United States | Equity Research

Media | Internet
May 26, 2011

Ken Sena 212 822 7520 ken.sena@evercore.com

Social, Ad Exchanges & Online Video
Analysis of Three Disruptive Display Trends
In this Disruption report, we take a closer look at display. Specifically, we examine the influence of social, ad exchanges, and online video on its future growth, delving into audience tracking advances, exchange-based buying channels and the impact of newer video ad formats. In each of these areas, we outline the key drivers, examine the leading players (private and public), and quantify the longer-term industry opportunity. Key Findings Include: – Social data extending well beyond Facebook & Twitter as audience & behavioral info, comments and reviews, and tracking advances are creating new opportunities for intermediaries. This development is having ramifications across all marketing channels, but particularly display. Google soon to lead exchange-traded display, which increasingly predominates the way display advertising is bought and sold, in our view. While Google’s DoubleClick exchange (AdX) is still not as large as Yahoo!’s RightMedia (RMX), its current growth and capability leads us to believe its lead is imminent. We expect this to have significant consequences for exchange-traded display intermediaries. Online video opportunity is bifurcating as “interruptive video ads” (i.e., pre-rolls, in-stream, and interstitial video ads) and rich media display ads (i.e., rollover video & expandables) are dividing the video opportunity between new and established players, respectively. In both cases, however, video ads are being used increasingly to monetize non-video content (i.e., pageviews, games, and apps).

Raising display industry estimates. We now estimate that total online display advertising will increase nearly 19% on a sustained basis over the next 5 years vs. our 14% estimate previously. Our higher growth estimates are primarily a function of a stronger video outlook, Facebook growth, and exchange-traded display media advances, each of which we quantify. We expect video to account for half the growth over the next five years while Facebook and exchange-traded media will drive another 700 and 400 basis points of industry growth, respectively. As such, excluding these three factors, we see direct-to-publisher display (xFacebook, x-video) declining mid single-digit y/y, emphasizing to us the disruptive nature of these display drivers.

Please see the analyst certification and important disclosures at the end of this report. Evercore Group L.L.C. and affiliates do and seek to do business with companies covered in its research reports. Investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

May 26, 2011

Social, Ad Exchanges & Online Video
In this Disruption report, the second in our series, we examine several major advances within display advertising, including social, ad exchanges, and online video, delving deeply into advances within audience tracking, buying channels, and ad formats. Based on this work, we now estimate that total online display advertising will increase nearly 19% on a sustained basis over the next five years to $86 billion compared to 14% CAGR growth previously. Drivers of this growth include” Publishers and advertisers are increasingly leveraging social as audience & behavioral info, comments and reviews, and tracking advances are creating new opportunities for advertisers to buy “engagements” vs. simple impressions. This audience data is influencing all aspects of marketing, but, most importantly, is redefining the traditional “purchase funnel” to a closed conversion loop, offering a bridge from branding to response that did not occur before, with mobile promising to extend the opportunity offline. This development is creating new opportunities for companies that capture, analyze, and redeploy this behavioral information for marketers. Google’s lead in exchange-traded display likely imminent. Exchange-traded display is becoming an increasingly preferred method of buying display ads for advertisers, which accounted for nearly half of all inventory in 2010. While Google’s DoubleClick exchange (AdX) is still not as large as Yahoo!’s RightMedia (RMX), its current growth and workflow capability lead us to believe that its leadership is not far off. Assuming we are correct, we expect fairly widespread margin compression across the exchange-traded intermediary landscape. Video is bifurcating into two markets: interruptive and opt-in (or in-stream vs. rich media). We estimate interruptive video, despite receiving the majority of video focus, to generate roughly one-third of the total video advertising dollars. “Opt-in video” advertising (such as rich media expandable video ad and rollovers) generates the remainder, or roughly two-thirds. This evolution is leading to growth for new and established players who are finding ways to not only better monetize video but non-video content (i.e., pageviews, games and apps). While we view Facebook and Google as best positioned within display presently (for different reasons), we view overall display success or failure largely as a function of successfully navigating these drivers. As such, of our 19% expected CAGR growth over the next five years, roughly half the growth is driven by video while Facebook and exchange-traded media will drive another 700 and 400 basis points of growth, respectively.


May 26, 2011

Snapshot of the Display Landscape
Video, exchanged-based display and Facebook comprised ~ 25% of global display revenues in 2010, but 60% of monetized impressions.

Impressions Do Not Equal Revenues Figure 1: Revenue and Impressions by Format / Channel, 2010E
100% 90% 80% 70% 60% 50% 7% 40% 30% 20% 10% 0% % of Revenue in 2010 % of Impressions in 2010 40% 75%

$28.5 Billion
14% 4% 7%

4.3 Trillion Impressions





Direct (x-Facebook)

Source: MagnaGlobal, comScore, Evercore Group L.L.C. Research

Exchange-Based Traded Inventory Largest Driver of Impression Growth Figure 2: Global Display Impressions / Video Streams, 2007-2010
5,000 4,500 4,000 3,500
Impressions (billions) Video Facebook

3,000 2,500 2,000 1,500 1,000 500 0 2007 2008 2009 2010


Direct-to Publisher (x-Facebook)

Source: MagnaGlobal, comScore, Evercore Group L.L.C. Research


C.3 $27. Research We now explore each of these category drivers in detail before providing our updated display industry estimates.4 $0.5% 109.5% 90. 2011 Revenue Still Remains Largely Direct-to-Publisher Figure 3: Global Display Revenues.4% 66. $ Billions.2 $0.8 $0.9 2009 $22.3% -12.6% 88. and exchange-traded 3YR CAGR growth of 67%.1 $1.3 2010 $21.0% 133.1 $28.9 $1.1 $24. This corresponds to video.1% 132.3 $4. Facebook.8% 11.C. Exchanges) Total Display 2007 $23.6% 12. 130%.3% 136.0% 14. 230.4% 8.5% 6.e. comScore. Exchanges) Total Display % of Total Direct-to-Publisher (x-Facebook) Video (Opt-in & Interruptive) Facebook Intermediaries (i.L.5 billion (or 5% growth on a 3 year sustained growth basis) with video.7% 131..6% 95.1 $0..3% 1.9 2008 $25.3% -5.2% 4. Evercore Group L.e. social.2% 7.0% 83.2% Source: MagnaGlobal.0% 75. Exchanges) % of Y/Y Growth Direct-to-Publisher (x-Facebook) Video (Opt-in & Interruptive) Facebook Intermediaries (i. and 110%. Evercore Group L.5 CAGR '07-'10 -3.2 $2.1% 40.8% -3. 4 .9 $0. by our estimates.0% 128. respectively.5 $26.5% 4. 2007-2010 $30 Video $25 Facebook Exchange-Based Revenues $billions $20 $15 $10 $5 $0 2007 Direct-to Publisher (x-Facebook) 2008 2009 2010 Source: MagnaGlobal. comScore. total display revenue grew 8% in 2010 to $28.9 $0. Figure 4: Global Display Revenues.3% 124.3% 3.0% 6.5% 1.6% 0. $ Billions.6% 0.e.6% 40.0 $2.5% 116..May 26. and ad exchanges contributing 530. 2007-2010 Direct-to-Publisher (x-Facebook) Video (Opt-in & Interruptive) Facebook Intermediaries (i.7 $0.0% 2. Research To summarize.2% 3.L. and 140 bps of this CAGR growth.

and hundreds of other local review sites have also emerged. 2011 1. blogs all providing methods for individuals to share their reactions. and. In fact. in many cases. 5 . and mobile offers to extend this trend offline. analyzing them. along with other branded display messaging. and redeploy the influx of social behavioral data. in addition to Facebook. In addition. in many cases. Social Extending Beyond Facebook While Facebook very much remains at the center of social data universe. analyzed and redeployed by advertisers to strengthen branding and drive conversion. stating that these changes “encourage an authentic dialogue between people and businesses on Facebook. These comments and reviews increasingly exist not just on social networks but across the broader web. Reviews & Comments Becoming Ubiquitous Product reviews and comments are being captured. Evercore Group L. computational capability. the ability to navigate these waters effectively (i. We start this report by reviewing several social trends that are reshaping the marketer approach. The result is a greater expectation for peer commentary on most of the products and services we regularly consume. redeploying them to the sites where prospective customers are. this behavioral information is redefining the purchase funnel to a closed loop in which a brand can now track from awareness to conversion. Facebook this week announced that all its pages will be required to enable user comments. we show a CNET review below on the Verizon iPhone which lists one editorial review and 79 user reviews. incorporating user feedback and comments into marketing efforts – whether it be through better ad targeting and focused messaging or redeployment of the feedback to users with similar interests – is becoming standard practice. redeploying them. Research Marketers are culling these reviews. and. with retailers.” Sites such as Yelp. In addition. Figure 5: Editor & 79 User Reviews on CNET Source: Company data.. for user comments and reviews. extending social’s reach to local merchants. As an example. As such. advances in behavioral tracking. Publishers and advertisers are leveraging these companies. which until now could be turned off.May 26. and redeployed more cost effectively than ever before. to products and services. TripAdvisor.e. brands. Marketers are culling these reviews. opportunities are increasing for companies that capture. analyzed. and storage is allowing this data to be captured. traffic patterns and other and advances within tracking are creating opportunities for publishers to sell “engagements” versus simple impressions. analyze.L.C. both good and bad. analyzing them.

and Vocus are a few of the companies that enable these social communications on brand and retailer pages.L. ScoutLabs. analyze them. Figure 7: Branded Pages Increasingly Socializing Source: Company data. For instance. Evercore Group L.C.May 26.L. 6 .C. we show how visiting 3M’s Post-It website reveals passionate Post-It comments. and redistribute the comments to appropriate retailer sites. Research Bazaarvoice. 2011 Figure 6: Restaurant Review on TripAdvisor Source: Company data. Evercore Group L. Radian6. Research Brands are redeploying these comments and reviews to retailer sites where the comments can be reviewed by more customers.

