eMarketer

“Evidence of a Turning Tide”

IAB Annual MeetingSeptember 8, 2003

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Organize Analyze

1,200 sources

What we’ll cover:

I. Where have webeen?

II. Where are we going?

III. The 6 pillars of growth -- MORE:

#1. Internet users

#2. Time spent online

#3. Shopping & buying

#4. Broadband & Digital TV

#5. Rich media

#6. Relevancy

II. Where have we been?

Convincing traditional

advertisers that online

advertising works

I heard the Internetis the most measurable

medium ever!

So, how big was the online ad market last year?

Pick a number, any number…

Year 2002 Projections

(billions)

$4.9McCann

$4.8Lehman

Bros$4.0

Myers Group

$6.1CIBC

$7.0Smith

Barney

$5.6Jupiter

$6.6Forrester

$7.5Zenith Media

$7.0Kagan

$6.0Goldman

Sachs

$8.7Gartner

G2

$6.0VeronisSuhler

$6.4JP Morgan

$8.6Corzen

Source: eMarketer, 2003

$5.7CMR

$2.8Initiative

Media

$6.3PwC

$6.0MorganStanley

$6.0IAB/PwC

eMarketer

II. Where are we going?

“We think that advertising is on it’s way back.”

--David Wyss, Chief Economist, Standard & Poor’s

September 5, 2003

CMR reports6.8% growthfor 1st half

Merrill LynchS&P(Sept ’03):

4.8%

Among 500 media planners surveyed in August, has your demand for ad media…

Remained even43%

Increased39%

Decreased18%

Source: MediaPost/Insight Express, Sept 8, 2003

Just Released!

Online ad spendinggrowth in 2003

eMarketer 4.8%

CMR/TNS 7.4%

Source: eMarketer, 2003

PwC 4.8%

McCann 5.0%

0.0%GartnerG2 4.7%

JP Morgan 7.2%

Myers 2.6%CIBC

Goldman 0.7%

Veronis 10.0%

Jupiter Research 5.0%

Source: eMarketer, 2003, IAB, 2003; Goldman Sachs, 2003 (AOL)

$6.0 B

Removing the AOL factor

$6.3 B

2002 2003

+4.8%

$6.0 B

Don’t forget the AOL factor

$6.3 B(AOL)(AOL)

2002 2003

+15%

Vs. Total Media @ 4.9%

Online ad spending growth in 2004?

4.6%6.0%6.1%

7.9%11.3%

20.0%21.0%

25.0%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

GartnerG2

Veronis

PwC

eMarketer

JP Morgan

Myers

Jupiter

Lehman

Total Media= 6.1%

US online ad spending (in billions)

$7.2$6.8$6.3$6.0

$7.2$8.2

$4.6

$8.1

$0.0$1.0$2.0$3.0$4.0$5.0$6.0$7.0$8.0$9.0

1999 2000 2001 2002 2003 2004 2005 2006Source: eMarketer, 2003; IAB, 2003

The 6 Pillars of Growthfor Online Advertising.

#1. There are 155 million Internet#1. There are 155 million Internetusers, and 140 million are users, and 140 million are active, monthly users.active, monthly users.

113.0117.8

131.3137.0

142.7155.0157.6158.0

169.0178.0

0.0 50.0 100.0 150.0 200.0

KaganMediaMark

NetRatingsHarris Poll

comScoreeMarketer

JupiterPew Research

eTForecastsArbitron

Millions “online” in 2002

Source: eMarketer, 2003; with 2002 baseline from Dept of Commerce, 2003

Out of 155 million users in total…

• Daily (52.7%) = 81.7• Several times per week (22.2%) = 34.4• About one time per week (8.0%) = 12.4• Monthly (7.8%) = 12.1• Less than 1X/month (14.1%) = 29.1

Total Online, per eMarketer = 155.0Source: eMarketer (total number online and calculation of segment sizes), 2002; Conference Board (percentage allocations of frequency), based on study conducted by NFO WorldGroup & Forrester Research among 7,000 households, 2002

140 MMmonthly

users

eMarketer’s active user base of 140 million is supported by other researchers

eMarketer 140.0 MeMarketer 140.0 M

comScore 142.7 McomScore 142.7 M

Nielsen//NetRatings 131.0 M**Nielsen//NetRatings 131.0 M** 140.8 M140.8 M

Harris Poll 140.0 MHarris Poll 140.0 M

Comparison with Top Panel Measurement Firms and Harris Poll*

Source: eMarketer, 2003*Harris Poll was conducted in Nov-Dec 2002 among 2,033 Americans**Nielsen//NetRating’s figure of 131 million does not include university users. Adding the 9.5 millionuniversity users measured by comScore yields a total user figure of 140.8 million

