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NEXAGE ANALYTICS REPORT // Q1 2013

April 2013

NEXAGE.COM

THE NEXAGE ANALYTICS REPORT // Q1 2013

Executive Summary
The Q4 Nexage Analytics Report focused on the central measure of mobile advertising health and maturity: market liquidity. Building on our Q4 report, we wanted to understand how value drivers were affecting the market. We felt that the combination of more aggressive mobile strategies from premium publishers, the positive effect of richer and more precise targeting data, a broad base of mobile demand, and the early impact of brand spend would not just grow the market, but shift the market. In essence, we believe the 2013 version of mobile advertising would be fundamentally different—and fundamentally more valuable—than the 2011 and 1H 2012 versions. This report indicates that we are making real and measurable progress:

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We reduced the bounce-back period—the period to which we return to growth after the traditional Q1 down-cycle—by a full five months.

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We identified and analyzed attributes—channel, location, app and mobile web, platform, and device ID—that were contributing to the shift in market value.

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We gained more clarity into consumers’ mobile habits and how advertisers and buyers are responding.

The net outcome is that value drivers are having a notable and positive effect on the market. We welcome you to read on for a closer analysis.

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THE NEXAGE ANALYTICS REPORT // Q1 2013

The State of the Market: The Bounce-Back Period
In understanding Q1 performance and patterns, we wanted to first look at Q4 and Q1 spend. We were interested in how two trends, the value shift underway in mobile advertising and the traditional advertising business cycle, related to and affected each other.

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The value shift driven by the combination of higher value audience and broad base (and growing) demand.

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The traditional advertising business cycle typically shows a significant uptick in spend during the holidays followed by a down-cycle in Q1.

EXHIBIT 1: STATE OF THE MARKET
2012-2013 Spend 2011-2012 Spend

»» We compared Nov 2011-Feb 2012 and Nov 2012-Feb 2013 to understand how they differed. »» The 2012-2013 cycle showed a more substantial and more sustained holiday spend, a reduced down-cycle, and a sharp spike for the Super Bowl.

Spend

Nov

Dec

Jan

Feb

We examined the bounce-back period between October and Q1. The bounce-back period illustrates how fast we return to growth (if we use October as the baseline—the last “normal” month before the holiday period). The results show that the value shift reduced the bounceback period by a full five months. The accelerated bounce-back tells us that the combination of higher value audience and broad base demand strengthened the market, and further signals that brands are increasingly treating mobile as a critical channel to reach consumers.

EXHIBIT 2: THE BOUNCE-BACK
2012-2013 Spend 2011-2012 Spend

»» In 2012, we returned back to growth in May (relative to October) and realized 171% growth in 2012. »» In 2013, we return to growth in January, five months earlier than in 2012. »» Q1 2012 to Q1 2013 growth was 169%.

Spend

Oct

Nov

Dec

Jan

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THE NEXAGE ANALYTICS REPORT // Q1 2013

»» The Bounce-Back Period: A Closer Look at Super Bowl Sunday
One of the major contributors to the rapid Q1 bounce-back was 2013 Super Bowl spend, which showed dramatic growth over 2012. The spike suggests that brands are more aggressively embracing mobile and driving third screen campaigns that complement TV and online campaigns.

SUPER BOWL

Spend

Nov

Dec

Jan

Feb

EXHIBIT 3: SUPER BOWL 2012 vs. 2013

2012-2013 Spend 2011-2012 Spend

»» There was a 180% lift in spend on Super Bowl Sunday 2013 as compared to the prior week. »» The 180% lift compares with just an 18% lift for the 2012 Super Bowl.

