companies and schools)Leading technical advisors from Stanford, Google, and Yahoo!

ProductThe #1 Market leading productOver 300 million people indexed to dateDeep IP through patents and 2 years of intense product development

Leadership4 million unique visitors per month growing at 25% monthlyThe best brand perception from thought leaders, the press, and usersEmerging distribution model

2525

PEOPLE SEARCH IS A HUGE OPPORTUNITYSearch Engines

Social Networks

Address Books

Content

Directories

IMDB

7 billion people searches per month

7 billion people searches per month

30 billion address book searches

worldwide

1 billion people searches per month

2 billion searches per month on online

directories

Over 45 billion monthly searches

Spock is monetizing this market with relevant targeting of ads

26

PEOPLE SEARCH IS NAME + KEYWORD DRIVEN

People enables both name searches & keyword searches

Keyword searches make targeting better and create value for users & advertisers

Meta data (keywords) used to target name searches better

CONFIDENTIAL

Fireside Chat with Search Industry Experts on Interesting Topics on Search Marketing

1. Revisiting the value proposition for search – why search continues to be the most attractive online ad format?

2. Search beyond direct marketers - Adoption of search by brand advertisers and other advertisers

3. Google vs Yahoo! Vs Microsoft – shares of wallet, innovations, product enhancement etc

4. Spending trends – by verticals, any visible impact from economic headwinds

5. Key metrics trends – CPC, CTR and conversion trends

6. Vertical search - People search

7. Search beyond PC – mobile search

8. Geographical search – US vs. International, national vs. local

9. Search marketing trends by size of advertisers – SMB, Govt, enterprise, education or just large vs. small to mid size advertisers

10. Universal search – how it is performing, signs of traction, how it is changing how advertisers buy keywords and run search campaigns

Thank You!!

Sandeep Aggarwal, Managing DirectorSr Internet Analyst

Collins Stewart [email protected]

415-659-2260