C. and brands and retailers alike are increasingly aware of how to use this information in combination with their broader marketing message. Research A visit to the Staples retail site shows 41 Post-It reviews. While we cannot say just how many appeared on Staples.May 26.C. we can say that user comments are increasingly helping to drive conversion.L. 2011 Figure 8: Comments & Reviews are Being Redistributed to Retailers Retailer1 Reviews: -- Retailer2 Reviews: -- Retailer3 Reviews: -- Retailer4 Reviews: -- Brand1 Reviews: ---- Brand2 Reviews: ---- Brand3 Reviews: ---- Brand4 Reviews: ---- Source: Company data. Evercore Group L.L. Evercore Group L. Research 7 . Figure 9: Post-It Reviews on Staple’s Site Source: Company data.

TARGUSinfo. 33Across. Experien and ICI provide demographic information.May 26. ACXIOM. Research By taking a quick look at the number of companies that are following our visit to the HuffingtonPost. we find 16 companies.C. Figure 11: Monitoring Ad Technology Companies Through Ghostery Source: Evercore Group L. such as comments and reviews. Figure 10: Improved “Cookie” Tracking Down Marketing Funnel Marketing Campaign Targeting Cookies Cookie From Prospecting Ad Awareness Interest Evaluation Commitment Referral Cookie From Ad’s Landing Page Cookie From Specific Product Page Cookie From Shopping Cart Attribution Cookie on “Thank You For Your Order” Page Source: Evercore Group L. we can see from the below that bluekai and excelate offer marketers information on “in-market” users or those ready to buy. 2011 Web Behavioral Tracking Is Advancing Advances in pixel/cookie technology and data modeling are allowing marketers to track consumers from brand awareness to purchase conversion. These tracking pixels result in cookies being called.C. we used a service called Ghostery (results in the dark box). Datalogix and Polk offer information on prior online purchasing behavior while Nielsen. interest. For instance. Finally. AlmondNet and MAGNA+IC offer information on a users’ commercial search activity. 8 . brand evaluation. Marketers can now distinguish awareness. purchase commitment. by knowing where exactly to place tracking pixels within our browsing activity. and BazaarVoice are a few of the companies that capture and provide social data. Media6Degrees.L. To follow tracking companies. Research There are number of companies that follow this data in order to categorize the behavior for marketers. and purchase referral. Lotame provides information to marketers on users’ sharing activity.L.

through FacebookConnect. For instance. age and income Offline Demographics Social Graph . Figure 13: Sign-on to Scribd with Facebook Connect Source: Company data. signing on with my existing Facebook ID and password.Audiences actively sharing content like videos and photos .C. we show below an attempt to download an AdAge Insights report. and connections Source: Company data. Research By taking the easier of the two approaches.Consumers searching for information on Blu-Ray players Interest Search Retargeting Transaction . Research Social Helping to Make Audience Profiles Known Facebook is further assisting these data efforts by establishing audience profiles. Scribd provides Facebook with my site-specific behavioral information (what I did on their site. Following my log-in through Facebook.Consumers likely to book travel in the next 60 days . which leverages the data collection of the other tracking firms. As an example of Facebook Connect in practice. gender.Frequent purchasers of vehicle accessories . Facebook is collecting from and exchanging behavioral data with third-party publisher sites. job. on Scribd. essentially). Evercore Group L. interest. 9 . Evercore Group L. 2011 Figure 12: Segments Offered By Leading Data Providers In-Market .L. in return.Audiences based on social data from social networks.Audiences that cook by finding recipes online .C.) signing on with my Facebook user ID and password.) creating a new account with Scribd or 2.Consumers searching for personal finance offers .Frequent purchasers of beauty products .Data on audience geography. interests (such as “Likes” and “Sends”) and. Scribd then receives information from Facebook on my age.L. including demographics. which requires either 1. Scribd requests permission to send notes to me (through email) and to my social contacts (through “wall” posts).May 26.Consumers likely to buy insurance in the next 30-60 days .

Figure 15: Social & Mobile’s Redefinition of Marketing Funnel to Virtuous Data Cycle Awareness Interest Evaluation Commitment Referral Social + Mobile Behavioral Data Source: Company data. And. these data benefits are flowing into the store. number of rounds and investors. Evercore Group L. Evercore Group L. is migrating from online to the physical store. As a result. the measurability of brand campaigns within display is improving. and the resulting data loop. increasingly. And through mobile. “Do-not-track” tool bars aside. this social data is bridging branded display spending and purchase conversion in a way that has not been seen. has created a virtuous data cycle for merchants and brand advertisers that didn’t exist before.L. As most of these companies are private. there is an enormous amount of behavioral science and tracking that occurs. Research We provide a snap shot of many of the third party data analytic companies that are helping to drive this data trend in terms of helping marketers better understand their audience and follow them until conversion. all while leveraging mobile.L. 10 . we would expect advertisers to seek paying for these branded experiences on an “engagement” as opposed to an impression basis. we provide a comparison of funding.May 26. As a result. what they are saying. Research As a result. for placing a simple display ad. 2011 Figure 14: Permission to Target My Friends and Me through Facebook Connect Source: Company data. and who their friends are.C. Result: Virtuous Data Cycle (or Closed Marketing Loop) Consumer reviews and comments of products and services and our willingness to share. this behavior.C. thanks to mobile. as marketers increasingly know who their customers are.

Public N. Private $38.A. Rose Tech. N. Novak Biddle. Ascent Charles River. web analytics service Largest publisher sharing network on the web Online data exchange providing data on-demand Social optimization for online business Private/ Funding # of Equity Top Equity Investors Public ($MMs) Rounds Private $53.9 Series C Private $15. Benchmark. ZG. Draper Fisher Jurvetson Menlo. The Founders Fund Flybridge Capital. Rose Tech ZoomInfo. Hadi Partovi.5 Series C Socially Targeted Display Advertising Private $28. First Round N.8 Unattributed N. Revolution New Enterprise. Contour. Public N. QED. Battery. Venture Partners. analysis and buying or selling of audience information for online advertising Search retargeting Consumer and business credit reporting and marketing services Provides consumer and business data Online shopping and purchase data provider Behavioral Data Bank Reporting.A. social influence Open data exchange for behavioral targeting data Private $21. N. Private & Public 3P Data Company Description Media measurement. Venrock. Private $1.A. N.C.A. 2011 Figure 16: Third Party Data Analytic Provider Landscape. Vulcan.A.6 N. Acquired by BlueKai in 2011 11 .A.A. Coriolis Blue Chip.A.0 Unattributed Private $5. Steve Case. Redpoint. First Round. and Private analyze customer conversations online Data derived marketing and brand advertising Real-time insight into email addresses Social targeting platform using SocialDNA technology B2B audience targeting platform and advertising network Search retargeting Interactive marketing services including information services and information products Enables listing.A.1 Series C Private $29. N. Polaris.A Private $0. Acquired by Adobe Systems in 2011 Private N. SmartDM Holdings Private $11. Trident Austin. share. Mark Jung. Ali Partovi DAG. Illinois.0 Series B Sharing network.1 Unattributed N. Research $19. N. N. RPM.0 Series B Helps capture. Venrock. N. analysis and prediction services for media companies Source: Company data.0 Series C Private $35.A.0 Series A Private $15. DFJ Mercury. First Round. IA Capital. Mayfield Fund Menlo.0 Unattributed Rembrandt. U.A. Constantin.May 26.3 Series A Private $3. Queen City Angels. Acquired by Akamai for $95M in 2008 Public N.S. Roger Ehrenberg. display. Evercore Group L. Carmel. Bessemer.L. Private N.0 Series B Private $20.A. Battery. Coriolis Midpoint CC.A.0 Series B Private $6.A. Ted Leonsis GGV. The Founders Fund.A.2 Series C Cisco. combination.

