Monetizing the Internet Through Sales and Advertising: An Update

Gian Fulgoni
Executive Chairman and Co-Founder, comScore Inc.

comScore is a Global Market Research Company and Leader in Measuring the Digital World
NASDAQ Founded
Clients Employees Headquarters Global Coverage Local Presence

SCOR August 1999

1,750 worldwide 1,000+ Reston, VA 170+ countries under measurement;43 markets reported 30+ locations in 21 countries

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V0910

comScore Leverages Rich Panel Data to Deliver Unique and Broad Digital Business Analytics
2 Million Person Panel with 360View of Person Behavior

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The Internet as a Sales Channel

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In 2010, Consumers Spent $228 Billion Online. With the Advantages of Lower Prices and Convenience, E-commerce Continues to Grow in Importance U.S. E-commerce Dollar Sales Growth ($ Billions)
Source: comScore e-Commerce Measurement +9% +17% +19% +22% +26% +29% +7% -2%

$200
$77

$214
$84
+12%

$228
$85
+6%

$209
+9%

$171
$80
-5%

$143 $117
$61 $51
+28% +20%

$93 $72
Travel Retail

$69

+13%

+10%

$30 $42

$40 $53

+33%
+26%

+26%

$67

$82

+24%

$102

+24%

$123

+20%

+6%

0%

$130

$130

$142

2002

2003

2004

2005

2006

2007

2008

2009

2010

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Gas prices have historically had a negative impact on e-commerce spending growth. Will that re-occur?
Y/Y % Change in Retail E-Commerce Spending
Source: comScore E-Commerce Measurement, Jan-07 - Feb-11

$2.96/gallon
30% 25% 20% 15% 10% 5% 0% -5% -10%

$4.14/gallon

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E-commerce continues to gain share of retail spending on an applesto-apples basis and is approaching 10%
e-Commerce Share of Corresponding Retail Spending*
Source: comScore for e-Commerce & U.S. Department of Commerce (DOC) for Retail

9.0% 8.0% 7.4% 7.3% 6.7% 5.9% 5.1% 4.3% 3.7% 4.6% 4.0% 5.3% 4.5% 5.0% 6.4% 5.3% 6.3% 5.9% 6.5% 6.6% 7.6% 7.7% 7.7% 6.9% 8.1% 7.1%

8.0%

e-Commerce Share

7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

7.1%

6.8%

4.3%

e-Commerce share peaks in colder seasons (Q4 & Q1)

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*Note: e-Commerce share is shown as a percent of DOCs Total Retail Sales excluding Food Service & Drinking, Food & Bev. Stores, Motor Vehicles & Parts, Gasoline Stations and Health & Personal Care Stores.

In the Consumer Electronics category, e-commerce is having a profound negative impact on bricks & mortar retailers.

Tuesday, March 8, 2011

Forecast for Best Buy: Worst Is Yet to Come

Some key observations:

E-commerce represents 25%+ of all sales of consumer electronics Spending on the consumer electronics category at retail during the
holiday season was down 5%* while online saw growth of 20%**.

Domestic same store sales of Best Buy declined by 5% and total

sales declined by 3% in Q4 2010

Online sales of Best Buy increased by 13% in December comScore data show Amazon consumer electronics sales up 37%
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Source: *NPD & ** comScore

2010 free shipping patterns resembled 2009 until late November when free shipping surged to 55%. For the remainder of the season, 2010 outpaced 2009 by 7-12 percentage points
Percentage of e-Commerce Transactions with Free Shipping
Source: comScore e-Commerce Measurement
2010 outpaced 2009 by 12 percentage points the final Monday before Christmas

