2013 Review of the Digital Marketing ecosystem.

1. Digital Marketing Industry Review
January 2013
Ken Allen
Managing Director
allen@blackstone.com
Rumena Manolova
Associate
rumena.manolova@blackstone.com

2. Table of Contents
I. Executive Summary 2
II. Industry Themes 7
III. M&A Perspectives 39
Appendix 51
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3. I. Executive Summary

4. I. Executive Summary
Summary Observations
The Digital Marketing The Digital Marketing Ecosystem Continues to Undergo a Significant
Transformation
sector continues to
 Multi-decade transition from analog to digital
evolve, and is
 Audience-centric, cross-channel, data-driven, real-time
becoming
increasingly strategic
Growth in the Digital Marketing Industry is Being Driven by a Number of
to a large number
Important Trends
of ecosystem players.
 Mobile, Social, Video, Audience Targeting / RTB, and Data / Analytics are critical capabilities
that have gained strategic importance in recent years
The Above Trends Have Catalyzed a Significant Wave of Consolidation in
the Industry
 Leading strategic acquirers seeking growth have gained access to these capabilities through
inorganic expansion
 Stack convergence is resulting in unified, multi-channel offerings fueled by data and analytics
Consolidation / M&A Will Continue to Define the New Digital
Marketing Ecosystem
 Larger players will continue to leverage M&A as a means to unify the product suite, ‘purchase
R&D’, acquire talent, and, as a defensive measure, prevent strategic assets from falling into
the wrong hands
 Strategic M&A has become a core capability and a source of competitive advantage for
many firms
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5. I. Executive Summary
A Significant Shift Is Occurring in Online Marketing and Commerce Platforms
Marketing and eCommerce platforms are becoming increasingly integrated, supported by data and
analytics, and processed in real time.
How We Decide How We Buy
Social Comparison
Mobile Mobile
Shopping
Social
Display Email Digital
Auctions
Goods
Flash Sales /
Search Local Daily Deals
Ecommerce
Community
TV Barcode TV
Radio Branding Point of
Call Direct Mail
Sale
Print Center
Multi-Channel Multi-Channel
Engagement Commerce
Purchase Social Demo / Preferences
Intent Behavioral
History Graph Geo / ‘Likes’
10110011011001010110001 ... Data ... 10110011011001010110001
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6. I. Executive Summary
The Online Channel Represents the Sole Growth Vector in the Global Advertising Market
While currently smallest in size, the Online advertising market is vastly outpacing other channels in
terms of long-term growth.
2011 Global Market Size ($bn) 2006 – 2011 CAGR Key Drivers and Themes
$497bn
 Online media becoming central pillar of advertisers’ marketing efforts
Online, 18%  Growth driven by increased Internet penetration, advanced technologies
+14% (e.g., data analytics), and new forms of engagement (e.g., video)
($87)  Advertisers demanding engagement across multiple screens
 Rapid decline caused by secular disadvantages
Print, 23% (6%)  Shift towards brochures, flyers, booklets, press kits; away from news
($116)
 Increased integration with digital (QR, augmented reality, ambient)
 Strength in local / national cable offset by decline in broadcast TV, radio,
Broadcast, 25% and outdoor broadcast
2%
($125)  Rapid growth of online video and radio creating competitive pressure
 Persistent decline caused by secular disadvantages
 Integration with digital channels (mobile, QR) and enhanced data
Direct, 34% (5%) analytics capabilities becoming critical
($169)  Renewed interest in Direct Mail led by financial services, retail, and
automotive sectors
($5)
Global Market Size
________________________________________________
Source: Wall Street research, Bloomberg, eMarketer.
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7. I. Executive Summary
Key Industry Growth Drivers
A number of
Social
important themes
are driving growth in
the Digital Marketing
ecosystem.
Mobile Video
$40
$30
$20
$10
$0
1995 1999 2003 2007 2012
Consolidation / Audience
M&A Targeting / RTB
Data / Analytics
________________________________________________
Note: Digital Advertising Revenue refers to U.S. spending; $ in billions.
Source: Business Insider, IAB, eMarketer, Blackstone.
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8. II. Industry Themes

9. II. Industry Themes
Digital Marketing Industry Themes: Mobile
Social
Mobile Video
$40
$30
$20
$10
$0
1995 1999 2003 2007 2012
Consolidation / Audience
M&A Targeting / RTB
________________________________________________
Data / Analytics
Note: Digital Advertising Revenue refers to U.S. spending; $ in billions.