so it was a quick and effective way for advertisers to reach a large audience at a low price. as exchanges allow marketers to set requirements on the audiences they reach. Real-time Bidding Real-time bidding is a second driver of this exchange-traded trend. The way real-time bidding works is that when a webpage loads. Demand-Side Platforms (Liquidity & Network Effect) Better Audience Data While exchange-traded display is not new. we would expect fairly widespread margin compression across the competitive landscape for intermediaries. its current growth and capability leads us to believe that its lead is a short while away. In this section. this “dark” inventory on the web is being monetized more effectively and at higher rates. in our view. explain what we view as Google’s advantage. and quantify what a successful Google display strategy could mean for third-party intermediaries and publishers. for example). the buying is determined in the moment by the audience and publisher characteristics. exchanges were places where publishers placed inventory that was unlikely to be sold. Evercore Group L. up from 25% only three years ago. This happens in fewer than 50 milliseconds and is hardly noticeable in the background. (including video) were purchased through exchanges in 2010. $10 CPM direct.S. In other words. and other information. we review the factors that are driving overall exchange-traded growth. Figure 17: Display Impressions Direct-to-Publisher & Exchange-Based. 2011 Exchange-Traded Display Taking Hold Google is becoming the leading force in exchange-traded display. ’07-‘10 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2007 2008 2009 2010 Direct-to-Publisher Exchange-Based Source: Company data. the site. based on the highest bid. giving them greater comfort to pursue this channel. For reference. the influx of audience data is creating additional transparency for advertisers. In the past.C. Nearly two-thirds of display impressions in the U. While Google’s DoubleClick exchange (AdX) is still not as large as Yahoo!’s RightMedia (RMX). 12 . Then. the cost of an exchange-traded buy is roughly 10 cents on the dollar compared to the price for a direct buy (or $1 CPM vs.L. Real-time Bidding (Buyer Advantage) 3. which increasingly predominates the way display advertising is bought and sold. bid requests are sent to advertiser clients with data about the user. Research Exchange Traded Display Drivers 1. the winning bidder’s ad is served. Assuming this lead continues. Real-time allows for supply optimization by advertisers in milliseconds. ad’s placement.May 26. Better Audience Data (Greater Transparency) 2. Now.

we view real-time as very much here to stay.. which increasingly predominates the way display advertising is bought and sold. encouraging more advertisers to use the channel. Figure 19: Relative Size of Impression Volume on Display Exchanges and SSPs Right Media (Yahoo!) ~250B DoubleClick AdX (Google) ~240B Rubicon Project ~35B AdMeld ~30B AppNexus ~30B OpenX ~15B PubMatic ContextWeb AdBrite ~10B ~10B ~15B B= billion impressions per month Source: Company data. and so on. and Rubicon Project). 13 . What’s Google’s Advantage? Liquidity & Capability We find that Google is becoming the leading force in exchange-traded display. PubMatic. not every exchange uses real-time bidding. servers. it is worth noting that real-time bidding is viewed more as an advertiser tool. While Google’s DoubleClick exchange (AdX) is still not as large as Yahoo!’s RightMedia (RMX). Demand-Side Platforms Increasing Liquidity With increased liquidity.C. AdMeld. In any case. We think this is evidenced by Microsoft’s investment in AppNexus and decision to incorporate its ad exchange into AppNexus’s leading real-time technology. as RMX had approximately a 90% share just a few years ago. “sell-side platforms” have emerged (eg. we view this as temporary. 2011 Figure 18: Real-Time Bidding (RTB) Auction DSP 1 Publisher Ad Exchange or Supply-Side Platform (SSP) DSP 2 DSP 3 Source: Evercore Group L. including agency trading desks. In addition. not to mention advertisers and publishers. Demand-side platforms (DSPs) allow publishers to connect to multiple exchanges and supply-side platforms at once offering maximum liquidity. but they work closely with publishers to manage these market pressures. increases liquidity.L. which. Research Currently there are many parties within the exchange-traded media workflow. targeting improves. in turn. ad networks.L. Consequently. exchanges / supply-side platforms. and third-party data providers. such as Yahoo!’s RightMedia. as opposed to one for the publisher. Research However. where a significant amount of Yahoo! owned-and-operated inventory is offered.May 26.C. which are essentially exchanges. Evercore Group L.

10% is paid to the exchange or sell-side platform. 15 percent is paid to the DSP and 5 cents is paid for data. rates can go as high as 50% or more. we can show that from $1 in advertising. of the $0. We note that for more niche ad networks. when transacted through this channel. we see that Google now fulfills nearly each stage in the chain from advertiser to publisher in the exchange-traded space. Figure 20: Exchange-Traded Media Workflow. Evercore Group L. Our 10% is meant to be an industry average. Lower-tier networks often buy and sell from each other many times. however. Research Google’s Industry Implications In this section we examine the unit economics of exchange-traded inventory and we quantify what a successful Google display strategy could mean for third-party intermediaries and publishers. “Xs” Denote Where Google Competes Source: Company data. 14 .C.L. the publisher will only get a fraction of each dollar an advertiser puts towards buying media in the exchange environment.61 reaches the publisher. Then. For every ad dollar. Exchange-Traded Unit Economics In the end. the publishers and the exchange-based intermediaries with whom the publishers share the ad revenue.80 remaining. For instance. one dollar from an advertiser is cut several times before finally reaching the publisher. approximately $0. We note that margins in the exchange environment can fluctuate wildly based on several factors. In the below workflow diagram. Of this one dollar. of the $0.72 left. Based on this assumption. there are two parties that benefit in this channel. Finally. we assume just one ad network to be involved. with the largest one being the “daisy chain” between ad networks.May 26. another 10% goes to the ad network. 2011 By placing an “x” next to each of the areas in which Google now competes. all but eliminating the portion that publishers receive.

and exchange. assuming Google cut its fees for its DSP.May 26.61 Publisher $0. Moreover. or 25%. we estimate that the fees to intermediaries drop to 25% through this channel over the next 3 years. we estimate that the portion that intermediaries could retain would be reduced from 39% to 11%.L. Therefore. we note that in the case of the ad network.05 3P Data (Flat CPM Fee) Source: AppNexus.80 Exchange/SSP (10% Fee) $0. To quantify. For modeling purposes. non-Google ad networks will find it harder to justify their fees.72 would be booked gross with $0.61 being booked as COGS.C. we would expect the split from intermediaries to publishers to shift in favor of publishers.72 Ad Network (10% Arbitrage) $0. Google Exchange-Traded Disruption Scenarios Assuming that Google’s ad exchange became the industry leader. we assume two scenarios: one in which Google completely disrupts the exchange-traded space and another in which semi-success is achieved. the $0. Research From an accounting perspective. data services. others in the industry would be forced to follow. Under a semi-disruption.00 DSP (15% Platform Fee) $0. 15 . The other areas of the workflow would just book the fee earned as revenue. at least as long as competition among the intermediaries remains. Evercore Group L. Under full disruption. 2011 Figure 21: Exchange Value Chain Presently Advertiser / Media Buyer $1. we estimate that the intermediaries would retain somewhere in the middle of what was assumed. if Google’s AdX continues its growth trajectory to become the dominant ad exchange.

10 $0.89 $0.00 89.03 $0.00 $0.00 Status Quo Disruption Hybrid $0.0% 1 75.09 $0.05 $0.50 $0.05 $0.0% Hybrid $1. Total impressions and unique visitors are also provided where available.0% 1 61.90 $0.00 75.Exchange/SSP Fee .60 $0.0% 1 89.03 $0.00 61.40 $0.00 $0. 16 .0% 39.09 $0. 2011 Figure 22: Margin Compression Scenarios s $1.750 $1.04 $0.05 $0.89 $1.L.03 $0.0% Source: AppNexus.61 $0.00 $0.70 $0.0% Disrupted Model $1.11 $0. and investors.08 $0.75 Publisher $0.20 $0. we provide the level of funding.0% 11.08 $0.05 $0. Given the private nature of many of these companies.00 $0.61 $1. Evercore Group L.3P Data Charges .07 DSP 3P Data Exchange/SSP Ad Network Revenue from Advertiser .11 $0.May 26.% of Revenue to Publishers = % to Intermediaries Status Quo $1.04 $0.C.15 $0.02 $0.Ad Network Arbitrage = Revenue to Publisher / Revenue from Advertiser = % of Revenue to Publisher 1 . Research We provide an overview of the many players within the exchange-traded intermediary space.15 $0. number of rounds.07 $0.0% 25.30 $0.DSP Fee .80 Percent of Advertiser Revenue $0.