Average Spend

180% lift

Pre-Super Bowl (7 days)

Super Bowl

Post-Super Bowl (7 days)

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THE NEXAGE ANALYTICS REPORT // Q1 2013

The High Performance Quadrant
Our goal was to better understand the value shift— answering the question as to which attributes are driving value. To do this, we used a common analytic model—a high performance quadrant—to isolate and analyze high performance sites, as measured by eCPM and fill rate performance from November 2012 to February 2013. Sites in the upper right or “high performance” quadrant represent
Fill Rate
High performing sites: Those sites producing both better than average fill rate and eCPM performance.

leaders in both fill rate and eCPM performance. Specifically, we drilled down to understand which attributes are driving value:

eCPM

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Channel Location App vs. Mobile Web Platform Device ID

The analyses are presented in the following pages.

EXHIBIT 4: THE HIGH PERFORMANCE QUADRANT

»» We identified 112 sites and apps that are part of the high performance quadrant based on combined eCPM and fill rate performance. »» The next pages drill down to specific attributes to provide insights into what is driving value in the market.

Fill Rate eCPM

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»» The High Performance Quadrant: Channel
Marketers utilize different channels (defined as content categories) to reach specific audience segments. As a result, we would see a difference in performance across channels. For example, if buyers applied different max bid thresholds to different channels, we would see the impact on eCPM performance. In this analysis, we used a slightly adjusted first-tier IAB categorization to include games. All channels had a presence in the high performance quadrant. Only News & Informa­ tion, which comprised 23% of the sites in the high performance quadrant, had a “strong presence.” Most of the channels were dispersed across the four quadrants. The results suggest that, for most cases, channel is not a primary targeting parameter for buyers.
EXHIBIT 5: CHANNEL PERFORMANCE

»» All channels are included in the high performance quadrant. »» No channel represented more than 23% of the total number of sites and apps. Fill Rate eCPM

We further examined how channels compared to each other in two key measures: eCPM and variance. This comparison measures the spread between the highest and lowest eCPM within a specific channel. The greater the variance, the less consensus buyers had regarding the channel’s value. The results show that although eCPM was comparable across channels—almost showing a neutral comparison—each showed stark differences in the level of eCPM variance. These results affirm that channel is not a primary targeting value, and that data is likely having a more significant impact on performance.
EXHIBIT 6: eCPM PERFORMANCE & VARIANCE BY CHANNEL

eCPM

Travel

Navigation

News & Info

Entertainment

Sports

Social

Lifestyle

Games

Health & Fitness

Utilities

Tech & Computing

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THE NEXAGE ANALYTICS REPORT // Q1 2013

»» The High Performance Quadrant: Location
In our Q4 Nexage Analytics Report, we noted the value delivered by location data to support local and hyperlocal campaigns. We broke out location parameters, which include city, state, metro code, and zip code, from GPS-derived lat/long impressions. Location-enabled impressions produced a 2x eCPM premium; lat/longenabled impressions produced a 5x eCPM premium. In this analysis, we wanted to understand the impact location was having on eCPM and fill rate performance.
EXHIBIT 7: LOCATION

»» 66% of sites providing locationenabled impressions had above average eCPM. »» 55% of the sites showed above average fill rate performance; 45% showed below average fill rate performance.

Fill Rate eCPM

EXHIBIT 8: LAT/LONG »» 67% of sites providing lat/longenabled impressions had above average eCPM. »» 50% of the sites showed above average fill rate performance; 50% showed below average fill rate performance.

Fill Rate eCPM

Results were mixed, but telling. Location- and lat/long-enabled impressions showed the eCPM premiums noted in our Q4 report as well as a mixed fill rate performance. 66% of location- and lat/long enabled sites produced better than average eCPM, but fill rate performance was mixed. This result reveals current market realities: not all buyers are able to ingest and target on location and lat/long parameters, which limits fill rate performance. When buyers are able to ingest location parameters, they will place higher value on those impressions.

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THE NEXAGE ANALYTICS REPORT // Q1 2013

»» The High Performance Quadrant: App vs. Mobile Web
The app vs. mobile web debate is primarily premised on what is the best method to attract, please, and retain customers. A big part of this debate is whether consumers show any clear preference; whether a web-based approach that capitalizes on responsive design and HTML5 design creates a better experience than an app-based approach that enables customers to configure their views and experiences with the potential to produce a higher level of loyalty. Advertising value is a secondary consideration, but publishers want to know if there are any severe advertising dynamics where one approach significantly out-performs another. In our analysis, we found a relatively equivalent population of mobile web sites and apps in the high performance quadrant, signaling that whether publishers opt for mobile web- or app-delivered content, they have equal opportunity to drive superior results.

