Smaato White Paper Asia Powerhouse June 2011

US$2.8 Billion:Asia Powerhouse

leads globalMobile Advertising

WHITE PAPER

Prepared by Nick Lane Chief Analyst, mobileSQUARED

© 2011 Smaato Inc. White Paper on US$2.8 Billion: Asia Powerhouse leads global Mobile Advertising

Smaato is a thought leader in the mobile advertising industry.This important research highlights the enormous potential for the mobileplatform as a mainstream media channel in Asia, and EDBI believes that Smaato can strongly leverage Singapore’s connectivity to the rest of Asia to capitalise on this promising growth opportunity in the region andbeyond.

Chu Swee-YeokChief Executive Officer, EDBI Pte Ltd

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Mobile is fast becoming a central part of brand communicationsthroughout Asia, where cellphones have achieved penetration rates that rival TV. Much of the current activity is simple, direct advertising, but the explosive growth rates of mobile-friendly social channels like Twitter are already influencing the way brands harness these devices’ ubiquity.

We expect mobile-oriented activities to become a cornerstone of themarketing mix across the region within the next 12-18 months.

Simon KempEngagement Planner, BBH Asia Pacific

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Mobile advertising will generate 4% of total advertising revenues across Asia Pacific by the end of 2011, according to the latestresearch released by mobileSQUARED and published by Smaato.Mobile advertising across the region is coming of age.

While the focus during 2010 was on the undoubted opportunitypresented by hundreds of millions of mobile internet users across Asia, 2011 will be a period of starting the monetising process of that opportunity. Research reveals brands starting to invest more in mobile advertising campaigns resulting in a county-by-country increase in spend of between 32% and 122%. It’s a period when the sleeping giant that is China wakes up and starts eating into Japan’s dominance on the Asian mobile advertising market.

By the end of 2011, China will contribute almost 17% of totalmobile advertising spend across Asia – and mobileSQUAREDprojects incredibly strong growth for China over the coming five years, by which point it will join Japan and the US as a billion dollar market.

But as the investment in mobile increases, it cannot be attributed to networks or smart devices. It is safe to say that Asia remains oblivious of the “Apple effect”. Yet again, 2011 will continue to be a year of lacklustre 3G rollouts, and slow smartphone adoption. Amid such ambivalence the rise of mobile social networking across Asia, allied to the fact it does not need high-end devices or high-speed networks, will provide an ideal platform to connect consumers and brands, and pave the way for a richer experience when technology and device capability permit.

For the time being, less than 5% of all available inventory across Asia will be monetised via mobile advertising in 2011, while one theory suggests that mobile ad networks are playing catch up with the market, an alternative view is that it presents mobile ad network providers, like Smaato, with a phenomenal opportunity.

Summary

3© 2011 Smaato Inc. White Paper on US$2.8 Billion: Asia Powerhouse leads global Mobile Advertising

up to 122%Brands investment increase in mobile advertising campaigns

17%China’s contribute of total mobile

advertising spend across Asia

The Powerhouse now packs a punch.

Nick LaneChief Analyst, mobileSQUARED

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Brands are now starting to move their spend onto mobile because across Asia the medium delivers scale.

By the end of 2011 there will be 671.5 million mobile internet users across Asia. That means over the last 18 months, the number of mobile internet users across Asia has increased 22%.

As a standalone figure it comes across as reasonably impressive.When placed in context, the growth represents 122.2 million people,and that is impressive. Put another way, the potential audience toview display advertising on their mobile has increased by theequivalent of Japan, making advertising on mobile all the more compelling.

The mobile internet landscape is dominated by China. Notparticularly surprising given that the number of mobile internetusers by the end of 2011, according to mobileSQUARED, will be 398.9 million, comparable to the total population of the US andGermany combined.

China accounted for around two-thirds of mobile internet user growth added around 80 million mobile internet users in 2010, and mobileSQUARED forecasts a slight increase in growth of 86 million in 2011.

Size Matters


Total Mobile Internet Users 2011, Asia (in Millions)

400

Australia China HongKong

India Indonesia SouthKorea

Japan Malaysia New Zealand

Philippines Singapore Thailand Taiwan Vietnam Others

After China, the biggest growth will come from India, which willenjoy an increase in mobile internet users of 144%, from 12.78million in 2010 to 31.22 million by the end of 2011.