C. Jarl Mohn Norwest. N.5 Series C 15B Private $30.1B in 2008 Clearstone. Mangrove. 2011 Figure 23: Exchange and Supply-Side Platform Landscape. Kodiak. News Corp. Accel.A. Jonathan Miller Helion Venture Partners. DFJ New England Artis Capital Management. Updata.A. Research 17 . Accel.0 Series C 30B Private $30.A. Venrock.) 250B Public (Yahoo!) Public (Google) Private N.May 26. Spark. IDG. Peacock. Private & Public Company Description Exchange platform to trade digital media Ad exchange and network providing ad serving services as well Yield Management Optimization platform for Publishers Provides publishers with expertise & tech to sell ads Real-time ad platform for global ad networks. Evercore Group L. Acquired by Yahoo! for $850M in 2007 200B N. O'Reilly AlphaTech. First Round. Foundry Microsoft. Crunchbase.5 Series D 10B Private $35. DFJ Gotham. Acquired by Google for $3.0 Series C 30B Private $65. DAG.0 Series C Source: Company data. Mayfield Fund. Time Warner. Index. Draper Fisher Jurvetson.0 Series C Online advertising exchange market One of the largest independent online ad exchange 10B Private $53. Sequoia Capital 35B $60.5 Series C Ad revenue optimization service 15B Private $18. Nexus Venture Partners Investor Growth. Draper Fisher Jurvetson. N.L. demand-side platforms (DSPs) Ad Exchange and Ad Server Monthly Private/ Funding # of Equity Impressions Top Equity Investors Rounds Public ($MMs) (Approx.A. Khosla First Round.

Acquired by MediaBank in 2011 18 .A.9 Series B Private $18. Blue Chip QED. European Founders Fund.0 Series C Private $5. Shasta Intel Cap. Inc. Silicon Valley Bank.L.A.C. Trident. Foundry Group. N. display and social media Platform to to make ads work better Targeting. Charles Sprincin Founder Collective. Yield Media buying platform for online ads Helps clients buy all forms of media and data Private $58. Cambrian Ventures Spark Capital.A. Acquired by Google for $80M in 2010 Developing media buying optimization Public technology for the display (Goolge) Platform for managing data-driven digital advertising On-line marketing firm Cross-exchange advertising management services Real-time bidding platform for online display advertisers Platform to manage ad campaigns across search.May 26.1 Unattributed Private $2. Private $28.A. Research N. Flybridge Capital Partners Mitsui Ventures. Provides buying and optimization platform across search and the display Private ad exchanges Source: Chruchbase. Bay Partners. 2011 Figure 24: Demand-Side Platform Landscape. Redpoint Ventures. N.8 Series B Private $6. Wider Wake Networks N.A.0 Series B Private $26. Safeguard Scientifics.A. Evercore Group L. Private & Public DSPs Company Description Private/ Funding # of Equity Top Equity Investors Public ($MMs) Rounds N. Optimization.5 Series A Private N. N. Menlo Ventures. IA Ventures.A. Advanced Tech. Hudson.5 Series D Focus. Atlas Venture. Norwest.

Redleaf. 85.637 Public N.A. ABS 143.A.L.A.083 Public N.A.A. Hubert Burda.089 Private $80. Walden.A.A.682 Private $20. Acquired by WPP for $649M in 2008 149. Mayfield Fund. Melton Investments. N. N. Chruchbase. N.004 Private N.A. 124. Accel. Research 19 .A.880 Public N.475 Private N.0 Series B Enterprise Partners.540 Private $27. Evercore Group L.759 Private $110.A.A.5M in 2011 137.A.A. 165. N.A.553 Private N. RLI. agencies and publishers Online media & technology company for display advertising Contextual platform for premium publishers and advertisers Provides targeted ad placements services Creates highly-targeted advertising campaigns Targeted advertising using an integrated audience management platform Seller of vertically targeted audiences found in the long tail of the Internet Advertising network specializing in serving banner ads Providing solutions for data-driven advertising Online advertising and content syndication network Global online ad network Total Unique Private/ Funding # of Equity Visitors (000s) Top Equity Investors Public ($MMs) Rounds (3 Mo.097 Private N. Integral Acquired by blinkx for £18. N.654 Private N.547 Private $40. Meritech. N. Avg) 199.A. Wellington 100.0 Series C Index. N. N. N. N.A.3 Series D 13. GLG.0 Series A JMI Equity.A. MMV Financial N. Source: comScore.169 Private $13. Information Lake Street. Acquired by Rubicon in 2010 Mohr Davidow. N.A. 161.C. 128.486 Private N.A. 2011 Figure 25: Ad Networks Company Description Media platform that combines formats and incorporates creative branded content Integrated online marketing company providing solutions for advertisers and publishers Provides digital display marketing solutions for advertisers.0 Series B iNovia.741 Private $175.0 Series E 25. Online advertising network Media and blog network with publisher network of 2000+ lifestyle websites Demand-side platform (DSP) for display advertising Online branded sales company selling site-specific.0 Series B Fortis. DFJ. ORIX Venture Finance Aeris Cap. integrated media and promotional programs 93. Francisco Partners N.422 Private $23.A. N. Subsidiary of Exponential Interactive 137.A. 131.A. DAG.3 Series F 133.May 26. Greycroft 148. Mizuho.A. Accel.

Public N. N.A.A. Research 20 .A. Wilson Sonsini Goodrich & Rosati N.A. First Round.A. DAG.A.A. Acquired by Glam Media in 2011 August.0 Series B Scale.A. Public N. True. N.A.A. N.A.A. Evercore Group L. Private N. European Founders Fund Acquired by Tremor Media for $65M in 2010 N. Nokia Growth.A. Maveron.L.A. Private N.A.A. Adams Street. Private N. N.1 Series A N. General Catalyst.0 Unattributed Menlo.A.A. Public N. multichannel digital ad platform Online marketing services offering non cookie or pixel-based technology Online marketing company specializing in lead generation and client acquisition Digital marketing technology company Online advertising company focused on lead generation for its clients Ad serving technology platform N. Khosla.A. Acquired by Specific Media in 2010 Online video company for advertising.A.A. Private N. Private $103. N. N.0 Series A N.4 Series D N. Private N. N.0 Series F N.A. Masthead. N.9 Series D N.A. Private $33.A. Private N. Public N.A. N.A. Private N. N. N.0 Series D N.A. Private $60.A. Intel Meritech. N. N.6 Series C Source: Chruchbase. Private $70. Steamboat Acquired by Limelight Networks for $110M in 2009 Wholly-owned subsidiary of Seevast Corp Montgomery & Co N.A.A. IAC Advertising company for social media Local search and advertising company for small businesses Online video platform to publish and monetize video across different media Video advertising technology company Online video monetization and advertising company Online video advertising network Global digital marketing solutions company Branded video advertising network Platform that allows publishers to deliver video ads in a stand-alone full screen format Connects advertisers with online publishers Platform to serve video and companion ads Provides interactive digital advertising products and services Data-driven ad technology company Marketing Company specializes in delivering qualified customers to leading brands Performance-based.A. 2011 Figure 26: Ad Networks Continued Company Description Total Unique Private/ Funding # of Equity Visitors (000s) Top Equity Investors Public ($MMs) Rounds (3 Mo.8 Unattributed N. KPG N. Turner Broadcasting. Hearst Interactive. N.A. Accel. Private $51.A. Private $79.A.A. N. Acquired by Adknowledge in 2010 Acquired by Rakuten for $425M in 2005 A wholly-owned subsidiary of Vertrue Inc VantagePoint Capital Partners N. Canaan.A. N. N. Brookside Cap. Focus.C. Public N. N. N.A.A.A. BV. Battery.A.A. Private $5. Private $26.A.A.A.A.A.A. Avg) N.A. N. WPP Listed on NASDAQ Global Market Accel. Northgate. Foundation.A. Private $16.A. publishing and creativity Sports media network N. Labrador. Private $15. N.May 26. N. N. Mohr Davidow.