EXHIBIT 9: APP vs. MOBILE WEB

App Mobile Web

»» 54% of mobile properties in the high performance quadrant were mobile web sites. »» 46% of mobile properties in the high performance quadrant were applications.

Fill Rate eCPM

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THE NEXAGE ANALYTICS REPORT // Q1 2013

»» The High Performance Quadrant: Platform
iOS vs. Android is a long-standing comparison—and certainly a competitive dynamic that will be affected by the pending release of Android devices marketed to more affluent consumers, such as the Samsung Galaxy S4 and HTC One. Until then, our analysis shows that iOS commands a 118% premium over Android. That data should not come as news to anyone, so we wanted to dig deeper into this comparison to determine the underlying dynamics.
EXHIBIT 10: iOS vs. ANDROID

»» 76% of apps in the high performance quadrant were iOS apps.
iOS Android

»» iOS delivered a 118% premium over Android. »» The premium remains even when we strip out fill rate; 74% of apps that delivered above average eCPM were iOS apps; 26% were Android apps.

Fill Rate eCPM

We wanted to understand if the 118% iOS premium changed when we looked only at a sample of publishers that provide both iOS and Android apps. Essentially, we took away any effect from publishers that only provided iOS apps or only provided Android apps. For publishers that deliver both, the 118% iOS premium declines to 62%. Inevitably, we believe the 62% premium is more accurate and useful.

EXHIBIT 11: iOS & ANDROID PREMIUMS iOS Premium »» The iOS premium declined from 118% to 62% when we only look at publishers that deliver content on both platforms. »» 38% of the publishers realized a premium for Android, but those premiums were less pronounced. Android Premium

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THE NEXAGE ANALYTICS REPORT // Q1 2013

»» The High Performance Quadrant: Device ID
As we looked further into the characteristics of the high performance quadrant, we next looked at patterns associated with apps that do or do not provide device ID. This analysis began with a caution: we did not want to consider the singular effect of device ID enabling performance campaigns (such as CPI-based campaigns), as device ID is also critical to frequency capping that is important to all campaign types, including brand campaigns. The analysis showed little correlation between the presence of device ID and eCPM. However, the analysis does show that device ID had a material impact to fill rate performance.
EXHIBIT 12: DEVICE ID

»» 33% of apps in the high performance quadrant enabled device ID. »» 55% of apps enabling device ID showed above average eCPM performance. »» 46% of the apps providing device ID showed above average fill rate performance. eCPM

We then investigated whether there was any performance distinction between iOS and Android, especially as it related to the iOS premium noted earlier. The iOS premium persisted, which gave us insights into how developers view lifetime value (LTV). In aggregate, developers place a higher LTV on iOS and buyers are therefore willing to pay more to acquire them.
EXHIBIT 13: DEVICE ID BY PLATFORM

Fill Rate

iOS Android

»» iOS apps (that deliver device ID) represented 76% of the apps in the high performance quadrant. »» Fill rate results were mixed, where 49% of iOS apps delivering device ID showed above average fill rate.

Fill Rate

eCPM

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THE NEXAGE ANALYTICS REPORT // Q1 2013

Consumer Behavior: Consumption Habits
The last analysis of this report brought us to the spark that drives the mobile advertising market: the consumers’ rapid shift to all things mobile. To understand consumer behavior—or more to the point—when they consume content, we looked at the consumption patterns on an hourly basis for different channels by looking at how consumption is distributed across the day. Five patterns (noted below) stood out.
EXHIBIT 14: NEWS & INFO
Percent of Ad Requests

All-day news & information pattern: Consumers showed a steady
4am 12pm 8pm

consumption of news and information across the day. They caught up on the news starting around 7am ET and stayed tuned in throughout the day.

