the us internet economy

Proprietary and Confidential Do not distribute without written permission from comScore

Gian FulgoniChairman comScore, Inc.

Gian FulgoniChairman comScore, Inc.

March, 2009

MEASURING THE DIGITAL WORLD

The Internet Economy

Proprietary and Confidential Do not distribute without written permission from comScore 222

comScore’s Business:Digital Marketing IntelligencecomScore’s Business:Digital Marketing Intelligence

Internet Plus

Leading Digital MarketingIntelligence Platform

Digital Media and CommerceDigital Media and Commerce

RadioTV

Traditional MediaTraditional Media

Audience Measurement Audience Measurement

Buying Behavior

++

Competitive Intelligence

Deep Consumer Insights

++++


comScore Customer Knowledge Platform:A 360°View of 2 Million Global Internet Users

■ Designed to be representative of the online population■ Projectable to the total U.S. population■ TRUSTe certified for information privacy & security

DEMOGRAPHICS–Self-reported and validated–Appended Segments (e.g. Claritas,

Acxiom)–Individual & Household Level

WEB VISITING & VIEWING–All Web Site/Page Click Stream–Content Viewed–Search Engine Queries–Keyword Used

SURVEYS–E-mail or Contextual “Pops”–Behavior-activated Surveys–Observation of All Surveys Taken

Across All Suppliers

ONLINE TRANSACTIONS–All Secure Session Activity–Purchases and Subscriptions–Price Paid, Shipping & Handling,

Promotions –Applications/Configurations

MARKETING STIMULI–Online Ads–Referral Links

OFFLINE PURCHASING–Linked using Name and Address–Client CRM Databases –Retailer Loyalty Card Data–IRI Scanner Panel Data

TV VIEWING–Link to Digital Set Top TV Data using name and address

3


Online Population by Geography

Source: comScore World Metrix, July 2008

Online Population Growth Over Time

Rest of the World

US

Online Population: U.S. versus Rest of WorldOnline Population: U.S. versus Rest of World

Total

US

Rest of the World

US

There are approximately 1 Billion people online today; 83% are located outside the US.There are approximately 1 Billion people online today; 83% are located outside the US.


Internet Users Age 15+ (MM)

There’s a New Number One OnlineThere’s a New Number One Online

China, Japan, Korea, and India combined to represent 29% of the total Worldwide online

population; this total is 76% larger than the US online population

China, Japan, Korea, and India combined to represent 29% of the total Worldwide online

population; this total is 76% larger than the US online population

Source: comScore World Metrix, October 2008


Unique Visitors to Top Global PropertiesUnique Visitors to Top Global Properties

The top 10 Global Properties attract a majority of Unique Visitors from outside the US

The top 10 Global Properties attract a majority of Unique Visitors from outside the US

Source: comScore World Metrix, July 2008

159.8

144.875%

174.4

171.275%

67%

55%

271.0

244.3

236.8

80%

73%

722.5

636.4

542.2

83%

83%

77%

63%

US Audience Non-US Audience Total Worldwide Unique Visitors (MM)


The Economy’s Impact on eCommerceThe Economy’s Impact on eCommerce


Validation of comScore Sales Data: Comparison of comScore to U.S. Department of CommerceValidation of comScore Sales Data: Comparison of comScore to U.S. Department of Commerce

comScore Estimate = (Total Non-Travel – Event Tickets + Estimated Auction Fees)

8

Excludes travel and event tickets, but includes auction fees and autos

Quarterly U.S. eCommerce Sales EstimatesQuarterly U.S. eCommerce Sales Estimates

$Billi

ons

Q4 2008

$ SalesDOC: $37.1BcomScore: $39.3B

% Change vs. YADOC: -4.9%comScore: -3.5%

Source: comScore and U.S. Department of Commerce (DOC)


$72$93

$117

$143

Non-Travel

Travel

+29%

+26%

+22%

+20%

+26%

+33%

+26%

+26%

+20%

+24%

+24%

+13%

$171

$200+17%

+21%

+12%

+6%

+9%

+7%

2008 eCommerce Growth Substantially Lower than Preceding Years2008 eCommerce Growth Substantially Lower than Preceding Years

9

Source: comScore

$221

Online Consumer Dollar Sales GrowthExcluding Auctions, Autos and Managed Travel ($Billions)

Online Consumer Dollar Sales GrowthExcluding Auctions, Autos and Managed Travel ($Billions)


Online sales growth decelerated throughout 2008 while retail sales were held up by inflation (esp. energy) until Q4 2008