Otherwise, growth remains steady across South East Asia inparticular, while growth in Asia’s two developed mobile markets, Japan and South Korea, appears to be stabilizing.

Source: mobileSQUARED

671.5 MillionMobile internet users

across Asia in 2011

400 MillionChina’s mobile internet users

by end of 2011

300

200

100

0

The number of mobile internet users in Japan is hovering a little under 100 million, while South Korea is in the mid-30 million.

Not only does China have the largest number of mobile internetusers, it has some of the most active.

The average page impression per user per day in China is 39.23, compared to Australia (32.74), South Korea (33) and emergingmobile internet markets like Thailand (17.95) and India (14).

But only when considering the number of people browsing, does the true potential of the mobile internet for brands in China come to the fore.

On a daily basis across China in 2011 some 15.65 billion pageimpressions are generated, or 476 billion a month, and 5.7 trillion per year.

In China alone, this is creating an unparalleled opportunity formobile advertising. Out of the total monthly page impressions,mobileSQUARED estimates that 4% are monetised through display advertising. This highlights the true extent of the opportunity in China for mobile ad networks in particular, and also, that the level of potential inventory being generated on a daily basis is on a scale unique to China.


Average Daily Page Imperssions Per User

Australia China India South Korea Thailand

It is a similar story across Asia, beyond Japan and South Korea,where growth relative to the size of the country is on anunprecedented scale, and it is the growth in mobile internetconsumption that is at the heart of the mobile advertising revenue spend across the region.

476 BillionChina’s monthly

page impressions in 2011


40

30

20

10

0

Mobile Advertising Spend Asia, Selected Markets (in Millions)


Mobile Ad Spend: The Sleeping Giant AwakesThe Asian mobile advertising market will be worth US$2.8 billion by the end of 2011, representing an increase of 32% on 2010 spend.

As in 2010, spend in Japan dominates Asia’s mobile advertisingrevenue skyline – projected by mobileSQUARED to remain the world’s biggest mobile advertising market worth $1.71 billion this year but its dominance within the region is diminishing.

Last year, mobile advertising revenues from Japan accounted for 70% of total spend across Asia, but that figure will drop to 61.1% in 2011 because of the rise of the sleeping giant, China.

Mobile advertising revenues in China will grow 121% in 2011, from $214.4 million to $474.7 million, accounting for 16.93% of spend in Asia.

During 2011, China will replace South Korea as the second largest mobile advertising market in Asia, and will become the third largest in the world, behind the US in second place.

Within five years, mobileSQUARED forecasts China becoming the third nation, after Japan and the US, to become a billion dollarmobile advertising market.

$2.8 BillionAsian mobile advertising

market value by end of 2011

AustraliaChina IndiaSouth Korea ThailandJapan Indonesia Malaysia

After China, India will experience the second largest increase inmobile advertising spend, up 83% from $24.6 million in 2010 to $45.1 million. Previously the market had been dominated bypublishers dealing direct with advertisers, but over the last 12-18 months, some of the more recognizable mobile advertising network providers are starting to penetrate this strange-hold on the display marketplace and fill sizeable inventory.

Like China, India has unprecedented scale, but as a market it isdeveloping considerably slower. Nevertheless, as mobile internet penetration increases, the opportunity for brands to connect with consumers, will more than double throughout 2011.

$1.71 BillionJapan’s mobile advertising

market value by end of 2011

$475 MillionChina’s mobile advertising

revenue by end of 2011

2000


1500

1000

500

0

2010 2011

Similarly, mobile advertising spend across South East Asia and Australia is projected to increase by between 30-47% in 2011.

The increase in spend is the result of heightened interest from brands across the region, utilizing the mass market appeal of the mobile internet. Interestingly, the research indicates that this has enabled the mobile ad networks delivering display-basecampaigns, to maintain a consistent CPC and CPM rate to that of 2010. mobileSQUARED believes this is the result of the phenomenaltraffic levels generating an abundance of inventory, creating aland-grab by the mobile ad networks.

Put simply, there really is enough to go round, negating the need for mobile ad networks to compete on a head-to-head and develop a price war in the near-term.