in-video.2 Seed Video Monetization Extending to Non-Video Video is increasingly being used to monetize non-video content. Traffic quality solutions provider for ad networks and search engines Online advertising optimization company for internet contextual and display ad networks Helps online publishers to price. Madrona.5 Series B $10. Esther Dyson Amazon. “Opt-in” video advertising generates the other two-thirds. generate roughly one-third of total video advertising dollars. kbs+p Private $1.5 Series A Fuse Capital. such as pageviews. Canaan. David Tisch. VideoMetrix. Woodside JK&B. Baseline. Research $13. Ignition Evergreen. High Country Draper Fisher Jurvetson. pre-roll. and the demandside as a whole make buying decisions. Dawntreader. Boulder. and interstitial) and “opt-in” (rollover and expandable rich media video formats). First Round. the relative growth has been fairly consistent.L.e. Austin.7 Unattributed $8.. Blumberg. JP Morgan. Shasta. Common Angels. which we peg at 72% sustained compounded growth over the past three years for both. despite getting the majority of online video attention.0 Series C Provides real-time audit and Private verification of online advertising transactions Supports real-time measurement and optimization of all key processes in the Private advertising lifecycle Online advertising optimization solutions focused on display Private advertising. Howard Lindzon.0 Series B Private $6. Sequel. We estimate “interruptive” video formats.3 Series E Highway 12.5 Series B Private $6. While there are tradeoffs with each medium.S. games and apps. Foundry.C. In addition. demand-side platforms.May 26. Ted Meisel RRE. Greycroft. Draper Fisher Jurvetson. video is bifurcating into two addressable market opportunities: interruptive video ads (i. Hummer Winblad Private $3. Jerry Neumann. commercial web sites and Private content networks Provides digital advertising analytics solutions Private $22.2 Series C $21. SVB Sierra. Betaworks. Maples Content discovery and search tools for publishers. 2011 Supply enhancers are there to help advertisers. Figure 27: Supply-Side Optimizers Company Description Private/ Funding # of Equity Top Equity Investors Public ($MMs) Rounds $28. and sell premium guaranteed inventory Realtime intent matching platform that integrates with ad servers Source: Chruchbase. First Round. which we base on video ad network channel checks and comScore U.8 Series C Semantic advertising technology to Private accurately match online ads to content Provider of ad analytics and traffic quality solutions Private $22.0 Series B Storm. 21 . Stanford U Institutional. Evercore Group L. Genacast iNovia. plan.

For opt-in online video formats (i..5 $4.09 Video Opt-in (Roll-overs.90 $0.5 billion globally compared to a roughly $170 billion global television advertising market.8 $3. 2011 Figure 28: “Opt-in” & “Interruptive” Global Video Revenues.0 Onilne Video TV / Display Advertising $172 $1.C.5 $1.L. within the interruptive video formats (i. MSN). Yahoo!. As such.0 $60.0 $2. and the leading players vary materially between the formats. Research Format Advances Dividing the Video Opportunity in Two Why this video format distinction is significant is that the interruptive formats largely compete with television advertising dollars while the opt-in formats compete within display advertising. the addressable market sizes. Conversely.0 Global Video Revenues $ Billions $4.0 $160. 2010E $200. today the opportunity is still very much an opportunity for display publishers (ie.C.0 $0. and interstitials).00 $2. Evercore Group L.59 $1..0 $23.0 $20.0 Source: MagnaGlobal. Figure 29: Online Video Addressable Markets within TV and Display.45 $2.e. SayMedia.11 $1.20 $1. Now we review the drivers within each category. rich media).0 Interuptive & TV Online Video Opt-in Online Video & Display Advertising Advertising $170. but advertisers benefit from higher conversions as users self-select. Therefore.55 Source: comScore VideoMetrix.0 $1.75 $3. interruptive ads offer higher awareness but can be often less efficient spending-wise given their forced nature. the preferred purchase channels.0 2007 2008 2009 2010 $0.5 $26. IAB.55 Video Interruptive (In-stream.. Rich-Media) $3.30 $0. we estimate 2010 video dollars of $1. AOL. For instance.0 $100.L.0 $180.0 $40.20 $0. while television dollars represent a significant opportunity for online video down the road. we estimate 2010 video dollars of $3 billion compared to a roughly $27 billion global display market. “opt-in” rich-media video ads may not have the same awareness potential.e.5 $0.5 $2.0 $120. pre-rolls. 2007E-2010E $5.0 $3. 22 .May 26. in-video ads.0 $80. Evercore Group L. Interstitial) $4. however.8 $0.0 Video Advertising $ Billions $140. Research From an advertiser standpoint.5 $3.

We view this area of video advertising as an opportunity for traditional display publishers. Figure 30: Yahoo! Mail Video Ad Integration Source: Evercore Group L. We show below that on the Yahoo! mail page. Evercore Group L. Figure 31: AOL’s Project Devil Video Enabled (Lower Right) Source: Company data.L. the cost of this type of video advertising tends to be less expensive than traditional video formats on a CPM basis.L.May 26. 2011 “Opt-In” Video Formats (“Rollovers” & Other Rich Media) “Opt-in” video ad drivers include increased monetization of non-video content and richmedia display standardization. For advertisers. We note that video ads such as these are not captured within comScore’s VideoMetrix data.. talk and text plan.C. Research 23 . such as Yahoo!. In addition. thereby allowing them to leverage their existing advertising relationships. impressions basis (ie. Monetization of Non-Video Content These newer rich-media formats are increasingly monetizing non-video content. a user can watch a video on TMobile’s $79.C. as these formats tend to require greater advertiser customization. AOL and MSN. advertisers can pay for the “opt-in” video on an engagement vs. making this method of video advertising attractive from an overall yield perspective. Research We can see a similar video option for AOL’s project devil ad format which can be found on Marie Claire.99 data. when the video is launched).

Jakob Nielsen of the Nielsen Norman Group 24 .L.com. Red/Yellow/Blue = Focus of Readers’ Eyes Source: Jakob Nielsen via useit. Research.May 26.L. expandable video ad rollovers are increasingly being used. Evercore Group L. However. Evercore Group L. Research The below visual study by the Nielsen Norman group (in which the red and yellow markings aggregate the audience sample’s visual focus on the page) shows how these rich-media formats can drive higher awareness and conversion as the ads extend beyond the areas typically afflicted by “banner blindness.C. such as the example Intel provides below.C.” Figure 33: Banner Blindness Examples. 2011 The above video options require an explicit selection from the user. Figure 32: Expandable “Roll-over” Rich Media Video Example Source: Google.

g. Evercore Group L. several major publishers have donated the proprietary formats. pre-roll.C. ’07-‘10 450 400 Billions of U. non-video content monetization. Evercore Group L.. and interstitials) are benefitting from growth in online video production and consumption. Video consumption grew by a 97% 3YR CAGR compared with Google’s video growth of 127%.L. Figure 34: Complete List of IAB Rising Stars IAB Industry Standards IAB Portrait IAB Slider IAB Billboard IAB Filmstrip IAB Pushdown IAB Sidekick Source: IAB. For example. Research IAB Award Winner AOL Project Devel Unicast and MediaMind Google / YouTube Microsoft AOL's Pictela Unicast and MediaMind “Interruptive” Video Formats (Pre-Roll.L. and Microsoft. In-Video. Google. including AOL. growth in exchange-based video channels.C. in-video. 2011 Standardization of these Newer Formats Is Increasing Online video growth will be driven in large part by the increased standardization of these rich media display units. Growth in Online Video Consumption Remains Strong Figure 35: Online Video Growth. As a result. in our view.S. Videos 350 300 250 200 150 100 50 0 53 39 14 2007 106 65 41 2008 2009 2010 167 104 Google (CAGR 127% ) 156 260 241 Other (CAGR 83% ) 408 Total (CAGR 97% ) Source: comScore VideoMetrix. steps are being taken to standardize the best units (according to the Internet Advertising Bureau) by making these newer formats open source and IAB recommended. and relatively stronger engagement metrics versus television.May 26. Research 25 . Interstitials) Interruptive online video formats (e.

7 17.C. BitTorrent. Evercore Group L.L.C. 2011 Netflix represents 25%.9 15. Research Non-Video Content Presents Another Opportunity The interactive nature of the internet as compared to television means that publishers can use video ads to monetize any type of free content.2 Filesharing 20.May 26.L.8 19. brand recall.2 Video 15.1 38. For example. Evercore Group L. account for 17%. not just online video. ’09-‘11 100% 90% 80% % of Peak Downstream 70% 60% 50% 40% 30% 20% 29. and YouTube. 17%. message 26 . games. launching the free version of mobile game Angry Birds results in an interstitial mobile video ad prior to playing the free game. online video advertising outperformed television advertising on a normalized basis for viewers across general recall.2 16. and 10% of capacity respectively.S.4 Other Web Browsing 16. and apps.5 10% 0% 2009 2010 2011 42. Video Now Represents Half of Peak Period Bandwidth Traffic in the U. including pageviews. Figure 37: Interstitial Mobile Video Ad Source: Google Mobile Ads Marketing Team.7 18. Research Stronger Engagement Relative to TV According to a 2010 Nielsen study. Figure 36: Peak Period Bandwidth Traffic. while http sites.7 49.6 Source: Sandvine.

Primetime TV Ad Performance. Ages 18-49 70 60 Normalized Performance 50 40 30 20 10 0 General Recall Brand Recall Online Video Message Recall TV Likability 28 21 14 46 50 39 26 65 Source: Nielsen IAG.L.C. rather than straight video impressions. which Google’s YouTube has been slow to promote.May 26. advertisers are measuring “social shares. Figure 38: Premium Online Video Ad vs. We note that these ad units do not include “opt-in” rich media video display ads. but pre-rolls and other in-stream ads. In addition. Evercore Group L. and likeability. 2011 recall.” or how often the video ad was passed along to others. 27 . Research We show below the leading video ad sites (based on streams).