60% 55% 50% 45% 40% 35% 44% 41% 45% 41% 47% 45% 50% 50%

2009

2010 51% 52%

55%
54% 52% 46% 44% 45% 44% 41% 50%

40%

30%
31-Oct-10 2-Nov-10 4-Nov-10 6-Nov-10 8-Nov-10 10-Nov-10 12-Nov-10 14-Nov-10 16-Nov-10 18-Nov-10 20-Nov-10 22-Nov-10 24-Nov-10 26-Nov-10 28-Nov-10 30-Nov-10 2-Dec-10 4-Dec-10 6-Dec-10 8-Dec-10 10-Dec-10 12-Dec-10 14-Dec-10 16-Dec-10 18-Dec-10 20-Dec-10 22-Dec-10 24-Dec-10 26-Dec-10 28-Dec-10 30-Dec-10 1-Jan-11
Average Order Value on

free shipping purchases was $110 during holiday season 2010. For non-free shipping purchases it was $95.
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Is pricing power shifting to the consumer?

The Internet provides an ever increasing variety of ways for consumers to obtain information on prices, promotions and product features, contributing to a frenzy of online activity in November 2010. Percent Change November 2010 vs. Nov 2009
Total Visits Unique Visitors Total UVs Nov-10 (MM)

Social Networking Site Category Retail Site Category Comparison Shopping Site Category Coupon Site Category Twitter Groupon Flash Sites* Black-Friday.net

+63% +8% +6% +19% +46% +729% +117% +65%

Total Searches

+17% +13% +9% +19% +24% +609% +54% +59%

Unique Searchers
+7%

192 179 90 45 24 10 2 6
Searchers Nov10 (MM)
218

Core Search Engines

+23%

About 63 percent of retailers will be sending promotions and deals to shoppers via e-mail. - National Retail Federation, Nov 22, 2010
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Source: comScore MyMetrix, November 2010 vs. November 2009 * Flash Shopping Sites include Hautelook, Ideeli, Gilt, and Ruelala

And theres more: 31% of consumers now own or use some form of smartphone or Internet-capable digital media device. This is significantly higher among higher-income consumers
Smartphone Ownership and Usage
Q. Do you own or use a smartphone or digital media device, such as an iPhone, iPad, Droid, Blackberry or similar device?
Source: comScore Survey January 2011

2%

Smartphone Ownership/usage (by income)

Under $50k

19%

31%

67%

$50k - $99k

32%

$100k+

47%

Yes

No

Not sure % who own or use a smartphone

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72 Million People (31% of 234 Million U.S. Mobile Subscribers) Now Use a Smartphone to Access a Wide Variety of Content
When it Comes to Mobile Content Consumption, Social Networking Ranks as Fastest Growing Category, Followed Classifieds and Retail

Fastest Growing Mobile Site Content Categories by Total Audience (000)

Source: comScore MobiLens, 3 mo. avg. ending Dec-2010 versus Dec-2009 80,000 70,000 + 56% Dec-09 Dec-10 + 39%

60,000
Unique User (000) 50,000 + 46% 40,000 30,000 20,000 10,000 0
Social Classifieds Networking Online Retail General Reference Maps

+ 45%

+ 55%

+ 53%

+ 47% + 46%

+ 45% + 45%

Shopping Restaurant Weather Guides Info

Auction Sites

Personal Email

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Building Sales with Online Marketing: Lessons Learned

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Internet is lagging in capturing branding dollars. Online spend in 2010 accounted for 34% of all media direct response spend, while online spend for branding remained unchanged at $6B, or only 6% of all media branding ad dollars.
2010 U.S. Measured Media Spend $149 Billion

Branding

61%

$91B

2010 U.S. Online Media Spend $26 Billion

$6 Billion in 2009

$6B
Direct Response $20B $58B
$18Billion in 2009

6% of branding dollars

39%

34% of direct response dollars

Source: Brand.net analysis based on Barclays Capital and DMA

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What Weve Learned About Online Advertising

The Click is at Best an Incomplete and at Worst a

Misleading Metric Accurate Delivery of Media Plan is Critical Creative Remains Extremely Important Digital Ad Campaigns Lift In-Store Sales In CPG: Is Online the New Print Video Holds the Key to Powerful Online Branding Campaigns

