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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 Googles 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. Googles 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 Googles 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


6%

Video

47%

Exchange-Based

Facebook

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

Exchange-Based

Direct-to Publisher (x-Facebook)

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

May 26, 2011 Revenue Still Remains Largely Direct-to-Publisher Figure 3: Global Display Revenues, $ Billions, 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, Evercore Group L.L.C. Research

To summarize, total display revenue grew 8% in 2010 to $28.5 billion (or 5% growth on a 3 year sustained growth basis) with video, social, and ad exchanges contributing 530, 230, and 140 bps of this CAGR growth, by our estimates. This corresponds to video, Facebook, and exchange-traded 3YR CAGR growth of 67%, 130%, and 110%, respectively. Figure 4: Global Display Revenues, $ Billions, 2007-2010

Direct-to-Publisher (x-Facebook) Video (Opt-in & Interruptive) Facebook Intermediaries (i.e., Exchanges) Total Display % of Total Direct-to-Publisher (x-Facebook) Video (Opt-in & Interruptive) Facebook Intermediaries (i.e., Exchanges) % of Y/Y Growth Direct-to-Publisher (x-Facebook) Video (Opt-in & Interruptive) Facebook Intermediaries (i.e., Exchanges) Total Display

2007 $23.7 $0.9 $0.2 $0.1 $24.9

2008 $25.2 $2.1 $0.4 $0.3 $27.9

2009 $22.0 $2.9 $0.8 $0.5 $26.3

2010 $21.3 $4.1 $1.9 $1.1 $28.5

CAGR '07-'10 -3.4% 66.7% 131.5% 109.2% 4.6%

95.3% 3.6% 0.6% 0.5%

90.2% 7.5% 1.3% 1.0%

83.8% 11.2% 3.0% 2.0%

75.0% 14.5% 6.5% 4.0%

6.3% 136.0% 133.3% 124.6% 12.3%

-12.6% 40.0% 128.6% 88.3% -5.8%

-3.1% 40.1% 132.5% 116.4% 8.2%

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

We now explore each of these category drivers in detail before providing our updated display industry estimates.

May 26, 2011

1. Social Extending Beyond Facebook


While Facebook very much remains at the center of social data universe, opportunities are increasing for companies that capture, analyze, and redeploy the influx of social behavioral data. Publishers and advertisers are leveraging these companies, in addition to Facebook, for user comments and reviews, traffic patterns and other and advances within tracking are creating opportunities for publishers to sell engagements versus simple impressions. In addition, this behavioral information is redefining the purchase funnel to a closed loop in which a brand can now track from awareness to conversion, and mobile offers to extend this trend offline. In addition, advances in behavioral tracking, computational capability, and storage is allowing this data to be captured, analyzed, and redeployed more cost effectively than ever before. We start this report by reviewing several social trends that are reshaping the marketer approach.

Reviews & Comments Becoming Ubiquitous


Product reviews and comments are being captured, analyzed and redeployed by advertisers to strengthen branding and drive conversion. These comments and reviews increasingly exist not just on social networks but across the broader web, with retailers, brands, blogs all providing methods for individuals to share their reactions, both good and bad, to products and services. As such, the ability to navigate these waters effectively (i.e., 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. The result is a greater expectation for peer commentary on most of the products and services we regularly consume. As an example, we show a CNET review below on the Verizon iPhone which lists one editorial review and 79 user reviews. Figure 5: Editor & 79 User Reviews on CNET

Source: Company data, Evercore Group L.L.C. Research Marketers are culling these reviews, analyzing them, and, in many cases, redeploying them.

Marketers are culling these reviews, analyzing them, and, in many cases, redeploying them to the sites where prospective customers are, along with other branded display messaging. In fact, Facebook this week announced that all its pages will be required to enable user comments, which until now could be turned off, stating that these changes encourage an authentic dialogue between people and businesses on Facebook. Sites such as Yelp, TripAdvisor, and hundreds of other local review sites have also emerged, extending socials reach to local merchants.

May 26, 2011

Figure 6: Restaurant Review on TripAdvisor

Source: Company data, Evercore Group L.L.C. Research

Brands are redeploying these comments and reviews to retailer sites where the comments can be reviewed by more customers. For instance, we show how visiting 3Ms Post-It website reveals passionate Post-It comments. Figure 7: Branded Pages Increasingly Socializing

Source: Company data, Evercore Group L.L.C. Research

Bazaarvoice, Radian6, ScoutLabs, and Vocus are a few of the companies that enable these social communications on brand and retailer pages, analyze them, and redistribute the comments to appropriate retailer sites. 6

May 26, 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.C. Research

A visit to the Staples retail site shows 41 Post-It reviews. While we cannot say just how many appeared on Staples, we can say that user comments are increasingly helping to drive conversion, and brands and retailers alike are increasingly aware of how to use this information in combination with their broader marketing message. Figure 9: Post-It Reviews on Staples Site

Source: Company data, Evercore Group L.L.C. Research

May 26, 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. Marketers can now distinguish awareness, interest, brand evaluation, purchase commitment, and purchase referral, by knowing where exactly to place tracking pixels within our browsing activity. These tracking pixels result in cookies being called. Figure 10: Improved Cookie Tracking Down Marketing Funnel

Marketing Campaign Targeting Cookies


Cookie From Prospecting Ad Awareness Interest Evaluation Commitment Referral Cookie From Ads Landing Page Cookie From Specific Product Page Cookie From Shopping Cart Attribution Cookie on Thank You For Your Order Page

Source: Evercore Group L.L.C. Research

By taking a quick look at the number of companies that are following our visit to the HuffingtonPost, we find 16 companies. To follow tracking companies, we used a service called Ghostery (results in the dark box). Figure 11: Monitoring Ad Technology Companies Through Ghostery

Source: Evercore Group L.L.C. Research

There are number of companies that follow this data in order to categorize the behavior for marketers. For instance, we can see from the below that bluekai and excelate offer marketers information on in-market users or those ready to buy. Lotame provides information to marketers on users sharing activity. AlmondNet and MAGNA+IC offer information on a users commercial search activity. Datalogix and Polk offer information on prior online purchasing behavior while Nielsen, TARGUSinfo, ACXIOM, Experien and ICI provide demographic information. Finally, Media6Degrees, 33Across, and BazaarVoice are a few of the companies that capture and provide social data, such as comments and reviews.