Source: Business Insider, IAB, eMarketer, Blackstone.
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10. Social
Mobile Video
$40
$30
II. Industry Themes
$20
$10
$0
1995 1999 2003 2007 2012
Audience
Consolidation Targeting /
Mobile Endpoints Are Expected to Drive Significant Data Consumption and Advertising Growth
/ M&A RTB
Data /
Analytics
The proliferation of mobile devices, combined with the potential inherent in mobile targeting,
Callout
presents a significant market opportunity.
Evolution of Hardware Device Penetration Ad Conversion by Device Type
(Millions in log scale) (Based on a scale of 100% for Desktop)
1,000,000 120% 110% 107%
100% 100% 100% 100%
Mobile 100% 90%93%
Internet
100,000 80% 68%
60% 45%
50%
Desktop 40%
10,000 25% 27%
22%
Internet 17%
20%
1,000 PC 0%
10B+Units?
Rev. Per Click Conv. Rate Avg. Order Value
Mini iPad Desktop Android Tablet iPhone Android Phone
100 1B+Units / Users
Computer
U.S. Net Mobile Ad Revenues
10 100MM+Units ($ in millions)
Mainframe
'11 - '14E CAGR
$4,000
1 10MM+Units 68%
$3,000
1MM+Units $2,000
0 40%
$1,000 194%
1950 1970 1990 2010 2030 85%
$0 57%
2011 2012E 2013E 2014E
There are currently 953mm smartphone subscriptions vs. 6.1bn mobile
subscriptions, representing a massive growth opportunity. Google Facebook Twitter Apple (iAd) Other
________________________________________________
Source: Wall Street research.
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11. Social
Mobile Video
$40
$30
II. Industry Themes
$20
$10
$0
1995 1999 2003 2007 2012
Audience
Consolidation Targeting /
Mobile Is Taking Share From all Other Media Channels
/ M&A RTB
Data /
Analytics
Consumers are incorporating mobile in all aspects of their daily lives – from social activities to
commerce and TV viewing.
Share of Consumer Time Spent with Major Media(1) Metric(2)
50%
45%
 ~1,100% YoY growth in users in Q4 2012
44%
45% 43%
42%
40%
 ~56% of users from mobile in 2012
35%
30%
26% 26%
26%  ~1,000% YoY growth in users in Q3 2012
25%
25%
20%
17%
16%
15%
 70% of users from mobile in 2011
14%
15%
12%
10% 9% 9%
8% 8%  ~20% of shoppers scan a product barcode
7% 7% 7%
6% 6%
5% and/or send product pictures to friends
4%
5% and family
0%
 85% of smartphone users access phones
TV Online Radio Mobile Print Other
while watching TV
2009 2010 2011 2012
________________________________________________
 55% of users from mobile in 2011
(1) Source: eMarketer, BII Research.
(2) Source: BII Research, Facebook, Enders Analysis.
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12. Social
Mobile Video
$40
$30
II. Industry Themes
$20
$10
$0
1995 1999 2003 2007 2012
Audience
Consolidation Targeting /
On a Global Basis, the Mobile Growth Opportunity Is Massive
/ M&A RTB
Data /
Analytics
Despite its rapid growth to-date, mobile continues to represent a major untapped opportunity.
G-20 Internet Access(1) Untapped Smartphone Opportunity(2)
(Consumer broadband connections in millions) (Global users in billions)
8.0
6B
3,000 7.0
Users
2,707 6.0
5.0
2,500 4.0
3.0
1B
2.0 Users
2,000
1.0
0.0
2,134 Smartphone Mobile Phone
1,500
Untapped Online Opportunity(3)
(In billions)
1,000 7.0
825
6.0
5.0
475
500 4.0
Global Population
167 573 3.0
350
0 2.0
2005 2010 2015 1.0 Internet Population
Fixed Mobile 0.0
1998
2008
1990
1991
1992
1993
1994
1995
1996
1997
1999
2000
2001
2002
2003
2004
2005
2006
2007
2009
2010
2011
________________________________________________
(1) Source: Strategy Analytics, International Telecommunications Union, BII Research.
(2) Source: Boston Consulting Group, Mary Meeker, Kleiner Perkins, Morgan Stanley Research, Berg Insight, BII Research.
(3) Source: International Communication Union, Google, BII Research.