000 12.000 14.May 26. Videos With Ads April 2011 Total Videos Videos With Ads Videos (millions) 0 Google Sites Hulu Microsoft Sites Viacom Vevo Yahoo! Sites Tremor Media Adap. Inc.139 876 238 819 303 38 77 633 624 603 603 601 601 464 153 460 460 380 215 308 94 3 274 265 262 157 258 258 238 77 237 219 208 88 204 62 174 174 2. which provide a compelling account of the traction that these video ad networks and exchanges are having.TV AOL. Evercore Group L. Research We provide a comparison of unique visitors as well.743 Source: Company data.000 4. 28 .000 8.C.914 1. BrightRoll CBS Interactive Turner Digital Facebook Blinkx ABC Television SpotXchange CineSport Undertone Fox Interactive Media NBC Universal Crosspoint Media 121 1.000 6.000 13.L. 2011 Figure 39: Total Videos vs.000 10.

we would expect to see additional competition over time from Google’s AdX. RightMedia and AppNexus. which bring “real-time bidding” efficiency to video. and Tremor Media. The three leading ad networks include BrightRoll.May 26. similar to what currently exists in display. video ad networks and exchanges have emerged. which collectively control approximately 66% of the “interruptive” video inventory on the internet. 2011 Figure 40: Top Video Networks by Monthly Unique Viewers (All Videos). NBC Universal BBE Turner Digital SpotXchange TubeMogul Hulu CBS Interactive Undertone Break Media Network Crosspoint Media 48 47 47 42 39 36 33 31 28 27 25 25 23 23 59 57 56 54 66 20 40 60 80 100 120 140 143 160 Source: comScore. Inc. Leading video ad exchange Adap.TV Microsoft Sites Facebook Viacom AOL.tv is followed by BrightRoll’s BMX.C.L. millions) 0 Google Sites BrightRoll Tremor Media Yahoo! Sites Vevo Adap. Research Exchanges & Ad Networks Extending Display Benefits to Video Similar to display. YuMe. Evercore Group L. However. 29 . April 2011 (April Monthly Unique Visitors.

2011 Figure 41: Video Ad Networks and Exchanges Company Description April Unique Video Viewers (000s) 66.A. optimization.0 Series C Advertising company for social media 5.A. Research 30 . Private $51. 9.A.0 Unattributed Source: comScore VideoMetrix. N.9 Series D Video advertising technology company N. First Round. etc. integrated media and promotional programs Technology solutions for digital video advertising Platform for video syndication and monetization of video content online Online game publisher 54. and distributor of video. Spark Acquired by Specific Media in 2010 Branded video advertising network Online video monetization and advertising company Music video and entertainment service 59. BV. True.A. ORIX 23.A.A. WPP Menlo. Crunchbase.A.A. games. Granite.A. Intel Cap 7.5 Series C 36. Providence.A. N. editorial. Advanced Tech.A.A. Maveron. Gemini Israel Funds.305 Private N. N. 21.A. OneLoad for video distribution and InPlay for video Online video provider focusing on professional content Online advertising network Creator. 21. European Founders Fund Universal Music Group (UMG).I.806 Private $100. NBC 27.A. Longworth.368 Private N. Accel. DAG. Evercore Group L.428 Private $1. publisher. Adams Street.0 Series B 24.A. Accenture Tech August.309 Private $1. and yield management solutions provider Online syndicator of sports video Ad Network enabling in-stream video advertising Online video advertising network targeting content-specific verticals Online branded sales company selling site-specific.145 Private N. Comcast Interactive Capital.883 Private $14. Focus.G.L.A.472 Private/ Public Private Funding # of Equity Top Equity Investors ($MMs) Rounds $15. Greylock.672 Partnership N. News Corp.369 Private $84. N.A.990 N. 9. N.2 Seed N.168 Private $61.0 Series A JMI Equity. Redpoint.4 Series D 55.866 Private $40. Masthead.314 Private $79.5 Unattributed 7. 30.493 Private N.C. SCP. N. N.A. Knight's Bridge. N. 9. Sony Music Entertainment (SME) and the Abu Dhabi Media Company Bessemer. Ali Partovi 22. Online video advertising platform Online video company for advertising.0 Series A H.484 Private $22. Acquired by Adconion Media Group in 2009 New Enterprise.0 Series B Scale. N.0 Series C 11. Khosla. publishing and creativity Allows buying and selling of online video advertising in an auction marketplace Offers PlayTime platform for video marketing.313 Private N. Growth Partners Trinity.219 Private $48. IDG.050 Private $33. WPP. Foundation.A. N.5 Series B 26.A.A. KPG Meritech.May 26. 8. Canaan.738 Private N.5 Series A Pond Ventures Softbank. NetService Disney. N.684 Private $12. Series B Hadi Partovi. and Court Square Hercules Tech.A. Sony. Valhalla Partners N. Delivers ads against premium content P-2-P on demand video player with video advertisements Video advertising.

000 Exchange-Based 10. xvideo) declining mid single-digit y/y.L. Evercore Group L.000 Video 80% Facebook 20. 31 . 2011 Revenue Implications and Forecasts We now estimate that total online display advertising will increase nearly 19% on a sustained basis over the next 5 years vs. along with publishers’ ability to monetize a greater percentage of these pageviews and streams y/y.5% CAGR. Of these pageviews / streams. each of which we quantify. representing a 24% CAGR growth in the number of monetized impressions.C. We forecast total pageviews and streams to grow at a 13. up from 21% in 2011.000 Direct-to Publisher (x -Facebook) 20% Facebook Direct-to Publisher (x-Facebook) 2008 2009 2010 2011 2012 2013 2014 2015 2016 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 0% 2007 Source: comScore. Facebook growth. with publishers retaining about 90% of the total dollars purchased through this channel. We expect video to account for half the growth over the next five years while Facebook and exchange-traded media will drive another 700 and 400 basis points of industry growth. Figure 42: Total Impressions.000 Figure 43: Percentage of Total Impressions.C. much of the growth in gross display revenue will be driven by growth in total pageviews and video streams. 2007-2016E 100% Video 25. Evercore Group L. 2007-2016E 30. our 14% estimate previously. Our higher growth estimates are primarily a function of a stronger video outlook.000 Impressions (billions) (Impressions billions) 60% Exchange-Based 40% 15. respectively. and exchange-traded display media advances.May 26.000 5.L. Research Source: comScore. Research Direct-to-Publisher Revenue Opportunity By excluding rich media video advertising. excluding these three factors. emphasizing to us the disruptive nature of these display drivers. from 40 trillion in 2011 to 76 trillion in 2016. Display Impression Growth Forecast Just as with each of the sections we discuss in detail above. we estimate 33% will be monetized in 2016. As such. we find that the display industry was relatively flat over the last three years. we see direct-to-publisher display (x-Facebook.