May 26, 2011 Figure 12: Segments Offered By Leading Data Providers
In-Market

- Consumers likely to buy insurance in the next 30-60 days - Consumers likely to book travel in the next 60 days - Audiences actively sharing content like videos and photos - Audiences that cook by finding recipes online - Consumers searching for personal finance offers - Consumers searching for information on Blu-Ray players

Interest

Search Retargeting

Transaction

- Frequent purchasers of beauty products - Frequent purchasers of vehicle accessories - Data on audience geography, gender, age and income

Offline Demographics

Social Graph

- Audiences based on social data from social networks, including demographics, interest, and connections

Source: Company data, Evercore Group L.L.C. Research

Social Helping to Make Audience Profiles Known


Facebook is further assisting these data efforts by establishing audience profiles. For instance, through FacebookConnect, Facebook is collecting from and exchanging behavioral data with third-party publisher sites. As an example of Facebook Connect in practice, we show below an attempt to download an AdAge Insights report, on Scribd, which requires either 1.) creating a new account with Scribd or 2.) signing on with my Facebook user ID and password. Figure 13: Sign-on to Scribd with Facebook Connect

Source: Company data, Evercore Group L.L.C. Research

By taking the easier of the two approaches, signing on with my existing Facebook ID and password, Scribd then receives information from Facebook on my age, job, interests (such as Likes and Sends) and, in return, Scribd provides Facebook with my site-specific behavioral information (what I did on their site, essentially), which leverages the data collection of the other tracking firms. Following my log-in through Facebook, Scribd requests permission to send notes to me (through email) and to my social contacts (through wall posts).

May 26, 2011 Figure 14: Permission to Target My Friends and Me through Facebook Connect

Source: Company data, Evercore Group L.L.C. Research

As a result, for placing a simple display ad, there is an enormous amount of behavioral science and tracking that occurs. 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. As a result, increasingly, we would expect advertisers to seek paying for these branded experiences on an engagement as opposed to an impression basis. And through mobile, these data benefits are flowing into the store.

Result: Virtuous Data Cycle (or Closed Marketing Loop)


Consumer reviews and comments of products and services and our willingness to share, all while leveraging mobile, has created a virtuous data cycle for merchants and brand advertisers that didnt exist before. As a result, the measurability of brand campaigns within display is improving, as marketers increasingly know who their customers are, what they are saying, and who their friends are. And, thanks to mobile, this behavior, and the resulting data loop, is migrating from online to the physical store. Figure 15: Social & Mobiles Redefinition of Marketing Funnel to Virtuous Data Cycle

Awareness Interest Evaluation Commitment Referral

Social + Mobile Behavioral Data

Source: Company data, Evercore Group L.L.C. 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. As most of these companies are private, we provide a comparison of funding, number of rounds and investors. 10

May 26, 2011 Figure 16: Third Party Data Analytic Provider Landscape, Private & Public

3P Data
Company Description Media measurement, 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 $53.2 Series C Cisco, Polaris, The Founders Fund, Revolution New Enterprise, Novak Biddle, ZG, Mark Jung, Steve Case, Ted Leonsis GGV, Redpoint, Battery, Hadi Partovi, Ali Partovi DAG, Benchmark, First Round, Mayfield Fund Menlo, Venrock, U.S. Venture Partners, Contour, Coriolis Blue Chip, Illinois, DFJ Mercury, Queen City Angels, RPM, Draper Fisher Jurvetson Menlo, Carmel, Trident Austin, Battery, Constantin, First Round N.A.

Private

$38.0

Series C

Private

$35.1

Series C

Private

$29.5

Series C

Socially Targeted Display Advertising

Private

$28.0

Series B

Sharing network, social influence Open data exchange for behavioral targeting data

Private

$21.0

Series B

Private

$20.0

Series B

Helps capture, display, share, 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, combination, 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, analysis and prediction services for media companies
Source: Company data, Evercore Group L.L.C. Research

$19.9

Series C

Private

$15.0

Series A

Private

$15.0

Unattributed Rembrandt, The Founders Fund Flybridge Capital, First Round, QED, Rose Tech ZoomInfo, Bessemer, Venrock, Vulcan, Ascent Charles River, IA Capital, Roger Ehrenberg, Rose Tech, Coriolis Midpoint CC, SmartDM Holdings

Private

$11.0

Series B

Private

$6.0

Unattributed

Private

$5.3

Series A

Private

$3.6

N.A.

Private

$1.8

Unattributed N.A

Private

$0.1

Unattributed N.A.

Public

N.A.

N.A.

N.A.

Private

N.A.

N.A.

N.A.

Public

N.A.

N.A.

Acquired by Akamai for $95M in 2008

Public

N.A.

N.A.

Acquired by Adobe Systems in 2011

Private

N.A.

N.A.

Acquired by BlueKai in 2011

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May 26, 2011

Exchange-Traded Display Taking Hold


Google is becoming the leading force in exchange-traded display, which increasingly predominates the way display advertising is bought and sold, in our view. While Googles DoubleClick exchange (AdX) is still not as large as Yahoo!s RightMedia (RMX), its current growth and capability leads us to believe that its lead is a short while away. Assuming this lead continues, we would expect fairly widespread margin compression across the competitive landscape for intermediaries. In this section, we review the factors that are driving overall exchange-traded growth, explain what we view as Googles advantage, and quantify what a successful Google display strategy could mean for third-party intermediaries and publishers.
Nearly two-thirds of display impressions in the U.S. (including video) were purchased through exchanges in 2010, up from 25% only three years ago.

Figure 17: Display Impressions Direct-to-Publisher & Exchange-Based, 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, Evercore Group L.L.C. Research

Exchange Traded Display Drivers


1. Better Audience Data (Greater Transparency) 2. Real-time Bidding (Buyer Advantage) 3. Demand-Side Platforms (Liquidity & Network Effect)

Better Audience Data While exchange-traded display is not new, the influx of audience data is creating additional transparency for advertisers, giving them greater comfort to pursue this channel. In the past, exchanges were places where publishers placed inventory that was unlikely to be sold, so it was a quick and effective way for advertisers to reach a large audience at a low price. For reference, 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. $10 CPM direct, for example). Now, as exchanges allow marketers to set requirements on the audiences they reach, this dark inventory on the web is being monetized more effectively and at higher rates. Real-time Bidding Real-time bidding is a second driver of this exchange-traded trend. Real-time allows for supply optimization by advertisers in milliseconds. In other words, the buying is determined in the moment by the audience and publisher characteristics. The way real-time bidding works is that when a webpage loads, bid requests are sent to advertiser clients with data about the user, the site, ads placement, and other information. This happens in fewer than 50 milliseconds and is hardly noticeable in the background. Then, based on the highest bid, the winning bidders ad is served.

