Tài liệu Nothing But Net 2009 Internet Investment Guide 9 pptx

81
Global Equity Research
05 Januar
y 2009
Imran Khan
(1-212) 622-6693

The Challenges for Online Video
Online video, like social networking, is an Internet medium that has taken off in
terms of consumer usage but has left publishers and advertisers struggling with how
to monetize it. We think both performance-based marketers and brand advertisers
are looking at three variables in determining their investment: reach, content quality,
and performance measurability. Current video advertising formats do not
appropriately address the three variables, in our view.
Performance-based Marketer Interest Is Limited
Performance-based marketers are solely focused on a measurable return on
investment. However, most video ads follow the cost-per-thousand (CPM) model
rather than the CTR models (including search or cost-per-action based display). As
such, many performance-based advertisers tend to avoid video advertising, and we
think investment in the video platform will be very limited throughout this economic
recession. Additionally, we expect Google to invest in a performance-based model
to monetize YouTube.
Video Presents Many Challenges for Brand Advertisers
Online video viewing is large and still growing at a very rapid pace, with 16.5B
minutes spent viewing videos on the top 10 video sites in September 2008, and
organic growth of minutes viewed at the top 10 sites reaching 38% Y/Y (this
excludes Hulu and Turner Network, as we had no historical information). In fact, as
of September 2008, the Top 10 online video sites accounted for over 5% of total
minutes spent online.

Table 42: Top Ten Video Properties by Minutes Viewed, Sept. 2008
minutes in millions
Jul-
2007
Aug-
2007
Sep-
2007
Jul-
2008
Aug-
2008
Sep-
2008
3Q Y/Y
Growth
1 Google Sites 6,698 7,105 7,175 12,758 12,655 12,139 79.0%
YOUTUBE.COM 6,253 6,710 6,830 12,493 12,375 11,979 86.2%
2 MEGAVIDEO.COM ... 73 159 609 804 745 829.1%
3 HULU.COM (hybrid) ... ... ... 489 537 686 NA
4 Fox Interactive Media 846 825 674 516 465 567 -34.0%
5 Viacom Digital 777 719 860 456 472 476 -40.4%
6 ZSHARE.NET 112 106 145 208 483 437 210.7%
7 Yahoo! Sites 1,013 1,112 935 501 415 418 -56.4%
8 Microsoft Sites (hybrid) 353 330 312 471 463 402 34.3%
9 Turner Network ... ... ... 339 373 385 NA
10 VEOH.COM 662 521 556 323 266 227 -53.1%
Source: comScore data
However, publishers have a difficult, if not impossible, time guaranteeing viewership
for any specific video the way television does in the upfront model. Often, it is very

unpredictable as to which video will be popular. This makes it difficult for
publishers to determine pricing and for brand advertisers to strategically invest in
videos to meet their content quality requirements, demographic profiles and reach
targets.
Content Quality Is Inconsistent
Many video sites are plagued with videos of varying quality and copyright violations.
Perhaps best known of these is YouTube, which faced a $1B lawsuit by Viacom and



82
Global Equity Research
05 Januar
y 2009
Imran Khan
(1-212) 622-6693

is also known for its home video quality blooper videos. We think the spottiness of
video quality is severely limiting advertiser interest. In the case of copyrighted
material, advertisers must wait to access this inventory until agreements are reached
between the publisher and third-party websites over use and monetization
arrangements.
On non-copyrighted videos, we think advertisers are too concerned about the quality
of content and untargeted nature of the videos to advertise. For example, the Top 10
YouTube videos viewed as of December 1, 2008 included clips such as Britney
Spears, Akon, PreGame Lobby LOL, and Wal-Mart Worker Trampled to Death. As
we believe brand advertisers are very cautious to have their brand placed next to
content that clearly reflects the brand identity and message and conveys brand
values, we find it unlikely that brand advertisers would be attracted to these videos
despite the reach.

Table 43: Top 10 Most Viewed YouTube Videos, December 1, 2008
Most Viewed YouTube Videos, 12/1/2008
Real HQ - Britney Spears Womanizer live at X-Factor
Akon - Right Now (Na Na Na)
See You Again
PreGame Lobby LOL of the Day 6
Gundam 00 S2 Episode 9 2/3
Wal-Mart Worker Trampled to Death?!?!
Michael Hirte - Ave Maria
Pablo Banila Parody
Runescape - Soloing Tormented Demon
Das Supertalent 2008 - Michael Hirte - Stille Nacht
Source: YouTube
Performance Measurement Is Difficult
Many online video sites have experimented with video pre-rolls, post-rolls,
advertising breaks in the video, and advertisements running concurrent with the
video at the bottom of the screen. So far, no advertising format seems to be widely
accepted by users, publishers, and advertisers. Additionally, we think most of the
ads are shown on a cost per thousand (CPM) basis.





83
Global Equity Research
05 Januar
y 2009
Imran Khan
(1-212) 622-6693

Widgets: Popularity Is Growing, but Can It
Be Monetized?
Ever since the opening of the Facebook platform, there seems to have been an
explosion of widgets available to Internet users. According to comScore, more than
81% of Internet users in the US viewed widgets in November 2007. So what exactly
are widgets? Widgets are simple, short pieces of code that can easily be dragged
onto a desktop or pasted into a personal page. The code allows the user to aggregate
data from multiple sites in one place, where the information is updated regularly.
Widgets range from Slide and RockYou, which allow users to create a slide show of
photos complete with special effects and music and then paste it onto their own site,
to simple widgets that update weather and stock quotes on users’ computers.
Fragmentation Fuels Widget Demand
Historically, portals served users’ need for aggregation of content in one place. On
Yahoo!, MSN, or AOL, a user could obtain the latest in news, sports, email, and
entertainment. However, users’ Internet savvy has greatly increased since the advent
of the Internet, and today's users want to personalize their web experience and find
deeper more relevant information to suit their needs. This trend has led to the
creation of a multitude of niche sites, blogs, and social networks. This fragmentation
is apparent in how users are spending their time online. In September 2003, users
spent 39% of their time online looking at the top 3 websites. However, in 2008, the
top 3 websites’ share of minutes online fell to 27% as users began surfing the long-
tail.
Table 44: The Top 3 Websites Account for 12% Fewer Minutes Online from 2003-2008
millions
Sep-03 Sep-08
Yahoo! Sites 28,898 44,336
AOL LLC 47,898 22,080
Microsoft Sites 19,229 20,899
Total Top 3 Properties 96,025 87,315