Hours of the Day

EXHIBIT 15: SOCIAL
Percent of Ad Requests

The late evening social pattern: Although consumers used mobile
8pm

4am

12pm

social channels throughout the day, usage spiked in the late evening presumably as they settled in and shared the days’ events across their networks.

Hours of the Day

EXHIBIT 16: SPORTS
Percent of Ad Requests

The during-game sports pattern: Consumers showed a steady
4am 12pm 8pm

consumption of sports content that spiked as games were being played. The analyses shows that consumers are using mobile for third screen viewing to keep track of scores, storylines, and stats.

Hours of the Day

EXHIBIT 17: TRAVEL
Percent of Ad Requests

The double spike travel pattern: Consumption of travel content oc4am 12pm 8pm

curred during two specific times of the day. During the lunch hour, consumers presumably booked business travel or ex­ plored getting away from it all; at night, they converted those dreams to specific plans.

Hours of the Day

EXHIBIT 18: GAMES
Percent of Ad Requests

The persistent games pattern: Reports have shown that
4am 12pm 8pm

consumers across audience segments have a seemingly endless fascination with mobile games, from the early morning through, well, the early morning. Our data af­ firms those analyses. The only real decline occurs in the wee hours of the morning 1am to 5am ET,

Hours of the Day

when even the most ardent gamers sleep.

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THE NEXAGE ANALYTICS REPORT // Q1 2013

Consumer Behavior: Advertisers’ Response
Marketers and buyers are catching up to the rapid shift in consumer behavior. After analyzing consumer patterns, we looked at how buyers are responding. We considered three different possible mobile advertising models:

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A value-based model: Similar to TV advertising, this model suggests that marketers and buyers will identify “high-value” hours to advertise when they assume higher consumer engagement and response. If this model was dominant, we would see advertising volume hone in on specific hours independent of consumption.

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A pacing-centric model: This model suggests that buyers will pace their spend throughout the day with possible increases in the later evening. If this model was dominant, we would see a steady pace in advertising volume throughout most of the day, with a slight uptick in the evening to catch up to any pacing gaps.

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An economic-driven model: This model suggests that ads served will generally track ad requests, as buyers increase buying when there is a large volume of impressions (and price pressure increases) and pull back slightly when ad requests decline. If this model was dominant, we would see advertising volume track ad requests. However, we would not see a steady fill rate as ads served would not directly respond to spikes in ad requests.

EXHIBIT 19: THE ECONOMIC MODEL Percent of Requests

For every channel, we found that an economicdriven model was the primary model. This showed that timing decisions more heavily considered price—assuming they were able to specifically target against the attributes such as audience segment, device ID, or location parameter. With that said, buyers are willing to pay more for attributes that drive value—as noted in this report. We would expect this to change over time as brand spend has a more material effect on how and when ads are delivered.

Percent of Ads Served
0 1 2 3 4

5 6

7 8 9 10 11 12 13 14 1516 17 18 19 20 21 22 23

Hours of the Day

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THE NEXAGE ANALYTICS REPORT // Q1 2013

Conclusion and the Road Ahead
In our Q4 Nexage Analytics Report, we suggested that the market is not simply gaining steam, but value drivers are reshaping the market. We felt that the combination of more aggressive mobile strategies from premium publishers, the positive effect of richer and more precise targeting data, a broad base of demand, and the early impact of brand spend would make the 2013 version of mobile advertising fundamentally different than the 2011 and 1H 2012 versions. This report indicates that we are making real and measurable progress. The market is growing on top of an accelerated bounce-back period, the value drivers are more vividly understood, and those value drivers are having a real effect on how—and how fast—this market is maturing. Although most of the signals are positive, there is substantially more work to do. As an industry, we need to continue to focus on the building blocks that accelerate value and integrate risk management techniques to ensure that mobile is a lucrative medium for publishers and advertisers alike.

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