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May 26, 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.L.C. Research

However, it is worth noting that real-time bidding is viewed more as an advertiser tool, as opposed to one for the publisher. Consequently, not every exchange uses real-time bidding, such as Yahoo!s RightMedia, where a significant amount of Yahoo! owned-and-operated inventory is offered. In addition, sell-side platforms have emerged (eg., AdMeld, PubMatic, and Rubicon Project), which are essentially exchanges, but they work closely with publishers to manage these market pressures. In any case, we view real-time as very much here to stay. We think this is evidenced by Microsofts investment in AppNexus and decision to incorporate its ad exchange into AppNexuss leading real-time technology. Demand-Side Platforms Increasing Liquidity With increased liquidity, targeting improves, encouraging more advertisers to use the channel, which, in turn, increases liquidity, and so on. Demand-side platforms (DSPs) allow publishers to connect to multiple exchanges and supply-side platforms at once offering maximum liquidity.

Whats Googles Advantage? Liquidity & Capability


We find that Google is becoming the leading force in exchange-traded display, which increasingly predominates the way display advertising is bought and sold. While Googles DoubleClick exchange (AdX) is still not as large as Yahoo!s RightMedia (RMX), we view this as temporary, as RMX had approximately a 90% share just a few years ago. 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, Evercore Group L.L.C. Research

Currently there are many parties within the exchange-traded media workflow, including agency trading desks, servers, exchanges / supply-side platforms, ad networks, and third-party data providers, not to mention advertisers and publishers. 13

May 26, 2011 By placing an x next to each of the areas in which Google now competes, 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; Xs Denote Where Google Competes

Source: Company data, Evercore Group L.L.C. Research

Googles 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. Exchange-Traded Unit Economics
In the end, the publisher will only get a fraction of each dollar an advertiser puts towards buying media in the exchange environment.

For every ad dollar, there are two parties that benefit in this channel, the publishers and the exchange-based intermediaries with whom the publishers share the ad revenue. For instance, one dollar from an advertiser is cut several times before finally reaching the publisher, when transacted through this channel. We note that margins in the exchange environment can fluctuate wildly based on several factors, with the largest one being the daisy chain between ad networks. Lower-tier networks often buy and sell from each other many times, all but eliminating the portion that publishers receive. In the below workflow diagram, we assume just one ad network to be involved. Based on this assumption, we can show that from $1 in advertising, approximately $0.61 reaches the publisher. Of this one dollar, 15 percent is paid to the DSP and 5 cents is paid for data. Then, of the $0.80 remaining, 10% is paid to the exchange or sell-side platform. Finally, of the $0.72 left, another 10% goes to the ad network. We note that for more niche ad networks, rates can go as high as 50% or more. Our 10% is meant to be an industry average, however.

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May 26, 2011 Figure 21: Exchange Value Chain Presently


Advertiser / Media Buyer

$1.00

DSP
(15% Platform Fee)

$0.80

Exchange/SSP
(10% Fee)

$0.72

Ad Network
(10% Arbitrage)

$0.61
Publisher

$0.05
3P Data
(Flat CPM Fee)

Source: AppNexus, Evercore Group L.L.C. Research

From an accounting perspective, we note that in the case of the ad network, the $0.72 would be booked gross with $0.61 being booked as COGS. The other areas of the workflow would just book the fee earned as revenue. Google Exchange-Traded Disruption Scenarios Assuming that Googles ad exchange became the industry leader, we would expect the split from intermediaries to publishers to shift in favor of publishers, at least as long as competition among the intermediaries remains. Therefore, assuming Google cut its fees for its DSP, data services, and exchange, others in the industry would be forced to follow. Moreover, if Googles AdX continues its growth trajectory to become the dominant ad exchange, non-Google ad networks will find it harder to justify their fees. To quantify, we assume two scenarios: one in which Google completely disrupts the exchange-traded space and another in which semi-success is achieved. Under full disruption, we estimate that the portion that intermediaries could retain would be reduced from 39% to 11%. Under a semi-disruption, we estimate that the intermediaries would retain somewhere in the middle of what was assumed, or 25%. For modeling purposes, we estimate that the fees to intermediaries drop to 25% through this channel over the next 3 years.

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May 26, 2011 Figure 22: Margin Compression Scenarios


s $1.00 $0.90 $0.80 Percent of Advertiser Revenue $0.70 $0.60 $0.50 $0.89 $0.40 $0.30 $0.20 $0.10 $0.00 Status Quo Disruption Hybrid $0.61 $0.75 Publisher $0.15 $0.05 $0.08 $0.11 $0.09 $0.04 $0.05 $0.07 DSP 3P Data Exchange/SSP Ad Network

Revenue from Advertiser - DSP Fee - 3P Data Charges - Exchange/SSP Fee - Ad Network Arbitrage = Revenue to Publisher / Revenue from Advertiser = % of Revenue to Publisher 1 - % of Revenue to Publishers = % to Intermediaries

Status Quo $1.00 $0.15 $0.05 $0.08 $0.11 $0.61 $1.00 61.0% 1 61.0% 39.0%

Disrupted Model $1.00 $0.03 $0.03 $0.02 $0.03 $0.89 $1.00 89.0% 1 89.0% 11.0%

Hybrid $1.00 $0.09 $0.04 $0.05 $0.07 $0.750 $1.00 75.0% 1 75.0% 25.0%

Source: AppNexus, Evercore Group L.L.C. Research

We provide an overview of the many players within the exchange-traded intermediary space. Given the private nature of many of these companies, we provide the level of funding, number of rounds, and investors. Total impressions and unique visitors are also provided where available.

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May 26, 2011 Figure 23: Exchange and Supply-Side Platform Landscape, 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, demand-side platforms (DSPs) Ad Exchange and Ad Server Monthly Private/ Funding # of Equity Impressions Top Equity Investors Rounds Public ($MMs) (Approx.) 250B Public (Yahoo!) Public (Google) Private N.A. N.A. Acquired by Yahoo! for $850M in 2007

200B

N.A.

N.A.

