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- 1. Technology TrendsJune 20, 2008 email@example.com / firstname.lastname@example.org / email@example.com Morgan Stanley does and seeks to do business with companies covered in its research reports. As a result, 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. Customers of Morgan Stanley in the United States can receive independent, third-party research on the company or companies covered in this report, at no cost to them, where such research is available. Customers can access this independent research at www.morganstanley.com/equityresearch or can call 800- 624-2063 to request a copy of this research. This presentation can be found at www.morganstanley.com/techresearch. For analyst certification and other important disclosures, refer to the Disclosure Section located at the end of this report.
2. Technology Trends Morgan Stanley Tech Research1. Digital Consumer Demand for Internet-enabled services /products is strong; enterprise playing catch up 2. Mobile Innovation in wireless products is accelerating andwireless data take-up rates likely to accelerate 3. Emerging Markets Pacing next wave of technology adoption 4. Cloud Computing Shift to software-as-a-service (SaaS) forconsumer / enterprise 5. Next Generation Data Center Evolving to SaaS withvirtualization 6. Storage Needs continue to ramp + underlying technologieschanging rapidly 7. Recession Uncharted territory in the modern era 2 3. 1 - Digital Consumer - Demand for Internet-enabled Services/ Products Strong; Enterprise Playing Catch Up 3 4. Consumer Surpasses Business IP Traffic in 2008E 58% IP Traffic CAGR, 2005-2011EGlobal IP Traffic30,000,00025,000,000 IP Traffic (TB / month) 20,000,000 Consumer IP traffic 15,000,000surpasses Business10,000,000 5,000,00002005E2006E2007E 2008E2009E2010E 2011ETotal Consumer BusinessSource: Cisco Systems, Global IP Traffic Forecast and Methodology; Mobility segment (0.1% of traffic in 2007) not displayed 4 5. Consumer Information Technology Advancing Faster Than Enterprise Fifteen years ago, enterprise technology was higher-quality than consumer technology. That's not true anymore. It used to be that you used enterprise technology because you wanted uptime, security and speed. None of those things are as good in enterprise software anymore [as they are in some consumer software].Douglas MerrillFormer Google Chief Information Officer,New President of EMI Music, Digital Business Source: Interview with Vauhini Vara, The Wall Street Journal, 3/18/08 5 6. YouTube + Facebook Page Views > Yahoo! or Google Massive Transition in Available Ad Units & Supply > DemandAlexa Global Traffic Relative Page Views10 Daily Page Views (%)8 6 4 2 0 2002 20032004200520062007 2008Source: Alexa Global Traffic as of 4/14/08 6 7. Social Networking Significant Share Gains of Internet Traffic Alexa Global Traffic Rankings 2005 (1)2008 (2) RankWeb siteRankWeb site 1yahoo.com 1yahoo.com 2 msn.com2 youtube.com 3google.com3live.com 4 ebay.com 4google.com 5 amazon.com 5myspace.com 6 microsoft.com6facebook.com 7 myspace.com7 msn.com 8 google.co.uk 8hi5.com 9aol.com 9wikipedia.org 10 go.com10orkut.comTraffic rank is based on three months of aggregated historical traffic data from Alexa Toolbar users and is a combined measure of page views / users (geometric mean of the two quantities averaged over time). (1) Rankings as of 12/31/05, excludes Microsoft Passport; (2) Rankings as of 4/14/08 Source: Alexa Global Traffic Rankings, Morgan Stanley Research7 8. Social Networking Fast Growth + Low Penetration Worldwide Online Category Growth vs. Penetration Category Penetration (% of Online Users) Visitor Growth by Category (1/07-1/08) Source: comScore Digital World State of the Internet 3/08 8 9. Social Networking Connectivity ChangingIs E-Mail Archaic?Worldwide Share ofConnecting Younger Users Via SocialOnline Time (1)Networks + Older Users Via E-Mail? (2)6%14% 40%37% 38% 35% % of Total Minutes8%30% Category 22% didnt exist 3years ago 20%15% 10%16% 22%0% All OtherYahoo! MailFacebook Communications Social ConnectionsAge 15-24Age 44+ Shopping & Travel Entertainment & Leisure Work, Business & EducationSource: (1) comScore Digital World State of the Internet 3/08; (2) comScore global 4/08 9 10. Next Generation Assets YouTube + Facebook + Skype + PayPalUsersY/Y Growth Comments#3 site in global minutes; 51% of users go to YouTube weekly or more; 50% watch all300MM(1) +84%videos to the end; ongoing copyright challenges; 52% of 18-34 year-olds share videos with friends / colleagues often(1,3) #6 site in global minutes; 70MM+ active users; 50%+ users outside of college; 22K116MM(1)+200% applications + 95% of Facebook members have used at least one(1,4) $1.63 annualized revenue per registered user (+2% Y/Y) on peer-to-peer network; 