915 55.069 $11.853 37.6% 4. 32 .660 $26.736 91. we actually expect direct-to-publisher growth of display (x-video) to accelerate.835 10.202 89.4% $39.8% 14.187 18.5% $23. Moreover. Evercore Group L.551 33.9% -0.071 95. MagnaGlobal.5% $22.2 $23.3% $2.5% 13.368 20.581 17.3% 2.528 $9.4% -1.2% 2.228 6.272 54. excludes exchange-based revenues and video Anticipated Facebook Growth Impact We forecast Facebook will increase ad revenues at a 41% CAGR over the next five years to $22 billion by 2016 compared with a 132% CAGR over the past five years.607 50.0% $21.9% $20.1% $26. we would expect the percentage that publishers retain to increase to 96% of total ad dollars purchased through this channel.202 45. IAB.6% 6.0% $3.177 15.0% $20.441 22.6% 3.260 64.943 27.8 35.853 12.1% 9.677 7.0 31.0% $9.1% 3.589 58.3% 4.0% $2.2% 10.8% $33.4% $23.5% Source: MagnaGlobal.0% $8. We note that some ad networks buy directly from publishers.4% -9.552 35.6% 0.9% 3.9% -15.5% $2.0% 16.5% $37.831 61.069 $11.4% -1.092 29.346 $10. 2011 Figure 44: Direct-to-Publisher (x-Video).552 9. 2007-2010E 2007 Direct-to-Publisher Banner Display Global Display Pageviews (BNs) x % of Monetized Premium Pgvs = Direct-to-Publisher Impressions x CPM (Effective) = Gross Premium Revenue (MMs) x (1-% to Ad Networks) x Publisher Revenue (MMs) % to Ad Networks Gross Direct-to-Publisher Revenue (MMs) x % through Ad Network (Direct-to-Publisher) = Direct-to-Publisher Revs thru Ad Network x % Ad Network Revenue Split = DTP Revenues thru Ad Networks / Gross DTP Industry Revenue % of Revenue to Ad Networks 2008 2009 2010 CAGR '07-'10 Comments 23.5% 13.318 12.4 28.943 $28.386 $10.301 $31.044 $9.071 10.4% -9.9% 14.260 10.C.9% $20.685 6.5% $2.025 $8.567 16.0% $29.L. Research.6% -4.071 67.0% $14.202 10.0% $22.0% $2.736 50.831 10.4% -0.422 59.6% 3.9% -15.7% 3.272 10.417 17.147 $23.9% 14.589 93. which we see as primarily a function of volume and slightly higher monetization rates.May 26.8% $2.481 $10.835 40.712 25.401 10.5 $24.459 $25.685 6. growing at a 10-11% CAGR.202 45.202 10.860 30.860 91.1% 2.3% $31. driven by growth from Facebook largely.638 41.0% 9.202 89.0% 3.940 7.0% $7.0% 9.6% 0.552 90.9 26. Research Moving forward.0% $19.9% -0.2 $22.4% $35.0% EIE ests EIE ests Calculation EIE ests Calculation EIE ests Calculation Source: comScore.1% $28.1% 2.817 9.3 $25.2% -5.1% 3.1% $26.9% -0.6% 2.246 45.0% $26.260 94.667 $35.8% $2.5% $4.1% $24. Evercore Group L.0 $23.9% 10.040 7.5% $2.0% $16.0% $12.860 9.0% -0.831 94.3% $24.134 25.6% $22.5% 2.349 $23.9% 4.9% 4.C.6 39.0% -0.1% -4. 2010-2016 CAGR 2010 Direct-to-Publisher Banner Display Global Display Pageviews (BNs) x % of Monetized Premium Pgvs = Direct-to-Publisher Impressions x CPM (Effective) = Gross Premium Revenue (MMs) x (1-% to Ad Networks) x Publisher Revenue (MMs) % to Ad Networks Gross Direct-to-Publisher Revenue (MMs) x % through Ad Network (Direct-to-Publisher) = Direct-to-Publisher Revs thru Ad Network x % Ad Network Revenue Split = DTP Revenues thru Ad Networks / Gross DTP Industry Revenue % of Revenue to Ad Networks 2011E 2012E 2013E 2014E 2015E 2016E '07-'10 '11-'16 33.6% -4.504 6.1% -0.441 22.0% $10.3% 9.239 $10.3% $3.158 30.835 90.4% 2.2 $23.0% $23. as Facebook is not ad network reliant.544 $8.736 10.0% $10. comScore.057 $39.272 92.283 $22.L.504 $24.349 $23.154 7.589 10.9% -0.652 $9.315 6. but we estimate this to be a fairly small percentage and declining.3% comScore Calculation Calculation EIE ests EIE ests Calculation Calculation $23. Figure 45: Premium / Direct Display Revenue Forecast to Publishers & Ad Networking Intermediaries.0% $25.

860.0% $4. Figure 47: Direct-to-Publisher (x-Facebook) Revenue.881.1% 2.0% -5.0% 0.7% 35.5% 0.6% $16.0% 132.6 89.8% 2.815.0% 131.0% 43. we estimate that display revenues (x-video and rich media) will decline by a 4% CAGR over the next five years.860.0% 20.0% 55.5% -4.877 6.0% 20.1% 3.3% -5.1% -4.5 89.0% 43.L.4% -9.4% 44.5% -4.9% -12.3 2014E 10.1% -4.2% 2.6% $18.8% 5.7% -1.6 2012E 6.2% -4.076.778.017.4 89.906 15.0 $22.7% -0.119. as we will show.5% 50. Evercore Group L.6% 28.1% 5.3% -5. Company data.4 2012E 35.012 $11.2 2013E 8.0% 0.9 100.5% '11-'16 29.254.9% $20.0 '07-'10 10.254.1% 2.0% 116.726 6.3% 30.0% -4.0 $20.6% 0.0% 0.114 5.9% 7.7% 111. 2011 Figure 46: Facebook Ad Revenue.7% 83.0% -5.0% 116.6 100.9% 3.2% Source: Crunchbase.0% 26.6% 1.9% $20.0 2011E 4.2% 2.C.581 4.711 $8.9 $13.0% $9.482.0% 49.0% 51.1% 23.8% -0. 2011E-2016E CAGR 2010 Facebook Facebook Global Pageviews (BNs) x % of Monetized Premium Pgvs = Premium Impressions (BNs) x CPM (Effective) = Facebook Ad Revenue (MMs) x (1-% to Ad Networks) x Facebook Ad Revenue (MMs) Y/Y % Change Facebook Global Pageviews (BNs) % of Monetized Premium Pgvs Premium Impressions (BNs) CPM (Effective) Facebook Ad Revenue (MMs) (1-% to Ad Networks) Facebook Ad Revenue (MMs) 2.1% $21.0% -0.3% 0.5% -2.6% $17.2 2015E 41.9% '11-'16 5.9% 3.632 16.0% 0. Research Excluding Facebook’s growth within the direct-to-publisher display category.0% 40.6% 1.5% -4.0% 2.9% 13.0% 6.337.0% 7.837. However.727.3 89.9% 81.581.189.0 2011E 32.0% -3.L.2% -0.0% 26.0% 8.7% -19.3% -0.959 10.2 $22.0% -4.1 $18.9% -2.0% 3.0% 5. Evercore Group L.0% 132.5% 310 $6.216.0% $13.214 13.5% -3.270.0% -13.0 $17.6% 843 $7.0 100.1% 6.May 26. Research 33 .0% 2.1% 25.389 14.6% 40.698 $7.0% 31.014 5.0% 1.5% 0.0% 3.0% 31.0% $22.610.2 89.8% -0.2% -4.7% 0.4% 1.581.017.9% 38.222 $7.0% 55.7% -4.063 $9.5% -5.7% -4.5% -3.2 $4.360.0 $1.C.6 $9.3 100.191 $8.5% -4.7 2016E 43.3% 5.359 16.7% 0.0% $6.5 2013E 37.to-Publisher (x-Facebook) Global Display Pageviews (BNs) x % of Monetized Premium Pgvs = Premium Impressions x CPM (Effective) = Gross Premium Revenue (MMs) x (1-% to Intermediaries) x Publisher Revenue (MMs) Y/Y % Change Global Display Pageviews (BNs) % of Monetized Premium Pgvs Premium Impressions CPM (Effective) Gross Premium Revenue (MMs) (1-% to Intermediaries) Publisher Revenue (MMs) 30.7 100.1% 0.064 $9.338.2% 0.059 $10.3% 0.2% 29.1% -0. as well as richmedia (opt-in) video.0% 131.8% -5.249 5.360.7% 26.337.9% 0.050 $10.473.6% 20.5% -4.0% 0.5% -4.2% -4.8 100.2 100.675.8% -5.035 $11. display publisher’s share of growth within the exchange-traded channels. means that display publishers that successfully navigate these drivers will do fine.979 $12.7% 2.0% 49.3 89.7 2015E 13.189.6 $19.7% 5.0% 1.5 $21.1% 8.7% 37.5% 2. largely due to lower monetization from inventory shifting towards exchanges and lower pricing.7% 2.407 5.0% 40.5 $23.5% -5.439 12.6% 558 $7.4% -1.4% 6.4% 0.0% 80.9 2016E 16.5% 0.7% $19.0% 0.8 '07-'10 103.1% -14.0% -4.6% 2.0% $17.0% $1.4 89. 2010-2016E CAGR 2010 Direct.8 2014E 39.0 $23. MagnaGlobal.4 $6.5% Source: comScore.