Acquired by Google for $3.1B in 2008 Clearstone, News Corp, IDG, Mayfield Fund, Peacock, Jarl Mohn Norwest, Time Warner, Spark, Foundry Microsoft, Venrock, First Round, Kodiak, Khosla First Round, Index, Accel, Mangrove, O'Reilly AlphaTech, Accel, DAG, Jonathan Miller Helion Venture Partners, Draper Fisher Jurvetson, Nexus Venture Partners Investor Growth, Draper Fisher Jurvetson, DFJ Gotham, Updata, DFJ New England Artis Capital Management, Sequoia Capital

35B

$60.0

Series C

30B

Private

$30.0

Series C

30B

Private

$65.5

Series C

15B

Private

$30.5

Series C

Ad revenue optimization service

15B

Private

$18.0

Series C

Online advertising exchange market One of the largest independent online ad exchange

10B

Private

$53.5

Series D

10B

Private

$35.0

Series C

Source: Company data, Crunchbase, Evercore Group L.L.C. Research

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May 26, 2011 Figure 24: Demand-Side Platform Landscape, Private & Public

DSPs
Company Description Private/ Funding # of Equity Top Equity Investors Public ($MMs) Rounds N.A. N.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, display and social media Platform to to make ads work better Targeting, Optimization, Yield Media buying platform for online ads Helps clients buy all forms of media and data Private

$58.5

Series D

Focus, Norwest, Trident, Shasta Intel Cap, Advanced Tech, Hudson, Blue Chip QED, European Founders Fund, Silicon Valley Bank, Safeguard Scientifics, Inc. Menlo Ventures, Atlas Venture, Flybridge Capital Partners Mitsui Ventures, Redpoint Ventures, Cambrian Ventures Spark Capital, Foundry Group, Bay Partners, Charles Sprincin Founder Collective, IA Ventures, Wider Wake Networks N.A.

Private

$28.0

Series B

Private

$26.9

Series B

Private

$18.8

Series B

Private

$6.0

Series C

Private

$5.1

Unattributed

Private

$2.5

Series A

Private

N.A.

N.A.

Provides buying and optimization platform across search and the display Private ad exchanges
Source: Chruchbase, Evercore Group L.L.C. Research

N.A.

N.A.

Acquired by MediaBank in 2011

18

May 26, 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, 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. Avg) 199,759 Private $110.0 Series B Enterprise Partners, Francisco Partners N.A.

165,637

Public

N.A.

N.A.

161,486

Private

N.A.

N.A.

Acquired by WPP for $649M in 2008

149,682

Private

$20.0

Series B

iNovia, Accel, Greycroft

148,540

Private

$27.0

Series B

Fortis, ABS

143,553

Private

N.A.

N.A.

Subsidiary of Exponential Interactive

137,654

Private

N.A.

N.A.

Acquired by Rubicon in 2010 Mohr Davidow, Mayfield Fund, Meritech, Integral Acquired by blinkx for 18.5M in 2011

137,422

Private

$23.3

Series F

133,880

Public

N.A.

N.A.

131,475

Private

N.A.

N.A.

N.A.

128,083

Public

N.A.

N.A.

N.A.

124,089

Private

$80.0

Series C

Index, Wellington

100,097

Private

N.A.

N.A.

N.A.

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, integrated media and promotional programs

93,547

Private

$40.0

Series A

JMI Equity, ORIX Venture Finance Aeris Cap, Hubert Burda, Mizuho, DAG, GLG, Accel, DFJ, Walden, Information Lake Street, RLI, Melton Investments, Redleaf, MMV Financial N.A.

85,741

Private

$175.0

Series E

25,169

Private

$13.3

Series D

13,004

Private

N.A.

N.A.

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

19

May 26, 2011 Figure 26: Ad Networks Continued


Company Description Total Unique Private/ Funding # of Equity Visitors (000s) Top Equity Investors Public ($MMs) Rounds (3 Mo. Avg) N.A. Private N.A. N.A. Acquired by Specific Media in 2010

Online video company for advertising, publishing and creativity Sports media network

N.A.

Private

N.A.

N.A.

Acquired by Glam Media in 2011 August, First Round, Focus, Maveron, WPP Listed on NASDAQ Global Market Accel, General Catalyst, Hearst Interactive, Brookside Cap, 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, 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.A.

Private

$33.9

Series D

N.A.

Public

N.A.

N.A.

N.A.

Private

$103.0

Series D

N.A.

Private

$51.0

Unattributed Menlo, Accel, Khosla, BV, DAG, Intel Meritech, Canaan, Masthead, European Founders Fund Acquired by Tremor Media for $65M in 2010 N.A.

N.A.

Private

$79.4

Series D

N.A.

Private

N.A.

N.A.

N.A.

Private

N.A.

N.A.

N.A.

Private

$15.0

Series B

Scale, True, Adams Street, KPG

N.A.

Private

N.A.

N.A.

N.A.

N.A.

Public

N.A.

N.A.

N.A. Foundation, Battery, Turner Broadcasting, Steamboat Acquired by Limelight Networks for $110M in 2009 Wholly-owned subsidiary of Seevast Corp Montgomery & Co

N.A.

Private

$16.8

Unattributed

N.A.

Public

N.A.

N.A.

N.A.

Private

N.A.

N.A.

N.A.

Private

$70.0

Series A

N.A.

Private

N.A.

N.A.

Acquired by Adknowledge in 2010 Acquired by Rakuten for $425M in 2005 A wholly-owned subsidiary of Vertrue Inc VantagePoint Capital Partners

N.A.

Public

N.A.

N.A.

N.A.

Public

N.A.

N.A.

N.A.

Private

$60.0

Series F

N.A.

Private

$5.1

Series A

N.A. Northgate, Mohr Davidow, Labrador, Nokia Growth, Wilson Sonsini Goodrich & Rosati

N.A.

Private

$26.6

Series C

Source: Chruchbase, Evercore Group L.L.C. Research

20

May 26, 2011 Supply enhancers are there to help advertisers, demand-side platforms, and the demandside as a whole make buying decisions. Figure 27: Supply-Side Optimizers
Company Description Private/ Funding # of Equity Top Equity Investors Public ($MMs) Rounds $28.3 Series E Highway 12, Foundry, Boulder, High Country Draper Fisher Jurvetson, Ignition Evergreen, Canaan, Dawntreader, JP Morgan, SVB Sierra, Austin, Shasta, Stanford U Institutional, Blumberg, First Round, Genacast iNovia, Greycroft, Draper Fisher Jurvetson, Esther Dyson Amazon, Madrona, Sequel, First Round, Woodside JK&B, Baseline, Maples

Content discovery and search tools for publishers, commercial web sites and Private content networks Provides digital advertising analytics solutions Private

$22.8

Series C

Semantic advertising technology to Private accurately match online ads to content Provider of ad analytics and traffic quality solutions Private

$22.2

Series C

$21.0

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. 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, plan, and sell premium guaranteed inventory Realtime intent matching platform that integrates with ad servers
Source: Chruchbase, Evercore Group L.L.C. Research

$13.5

Series B

$10.7

Unattributed

$8.5

Series B

Private

$6.0

Series B

Private

$6.0

Series B

Storm, Hummer Winblad

Private

$3.5

Series A

Fuse Capital, Ted Meisel RRE, Betaworks, Jerry Neumann, Howard Lindzon, David Tisch, Common Angels, kbs+p

Private

$1.2

Seed

Video Monetization Extending to Non-Video


Video is increasingly being used to monetize non-video content, such as pageviews, games and apps. In addition, video is bifurcating into two addressable market opportunities: interruptive video ads (i.e., pre-roll, in-video, and interstitial) and opt-in (rollover and expandable rich media video formats). We estimate interruptive video formats, despite getting the majority of online video attention, generate roughly one-third of total video advertising dollars. Opt-in video advertising generates the other two-thirds. While there are tradeoffs with each medium, the relative growth has been fairly consistent, which we peg at 72% sustained compounded growth over the past three years for both, which we base on video ad network channel checks and comScore U.S. VideoMetrix.