Mobile advertising will be worth 4% of total ad spend in Asia by the end of 2011. Even more notable is the fact this is at a time of strong growth in overall ad spend across the region. According to a 2010 report by eMarketer and Starcom MediaVest Group, Asia Pacific will overtake North America as the largest advertising market in 2015, worth $173.2 billion.

The report claims that the global economic slowdown prompted ad dollars to be reallocated to digital media in the emerging markets of Brazil, China and India. One year on after the report’s release, the shift in ad spend is now filtering down onto the mobile platform. mobileSQUARED forecasts mobile advertising spend in Asia willaccelerate from 2012, down to the proliferation of smartphones and the widespread deployment of high speed networks. Consequently, this will lead to more brands increasing their investment in mobile campaigns, to deliver a more creative, rich-media experience.

Where Australia and South Korea are set apart from the rest of Asia, is that smartphone penetration as of the end of 2011 will be 39% and 38%, respectively. Indeed, South Korea is now undergoing something of a meteoric growth spurt in smartphone adoption.

As of 2009, South Korea’s smartphone market was largelynonexistent, but significant growth throughout 2011, is expected to result in the sale of approximately 17.5 million smartphones.Beyond Australia and South Korea, smartphone penetrationremains low.

In China, smartphone penetration has just reached doublepercentage points, while across much of South East Asia, thenumber is low single digit at best. Featurephones and legacydevices remain the dominant form factor.

Across Europe and the US, the mobile advertising markets areexploding into life because of the rapid adoption of the smartphone.Not only is this increasing phenomenal in-app inventory, butbrowsing continues to be greater than featurephone users by afactor five, or by a factor 10 in the case of iPhone users.


47%2011 SE Asia and Australia mobile

advertising spend increase

4%Mobile advertising worth of totalad spend in Asia by end of 2011

$173 BillionAsia Pacific advertisingmarket value by 2015

The lack of smartphones across Asia will also accelerate mobile advertising spend in 2012 because of the pent-up demand for apps, from brands witnessing the impact app development and in-appadvertising is generating in developed mobile markets. A muchimproved smartphone penetration across much of Asia in 2012 will evolve app marketing from a largely niche play in 2011 to anestablished business model.


Limited smartphone penetration coupled with the continuedsluggish rollout of 3G networks across South East Asia and India in particular, significantly dampens the scope of creativity restrictedto lo-media campaigns. This is by no means a negativedevelopment, as lo-media equates to the potential for a higherfrequency of repeat campaigns. Not surprising then, is the fact that display and messaging based mobile advertising will contribute the greatest percentage of spend in the majority of Asian markets in the foreseeable future.

Furthermore, the lack of smartphones will not impact on theexponential increase of social media on mobile across the region. Despite slow starts, both Facebook and Twitter are making giantinroads across all markets, except China where local socialnetworking sites, such as QQ and Qzone, and the country’s ownversion of Twitter called Weibo. Harnessing the power of mobile social media in the coming 12-24 months will prove an invaluable learning curve for brands seeking to capitalise on the advertising opportunities presented by the limitations of the small screen.

And with social network sites becoming the second most visited sites across Asia (see below) among users (not including actualusage and page impressions generated), understanding how brands can integrate their content in an unobtrusive manner onto social media pages served to mobile devices will be critical as socialnetworking starts to dominate traffic.

Mobile Internet Browsing Behaviour, Asia, 2011 (in Millions)

Source:mobileSQUARED

1,300

Total News/Sport Mapping/Directions

Search for Devices Search for Products Access Social Network Sites

2011 2012 2013 2014 2015

1137

975

812

650

487

325

2012App market will evolve from niche

to established business model

The sheer scale of the Asian mobile internet community is now starting to attract the attention of the brands, which are starting to increase their investment in mobile advertising.

Within five years, Asia will not only be the biggest advertising region globally, it will have two of the biggest individual mobile advertising markets in the world.

The inflection point will be 2012 when the need for brands to startdelivering rich-media campaigns will drive spend in mobileadvertising.

The platform for this growth is being made possible despite the low smartphone penetration and lack of significant high-speednetworks. Overcoming the immediate need for these components is the rise of mobile social networking, which is now starting to enjoy a ubiquity like SMS, though by no means on the same scale.

Mobile social networking is assisting the development of themobile advertising industry in Asia because, not only is it generating significant inventory, it also allows brands to sidestep the need for smartphones and 3G, and adopt a lo-media campaign strategy to develop a relationship with the consumer.