4 25.380.8% 10. 2007-2010E 2007 Exchange-Based Display Revenue Global Display Pageviews (BNs) % of Monetized Exchange Pgvs = Exchange-Based Impressions (BN) x CPM (Effective) = Gross Exchange-Based Revenue (MMs) x (1-% to Intermediaries) = Publisher Revenue (MMs) Y/Y % Growth Pageviews % of Monetized Premium Pgvs Premium Impressions CPM (Effective) Gross Premium Revenue (1-% to Intermediaries) Publisher Revenue % of Exchanged-Based Total Publishers Intermediaries 2008 2009 2010 CAGR '07-'10 23.4 33.1% 109.7% 7.6% CAGRs respectively) as we expect some moderate pricing pressure in this area from increased competition.1% 798 $0.2% 113.0 12.3% 8.4% 40. Evercore Group L.3% 129.1% 22.0% 15.3% 24.5% 28.2% 10.7 $7.7% 5.4% 12.5% 39.0% 77.5% 13.0% 27.1% 22.7 $12.711.1% 497 $0.5 76.2 78.0% $68.3% 43.5% $3.1 58.8% 30.504 23.2% CAGR.3% 2. up from $3.14 billion in 2010.685 6.6 12.8% 25.138.4% 60.6% 2.7 $11.5 45.387.1% 10.1 58.951. As a result.178.2% 121.940 29.4 $279.2% 4.2% 113.401 2.0% 21.2 50.May 26.5 $525.2% 5.5% 13.8% 9.0% 124.5% $302.9% 10.0% 45.154 26.5% and 5.3 56.5% 8.9 57.0% 30.4% 2. MagnaGlobal.0% 16.9% 5.2 41.7% $7.9% 42.9% 1.8% 150. particularly from Google. IAB.602 $0.2% 116.854. Figure 48: Exchange-Based Display Revenue.2% 19.0% 56.7 $9.0% 21.2% 121.3% 2.6 37.0% 54.2 55.8% 41.1% 55.C.1 29.0% $5.5% 40. Research We forecast exchange-based display revenue to increase by 30.5 billion in 2011.009.2% over the next five years on a compound annual basis.113.8% 30. Figure 49: Exchange-Based Display Revenue.4% 17. 2011 Intermediary Opportunity (i.7% 216.8% $668.2% $10.4% 60. we expect gross revenue in this market to reach nearly $13 billion dollars five years from now.0% 3.0% 13.6 $1.6% 37.3% 82.731 $0. driven mostly by the total amount of impressions monetized along with relatively higher CPMs.0% 176.6 $3.2 59. MagnaGlobal.138.4% 10.0% $2.864 $0.e.5% 2.169 $0.393 $0.9% 13.2% 116.5% $8. 2010-2016E Exchange-Based CAGR 2010 Exchange-Based Display Revenue Global Display Pageviews (BNs) % of Monetized Exchange Pgvs = Exchange-Based Impressions (BN) x CPM (Effective) = Gross Exchange-Based Revenue (MMs) x (1-% to Intermediaries) = Publisher Revenue (MMs) Y/Y % Growth Pageviews % of Monetized Premium Pgvs Premium Impressions CPM (Effective) Gross Premium Revenue (1-% to Intermediaries) Publisher Revenue 2011E 2012E 2013E 2014E 2015E 2016E '07-'10 '11-'16 33.6% 3.048 $0. with the publishers’ share increasing at a moderately faster rate than the intermediaries’ share (37.8% 57.6% 88.5% 9.0% 14.4% 2. IAB.L.2% 92.0% 77.4% 5.040 28.228 21.5% 56.1% 2.4% 5.0% 62.4% 46.138.L.0% 10.5% 58.0% 204.3 $124.2% 2.0% 21.6 $1.1 68.817 3.4 75. a 30.9% 42.677 3.1 61.5% 18.3% 2.7% 10.4 55.5% 56.685 6.4% 60.C.6 $5. a 109% CAGR over three years.4 80.9% 27.1% 2.315 15.3% Source: comScore.3% 30.3% $157.3% 45. Exchange-Based) Gross exchange-based revenue grew from $124 million in 2007 to $1.2% Source: comScore. Evercore Group L.069 $0.6% 10.1% 109.631.3% 9.4% 10.104.8% $668.5% 42.069 $0.7% 14.0% 27.6% 2.2% 5..467.762 $0.2% 2. Research 34 .

4 $7.5 $1. 35 .0% -0.0% 40.9 $2.096.8% 132 $15.7% 6.9 $4.0% 244 $16.0 $888.4 $11.049.5% $874. 2011 Figure 50: Intermediary vs.112. $14.8 $6.3% $2.4 $2.5% 122.6% 39.4% -20.210 11.S.8 96.8% $2. and our estimates.5% We forecast that online video monetization of opt-in and interruptive advertising will increase by 37 on a five year compounded annual basis. comScore global traffic data.8% 99.3% 70.5 $19.4 Publisher Revenue $1.300 13.4 $1.4% 174 $16.1% -0. Research Video Revenue Forecast Video advertising (inclusive of interruptive and opt-in rich-media) grew at a 67% CAGR over the past three years based on IAB U.0% -0.L.0 97.9% 32. with growth a function of increased volume and percent monetized. 2010-2016 $1 $1 $1 Exchange-Based Revenue ($Billions) $1 $1 $1 $0 $0 $0 $0 $0 2010 2011E 2012E 2013E 2014E 2015E 2016E $0.4% 144.6 Intermediary Revenue Source: Company data.7 $10.983.935.1% 0.3% 4.1% 6.2 102.4% -45.C.2 $3.9% $3. Figure 51: Online Video Revenue Drivers.4 97.4% 39.854.C. partially offset by lower pricing.1 $3.6% 11.8 $2.6% 65.0% -17.1 $2.9 $2.8 $1.0 $8.8% 60.7% 134.0% 66. 2007-2010E 2007 Online Video Revenue Streams (BNs) % of Streams Monetized = Monetized Video Streams (BNs) x Video CPM (Effective) = Gross Video Revenue (MMs) x (1-% to Intermediaries) x Publisher Revenue (MMs) Y/Y % Growth Pageviews % of Monetized Premium Pgvs Premium Impressions CPM (Effective) Gross Premium Revenue (1-% to Intermediaries) Publisher Revenue Source: Evercore Group L. data.0 $0.6 2.7% -0.7 532 24.9 $5. Publisher Revenue in Exchange Ecosystem.7 $2. Evercore Group L.May 26.L. Research 2008 2009 2010 CAGR '07-'10 267 22.2% 59 $15.4 $8.0 98.9 1.6% 40.0% 40.0% 136.

5% 10. Research. Evercore Group L.3% 45.0% 43.5% 50.0% 51. However.3% -0.6% 40.014.0% 10.1% 43.2% -0.0% 36.1% 0.4 102.5 12.0% 54.0% -10. this squarely falls in the lap of existing display publishers.8% -10. excludes exchange-based revenues and video Display Forecast Summary As a result.0% 48.8% 2.4% 899 $13.5% 10. 36 . Of this display growth.3 96.3% 70. and exchange-traded media.0% 51.0 $16.554 17. IAB.0% -2.9% 10.0% 45.8 4.4% 40.772.7% -0.9% 35.255 14.112.6% $5.2% 38.807.3% -10.5% -10.8 $21.0% Source: MagnaGlobal.7% -0. 2010-2016 CAGR 2010 Online Video Revenue Streams (BNs) % of Streams Monetized = Monetized Video Streams (BNs) x Video CPM (Effective) = Gross Video Revenue (MMs) x (1-% to Intermediaries) x Publisher Revenue (MMs) Y/Y % Growth Pageviews % of Monetized Premium Pgvs Premium Impressions CPM (Effective) Gross Premium Revenue (1-% to Intermediaries) Publisher Revenue 2011E 2012E 2013E 2014E 2015E 2016E '07-'10 '11-'16 2.943 $9.C.887.2% 2.4% 39. In addition.364.8 $8.6% -0. we see new formats in video followed by a growing share of exchange-based volume as offering significant opportunity for display players that act early enough.290.3 $11.0% 66.1% 584 $14.0% 40.2% 35.0% -17.0% 38.731 13.0% 33. we note that as video is about two-thirds opt-in rich-media display.5% -10.0% 36.2 95.0% 0.967.4 96.8% $27.808 12.8 6.8 96.521.1% -0.316 11.2 3.0% 366 $16.3% $11.8% 45.4% $8.6% -0.019 $10. we forecast gross display revenue to increase at a 19% CAGR to $85 billion by 2016.2 9.2% 36. comScore.6% -0.634.210 11.2% 33. while traditional direct-to-publisher advertising is expected to decline.8 billion in 2011.4 96.3% 4.8% 37.7% 1.7 $28. Facebook.6 95.0% 59.9 $4.1% $15. Therefore.983.May 26.494 16. we see the major growth within video.0% 244 $16. display publishers have an opportunity to benefit here as well.4% 37.1% 31.7 16.0% 50.7% -10.360 $12.6% 65.326.4% -20.9% $20.4 $6.0% 31. as we expect increased competition within the exchange-traded category among intermediaries.L.0% 10.4% 32.0% 10.653.9% $3. up from $35.8% 60. 2011 Figure 52: Online Video Revenue Forecast.1% -0.5% 46.9 96.559.

comScore.L.May 26. 2007-2016E $90 $80 $70 Video $60 Revenues (billions) $50 $40 Faceboo $30 Exchange-Based $20 $10 Direct-to-Publisher (x-Facebook) $0 2010 2011 2012 2013 2014 2015 2016 Source: MagnaGlobal.C. 2011 Figure 53: Gross Display Advertising Revenue. IAB. Evercore Group L. Research 37 .

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