The total Internet user audience grew by 8.5% in 2002

124.0142.8

155.0 162.0 168.0 171.4

0.0

50.0

100.0

150.0

200.0

2000 2001 2002 2003 2004 2005

Source: eMarketer, 2003; baselines in 2000 and 2001 from Dept. of Commerce, 2002

+4.5%+8.5%

comScore data supports a growth rate of over 8% for the total Internet user base

100.0

120.0

140.0

160.0

Millions 134. 134. 135. 136. 137. 138. 139. 140. 141. 142. 143. 144. 144. 144.Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb

Source: comScore Networks, 2003 (based on total at work/at home/at university users)

‘02 ‘03

December ’01 vs. 02 growth was 8.7%

Internet 59%

Comparative HH penetration rates in ‘02 (= REACH)

Radio & Television

Cable TV ~ 67%

Sources: eMarketer (Internet); Nielsen Media Research (television); RADAR, Fall 2000 (Radio); Television Bureau of Advertising, 2003 (Cable); MRI Spring 2002 (magazines); Scarborough Research/NAA Research, Spring 2002 (newspapers)

98%

Magazines 84%

Newspapers 55%

2004: 68%

“The two factors that seem to drive Internet

use the most are income and educational levels.”

--Tom Spooner, Pew Internet & American Life Project

Internet penetration goes up with HH income level

% of US HHs with Net Access

25.0%33.0%

44.0%57.0%

67.0%79.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

<15K $15K -24.9K

$25K -$34.9K

$35K -$49.9K

$50K -$74.9K

$75K+

Source: US Dept of Commerce, February 2002

Tower Group………….85%Pew Research………….82%Scarborough Research…79%

While African-Americans & Hispanics are still underrepresented online, they’re catching up fast

Total Pop(Census)

Source: eMarketer, 2003; various, as noted

75.1%

12.3%

12.5%

3.6%

White

Black

Hispanic

Asian

eMarketer(Dec 2002)

78.4%

9.2%

7.1%

4.6%

78.6%

10.2%

7.5%

3.7%

78.0%

9.0%

7.0%

N/a

Jupiter(HHs ’02)

Arbitron(Jan ’03)

#2. They spend an#2. They spend anaverage of 65average of 65minutes per day minutes per day online.online.

45.060.2

68.680.0

95.196.8

115.7

0 20 40 60 80 100 120 140

AOL/Roper (Mar '03)

NetRatings (Jan '03)

UCLA (Jun '02)

Arbriton (Jan '03)

Harris (Apr '02)

comScore (Jan '03)

Veronis (2002)

Average number of minutes Internet users spend online per day

Sources: eMarketer, 2003 (including all locations)

Notes: 1)Veronis figure based on home usage only, and assuming a user penetration rate of 60%; 2) NetRatings changed their methodology to include desktop apps in 10/02; 3) AOL/Roper data for adults only

Sweet Spot~ 65 mins

• Averages can be misleading. Many Internet users spend far more than 65 minutes per day online

WARNING!

– Broadband users– At work users– Experienced Internet users– Upper income/affluent– Teens…

For business decision-makers, the Internet dominates all other media

41%32%

23%

5% 3%0%

10%

20%

30%

40%

50%

Internet TV Radio Newps Mags

% of Business Decision-Makers Who Use Media for At Least 2 Hours Per Day Mon.-Fri.

Source: Nielsen//NetRatings @Plan, MORI Research and Washingtonpost.com, Sept 2002

Teens now spend more time online than with television (avg hours/day)

Sources: 1) Grunwald Associates, March 2003 (teens aged 13 – 17 years); includes e-mail and IM. 2) HarrisInteractive/Teenage Research, July 2003 (teens aged 12 – 17 years)

TV

Web

Grunwald* 3.1

Harris 1.9

Grunwald* 3.5

Harris 2.4

And for some dayparts, the Internet beats all other media

59%

34%

16%7%

0%

20%

40%

60%

80%

Internet Radio Newspaper TV

% Using Medium During 8:00 - 11:00 am

Source: MORI Research, January 2003(among Internet users)

comScore panel measurement data shows growth has slowed – avg mins per visitor per day

0.010.020.030.040.050.060.070.080.0

Mins per user 55.2 57.0 57.9 56.8 54.3 54.3 53.3 53.4 57.8 58.3 59.6 56.8 60.2 62.3 57.8 56.9 53.5 55.6 55.8

Jan '02

Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec '02

Jan '03

Feb Mar Apr May Jun Jul

Source: comScore Media Metrix, 2003 (based on a panel of 1.5 million active Internet users

December ’01 vs. 02 growth = 12.5%

FY ‘02 vs. Jan - July ’03 = 2.2%

Arbitron (9 ‘02) -31%Magazines Newspapers

-27%Television

-37%

Gartner G2 (10 ‘02) -20%-15%-20%

Scarborough (5 ‘02) -15%-20%-23%

Pew (6 ‘02) -18%N/a-37%

UCLA (11 ‘02) -36%-38%-30%Source: eMarketer, 2003

TV

Mags Newspapers

% Decrease inTV/Mag/NwsprUse Due to Web

Some say online’s not getting its fair share!!!