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Clicks are at Best an Incomplete and at Worst a Misleading Metric

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Clickers Represent a Small and Declining Segment of Internet Users

There are 50% fewer clickers today (16%) than in July 2007 (32%) 8% of all Internet users account for 85% of all clicks Optimizing against clicks means ignoring 84 percent of Internet users
July 2007 March 2009

Clickers 32% NonClickers 68%

Clickers 16%

NonClickers 84%

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Source: comScore, Inc. custom analysis, Total US Online Population, persons, July 2007 and March 2009 data periods

Global Click Rates on Individual Campaigns are Pitifully Low. In the United States 0.10% U.S., Only One in a Thousand Ads in aHungary Campaign are Clicked 0.11%

Sweden

0.10%

Worldwide

Norway 0.07% Ireland 0.08% Luxembourg 0.08% United Kingdom 0.08% Finland 0.09% Australia 0.10% Canada 0.10% Sweden 0.10% United States 0.10% Hungary 0.11% Switzerland 0.11% Denmark 0.12% France 0.12% Italy 0.12% Germany 0.13% *Click-through rates across Static Image, Flash, and Rich Media formats New Zealand 0.14% Spain 0.14% Turkey 0.14% 18 comScore, Inc. Proprietary and Confidential. Austria 0.15%

Switzerland Denmark Click-Through France Italy Germany New Zealand Spain Turkey Austria Netherlands Belgium China Greece India Singapore Hong Kong United Arab Emirates Malaysia

0.11% 0.12% Rates* 0.12% 0.12% 0.13% 0.14% 0.14% 0.14% 0.15% 0.16% 0.17% 0.18% 0.18% 0.20% 0.20% 0.21% 0.26% 0.29%

Source: DoubleClick DART for Advertisers, a cross section of regions, January December 2008

The Meddlesome Click .Some Agencies Get It

A click means nothing. A click earns no revenue and creates no brand equity. Your online advertising has some goal and its surely not to generate clicks. Regardless of whether they clicked an ad or not, the key is to determine how that ad unit influenced a consumer to think, feel, or do something they wouldnt have done otherwise.

John Lowell
SVP Director, Research & Analytics Starcom I spend a lot of time fighting against media metrics that dont matter Kate Sirkin EVP Global Research Starcom MediaVest Group
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But, Many Agency and Advertisers Still Preoccupied with the Click

What Metrics Do You Use To Evaluate Ad Network Performance?

Ability to Drive Brand Favorability Interaction Rate Ability to Drive Brand Awareness CPA CPC CTR
0% 20% 40% 60% 25%

33%

35%

48%

61%

64%

80%

Source: Feb 2010 Collective Survey

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of 420 Agency and Advertiser Executives

Journal Of Advertising Research: comScores Whither the Click?

Journal of Advertising Research, June 2009

What We Know About Advertising: 21 Watertight Laws for Intelligent Advertising Decisions
Prof. Byron Sharp, Ehrenberg Bass Institute, University of South Australia Prof. Jerry Wind, The Wharton School

comScores Whither the Click?

200+ comScore studies conducted in the U.S. to assess

behavioral impact of paid search and online display ads.

Even with Minimal Clicks, Display Advertising Proven to Lift: Site visitation Trademark search queries Online and offline sales
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We Now Know Online Ads Incite Action Beyond the Click.

Results from 139 comScore Campaign Effectiveness Studies

Advertiser Site Reach

5.8%
4.8% 3.5% 2.1% % Lif t: 65.0% Week of f irst exposure % Lif t: 53.8% % Lif t: 49.1% 3.9%

6.6%

4.5%

3.1%

% Lif t: 45.7%

Weeks 1-2 af ter f irst exposure Control

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Weeks 1-3 af ter f irst exposure Test

Weeks 1-4 af ter f irst exposure

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Despite click rates of only 0.1%, comScore research has shown that display ads can successfully lift retailer sales both online and offline
Dollar Sales Lift Among Households Exposed to Online Advertising