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13. Social
Mobile Video
$40
$30
II. Industry Themes
$20
$10
$0
1995 1999 2003 2007 2012
Audience
Consolidation Targeting /
Smartphone Penetration in the U.S. Is Showing Signs of Saturation
/ M&A RTB
Data /
Analytics
As more than half of U.S. mobile subscribers now own smartphones, the pace of net new adds has
slowed down.
U.S. Smartphone Market: Year-Over-Year Net New Adds
(Users in millions)
40 100%
35 80%
35 34
30 32 32 60%
29 29
25 27
40%
20
21 20%
15 18
14 15 0%
10 12 13 13
10 11
9 10 (20%)
5 8
0 (40%)
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2013
Users Added % YoY Growth
% Smartphone Penetration(1)
30% 38% 41% 44% 48% 50% 55%
________________________________________________
Source: comScore, Nielsen, BII Research.
(1) Note: U.S. mobile subscribers 18+.
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14. Social
Mobile Video
$40
$30
II. Industry Themes
$20
$10
$0
1995 1999 2003 2007 2012
Audience
Consolidation Targeting /
Mobile Ad Revenues Have Exhibited Slower Growth Thus Far Relative to Other Media
/ M&A RTB
Data /
Analytics
Mobile advertising has grown more slowly than other media, as advertisers struggle to adopt the
‘right’ advertising model.
Comparative U.S. Advertising Media Annual $ Revenue Growth (First 5 years)
($ in millions)
$5,000
$4,621
$4,500
$4,000 $3,698
$3,500
$3,000
$2,500
$2,162 $2,162
$1,920
$2,000
$1,500 $1,171
$1,012 $907
$1,000 $806
$500 $358 $392
$80 $55 $160 $267
$0
Year 1 Year 2 Year 3 Year 4 Year 5
Broadcast TV Mobile Internet
________________________________________________
Note: Adjusted for inflation.
Source: IAB, McCann-Erickson, BIA-Kelsey, Bll Research.
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15. Social
Mobile Video
$40
$30
II. Industry Themes
$20
$10
$0
1995 1999 2003 2007 2012
Audience
Consolidation Targeting /
Mobile Ads Are Primarily Web Search and Display
/ M&A RTB
Data /
Analytics
Search dominates mobile ad revenues; however, eCPMs are lower than Desktop. The two leading
smartphone platforms, Android and iPhone, garner the highest eCPMs.
2011 Global Mobile Ad Spend(1) Effective CPM, Desktop vs. Mobile(3)
Messaging
$4.00
10%
$3.50
$3.50
Display 28%
$3.00
62% Search
$2.50
$2.00
CPM Rates by Mobile Devices(2)
$3.00 $1.50
$2.50
$2.00 $1.00
$0.75
$1.50 $2.85
$1.00 $2.10 $0.50
$0.50 $1.01
$0.59 $0.64
$0.20 $0.00
$0.00
Windows Symbian RIM J2ME / Android iPhone Desktop Internet Mobile Internet
Phone others
________________________________________________
(1) Source: IAB, BII Research.
(2) Source: Opera Software, Q2 2012.
(3) Source: comScore, Vivaki, Mobclix Exchange, BII Research.
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16. Social
Mobile Video
$40
$30
II. Industry Themes
$20
$10
$0
1995 1999 2003 2007 2012
Audience
Consolidation Targeting /
Native, Location-based, and Video Ads Represent the Next Big Opportunity in Mobile
/ M&A RTB
Data /
Analytics
Native, social, location-based, and video ads integrate more seamlessly in consumer mobile
experiences and have higher CPMs.
Ads in Timelines (Twitter / Facebook)(1) Location-Based Ads(2)
(Monthly Ad Requests Per Mobile User by Location)
75
60 70 67 67
45
47
30 37 39 35
15 27 24 23 16
0
CPM Rate for Selected Mobile Ad Platforms(3)
xAd Local $3.50
LSN Mobile Local Ads $5.00
Adsmobi Video Ads $5.00
Flurry Video Ads $10.00
________________________________________________
(1) Source: Twitter, Facebook. $0.0 $2.5 $5.0 $7.5 $10.0
(2) Source: JiWire, 3Q 2012.
(3) Source: Ad platforms, BII Research, Greg Sterling, Opus Research.
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17. Social
Mobile Video
$40
$30
II. Industry Themes
$20
$10
$0
1995 1999 2003 2007 2012
Audience
Consolidation Targeting /
Smartphone Users Spend More Time on Apps than on the Web
/ M&A RTB
Data /
Analytics
Apple dominates the mobile app revenue market.