21

May 26, 2011 Figure 28: Opt-in & Interruptive Global Video Revenues, 2007E-2010E
$5.0 Global Video Revenues $ Billions $4.5 $4.0 $3.5 $3.0 $2.5 $2.0 $1.5 $1.0 $0.5 $0.0 2007 2008 2009 2010 $0.90 $0.30 $0.59 $1.45 $2.20 $0.75 $3.00 $2.11 $1.09 Video Opt-in (Roll-overs, Rich-Media) $3.20 $1.55 Video Interruptive (In-stream, Interstitial) $4.55

Source: comScore VideoMetrix, SayMedia, Evercore Group L.L.C. 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. As such, the addressable market sizes, the preferred purchase channels, and the leading players vary materially between the formats. For instance, within the interruptive video formats (i.e., pre-rolls, in-video ads, and interstitials), we estimate 2010 video dollars of $1.5 billion globally compared to a roughly $170 billion global television advertising market. For opt-in online video formats (i.e., rich media), however, we estimate 2010 video dollars of $3 billion compared to a roughly $27 billion global display market. Therefore, while television dollars represent a significant opportunity for online video down the road, today the opportunity is still very much an opportunity for display publishers (ie., Yahoo!, AOL, MSN). Figure 29: Online Video Addressable Markets within TV and Display, 2010E
$200.0 $180.0 $160.0 Video Advertising $ Billions $140.0 $120.0 $100.0 $80.0 $60.0 $40.0 $20.0 $23.8 $0.0 Interuptive & TV Online Video Opt-in Online Video & Display Advertising Advertising $170.0 Onilne Video TV / Display Advertising

$172
$1.5

$26.8
$3.0

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

From an advertiser standpoint, interruptive ads offer higher awareness but can be often less efficient spending-wise given their forced nature. Conversely, opt-in rich-media video ads may not have the same awareness potential, but advertisers benefit from higher conversions as users self-select. Now we review the drivers within each category. 22

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. We view this area of video advertising as an opportunity for traditional display publishers, such as Yahoo!, AOL and MSN, as these formats tend to require greater advertiser customization, thereby allowing them to leverage their existing advertising relationships. Monetization of Non-Video Content These newer rich-media formats are increasingly monetizing non-video content. For advertisers, the cost of this type of video advertising tends to be less expensive than traditional video formats on a CPM basis. In addition, advertisers can pay for the opt-in video on an engagement vs. impressions basis (ie., when the video is launched), making this method of video advertising attractive from an overall yield perspective. We show below that on the Yahoo! mail page, a user can watch a video on TMobiles $79.99 data, talk and text plan. We note that video ads such as these are not captured within comScores VideoMetrix data. Figure 30: Yahoo! Mail Video Ad Integration

Source: Evercore Group L.L.C. Research

We can see a similar video option for AOLs project devil ad format which can be found on Marie Claire. Figure 31: AOLs Project Devil Video Enabled (Lower Right)

Source: Company data, Evercore Group L.L.C. Research

23

May 26, 2011 The above video options require an explicit selection from the user. However, expandable video ad rollovers are increasingly being used, such as the example Intel provides below. Figure 32: Expandable Roll-over Rich Media Video Example

Source: Google, Evercore Group L.L.C. Research

The below visual study by the Nielsen Norman group (in which the red and yellow markings aggregate the audience samples 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. Figure 33: Banner Blindness Examples; Red/Yellow/Blue = Focus of Readers Eyes

Source: Jakob Nielsen via useit.com, Evercore Group L.L.C. Research; Jakob Nielsen of the Nielsen Norman Group

24

May 26, 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, in our view. For example, 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. As a result, several major publishers have donated the proprietary formats, including AOL, Google, and Microsoft. 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, Evercore Group L.L.C. Research

IAB Award Winner AOL Project Devel Unicast and MediaMind Google / YouTube Microsoft AOL's Pictela Unicast and MediaMind

Interruptive Video Formats (Pre-Roll, In-Video, Interstitials)


Interruptive online video formats (e.g., pre-roll, in-video, and interstitials) are benefitting from growth in online video production and consumption, non-video content monetization, growth in exchange-based video channels, and relatively stronger engagement metrics versus television. Video consumption grew by a 97% 3YR CAGR compared with Googles video growth of 127%. Growth in Online Video Consumption Remains Strong Figure 35: Online Video Growth, 07-10
450 400 Billions of U.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, Evercore Group L.L.C. Research

25

May 26, 2011 Netflix represents 25%, while http sites, BitTorrent, and YouTube, account for 17%, 17%, and 10% of capacity respectively. Video Now Represents Half of Peak Period Bandwidth Traffic in the U.S. Figure 36: Peak Period Bandwidth Traffic, 09-11
100% 90% 80% % of Peak Downstream 70% 60% 50% 40% 30% 20% 29.5 10% 0% 2009 2010 2011 42.7 49.2 Video 15.1 38.7 18.8 19.2 Filesharing 20.2 16.7 17.9 15.4 Other Web Browsing

16.6

Source: Sandvine, Evercore Group L.L.C. 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, not just online video, including pageviews, games, and apps. For example, launching the free version of mobile game Angry Birds results in an interstitial mobile video ad prior to playing the free game. Figure 37: Interstitial Mobile Video Ad

Source: Google Mobile Ads Marketing Team, Evercore Group L.L.C. Research

Stronger Engagement Relative to TV According to a 2010 Nielsen study, online video advertising outperformed television advertising on a normalized basis for viewers across general recall, brand recall, message 26

May 26, 2011 recall, and likeability. In addition, rather than straight video impressions, advertisers are measuring social shares, or how often the video ad was passed along to others. Figure 38: Premium Online Video Ad vs. 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, Evercore Group L.L.C. Research

We show below the leading video ad sites (based on streams). We note that these ad units do not include opt-in rich media video display ads, but pre-rolls and other in-stream ads, which Googles YouTube has been slow to promote.