Total Internet 244,121 321,067
% of Total Min 39% 27%
Source: comScore data and J.P. Morgan estimates
Widgets allow users to aggregate data from web sources of their choosing onto their
own personalized web page through the pasting of simple code snippets into the web
page code.
Volume Is Attractive to Advertisers…
Widget usage is reaching a level of scale which has begun to attract advertiser
interest. MySpace.com widgets had the widest audience in November 2007,
reaching 32% of the total US Internet audience. Slide.com ranked second with
39.2M viewers and Google had the sixth widest widget-viewing audience with more
than 19M viewers, according to comScore data.



84
Global Equity Research
05 Januar
y 2009
Imran Khan
(1-212) 622-6693

Table 45: Top US Web Widget Viewing Audiences, November 2007
units as indicated
Widget Unique Viewers (000) Penetration of US Internet Audience
Total US Widget Viewers 147,904 81.1%
MySpace.com - Widget 57,747 31.7%
Slide.com - Widget 39,213 21.5%
Clearspring.com - Widget 39,159 21.5%
RockYou.com - Widget 32,557 17.9%

Photobucket.com - Widget 26,434 14.5%
Google.com - Widget 19,436 10.7%
BunnyHeroLabs.com - Widget 16,123 8.8%
MusicPlaylist.us - Widget 15,844 8.7%
MyPlaylist.org - Widget 15,586 8.5%
BlingyBlob.com - Widget 14,967 8.2%
Source: comScore Widget Metrix and J.P. Morgan estimates
Widgets are also uniquely suited to use on mobile technologies, given that their form
factor is a fit for small screens. Widset has over 6M registrations and offers a
selection of 4,500 widgets. Opera and Yahoo! also offer mobile widgets.
…But Ad Monetization Is Difficult
Although we expect the use of widgets to be a long-lasting fixture in the Internet
space and see a healthy growth rate for widget adoption going forward, we think
monetization of these gadgets through “widget networks” will prove to be difficult
for a number of reasons. In the following sections, we will take a closer look at the
impediments to monetizing this space. Additionally, we think the difficult
macroeconomic environment could force advertisers to flee to what they view as
safer platforms.
User Focus
We think widget users are primarily focused on entertainment and page
customization rather than investing in the purchase of a product or service. As such,
we think widget advertisements would command a much lower CPM or CPC value
than other online advertising forms. Data from the quarterly PubMatic ad price
survey indicates that CPMs on social networking sites are the lowest out of all
vertical categories, trailing the highest category by more than 4x. We expect that
widgets would command a similar discount in pricing given their non-targeted nature
and users’ lack of focus in acting on advertisements.
Figure 48: Average Display Ad CPMs by Vertical, 3Q’08
units as indicated
$0.33

$0.86
$0.48
$0.36
$0.21
$0.25
$0.57
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
Entertainment
Sites
Business
and Finance
Sites
Gaming Sites
News Sites
Social
Networking
Sites
Sports Sites
Technology
Sites

Source: PubMatic AdPrice Index Quarterly Report


85

Global Equity Research
05 Januar
y 2009
Imran Khan
(1-212) 622-6693

Complex Value Chain
Complicating the aforementioned problem of low CPMs is the complex value chain
related to widget building and distribution. Widgets typically involve multiple
branches, including a widget builder, page owner (think social networking page or
blog), site owner (the social network itself), distribution/syndication network, and the
end user. We think instituting an ad revenue sharing model amongst so many
participants at a likely low monetization rate makes the ROI on widgets relatively
unattractive when compared to other advertising forms.
Figure 49: Widget Value Chain Analysis

Widget
Builder
Distribution/
Syndication

Network
Page
Owner
End
User
Site
Owner

Source: J.P. Morgan estimates

The Nature of Widgets
We believe widgets have three characteristics that make them difficult to effectively
monetize: 1) limited scale, 2) limited usefulness, and 3) a short life cycle. Although
as a whole widgets are widely used by the general population, widgets have a very
long tail, and, with only a few exceptions, each unique widget is likely lacking the
scale necessary to be useful to advertisers. Aggregation through an ad network could
be a possible solution to this problem, but the short life cycle of widgets would make
this difficult. As widget popularity seems to be measured in weeks and months
rather than years, aggregating a block of widgets for marketers and gathering
performance data could prove to be a challenging task.
How to Monetize Them?
In our opinion, a non-ad based revenue model may be most successful given these
challenges. For advertisers, (as David Cohen noted) the opportunity to place a
branded widget for frequent interaction on personal computer or website is
comparable to having a billboard on private property. As such, we think it is likely
that advertisers would be willing to pay widget developers to build the gadgets for
free distribution. Page owners would likely be willing to host the gadgets for free on
their site, as they would have access to the gadget capabilities without having to pay
development costs. In some instances, users may be willing to pay a subscription fee
for the gadget if it had greater complexity or utility than the norm. In this way, we
see the existence and growth of widgets persisting, but the likelihood of ad-based
widget networks as unlikely.