Total Time Spent Using Mobile Web vs. Apps(1) 2011 Mobile App Revenue Share(2)
(Minutes Spent per Month in billions)
140
Other
120
10%
100 Android
7%
80
60
40
20 83%
0 Apple iOS
Mar-11 Jun-11 Sep-11 Dec-11 Mar-12
Mobile Web Apps
________________________________________________
(1) Source: Nielsen Smartphone Analytics, BII Research, Blackstone.
(2) Source: iSuppli, Forrester Research, company press releases, BII Research.
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18. Social
Mobile Video
$40
$30
II. Industry Themes
$20
$10
$0
1995 1999 2003 2007 2012
Audience
Consolidation Targeting /
Google Is the Overall Leader in Mobile Ad Revenues
/ M&A RTB
Data /
Analytics
Google practically owns the mobile search market, and has steadily increased its revenue share
over time.
Mobile Ad Revenue(1)
(% of total)
100%
90% Other
80%
70%
60%
50%
40%
30%
20%
10%
0%
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11
Google Global Mobile Search Market Share(2)
Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12
96% 96% 96% 97% 98% 98% 98% 98% 97% 97% 97% 97% 97% 97% 97% 97%
________________________________________________
(1) Source: BII Research, Blackstone.
(2) Source: Global StatCounter, BII Research.
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19. Digital Marketing Industry Themes: Social
Social
Mobile Video
$40
$30
$20
$10
$0
1995 1999 2003 2007 2012
Consolidation / Audience
M&A Targeting / RTB
________________________________________________
Data / Analytics
Note: Digital Advertising Revenue refers to U.S. spending; $ in billions.
Source: Business Insider, IAB, eMarketer, Blackstone.
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20. Social
Mobile Video
$40
$30
II. Industry Themes
$20
$10
$0
1995 1999 2003 2007 2012
Audience
Consolidation Targeting /
/ M&A
Social Networks Are Profoundly Changing How Consumers Discover and Interact with Brands
RTB
Data /
Analytics
Social networks are becoming a primary source for consumers to discover new products, view peer
recommendations, and seek reviews. Innovations such as mobile check-ins and Facebook integration
with retailer sites have allowed consumers to take “word-of-mouth” marketing to a mass scale.
Traditional Marketing Funnel Social Media Marketing Loop
Awareness
Awareness Interest
Interest
Recomm-
endation
Decision
Decision
Action
Action
________________________________________________
Source: eMarketer, Blackstone.
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21. Social
Mobile Video
$40
$30
II. Industry Themes
$20
$10
$0
1995 1999 2003 2007 2012
Audience
Consolidation Targeting /
The Shifting Display Ecosystem Has Resulted in Dramatic Share Shifts in Advertising
/ M&A RTB
Data /
Analytics
Underlying industry dynamics have resulted in significant display advertising share shifts from static,
non-targeted premium channels to RTB and Social formats.
Net U.S. Online Display Ad Revenues Net U.S. Social Network Ad Spending
(% of Total Display Ad Revenues, 2011 – 2014) (% of Total Social Ad Revenues, 2011 – 2014)
2011 2012E 2013E 2014E 2011 2012E 2013E 2014E
14.0% 16.8% 17.7% 17.1% 70.9% 68.8% 65.6% 63.5%
13.8% 16.5% 19.8% 21.7% 5.5% 8.3% 11.1% 12.7%
10.8% 9.1% 8.1% Social Games
7.5% Social Games 5.5% 6.7% 7.0% 7.4%
4.5% 4.4% 4.3% 4.4% 4.3% 5.3% 5.8% 6.1%
4.3% 4.0% 3.8% 3.7% 1.8% - - -
Total Top Five - % of Total Display 47.4% 50.8% 53.7% 54.4% Total Top Five - % of Total Social 88.0% 89.1% 89.5% 89.7%
________________________________________________
Source: eMarketer.
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22. Social
Mobile Video
$40
$30
II. Industry Themes
$20
$10
$0
1995 1999 2003 2007 2012
Audience
Consolidation Targeting /
Facebook Represents an Exciting, Although As Yet Unproven, Advertising Platform
/ M&A RTB
Data /
Analytics
Facebook’s data and potential targeting mechanisms hold significant promise for advertisers.
Marketer response, however, has been mixed thus far.
