ten questions internet execs should ask & answer, 2010 (web 2.0 summit)

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  • Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report. Ten Questions Internet Execs Should Ask & Answer November 16, 2010 Web 2.0 Summit San Francisco, CA mary.meeker@ms.com / scott.devitt@ms.com / liang.wu@ms.com www.morganstanley.com/techresearch
  • 1) Globality 2) Mobile 3) Social Ecosystems 4) Advertising 5) Commerce 6) Media 7) Company Leadership Evolution 8) Steve Jobs 9) Ferocious Pace of Change in Tech 10) Closing Thoughts 2 Question Focus Areas
  • 3 1. Globality Do you know which players in which countries do what you do better (or at least differently) than you do? Do you study / implement it?
  • Top Internet Markets 46% of Users in 5 Countries China, USA, Brazil, India, Russia Note: *Penetration is per 100 inhabitants. Source: 1) Internet user stats per International Telecommunications Union; 2) time spent data per comScore global 12/09. USA 240MM users, +4% Y/Y 76% penetration* Brazil 76MM users, +17% Y/Y 39% penetration* Russia 60MM users; +31% Y/Y 42% penetration* India 61MM users; +18% Y/Y 5% penetration* China 384MM users; +29% Y/Y 29% penetration* 2009 - 1.8B Global Internet Users, +13% Y/Y(1); 18.8T Minutes Spent, +21% Y/Y(2) 4
  • 5Note: 3G includes CDMA 1x EV-DO and Rev. A / B, WCDMA, HSPA; Source: Informa WCIS+, Morgan Stanley Research. Top Mobile Internet Markets ~670MM 3G Subscribers (+37% Y/Y), CQ2 Global 3G Stats: Subscribers = ~670MM Penetration = 14% Growth = 37% Rank Country CQ2:10 3G Subs (MM) 3G Pene- tration 3G Sub Growth Y/Y Rank Country CQ2:10 3G Subs (MM) 3G Pene- tration 3G Sub Growth Y/Y 1 USA 136.6 48% 31% 16 Malaysia 7.9 26% 32% 2 Japan 106.3 96 12 17 Canada 7.3 32 62 3 Korea 38.8 80 15 18 Saudi Arabia 7.0 17 55 4 Italy 34.3 42 28 19 Turkey 6.8 11 -- 5 UK 29.5 38 34 20 South Africa 6.7 14 33 6 Germany 26.5 26 30 21 Portugal 5.7 36 15 7 Spain 24.7 46 22 22 Sweden 5.5 45 25 8 Indonesia 19.2 12 57 23 Netherlands 5.5 28 33 9 France 18.8 32 32 24 Austria 5.1 46 29 10 Australia 16.7 65 31 25 Israel 4.9 51 36 11 Poland 15.4 35 27 26 Philippines 4.8 6 82 12 China 14.5 2 941 27 Egypt 4.0 7 38 13 Brazil 13.3 8 148 28 Greece 3.9 20 25 14 Taiwan 11.3 44 69 29 Singapore 3.9 55 41 15 Russia 9.6 5 81 30 Romania 3.8 13 20
  • Unusually High Level of Global Innovation Facebook & Tencent Learning From Each Others Playbooks Largest Social Network in English-Speaking Countries 620MM visitors, +51% Y/Y in 9/10 Real Identity Sharing among real-world friends / pictures / events Facebook Largest Social Network in China 637MM active IM users, +31% Y/Y in CQ3 Virtual Identity $1.4B virtual goods revenue (from users customizing their avatars / purchasing game items) in 2009, +94% Y/Y Tencent Virtual identity & customizable avatars Real pictures & real names Source: Facebook, comScore (global unique visitors for Facebook), Tencent. 6
  • 7 2. Mobile Ramping faster than any new new thing is your business leading or lagging?