Online sales growth decelerated throughout 2008 while retail sales were held up by inflation (esp. energy) until Q4 2008

10

Quarterly eCommerce Growth vs. YAQuarterly eCommerce Growth vs. YA

Quarterly Retail Sales Growth vs. YA (exc. Food Service and Auto)

Quarterly Retail Sales Growth vs. YA (exc. Food Service and Auto)

Source: comScore

Source: U.S. Department of Commerce Q4 Y/Y Growth by Retailer Types:

Gen Merch: -2%Sports: -3%

Electronics: -5%Dept Stores: -7%

Clothing: -8%Furniture: -13%

Q4 Y/Y Growth by Category:Sport and Fitness: +16%

Consumer Electronics: +3%Apparel and Acces.: +2%Furniture & Home: -10%


The Internet is important to at least 6 in 10 consumers, with 50% citing an increase vs. year agoThe Internet is important to at least 6 in 10 consumers, with 50% citing an increase vs. year ago

Importance of Internet

Q: How important has the Internet become in providing you with information to help

you make buying decisions?

Source: comScore Survey January 2009

65%

Past 3 months

Q: How has this changed versus a year ago?

Versus a year ago

Very Important

Slightly Important

50%

Significantly Increased

Somewhat Increased


Q. Which of the following are you doing more of to deal with stress due to the current state of the economy?

Five in ten people are surfing the Internet more to deal with stress due to the current state of the economyFive in ten people are surfing the Internet more to deal with stress due to the current state of the economy



Number of Unique Searchers (MM) for Each Term: December 2008 vs. YASource: comScore

As the economic hardship worsened in 2008, there was a dramatic increase in people conducting financial/economic-related searches across the web

As the economic hardship worsened in 2008, there was a dramatic increase in people conducting financial/economic-related searches across the web

Y/Y % change

+27% +58% +100% +83% +160% +157% +223%


Search engines, followed by online coupon sites, have become very important to consumers when shoppingSearch engines, followed by online coupon sites, have become very important to consumers when shopping

Importance of Online Sites

Q: In the past 3 months, how important have the following sites become when shopping?


67%

42%39%

35%

54%


On the positive side, energy prices have plummeted, but food and beverage prices continue to riseOn the positive side, energy prices have plummeted, but food and beverage prices continue to rise

15

Percent Changes in Price versus Last YearSource: U.S. Bureau of Labor Statistics

21%


People earning less than $50k have the highest unemployment rate, while those earning $50k-$100k are most concerned about losing their jobs

People earning less than $50k have the highest unemployment rate, while those earning $50k-$100k are most concerned about losing their jobs

Q: Are you concerned about losing your job?

Job Loss Concerns by Income SegmentsSource: comScore


27%40%

36%Extremely concerned

Somewhat concerned

Neither

Somewhat unconcerned

Extremely unconcerned

I have already lost my job


Two in ten people believe the U.S. economy will improve in the next 3 months; but double that number believe it will worsen

Two in ten people believe the U.S. economy will improve in the next 3 months; but double that number believe it will worsen

Q: In the next 3 months, do you think the U.S. economy will…

U.S. Economy Predictions by Income SegmentsSource: comScore Survey January 2009

Significantly/Slightly Improve

Significantly/Slightly Worsen

42% 42% 46%

24% 28%19%

-18% -14% -27% Net Pessimistic

$50k - $99,999kUnder $50k $100k or more


Bill

ions

($)

% G

rowth

eCommerce Sales (Billions $) and % Growth vs. YASource: comScore

eCommerce Sales (Billions $) and % Growth vs. YASource: comScore

Was Q4 ‘08 the bottom? eCommerce sales in January grew 2% vs YA; seasonally-adjusted retail sales grew 1% from Dec. 08 to Jan. ‘09

Was Q4 ‘08 the bottom? eCommerce sales in January grew 2% vs YA; seasonally-adjusted retail sales grew 1% from Dec. 08 to Jan. ‘09

18

+23%

+25%

+17%

+23% +23%

+19%

+11%

+13%

+6%


eCommerce Continues to Gain Market Share from Retail StoreseCommerce Continues to Gain Market Share from Retail Stores

eCommerce and Retail Sales Growth in January 2009 vs. YASource: comScore for eCommerce &

U.S. Department of Commerce for Retail (DOC)

19

% change vs. YA

eCommerce (source: comScore) +2%

Retail (source: DOC)