1.7B309MM(2) +58% Skype Out minutes (+33% Y/Y); 14.2B Skype- to-Skype minutes (+30% Y/Y)(2) Payment volume +34% Y/Y; On-eBay / off- eBay payment volume +17% / +61% Y/Y (to60MM(2)+17% 46% of TPV); Average transaction size of $68.33 (+9% Y/Y)(2)Source: (1) comScore global 4/08; (2) eBay CQ1, Morgan Stanley Research; (3) YouTube; (4) Facebook 10 11. The New Social Network = Personal Sources on Internet Importance as Source of Information100% 80% 73% % of Users Age 17+ Responding 80% Important / Very Important68%63% 63% 60% 40% 20%0%Internet Television Radio Newspaper Personal Source Source: USC Annenberg School: Digital Future Report 2007 11 12. Wisdom of Crowds / Self-Supervising Communities, Users Expect Rankings + Searchability - Digg 13MM unique visitors, +78% Y/Y, 24MM minutes, +115% Y/Y (comScore, 3/08) User-driven editorial / selection of content (news, videos, images, etc.) through sharing / discovery / democratization vs. traditional media determining front-page / lead stories Users in control search for preferred content + find what others deem relevant / interesting Source: comScore global 3/08, Digg 12 13. Facebook Rapid User / Usage Growth 116MM visitors +200% Y/Y (70MM+ active users), 23B minutes (#6 globally behind Yahoo!, Live, YouTube, Google, and AOL), +171% Y/Y 55K+ regional / work-related / collegiate / high school networks (>50% outside of college); Fastest growing demographic is those 25+ years old; 85% market share of 4-year US universities 14MM+ photos uploaded daily; 6MM+ active user groups on site Top non-US active users: UK (8MM+), Canada (7MM+), Turkey, Australia, France, Sweden, Norway140 Facebook Global Traffic 25Total Unique Visitors (MM) 120 20Total Minutes (B) 10015 80 60 1040 5 20 00 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 Total Unique Visitors (MM) Total Minutes (B)Source: comScore global 4/08, Facebook 4/08, Morgan Stanley Research 13 14. Facebook Why Growing Faster than MySpace? Facebook offers social network that is both standardized + self-controlled / flexible highly personalized first-stop portal for online connectivity users can program their pages with growing number of drag-and-drop applications (aka widgets) Users like ability to express themselves + connect with friends in a protected environment where they know / trust people in their network + dont feel exploited / spammed by intrusive adsLess instrusive ads Personalized?News FeedCleaner UI Friends section more prominent?Personalized ad platformSource: MySpace, Facebook 14 15. Facebook Presence Via Mobiles 24x7 Source: Facebook; C. Messina on flickr 15 16. Facebook Monetizing Word of Mouth / Conversations Facebook prompt User restaurant rating entered Appears on FacebookBecoming a fanprofile / News Feed appears on News / Mini-Feed Source: Facebook, New York Times 16 17. Facebook -Connecting is KeyGenres of Facebooks Top Applications Enhance d com m unication26% Com paring yours e lf w ith othe rs 12% Playing s ocial gam e s 11% Profile e nhance m e nt10% Cate gorizing frie nds 10% Se nding gifts 7%M e dia s haring 5%Se lf e xpre s s ion 5% Playing w ith digital pe t3%Playing gam e s3%Othe r 9%Source: OReilly Media, Inc (March 2008 report), Morgan Stanley Research 17 18. Facebook Whats Next? Facebook is doing exceptional job of providing users with compelling / fun / social services. Go forward, it may be key to help facilitate development / integration of more traditional services related to content / commerce / business / identification. Facebook Global Minutes by Age Group 25 Stable minutes of usage20 Total Minutes (B) 15 Platform opens10 5 0 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 Age 15-24 Age 25-34 Age 35-44 Age 45-54 Age 55+ Source: comScore global 4/08, Morgan Stanley Research 18 19. Widgets - Internets Movable Feast A Web widget can be best described as a mini application that can add functionality to your web page, blog, social profile, etc. If you find a widget that you like, you simply copy and paste some code and add it to the HTML of your web page. Photo galleries, news, videos, advertising, mp3 players and pregnancy countdown tickers! You name it, there is probably a widget that does it. David Lenehan, ReadWriteWeb Yahoo! Weather Channel Rock You Finance for iPhoneForecast for iGoogleAmazon.com Super Wall for Facebook Giver for FacebookSource: ReadWriteWeb, RockYou!, Yahoo!, Weather Channel, Google, Amazon.com, Facebook 19 20. Web 3.0 The apps are relatively small, the data is in the cloud, the apps can run on any device (PC or mobile), the apps are very fast and very customizable, and are distributed virally (social networks, email, etc). Eric Schmidt, CEO of GoogleThe implicit web is all about the value that will accrue to an Internet user when their every action is tracked, recorded, and used to provide va