  • 20 40 60 80 100 120 Q1 Q3 Q5 Q7 Q9 Q11 Q13 Q15 Q17 Q19 Quarters Since Launch Subscribers(MM) iPhone + iTouch NTT docomo i-mode AOL Netscape 8 iPhone + iTouch vs. NTT docomo i-mode vs. AOL vs. Netscape Users First 20 Quarters Since Launch Note: *AOL subscribers data not available before CQ3:94; Netscape users limited to US only. Morgan Stanley Research estimates ~65MM+ netbooks have shipped in first 11 quarters since launch (10/07). Source: Company Reports , Morgan Stanley Research. Data as of CQ3:10. Desktop Internet AOL* v 2.0 Launched 9/94 Mobile Internet NTT docomo i-mode Launched 6/99 Mobile Internet iPhone + iTouch + iPad Launched 6/07 ~120MM+ ~32MM ~9MM Desktop Internet Netscape* Launched 12/94 ~27MM Apple iPhone + iTouch + iPad Ramp The Likes of Which We Havent Seen Before
  • Mobile Operating Systems Attackers (Apple & Google) Driving Market Excitement & Momentum Global Unit Shipment Share of Smartphones by Operating System, Symbian (Nokia) / BlackBerry (RIM) / iOS (Apple) / Android (Google) / Others, 1Q06 3Q10 9 Note: iOS excludes iPod Touch and iPad shipments as they are not smartphones. *Others include Windows Mobile, Palm OS & WebOS, Linux and other proprietary smartphone OSes. Call outs on the left side represent market shares in CQ1:06; call outs on the right side represent market shares in CQ3:10. Source: Gartner. 0% 20% 40% 60% 80% 100% CQ1:06 CQ4:06 CQ3:07 CQ2:08 CQ1:09 CQ4:09 CQ3:10 QuarterlySmartphoneUnitShipmentShare(%) Others* BlackBerry (RIM) Symbian (Nokia) Android (Google) iOS (Apple) 62%62% 31%31% 7%7% 37%37% 6%6% 15%15% 25%25% 17%17%
  • 0 100 200 300 400 500 600 700 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E GlobalUnitShipments(MM) Desktop PCs Notebook PCs Smartphones 10 Smartphone > PC Shipments Within 2 Years Implies Very Rapid / Land Grab Evolution of Internet Access Global Unit Shipments of Desktop PCs + Notebook PCs vs. Smartphones, 2005 2013E 2012E: Inflection Point Smartphones > Total PCs Note: Notebook PCs include Netbooks. Source: Katy Huberty, Ehud Gelblum, Morgan Stanley Research. Data and Estimates as of 11/10
  • 0 5,000 10,000 15,000 20,000 25,000 30,000 2Q06 4Q06 2Q07 4Q07 2Q08 4Q08 2Q09 4Q09 2Q10 MonthlyPageViews(MM) Mobile Page Views Desktop Page Views 11 Mixis (Japans Leading Social Network) Monthly Page Views, Mobile vs. PC, CQ2:06 CQ3:10 Japan Social Networking Trends Show How Quickly Mobile Can Overtake Desktop Internet Access Mixi Mobile Page Views = 84% vs. 17% Four Years Ago Note: Mixi is one of Japans leading social networking sites on PC and mobile with 22MM registered users as of 10/31/10. It monetizes mobile usage via sales of avatars, customized homepages and other premium services. Source: Company reports, Morgan Stanley Research 84%84% 16%16%83%83% 17%17%
  • 12 3. Social Ecosystems Would you rather be Apple, Google orFacebook? Will their future directions help / hurt your business?
  • 13 Mobile Social Networking Facebook Apple iPhone / iTouch / iPad Source: PC World, comScore (global user data for Facebook and Google as of 9/10), Facebook, Apple, Google (as of CQ3). SearchGoogle Facebook / Apple / Google = Platforms of Different TypesEach with Rapid Innovation 620MM users620MM users +51% Y/Y+51% Y/Y 550K+ Apps550K+ Apps 500MM+ Downloads500MM+ Downloads 120MM+ users120MM+ users +111% Y/Y+111% Y/Y 300K+ Apps300K+ Apps 6.5B+ Downloads6.5B+ Downloads 940MM users940MM users +11% Y/Y+11% Y/Y CQ3:CQ3: CPCsCPCs +2% Q/Q+2% Q/Q Paid ClicksPaid Clicks +16% Y/Y+16% Y/Y
  • 14 4. Advertising Ripe for innovation will your business benefit?
  • Media Time Spent vs. Ad Spend Still Out of Whack Internet / Mobile (upside) vs. Newspaper / Magazine / TV (downside) Note: Time spent data per NA Technographics (2009), ad spend data per VSS, Internet advertising opportunity assumes online ad spend share matches time spent share, per Yahoo!. Source: Yahoo! Investor Day, 5/10. % of Time Spent in Media vs. % of Advertising Spending, USA 2009 1515 ~$50B~$50B Global Opportunity 12% 16% 31% 28% 26% 9% 39% 13% 0% 10% 20% 30% 40% 50% Print Radio TV Internet %ofTotalMediaConsumptionTime orAdvertisingSpending Time Spent Ad Spend
  • 16 Advertising Dollars Follow Eyeballs Ad Revenue per User = $46 in 2009E vs. $0 in 1994E Source: Global online ad revenue per Juniper Communications (1995), ZenithOptimedia (2009). Internet users per MS estimate (1995) and comScore (2009). We note that comScore reports a lower global Internet user # than International Telecommunications Union. 1995E 2009E Global Internet Ad Revenue $55MM $54B Ad Revenue per User $9 $46 Global Internet Users 6MM 1.2B
  • Facebooks 620MM Users (+51% Y/Y) + Under-Monetized Like Connections Offer Significant New Ad Opportunities Note: Facebooks user figure reflects global unique visitors in 9/10, per comScore. Top 20 brand / product pages ranked by # of people who opted in to like the page, excludes people (like Vin Diesel / Lady Gaga) and activities (like I Sleep). Data as of 11/10/10. *Equivalent TV shows based on # of total viewers during the 2009 2010 season. Source: Facebook, Nielsen Media Research, comScore. Rank Top 20 Brands / Products # of People Who Like This (Millions) Equivalent TV Shows* TV CPM Range ($) 1 Texas Holdem Poker (Zynga) 27.2 American Idol 2 Facebook 25.2 NCIS 3 YouTube (Google) 19.6 -- 4 Starbucks 16.9 -- ~$30 5 Coca-Cola 16.7 -- 6 Mafia Wars (Zynga) 14.4 -- 7 Oreo (Kraft) 13.2 -- 8 Skittles (Mars) 12.4 -- 9 Red Bull 11.1 The Good Wife 10 Disney 10.3 Glee ~$25 11 Victorias Secret (Limited Brands) 9.1 -- 12 Converse All Star 8.8 -- 13