27

May 26, 2011 Figure 39: Total Videos vs. 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.TV AOL, Inc. BrightRoll CBS Interactive Turner Digital Facebook Blinkx ABC Television SpotXchange CineSport Undertone Fox Interactive Media NBC Universal Crosspoint Media 121 1,914 1,139 876 238 819 303 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 2,000 4,000 6,000 8,000 10,000 12,000 14,000 13,743

Source: Company data, Evercore Group L.L.C. Research

We provide a comparison of unique visitors as well, which provide a compelling account of the traction that these video ad networks and exchanges are having.

28

May 26, 2011 Figure 40: Top Video Networks by Monthly Unique Viewers (All Videos), April 2011

(April Monthly Unique Visitors, millions) 0 Google Sites BrightRoll Tremor Media Yahoo! Sites Vevo Adap.TV Microsoft Sites Facebook Viacom AOL, Inc. 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, Evercore Group L.L.C. Research

Exchanges & Ad Networks Extending Display Benefits to Video Similar to display, video ad networks and exchanges have emerged. The three leading ad networks include BrightRoll, YuMe, and Tremor Media, which collectively control approximately 66% of the interruptive video inventory on the internet. Leading video ad exchange Adap.tv is followed by BrightRolls BMX, which bring real-time bidding efficiency to video, similar to what currently exists in display. However, we would expect to see additional competition over time from Googles AdX, RightMedia and AppNexus.

29

May 26, 2011 Figure 41: Video Ad Networks and Exchanges


Company Description April Unique Video Viewers (000s) 66,472 Private/ Public Private Funding # of Equity Top Equity Investors ($MMs) Rounds $15.0 Series B Scale, True, Adams Street, KPG Meritech, Canaan, Masthead, European Founders Fund Universal Music Group (UMG), Sony Music Entertainment (SME) and the Abu Dhabi Media Company Bessemer, Gemini Israel Funds, Redpoint, Spark Acquired by Specific Media in 2010

Branded video advertising network Online video monetization and advertising company Music video and entertainment service

59,314

Private

$79.4

Series D

55,672

Partnership

N.A.

N.A.

Online video advertising platform Online video company for advertising, publishing and creativity Allows buying and selling of online video advertising in an auction marketplace Offers PlayTime platform for video marketing, OneLoad for video distribution and InPlay for video Online video provider focusing on professional content Online advertising network Creator, publisher, and distributor of video, editorial, games, etc. Delivers ads against premium content P-2-P on demand video player with video advertisements Video advertising, optimization, 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, integrated media and promotional programs Technology solutions for digital video advertising Platform for video syndication and monetization of video content online Online game publisher

54,219

Private

$48.5

Series C

36,145

Private

N.A.

N.A.

30,684

Private

$12.0

Series A

H.I.G. Growth Partners Trinity, Knight's Bridge, Foundation, NetService Disney, Providence, News Corp, NBC

27,883

Private

$14.5

Series B

26,806

Private

$100.0

Series B

24,866

Private

$40.0

Series A

JMI Equity, ORIX

23,305

Private

N.A.

Series B

Hadi Partovi, Ali Partovi

22,990

N.A.

N.A.

N.A.

N.A. Acquired by Adconion Media Group in 2009 New Enterprise, Comcast Interactive Capital, Valhalla Partners N.A.

21,738

Private

N.A.

N.A.

21,168

Private

$61.0

Series C

11,493

Private

N.A.

N.A.

9,428

Private

$1.2

Seed

N.A.

9,368

Private

N.A.

N.A.

N.A.

9,313

Private

N.A.

N.A.

N.A.

8,309

Private

$1.5

Series A

Pond Ventures Softbank, SCP, Longworth, and Court Square Hercules Tech, WPP, Granite, Greylock, IDG, Advanced Tech, Sony, Accenture Tech August, First Round, Focus, Maveron, WPP Menlo, Accel, Khosla, BV, DAG, Intel Cap

7,484

Private

$22.5

Unattributed

7,369

Private

$84.0

Series C

Advertising company for social media

5,050

Private

$33.9

Series D

Video advertising technology company

N.A.

Private

$51.0

Unattributed

Source: comScore VideoMetrix, Crunchbase, Evercore Group L.L.C. Research

30

May 26, 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. 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 (x-Facebook, xvideo) declining mid single-digit y/y, emphasizing to us the disruptive nature of these display drivers. Display Impression Growth Forecast Just as with each of the sections we discuss in detail above, much of the growth in gross display revenue will be driven by growth in total pageviews and video streams, along with publishers ability to monetize a greater percentage of these pageviews and streams y/y. We forecast total pageviews and streams to grow at a 13.5% CAGR, from 40 trillion in 2011 to 76 trillion in 2016. Of these pageviews / streams, we estimate 33% will be monetized in 2016, up from 21% in 2011, representing a 24% CAGR growth in the number of monetized impressions. Figure 42: Total Impressions, 2007-2016E
30,000

Figure 43: Percentage of Total Impressions, 2007-2016E


100% Video

25,000

Video

80%
Facebook

20,000 Impressions (billions)

(Impressions billions)

60% Exchange-Based 40%

15,000
Exchange-Based

10,000

5,000
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, Evercore Group L.L.C. Research

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

Direct-to-Publisher Revenue Opportunity


By excluding rich media video advertising, we find that the display industry was relatively flat over the last three years, with publishers retaining about 90% of the total dollars purchased through this channel.