Facebook Targeting Framework Facebook Advertising ROI vs. Competitors
(% Surveyed)
Superior
17.1%
Inferior 38.3%
44.5%
YOU
About the Same
Targeting Mechanisms
Facebook Advertising Feedback from C-Level Executives
(Based on Citigroup Facebook Advertiser Survey)
 Demographic data  Retargeting
 Primary customer data Facebook Advertising Partner View Facebook Advertising Partner View
 Personal
information CEO of Major eCommerce Platform Mixed CEO of Online Ad Agency Mixed
CEO of Leading Online Luxury CEO of Large Online Ad Agency
 Interest graph Goods Retailer
Negative
Group
Negative
CEO of Digital Ad Agency Mixed CMO of Online Ad Agency Positive
Exec at Large Online Auction / CMO of Large Global Beverage
Mixed Positive
Commerce Site Company
Exec at Large Online Community Site Negative CMO of Global Bank Mixed
Targeting Channels Exec at Consumer / Business Printing
Mixed CMO of Leading CPG Company Mixed
Site
Veteran Online Advertising Executive Negative CEO of Online Travel Company Negative
Exec at Online Ad Platform Positive CMO of Online Automotive Retailer Mixed
Exec at Leading Hot Beverage
CEO of Large Ad Agency Firm Negative Positive
Facebook Facebook Facebook Facebook Zynga.com Third-Party Smartphone Company
Online Newsfeed Mobile Apps Exchange Sites Apps Exec at Large Ad Agency Firm Positive
________________________________________________
Source: Blackstone, Wall Street Journal, Citigroup.
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23. Digital Marketing Industry Themes: Video
Social
Mobile Video
$40
$30
$20
$10
$0
1995 1999 2003 2007 2012
Consolidation / Audience
M&A Targeting / RTB
________________________________________________
Data / Analytics
Note: Digital Advertising Revenue refers to U.S. spending; $ in billions.
Source: Business Insider, IAB, eMarketer, Blackstone.
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24. Social
Mobile Video
$40
$30
II. Industry Themes
$20
$10
$0
1995 1999 2003 2007 2012
Audience
Consolidation Targeting /
/ M&A RTB
A Huge Opportunity, One that Online Video Is Ideally-Suited to Target, Exists in Display & Brand Advertising Data /
Analytics
A significant gap exists between the relative share of online and offline branding, implying a $13.0bn
untapped market opportunity in the U.S. alone.
U.S. Market Opportunity (2011) Online Becoming ‘The New Primetime’
($ in billions)
70
Prime Time
% People 15+ Using Medium
$152.0bn $31.0bn
100% 60
Direct Direct 50
(1) (1)
Response Response 40
TV
($27.0bn, 18%) ($19.0bn, 61%) 30
75% 20
10 Internet
Implied
0
Gap Midnight 2 AM 4 AM 6 AM 8 AM 10 AM 12 PM 2 PM 4 PM 6 PM 8 PM 10 PM
($13.0bn, 43%)
50% Harder to Reach Audiences in the New Media Model
ADS TARGET AUDIENCE MEDIA
(2)
Branding
Traditional
Fewer ads… Reached more people… With undivided attention.
Media
($125.0bn, 82%)
25% (2)
Branding (2)
Branding
($12.0bn, 39%)
[__]
More ads… Reaching fewer people… Paying less attention.
New Media
0%
U.S. Offline U.S. Online
Media Spend Media Spend
________________________________________________
Source: IAB, Wall Street research, comScore, Blackstone.
(1) Offline DR includes direct mail and directories. Online DR includes classifieds, e-mail, lead generation, and search.
(2) Offline Branding includes outdoor, print, radio, and TV. Online Branding includes banner ads, rich media, sponsorships, and video.
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25. Social
Mobile Video
$40
$30
II. Industry Themes
$20
$10
$0
1995 1999 2003 2007 2012
Audience
Consolidation Targeting /
“Over-the-Top” Video Is Reaching Mass Adoption
/ M&A RTB
Data /
Analytics
As consumers begin to view more content online, “over-the-top” video revenues are on the rise.
U.S. Primetime TV Viewing(1) Global Digital Video Revenue(2)
(% of 18-49 TV set users during 8-9 PM hour, multiple responses permitted) ($ in billions)
120% $5.0
100% 6% 6% 7%
8% $4.0
17% 16%
80%
26%
$3.0
60%
$2.0
40% 82% 83%
64%
20% $1.0
0%
$0.0
2004 2008 2012
2006 2007 2008 2009 2010 2011
Live TV Recorded TV
Video game Streaming video Netflix Youtube Hulu
________________________________________________
(1) Source: GfK, BII Research.
(2) Source: Company filings, Wall Street research, BII Research, Blackstone.
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