curt viebranz at j.d. power and associates automotive internet roundtable

Online advertising: Past, Present and FutureCurt ViebranzPresident, Platform AAOL, LLC

Report Title / Confidential 2

FlashBroadband

VideoSocial

Networks

Uber Networks

Web 2.0 Tools

BehavioralTargeting

SmartAds

Reach andFrequency

Control

RolloverInteraction

Ad Exchanges

ContextualTargeting

Tools

Time BasedMeasurement

Things continue to look very complicated…

3

$7

$6$4

$9

$7

$6

$12

$10

$7

$14

$12

$9

$15

$13

$10

$17

$15

$11

$0

$10

$20

$30

$40

$50

2006 2007E 2008E 2009E 2010E 2011E

Other

DisplaySearch

U.S. online advertising

Growth momentum is expected to continue

Est. CAGR = 21%

Both Display and Search revenue are expected to continue to grow in line with the overall online advertising industry growth rate

Source: eMarketer, 8/07

($BB)

4

The rise of the ad network

The past

• Mass audiences centered on basic utilities – mail, IM, search

• Portals leveraged these audiences into vertical categories

• Advertisers spent most of their money with portals

The present

• Social networks, blogs, users generated content

• Audience fragmentation

• Advertisers becoming less dependent on portals to meet their broad reach marketing objectives

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Online audience is fragmenting

Source: ComScore, July ’07

145%

48%

3% 2% -7% -3%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

160%

Facebook MySpace TWX Microsoft Yahoo! Total US

U.S. Page View Growth for Selected Sites

July ’06 – July ’07

Total Websites Across All Domains

August ’95 – September ’07

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22%18% 19% 18%

59% 56%65%

0%

20%

40%

60%

80%

Total Online Display Search Contextual Video Mobile Behavioral

Online advertising is diversifying

Traditional advertiser shift to more ROI, performance-based focus

Major players rapidly building out advertising platform and capabilities to provide at-scale, full-service monetization platform

Estimated Revenue CAGR2007 – 2010

Sources: Jupiter, Oppenheimer, eMarketer: 6/07

’07E Spend: $21.7B $8.9B $8.5B $2.0B $0.8B $0.9B $0.6B

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Display advertising demand is shifting to networks

• Efficiency

• Transparency

• Scale

• Targeting capabilities:data

• High return (Measurable ROI)

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Online advertising network reachEmergence of third-party networks as most efficient way to reach fragmented audiences

Source: comScore Media Metrix, July 2007

Advertising.com’s web display network reaches more users than any other online property

0

50

100

150

200

66.1% 66.3% 71.6% 72.8% 73.3% 88.2%

Fox Interactive

119MM 128MM 131MM 131MM 158MM

Specific MediaBlue Lithium Tribal Fusion Google AdNetwork

Valueclick

MSN-MicrosoftTime Warner Google SitesYahoo! Sites

119MM

45.1%

65.6% 68.7% 68.8%74.1%

88.2%

118MM 123MM 123MM133MM

158MM

81MM

9

Marketing allocation by intent: A new intellectual model?

UnderlyingAudience Delivery

TargetedFrequency

Activation

HIG

H P

RO

FIT

LOW

CO

MPLE

XIT

Y

LOW

PR

OFI

T

HIG

H

CO

MPLE

XIT

Y

Vast share of all audience dollars to TV and cable;

very little online representation here

Cable, magazines, selected programming, online radio

Onling, in-storeDR TV, Coupons,

Promotion,

Current Shape of All Ad Spending

10

But the shape of online spending by intent is quite different

Underlying Audience Delivery

Targeted Frequency

UnderlyingAudience Delivery

TargetedFrequency

Current Shape of All Ad Spending

Activation

Current Shape of Internet Ad Spending

Activation

HIG

H P

RO

FIT

LOW

CO

MPLE

XIT

Y

LOW

PR

OFI

T

HIG

H

CO

MPLE

XIT

Y

11

Activation will remain a vital and compelling strength of Web advertising

Underlying Audience Delivery

Targeted Frequency

Activation A share – perhaps a majority – of Web spending will remain focused on activation

But activation is not nearly all we can do

Besides, it remains a complex, low-profit area for most publishers

12

But shouldn’t the Web earn a larger share of targeted frequency dollars?

Are the current channels for ‘reinforcing the message with the right consumer’ really doing all that good of a job?

Should we not consider a strategic shift of dollars to the Web for this job?Underlying

Audience Delivery

Targeted Frequency

Activation

Theoretical Curve As Noted in ESOMAR Conference Papers:Source: FORCE Modeling, Paul Dyson, Millward Brown Intelliquest* OTS Opportunity to see advertisement based on GRP levels.

Ad

Aw

aren

ess

Where the TV plan turns from muscle to fat?

0

10

20

30

40

50

60

70

80

90

100

0 1 2 3 4 5 6 7 8 9 10

+1.8

+25

% A

war

enes

s

Number of times ad. seen

+3.2+1

# of ad exposures*

x Incremental reach plateaus: excess

frequency to those already saturated

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Evidence suggests that targeted online frequency gets cheaper over time

$-

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

0 2 4 6 8 10 12 14 16

Frequency level

Cost

per b

rand

ing in

crea

se

Television

Online

Source: IAB XMOS study

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The future

What agencies and advertisers will want…

• An integrated solution

• Massive scale and reach

• Reaching large but targeted segments

• Transparency

• Easy and efficient way to buy advertising: self-service tools and analytics

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Developing a best-in-class monetization platform

Online advertising: Past, Present and FutureCurt ViebranzPresident, Platform AAOL, LLC