31

May 26, 2011 Figure 44: Direct-to-Publisher (x-Video), 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

23,401 10.2% 2,386 $10.0 $23,860 91.0% $21,712

25,817 9.6% 2,481 $10.3 $25,552 90.4% $23,092

29,677 7.5% 2,239 $10.2 $22,835 90.0% $20,551

33,685 6.1% 2,069 $11.2 $23,202 89.9% $20,853

12.9% -15.6% -4.6% 3.9% -0.9% -0.4% -1.3%

comScore Calculation Calculation EIE ests EIE ests Calculation Calculation

$23,860 30.0% $7,158 30.0% $2,147 $23,860 9.0%

$25,552 35.0% $8,943 27.5% $2,459 $25,552 9.6%

$22,835 40.0% $9,134 25.0% $2,283 $22,835 10.0%

$23,202 45.0% $10,441 22.5% $2,349 $23,202 10.1%

-0.9% 14.5% 13.4% -9.1% 3.0% -0.9% 4.0%

EIE ests EIE ests Calculation EIE ests Calculation EIE ests Calculation

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

Moving forward, we actually expect direct-to-publisher growth of display (x-video) to accelerate, growing at a 10-11% CAGR, driven by growth from Facebook largely. Moreover, as Facebook is not ad network reliant, we would expect the percentage that publishers retain to increase to 96% of total ad dollars purchased through this channel. We note that some ad networks buy directly from publishers, but we estimate this to be a fairly small percentage and declining. Figure 45: Premium / Direct Display Revenue Forecast to Publishers & Ad Networking Intermediaries, 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

33,685 6.1% 2,069 $11.2 $23,202 89.9% $20,853

37,315 6.3% 2,346 $10.5 $24,736 91.5% $22,638

41,228 6.4% 2,652 $9.9 26,272 92.3% $24,246

45,504 6.7% 3,044 $9.4 28,589 93.1% $26,607

50,154 7.0% 3,528 $9.0 31,831 94.0% $29,915

55,040 7.3% 4,025 $8.8 35,260 94.8% $33,422

59,940 7.6% 4,544 $8.6 39,071 95.5% $37,318

12.9% -15.6% -4.6% 3.9% -0.9% -0.4% -1.3%

9.9% 3.8% 14.1% -4.0% 9.6% 0.9% 10.5%

$23,202 45.0% $10,441 22.5% $2,349 $23,202 10.1%

$24,736 50.0% $12,368 20.3% $2,504 $24,736 10.1%

$26,272 54.0% $14,187 18.8% $2,660 $26,272 10.1%

$28,589 58.0% $16,581 17.8% $2,943 $28,589 10.3%

$31,831 61.0% $19,417 17.0% $3,301 $31,831 10.4%

$35,260 64.0% $22,567 16.3% $3,667 $35,260 10.4%

$39,071 67.0% $26,177 15.5% $4,057 $39,071 10.4%

-0.9% 14.5% 13.4% -9.1% 3.0% -0.9% 4.0%

9.6% 6.0% 16.2% -5.2% 10.1% 9.6% 0.5%

Source: MagnaGlobal, comScore, IAB, Evercore Group L.L.C. Research; 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, which we see as primarily a function of volume and slightly higher monetization rates.

32

May 26, 2011 Figure 46: Facebook Ad Revenue, 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) 2,959 10.5% 310 $6.0 $1,860.0 100.0% $1,860.0 2011E 4,439 12.6% 558 $7.2 $4,017.6 100.0% $4,017.6 2012E 6,214 13.6% 843 $7.4 $6,254.2 100.0% $6,254.2 2013E 8,389 14.6% 1,222 $7.6 $9,337.3 100.0% $9,337.3 2014E 10,906 15.6% 1,698 $7.9 $13,360.7 100.0% $13,360.7 2015E 13,632 16.1% 2,191 $8.0 $17,581.9 100.0% $17,581.9 2016E 16,359 16.6% 2,711 $8.2 $22,189.8 100.0% $22,189.8 '07-'10 103.4% -9.7% 83.7% 26.0% 131.5% 0.0% 131.5% '11-'16 29.8% 5.7% 37.2% 2.6% 40.7% 0.0% 40.7%

111.0% -13.9% 81.6% 28.0% 132.5% 0.0% 132.5%

50.0% 20.0% 80.0% 20.0% 116.0% 0.0% 116.0%

40.0% 8.0% 51.1% 3.0% 55.7% 0.0% 55.7%

35.0% 7.4% 44.9% 3.0% 49.3% 0.0% 49.3%

30.0% 6.9% 38.9% 3.0% 43.1% 0.0% 43.1%

25.0% 3.2% 29.0% 2.0% 31.6% 0.0% 31.6%

20.0% 3.1% 23.7% 2.0% 26.2% 0.0% 26.2%

Source: Crunchbase, Company data, Evercore Group L.L.C. Research

Excluding Facebooks growth within the direct-to-publisher display category, we estimate that display revenues (x-video and rich media) will decline by a 4% CAGR over the next five years, largely due to lower monetization from inventory shifting towards exchanges and lower pricing. However, as we will show, display publishers share of growth within the exchange-traded channels, as well as richmedia (opt-in) video, means that display publishers that successfully navigate these drivers will do fine. Figure 47: Direct-to-Publisher (x-Facebook) Revenue, 2010-2016E
CAGR 2010 Direct- 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) 30,726 6.4% 1,979 $12.0 $23,815.6 89.1% $21,216.0 2011E 32,877 6.1% 2,012 $11.5 $23,119.2 89.9% $20,778.4 2012E 35,014 5.8% 2,035 $11.0 $22,338.3 89.9% $20,076.5 2013E 37,114 5.5% 2,050 $10.5 $21,482.4 89.7% $19,270.8 2014E 39,249 5.2% 2,059 $10.0 $20,610.5 89.6% $18,473.2 2015E 41,407 5.0% 2,064 $9.6 $19,727.4 89.6% $17,675.7 2016E 43,581 4.7% 2,063 $9.1 $18,837.3 89.6% $16,881.0 '07-'10 10.1% -14.3% -5.7% 5.8% -0.2% -0.7% -0.9% '11-'16 5.8% -5.0% 0.5% -4.5% -4.0% -0.1% -4.1%

8.7% -19.9% -12.9% 13.4% -1.3% -0.7% -1.9%

7.0% -5.0% 1.7% -4.5% -2.9% 0.9% -2.1%

6.5% -5.0% 1.2% -4.5% -3.4% 0.0% -3.4%

6.0% -5.0% 0.7% -4.5% -3.8% -0.2% -4.0%

5.8% -5.0% 0.5% -4.5% -4.1% -0.1% -4.1%

5.5% -5.0% 0.2% -4.5% -4.3% 0.0% -4.3%

5.3% -5.0% 0.0% -4.5% -4.5% 0.0% -4.5%

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

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May 26, 2011

Intermediary Opportunity (i.e., Exchange-Based)


Gross exchange-based revenue grew from $124 million in 2007 to $1.14 billion in 2010, a 109% CAGR over three years, driven mostly by the total amount of impressions monetized along with relatively higher CPMs. Figure 48: Exchange-Based Display Revenue, 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