Retail & Food Service -10%

Retail excl. Autos -7%

Furniture & Home Furniture Stores -14%

Electronics Stores -8%

Food & Beverage Stores +2%

Apparel & Accessories Stores -10%

Sporting Goods, Hobby, Book & Music Stores

-6%


Spending growth slows in upper income segment and strengthens in middle income segmentSpending growth slows in upper income segment and strengthens in middle income segment

20

Online Spending vs. YA by Income SegmentSource: comScore

Online Spending vs. YA by Income SegmentSource: comScore

Income SegmentOnline Retail

Spending Chg. vs. YA Bracket Share of Online Retail

Spending in Jan ‘09

Under $50,000

$50,000 - $99,999

$100,000 or more

Total

-9%

2%

8%

+2%

19%

46%

34%

100%

Q4 2008 Jan ‘09

-17%

-10%

17%

-3%


The North American Online Advertising IndustryThe North American Online Advertising Industry


Growth in Online Advertising Slowed in 2008

Total Online Advertising $ Billions and % Chg vs YA

Source: PricewaterhouseCoopers and the Internet Advertising Bureau (IAB)

+29% +24% +27%+23% +18%

4.9 5.1 5.25.9 5.8 5.7 5.9

0

1

2

3

4

5

6

7

Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08

+13% +11%


Search Spending Continued to Grow Strongly Through Q2 2008, Accounting for 40%+ of all Online Ad Dollars

Search Spending Continued to Grow Strongly Through Q2 2008, Accounting for 40%+ of all Online Ad Dollars

$3.16$3.64

$4.10$4.71

$5.06

$0.00

$4.00

$8.00

H1 06 H2 06 H1 07 H2 07 H1 08

+30%+30%

+24%

+37%+29%

Total Search Advertising$ Billions and % Change vs YA


$2.70 +17%

$2.82 +19%

$2.86 +16%

$2.93+12%

$2.93+9%

$3.03+8%

$3.01

2

3

Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08

Growth in Online Display Advertising Slowed in 2008and Shifted Dramatically to Pay-for-Performance

Total Online Display Advertising(CPM + CPC)

$ Billions and % Chg vs YA

Source: CMR Data include static and rich display but do not include paid search or video ads

Nielsen reports that CPM-based display advertising in Q3 08 declined by -6% vs Y/A.

+5%


Challenges Emerging for Display AdvertisingChallenges Emerging for Display Advertising

■ An expanding glut of online inventory that's putting further stress on prices and making it even harder to monetize content.

Ad Age 2009

■ CPMs for ad-network-sold ads are dropping, some by as much as 50% year-over-year, says a recent study from Pubmatic

MediaPost 2009

■ One issue Martin Nisenholtz [SVP of Digital Operations at New York Times Corporation] hammered home was the abundance of inventory comingfrom social networks, which has driven prices down

NY Times and paidcontent.org

■ Numerous factors have conspired to lower display ad prices in recent months. They include the glut of social network ad inventory, the rise of vertical ad networks, and doubts about the branding effectiveness of traditional IAB standard ad formats.

ClickZ


The Right Metrics are Critical

Cookie Deletion Understates Campaign ROI

The Right Metrics are Critical

Cookie Deletion Understates Campaign ROI


The Cookie Deletion Problem: Overstated Audiences and Campaign Reach but Understated FrequencyThe Cookie Deletion Problem: Overstated Audiences and Campaign Reach but Understated Frequency

■ 30% of Internet users delete their cookies in a month– This rate corroborated by independent studies from Belden, Jupiter and Nielsen

■ These deleters do so an average of 4 times a month– 5 different cookies for same site in a month on one computer

■ True for 1st party site cookies and 3rd party ad serving cookies

■ Cookie deletion creates major problems:– Up to 2.5 times overstatement of unique visitors in server logs– 2.5 times overstatement of reach and a similar understatement of frequency in ad

server log– Leads to an understatement of campaign ROI because one loses “visibility” into

cookied computers

A comScore Study of Yahoo and DoubleClick Cookies


The Right Metrics are Critical:Clicks Understate Campaign ROIThe Right Metrics are Critical:Clicks Understate Campaign ROI


Decline in Online Ad Click-Through RatesDecline in Online Ad Click-Through Rates

2.50%

1.12%

0.41%

0.20%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

Rich Media Non-Rich Media

20022006

Sources: Doubleclick, eMarketer, Eyeblaster, ABI Research estimates

In 2008, comScore measuredclick rates as less than 0.1%


Clicks on Display Ads Are a Misleading Metric and Don’t Reflect Brand-Building EffectsClicks on Display Ads Are a Misleading Metric and Don’t Reflect Brand-Building Effects

