Internet Trends March 18, 2008 mary.meeker@ms.com / david.joseph@ms.com / anant.thaker@ms.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. 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Please refer to the notes at the end of the report. 2 Internet Trends • Usage Patterns • Social Networking • Widget-ization + Component-ization • Measurability + Transparency + Customer Satisfaction • Video • Monetization • Mobile • Emerging Markets • Recession 3 Changes in Usage Patterns 4 0 5,000,000 10,000,000 15,000,000 20,000,000 25,000,000 30,000,000 2005E 2006E 2007E 2008E 2009E 2010E 2011E IP Traffic (TB / month) Total Consumer Business Global IP Traffic Consumers Leading Way – 58% CAGR in IP Traffic, 2005E-2011E Source: Cisco Systems, Global IP Traffic Forecast and Methodology; Mobility segment (0.1% of traffic in 2007) not displayed Consumer IP traffic surpasses Business 5 Consumer Information Technology – Advancing Faster Than Enterprise Source: Interview with Vauhini Vara, ‘The Wall Street Journal’, 3/18/08 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 Merrill Google Chief Information Officer, 3/18/08 6 YouTube + Facebook Page Views > Yahoo! or Google – Massive Transition in Available Ad Units & Supply > Demand 2002 10 8 6 4 2 0 Daily Page Views (%) 2003 2004 2005 2006 2007 2008 Alexa Global Traffic – Relative Page Views Source: Alexa Global Traffic as of 3/12/08 7 Worldwide Online Category Growth vs. Penetration Social Networking – Fast Growth + Low Penetration Visitor Growth by Category (1/07-1/08) Category Penetration (% of Online Users) Source: comScore ‘Digital World – State of the Internet’ 3/08 8 Social Networking – Significant Share Gains of Internet Traffic Rank Web site 2005 (1) 1 2 3 4 5 6 7 8 9 10 yahoo.com msn.com google.com ebay.com amazon.com microsoft.com myspace.com google.co.uk aol.com go.com Traffic 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). Rank Web site 2008 (2) 1 2 3 4 5 6 7 8 9 10 yahoo.com youtube.com live.com google.com myspace.com facebook.com msn.com hi5.com wikipedia.org orkut.com Alexa Global Traffic Rankings (1) Rankings as of 12/31/05, excludes Microsoft Passport; (2) Rankings as of 3/12/08 Source: Alexa Global Traffic Rankings, Morgan Stanley Research 9 6% 14% 8% 22% 35% 16% All Other Communications Social Connections Shopping & Travel Entertainment & Leisure Work, Business & Education Worldwide Share of Online Time (1) Category didn’t exist 3 years ago 16% 38% 37% 23% 0% 10% 20% 30% 40% Yahoo! Mail Facebook % of Total Minutes Age 15-24 Age 44+ Connecting – Younger Users Via Social Networks + Older Users Via E-Mail? (2) Social Networking – Connectivity Changing…Is E-Mail Becoming Archaic? Source: (1) comScore ‘Digital World – State of the Internet’ 3/08; (2) comScore global 1/08 10 Next Generation Assets – YouTube + Facebook + Skype + PayPal Users Y/Y Growth Comments 258MM (1) +94% #3 site in global minutes; 51% of users go to YouTube weekly or more; 50% watch all videos to the end; ongoing copyright challenges; 52% of 18-34 year-olds share videos with friends / colleagues often (1,3) 101MM (1) +305% #4 site in global minutes; 67MM+ active users; >50% of active users return daily; 20K applications + 95% of Facebook members have used at least one (1,4) 276MM (2) +61% $1.67 annualized revenue per registered user (+9% Y/Y) on peer-to-peer network; 1.6B Skype Out minutes (+10% Y/Y); 11.9B Skype- to-Skype minutes (+25% Y/Y) (2) 57MM (2) +16% Payment volume +35% Y/Y; On-eBay / off- eBay payment volume +17% / +66% Y/Y (to 44% of TPV); Average transaction size of $68.88 (+10% Y/Y) (2) Source: (1) comScore global 1/08; (2) eBay CQ4, Morgan Stanley Research; (3) YouTube; (4) Facebook [...]...Social Networking – Changing the Way People Think About ‘Presence’ 11 Internet + Personal Sources = Most Importance Sources of Information…Essence of a Social Network Internet – Importance as Source of Information 100% % of Users Age 17+ Responding Important / Very Important 80% 80% 73% 68% 63% 63% Radio Newspaper 60% 40% 20% 0% Internet Television Personal Source Source: USC Annenberg School: Digital... Guild of America wants a share of Internet revenue? When one of the top spots of 2007 was filmed by an amateur for $27.00? When an obscure Colorado blender company - Blendtec can create a viral sensation without even hiring an agency? Joseph Crump Avenue A | Razorfish Executive Creative Director Source: Avenue A | Razorfish 2008 Digital Outlook Report, YouTube 34 TV + Internet + Mobile (CBS) – Complimentary... SonyStyle.com 1,690 * 4 0.5 10 Newegg.com 1,500 15 100 11 Best Buy 1,425 * 12 4 12 J.C Penney 1,300 25 7 13 Wal-Mart 1,260 * 20 0.4 14 QVC 1,257 24 18 15 Apple Computer 1,136 * 39 6 * Denotes Internet Retailer’ estimate; Source: Internet Retailer Report (2006) 29 Video 30 Ongoing Traction of Online Video • YouTube - 258MM unique global visitors, +94% Y/Y, 25B minutes, +146% Y/Y ; other video distribution models:... gross merchandise volume and subtracting eBay US transaction revenue; Source: Amazon.com (CQ4:07), US Dept of Commerce (CQ4:07), Morgan Stanley Research 28 While Only 13% of Top 15 Online Retailers are Internet Pure-Plays, Biggest $ Grower = Amazon.com 2006 Rank Company 2006 Online Global Sales (US$MM) $10,710 Y/Y Growth 26% 2006 Online Global Sales as % of Total Sales 1 Amazon.com 100% 2 Staples 4,900 . Internet Trends March 18, 2008 mary.meeker@ms.com / david.joseph@ms.com / anant.thaker@ms.com Morgan. security holder. Please refer to the notes at the end of the report. 2 Internet Trends • Usage Patterns • Social Networking • Widget-ization + Component-ization •