Conclusions
Exposure to display ads doesnt just impact online sales it lifts in-store sales as well The absolute dollar lift in offline sales is 5x higher than the lift in e-commerce sales The click is misleading as a measure of campaign effectiveness

% Lift: 17% $11,550

$9,905

% Lift: 27% $1,263

$994

Online Unexposed

Offline Exposed

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Source: Whither the Click? 139 comScore studies in the June 2009 Journal of Advertising Research

Accurate Delivery of Media Plan is Critical

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Cookie Deletion is a Global Reality and a Global Challenge

Ad Server Cookies

Web Site Cookies

Country

Average # of Percent of cookies per Percent of computers computer computers deleting for same deleting campaign 37% 40% 35% 35% 5.7 6.6 5.9 5.4 28% 33% 27% 29%

Average # of cookies per computer for same web site 2.7 2.5 2.7 3.5

Australia Brazil U.K. U.S.

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Because of Multiple Users on a Computer, Cookies Cant Always Accurately Identify who is Using a Computer at any Given Point in Time

Over 64% of home users share a home computer with other users The average number of users per machine is 2.1 Percent of Machines Percent of People

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Whom did the Media Plan Reach? Post-Buy Analysis of 8 CPG Campaigns Shows Much Room for Improvement

Share of Delivered Ad Impressions

Outside Geography
Hit Target with >=5 Frequency

12%

8%

Hit Target with <=4 Frequency

19%

61%
In Geography But Not On Target

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Campaign Delivery Often Misses Targeted Audiences. Target for this health & well being product was females age 35-54

% Composition of Exposed Audience

Male 40%

40% of exposed consumers outside of planned gender target

20.6%

15-24

22.4%

25-34

Female 60%

25.3%

35-44

17.3%

45-54 55+

Only 43% of females exposed to the campaign met the targeted age group

14.4%

Only 25% of all exposed consumers met planned targeting criteria

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comScores Campaign Essentials Real Time Reporting Dashboard How Many, Who, Which, Where?

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Creative is Extremely Important: Proven Strategic Elements are a Must

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The value of creative: In TV and Print, over 50% of the impact of advertising is driven by the strength of creative
% Influence on shifts in brand sales
Source: Source: comScore ARS Global Validation Summary

Creative is 4x More
Other 35%
Ad Quality 52%

Impactful in Influencing Sales Than

Media Plan 13%

Numbers represent the percent variance in sales shifts explained by the corresponding factors.

The Media Plan

Media Plan = Elements such as GRPs, wearout & continuity/flighting of airing Ad Quality = Quality of the creative based on ARS Persuasion Score*. Other = Price, promotion and distribution
*Quality of creative is based on ARS Persuasion Score which measures changes in consumer preference through a simulated purchase exercise with and without exposure to the creative . comScore ARS Global Validation Summary includes an evaluation of 396 TV ad campaigns, utilizing sales data from R. L. Polk New Vehicle Registration, IMS HEALTH, IRI InfoScan, Markettrack, Nielsen SCANTRACK or Nielsen Retail Index.

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Digital Campaigns Lift In-Store Sales for CPG:

Is Online the New Print?

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Short Term Offline Lift in CPG Brand Sales From Online Advertising Matches Longer Term TV Impact
BehaviorScan tests conducted over one year period comScore studies over three months*
*Assumes 40% HH Internet Reach Against Target

+9% +8%

TV (BehaviorScan)

Internet (comScore)

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Proven Strategic Branding Drivers are Used at a Much Lower Rate in Digital Ads

Percent of Ads Containing Element Digital Display Ads1 (Rich Media, Banners, Rectangles)
17% 19% 0% 10% 13%

Proven Branding Element

Brand Differentiating Key Message New Product/New Feature Information Product Convenience (explicit & stated) Competitive Comparison Superiority Claim

Television Ads1
31% 44% 9% 24% 26%

1Cases

drawn from comScore ARS test databases and balanced by category (n=100 for digital display ads, n=3,681 for Television Ads)
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But Price / Promotion Used Much More Frequently