■Recommendation: Only use to evaluate direct response ad campaigns (or Search)

■Clicks don’t reflect a campaign’s sales impact, nor the cumulative (latent) impact of ads

■Clicks don’t tell you anything about brand building effects

30


The Impact of Display and Search AdvertisingThe Impact of Display and Search Advertising


Measuring the Holistic Impact of Online Ad CampaignsMeasuring the Holistic Impact of Online Ad Campaigns

■ 200+ studies conducted to assess the impact of Paid Search and Online ads on Online and offline sales

■ Real world analysis: comScore panelists divided into two matchedgroups (exposed and non-exposed to advertising)

– Search only– Display ads only– Search and Display ads together– Neither

■ Passively measured behavior and / or surveys – Linked to in-store buying through CRM databases, retailer loyalty cards (we have

125 Million card dataset accessible), credit card data, IRI scanner panel

32


Site visitation lift: not only is there significant impact within the 1st

week, with or without a click, but past the 1st week, there is significant lift that would be missed by only counting clicks orimmediate actions

Results from comScore Campaign Effectiveness Studies

2.1%

3.1%3.9%

4.5%

3.5%

4.8%

5.8%6.6%

Week o f f irs t exposure

Weeks 1-2 af ter f irs t exposure



Advertiser Site Reach

Contro l Test

% Lif t: 65.0% % Lif t: 53.8% % Lif t: 49.1% % Lif t: 45.7%


Display ads don’t just increase site visiting: Trademark Searches also continue to see a lift over the 4 weeks after exposure to an ad

Results from comScore Campaign Effectiveness Studies

0.2%

0.4%

0.5%

0.6%

0.3%

0.5%

0.7%

0.9%

Week o f f irst exposure

Weeks 1-2 af ter f irst exposure



% Making a TM/Brand Search

Contro l Test

% Lif t: 52.3% % Lif t: 46.0% % Lif t: 40.3% % Lif t: 38.1%


Observing subsequent Search activity is important, because mediaoften works best when multiple approaches are used. Here we see clear synergies between Search and Display in driving Online sales

1.0% 1.1% 1.9%1.5%2.4%

5.1%

Display Only Search Only Search & Display% Lift: +42%

% Making A Purchase on the Advertiser Site (Retail Only)

% Lift: +121% % Lift: +173%

$994 $1,548$2,723

$1,263$2,724

$6,107

Display Only Search Only Search & Display

Control Test

Online $$ per 000 Exposed(Retail Only)

% Lift: +27% % Lift: +76% % Lift: +124%


Online is important but you can’t ignore offline buying either. The sales lift generated offline by online advertising is significant and would certainly not be captured by a CPC or cookie-based model

Online is important but you can’t ignore offline buying either. The sales lift generated offline by online advertising is significant and would certainly not be captured by a CPC or cookie-based model

Higher offline sales lifts are found for Search advertising vs. Display, but when combined, the synergy provides even more lift

Incremental Impact on Offline Sales per (000) Exposed


The higher reach of Display ads often helps lift sales more than Search The higher reach of Display ads often helps lift sales more than Search

The overall number of people reached by Display ads is typically much higher than Search

As a result, even though the sales lift among those exposed to a Search ad is higher, the total dollar sales gained from Display ads is often larger than Search due to the smaller lift acting on a larger base

11% 8%

81%

Search & Display

Search Only Display Only

119%

82%

16%

Search and Display


Incremental Impact on Offline Sales per (000) Exposed% of Households Reached

200%

100%

198%

Search & Display


Total Sales Lift Index

200

100

198


Summary of FindingsSummary of Findings

■ The high degree of cookie deletion renders most studies that rely on cookie-based metrics inaccurate:

– As a measure of consumers’ behavioral response to advertising– As a measure of a campaign’s reach and frequency– As a measure of a campaign’s ROI

■ Panel-based measurement is needed.

■ The number of clicks on display ads is not an accurate predictorof the effectiveness of online display ads.

■ Display ads have a substantial branding impact:– Even with no clicks or minimal clicks, online display ads can generate

substantial lift in site visitation, trademark search queries, and lift in both online and offline sales.

■ Higher offline sales lifts are found for search advertising vs. display, but when combined the synergy provides even more lift.


ImplicationsImplications

■ Pay-for-performance display ad campaigns that are based on clicks are a bargain for the advertiser and a “give-away” for the publisher

■ Display ad campaigns should generally be considered as an overlay to search campaigns

■ More research needs to be conducted to evaluate the role of reach and frequency and creative in generating a ROI from display ad campaigns