23,401 2.1% 497 $0.3 $124.4 55.0% $68.4

25,817 3.1% 798 $0.4 $279.3 56.3% $157.1

29,677 3.9% 1,169 $0.5 $525.9 57.5% $302.4

33,685 6.1% 2,069 $0.6 $1,138.1 58.8% $668.6

12.9% 42.4% 60.8% 30.1% 109.2% 2.2% 113.8%

10.3% 45.4% 60.4% 40.0% 124.6% 2.3% 129.7%

14.9% 27.4% 46.5% 28.6% 88.3% 2.2% 92.5%

13.5% 56.0% 77.1% 22.2% 116.4% 2.2% 121.1%

55.0% 45.0%

56.3% 43.8%

57.5% 42.5%

58.8% 41.3%

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

We forecast exchange-based display revenue to increase by 30.2% over the next five years on a compound annual basis, with the publishers share increasing at a moderately faster rate than the intermediaries share (37.5% and 5.6% CAGRs respectively) as we expect some moderate pricing pressure in this area from increased competition, particularly from Google. As a result, we expect gross revenue in this market to reach nearly $13 billion dollars five years from now, up from $3.5 billion in 2011, a 30.2% CAGR. Figure 49: Exchange-Based Display Revenue, 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

33,685 6.1% 2,069 $0.6 $1,138.1 58.8% $668.6

37,315 15.4% 5,731 $0.6 $3,467.1 61.0% $2,113.2

41,228 21.5% 8,864 $0.6 $5,631.1 68.5% $3,854.5

45,504 23.7% 10,762 $0.7 $7,178.4 75.0% $5,380.2

50,154 26.0% 13,048 $0.7 $9,138.5 76.7% $7,009.2

55,040 28.0% 15,393 $0.7 $11,104.2 78.5% $8,711.2

59,940 29.4% 17,602 $0.7 $12,951.4 80.2% $10,387.0

12.9% 42.4% 60.8% 30.1% 109.2% 2.2% 113.8%

9.9% 13.8% 25.2% 4.0% 30.2% 5.6% 37.5%

13.5% 56.0% 77.1% 22.2% 116.4% 2.2% 121.1%

10.8% 150.0% 176.9% 10.0% 204.6% 3.7% 216.0%

10.5% 40.0% 54.7% 5.0% 62.4% 12.3% 82.4%

10.4% 10.0% 21.4% 5.0% 27.5% 9.5% 39.6%

10.2% 10.0% 21.2% 5.0% 27.3% 2.3% 30.3%

9.7% 7.5% 18.0% 3.0% 21.5% 2.3% 24.3%

8.9% 5.0% 14.3% 2.0% 16.6% 2.2% 19.2%

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

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May 26, 2011 Figure 50: Intermediary vs. Publisher Revenue in Exchange Ecosystem, 2010-2016
$1 $1 $1 Exchange-Based Revenue ($Billions) $1 $1 $1 $0 $0 $0 $0 $0 2010 2011E 2012E 2013E 2014E 2015E 2016E $0.7 $2.1 $3.9 $5.4 $7.0 $8.7 $10.4
Publisher Revenue $1.2 $3.8 $6.4 $8.4 $11. $14.5 $19.0

$0.5

$1.4

$1.8

$1.8

$2.1

$2.4

$2.6

Intermediary Revenue

Source: Company data, Evercore Group L.L.C. 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.S. data, comScore global traffic data, and our estimates. Figure 51: Online Video Revenue Drivers, 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.L.C. Research

2008

2009

2010

CAGR '07-'10

267 22.2% 59 $15.0 $888.0 98.5% $874.7

532 24.8% 132 $15.9 $2,096.0 97.8% $2,049.9

1,300 13.4% 174 $16.9 $2,935.4 97.3% $2,854.6

2,210 11.0% 244 $16.9 $4,112.8 96.9% $3,983.2

102.4% -20.8% 60.3% 4.0% 66.7% -0.6% 65.8%

99.6% 11.5% 122.7% 6.0% 136.0% -0.7% 134.4%

144.4% -45.9% 32.1% 6.0% 40.0% -0.6% 39.3%

70.0% -17.6% 40.1% 0.0% 40.1% -0.4% 39.5%

We forecast that online video monetization of opt-in and interruptive advertising will increase by 37 on a five year compounded annual basis, with growth a function of increased volume and percent monetized, partially offset by lower pricing.

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May 26, 2011 Figure 52: Online Video Revenue Forecast, 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

2,210 11.0% 244 $16.9 $4,112.8 96.9% $3,983.2

3,316 11.0% 366 $16.4 $6,014.9 96.6% $5,807.8

4,808 12.1% 584 $14.8 $8,634.4 96.4% $8,326.8

6,731 13.4% 899 $13.3 $11,967.3 96.3% $11,521.2

9,255 14.7% 1,360 $12.0 $16,290.4 96.1% $15,653.5

12,494 16.2% 2,019 $10.8 $21,772.2 95.9% $20,887.7

16,554 17.8% 2,943 $9.7 $28,559.6 95.8% $27,364.4

102.4% -20.8% 60.3% 4.0% 66.7% -0.6% 65.8%

37.9% 10.0% 51.7% -10.0% 36.6% -0.2% 36.3%

70.0% -17.6% 40.1% 0.0% 40.1% -0.4% 39.5%

50.0% 0.0% 50.0% -2.5% 46.3% -0.3% 45.8%

45.0% 10.0% 59.5% -10.0% 43.6% -0.1% 43.4%

40.0% 10.0% 54.0% -10.0% 38.6% -0.2% 38.4%

37.5% 10.0% 51.3% -10.0% 36.1% -0.2% 35.9%

35.0% 10.0% 48.5% -10.0% 33.7% -0.2% 33.4%

32.5% 10.0% 45.8% -10.0% 31.2% -0.1% 31.0%

Source: MagnaGlobal, comScore, IAB, Evercore Group L.L.C. Research; excludes exchange-based revenues and video

Display Forecast Summary


As a result, we forecast gross display revenue to increase at a 19% CAGR to $85 billion by 2016, up from $35.8 billion in 2011. Of this display growth, we see the major growth within video, Facebook, and exchange-traded media. However, we note that as video is about two-thirds opt-in rich-media display, this squarely falls in the lap of existing display publishers. In addition, as we expect increased competition within the exchange-traded category among intermediaries, display publishers have an opportunity to benefit here as well. Therefore, while traditional direct-to-publisher advertising is expected to decline, 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.

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May 26, 2011 Figure 53: Gross Display Advertising Revenue, 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, comScore, IAB, Evercore Group L.L.C. Research

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May 26, 2011

ANALYST CERTIFICATION
The analyst, Ken Sena, primarily responsible for the preparation of this research report attests to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers; and (2) that no part of the research analysts compensation was, is, or will be directly related to the specific recommendations or views in this research report.

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