In essence, mobileSQUARED believes 2011 is a stepping stone to 2012 when interest in mobile will reach an inflection point and brands will start investing sizeable sums into mobile advertising:

2011 is going to be very good, but 2012 will be better.


Conclusion

2011 is going to be very good, but 2012 will be better


Advertisers are clearly excited about in-app marketing, and indeed have embraced app development itself as an area where they can build value and engage consumers directly.

And while some advertisers are content with the relatively limitedaudience they can reach through phones capable of receiving these types of messages, many advertisers are disappointed by what options are available for them to reach Asia’s vast majority of consumers who do not yet have these level of phones, nor can afford the data services associated with them.

I think this is just today’s problem. The future is incredibly bright formobile advertising in the region as it will be one of the leading areas in the world where consumers use a mobile device as their first and only tool to access the Internet.

Jason KupermanVice President, Omnicom Digital, Omnicom Group Asia Pacific

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Nick has been described as “the leading commentator on UK mobile media (Adam Smith, Futures Director at GroupM). But Nick’s experience extends well beyond the UK. He specializes in mobilemarket intelligence and heads up the research and analysis atmobileSQUARED (www.mobilesquared.co.uk).

Prior to launching mobileSQUARED, Nick was Head of Research Services and Principal Analyst at Informa, where he oversaw the group’s leading industry newsletters, reports and forecasts that have helped shape the mobile industry.

In this role, Nick established himself as one of the leadingauthorities on the mobile content, services and advertising space, regularly speaking and chairing at conferences and events around the world. While in this role at Informa, Nick wrote a number ofreports, from consumer behavioral analaysis to mobile advertising.

Nick Lane, Chief Analyst, mobileSQUARED

About mobileSQUAREDmobileSQUARED provides specialist research which enables brands, agencies and the mobile industry to increase engagement with the mobile consumer. We conduct primary research on themobile industry and mobile consumers, with a focus on deliveringexclusive forward-looking data on mobile device usage, mobile web,app and commerce trends and usage, and mobile advertisingresponsiveness to help clients identify and respond tofast-changing mobile trends. And for a wider view of the industry, we provide detailed mobile industry user and revenue forecasts.

Our clients look to mobileSQUARED’s expertise to provide candidinsight into the mobile market. We do this using our extensiveglobal network of senior contacts to research, collect and collate the latest data, developments, trends and insight on an ongoingbasis.

mobileSQUARED is a trading name of D2 Mobile Ltd.

All rights reserved. Whilst reasonable efforts have been made to ensure that the information and content of this report was correct as at the date of first publication, neither D2 Mobile Ltd nor anyperson engaged or employed by D2 Mobile Ltd accepts anyliability for any errors, omissions or other inaccuracies. Readers should independently verify any facts and figures as no liability can be accepted in this regard.

Readers assume full responsibility and risk accordingly for their use of such information and content.

www.mobilesquared.co.uk

[email protected]

The names of actual companies and products mentioned here may be trademarks of their respective owners.

Smaato White Papers

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Smaato provides Ads for Apps – operating the leading mobile advertising optimization platform called SOMA. More than 30,000 app developers and premium publishers have signed up with Smaato to monetize their con-tent in 220+ countries and to manage 70+ billion ad requests per month. The Smaato network reaches 150+ million mobile unique users every month.

SOMA’s unique feature is the aggregation of 60+ leading ad networks globally to maximize mobile advertising revenues. Through an open API and the widest range of SDKs, SOMA can be easily integrated with ad networks, ad inventory owners (publishers, developers and operators) and 3rd party ad technology providers.

Smaato is an active member of the Mobile Marketing Association, Singapore Infocomm Industry (SITF) and Singapore IT Federation. Smaato recently received the OnMobile Top 100 by AlwaysOn 2011 and the AlwaysOn Top 100 Award (2011, 2009 & 2007). Smaato was named a “company to watch in 2010” by Financial Analyst company GP Bullhound, among other awards.

Smaato Inc. is based in Redwood Shores, California. The privately held company was founded in 2005 by an experienced International management team. The European headquarters are in Hamburg, Germany and the Asia-Pacific presence of Smaato has been established in Singapore.

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Smaato White Paper Asia Powerhouse June 2011