Percent of Ads Containing Element Digital Display Ads1 (Rich Media, Banners, )
17%
19% 0%

Element
Brand Differentiating Key Message
New Product/New Feature Information Product Convenience (explicit & stated)

Television Ads1
31%
44% 9%

Competitive Comparison
Superiority Claim Price Reductions / Coupons / Samples
1Cases

10%
13% 44%

24%
26% 8%

drawn from comScore ARS test databases and balanced by category (n=100 for digital display ads, n=3,681 for Television Ads)
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Inclusion of promotion / price incentives in online ads helps lift offline sales
Percent Lift in Sales (Exposed vs. Control)
60.0%
48.9%
39.5%

40.0%
26.8% 28.4%

20.0%

0.0%
No Value Information Coupon Only Free Sample Explicit Value Claim

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Source: comScore blinded case studies September 2010

Video Holds the Key to Capturing Branding Dollars

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Online Viewing of Video in February 2011 Reached 83% of Online Users

NUMBER OF VIEWERS

173 Million 83% 31 Billion 179

% OF INTERNET AUDIENCE

88 million
Americans will watch an online video today!

VIDEOS VIEWED VIDEOS PER PERSON

VIEWING TIME PER PERSON

13.5 hrs

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Source: comScore Video Metrix, February 2011

Rapid Growth in Long-form TV Programming Online Over Past Year

Yearly growth in videos viewed on long-form TV programming sites

Videos Viewed

Videos per Viewer

105%
increase

71%

increase

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Source: comScore Video Metrix, February 2011 vs. February 2010

Driven by Rapid Growth, Time Spent Viewing Online Video is Now Equivalent to 8% of TV Viewing
Hours Watched Per Viewer Per Week
+4% vs. YA

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+15% vs. YA

TV Viewing

Online Video

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Source: Nielsen for TV. comScore for Online Video

Online Advertising Growing at 15% Y/Y and Almost Equal to Cable TV. Video Advertising Growing at 30% and now Accounts For 5% of All Online Ad Spending But, Equivalent to Only 1.5% of All TV Ad Dollars

Total Ad Spend ($Billions) in 2010 & % Change vs. YA +10% $90

+10%

+15% $26.1 +30% $1.4

25% to UGC 75% to Traditional Media

$27.5

Total TV

Cable TV

Total Online
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Online Video

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Source: TV data from CAB Analysis of Nielsen, Kantar Online data from IAB / PWC, eMarketer, Jack Myers

Brands Trying to Reach their Target with TV Alone Hit A Plateau of Diminishing Returns
100
90 80 70 60 50 40 30 20 10 0
0 2,500 5,000 7,500 Cost ($000) 10,000 12,500 15,000

Total Reach and Effective Reach for a TV Campaign as a Function of Cost

85.1
87.9

Total Reach
67.8 74.1

Effective Reach

Typically 30%+ of Target Audience is not Effectively reached

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Adding Branding Advertising With Online Video Builds Reach with Identical Investment
Impact of a 90/10 Budget Allocation
Media Plan GRPs Cost Total Reach Effective Reach

TV Only TV + Internet Combination TV (90%) Online (10%) TV + Online TV Only vs. 90% TV + 10% Online

1,000

$10,000

85.1%

67.8%

900 500 1,400 400

$9,000 $1,000 $10,000 0

83.7% 63.8% 90.2% 5.1%

65.8% 44.0% 83.7% 15.9%

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What Weve Learned

E-commerce is growing strongly and gaining share of consumers

wallets
Has pricing power moved to the consumer?

Online advertising is effective, both as a direct response and

branding strategy
The click is at best an incomplete and at worst a misleading metric Accurate delivery of media plan is critical Digital ad campaigns lift in-store sales

Creative remains extremely important

For CPG: Is Display Advertising the New Print? Video holds the key to more powerful online branding campaigns

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Thank You!