8.8% 4.4%

#3. More people are shopping#3. More people are shoppingand buying online, andand buying online, andmore often.more often.

“We actually feel that people who are seeking information online are further along in the continuum path.”

--Christine Sakdalan, Novartis

INTERNET

Awareness

Gatheringpre-purchaseinformation Purchase

BrandLoyalty

RepeatPurchase Interest,

Attitudes,Consideration

The Internet can impact at ALL points along the consumer buying cycle

Trial

93.3 M Shoppers(71% of users)

73.3 M Buyers(56% of users)

Which media source do you prefer to use for each type of information?

Web

Source: Forrester Research, 2002; Base: 10,000 telephone sample

TV Newsp Radio MagsReference info 1% 2% <1% 2%

Travel info 3% 9% 1% 9%

Health info 14% 12% 2% 20%

Product reviews 11% 11% 1% 21%Auto info 4% 24% 1% 9%

Financial info 9% 19% 1% 1%

Technology news 12% 11% 12% 13%

54%

51%

39%

31%

30%

28%

24%

Where consumers prefer to get information:“When you are planning a purchase, which source do you consider the best source for getting information?”

% Saying Internet

63%

62%

61%

0% 20% 40% 60% 80%

Start process of learning about aproduct/service

Learn about features and benefitsof a product

Learn about different brands

Source: AOL/RoperASW, CyberStudy 2003

[Among 1,001 adults,in telephone survey]

#4. They are increasingly#4. They are increasinglyon broadband.on broadband.

Millions of broadband households in the US, for 2002

18.917.9

17.216.716.7

15.915.715.5

19.3

16.116.0

0 5 10 15 20 25

GartnerYankee (Aug '03)

Strategy AnalyticseMarketer (Mar '03)

Morgan Stanley (Oct '03)

Kinetic Strategies (Mar '03)OECD (Dec '02)

Informa (May '02)World Bank (Mar '03)

Jupiter (Oct '02)Probe (Jul '03)

Source: eMarketer, 2003

FCC 17.4 M

43.1%41.3%

40.7%40.0%39.6%39.5%

38.9%38.6%

36.3%34.0%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0%

Informa

Strategy Analytics

eMarketer

Probe Research

World Bank

Morgan Stanley

Gartner

Yankee Group

Jupiter

PwC

All researchers are predicting at least 34% growth for 2003 (vs. 2002)

Source: eMarketer, 2003

36.5

30.324.2

17.2

11.2

6.2

0 10 20 30 40

2000

2001

2002

2003

2004

2005

Sources: eMarketer, 2003; OECD (baseline years of 2000, 2001)

Broadband reaching “critical mass”(millions of households on broadband)

22% ofall HHs

32%

~ 90% of at work users are on broadband

% of home users getting online at least once or several times per day

46%

73%

0% 20% 40% 60% 80%

Broadband

Dial-up

Source: Pew Internet & American Life Project, June 2002

Average weekly hours spent online

8.2

12.6

0.02.04.06.08.0

10.012.014.0

BroadbandDial-upSource: Arbitron Research, January 2003

Forrester:58% Lift

54% Lift

For broadband users, time spent online rivals radio usage

Radio31%

TV36%

Internet27%

Newsps6%

Source: Arbitron Research, January 2003

Broadbandusage pullsmostly fromtelevision

By 2005, there will be more broadband users and than dial-up users in US:

Broadband51%

Dial-up49%

Sources: eMarketer, 2003

87.5 Million83.9 Million

While 32% of all households will be onbroadband in 2005, about 50%, or

56 million, will be watching Digital TV.”

--Ben Macklin, Senior Analyst, eMarketer

#5. Use of rich media continues #5. Use of rich media continues to grow.to grow.

Among 1,000 top publishers, rich media units as a % of total ads served

1.7%

7.9%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Q1, 2002 Q1, 2003

Source: Nielsen//NetRatings and Dynamic Logic, June 2003

Jupiter: Rich & Streaming

media = 39% in ‘08

Jupiter Research = 8%Advertising.com = ~9%

Rich media ads are more effective

The TV tide is turning

“Reaching our consumer targets is no longer TV driven. The days of spending hundreds of millions of dollars on TV advertising are over.”

– Bill Lamar Jr., SVP Marketing, McDonalds

“[With Rich Media], you get a higher level of engagement with the product.”

– Neil Perry, Director of Internet Marketing, McDonalds

Rich media advertisers spend more $, but also pay more attention to targeting

7%49%

26%21%

67%30%

0% 20% 40% 60% 80%

Highly Targeted

Targeted

Diversified

Eyeblaster Ads All Online Ads Source: Nielsen//NetRatings, May 2002

“Rich media are appropriate only when they’re presented in a space that is relevant to the user’s goals or needs.”

–Jakob NielsenUsability Guru

#6. The Internet is getting #6. The Internet is getting more more relevantrelevant..

77% of marketers are currently using – or evaluating – search

IAB: Search = 15.4% of total online ad spend in ’02,

and 21% in Q4

“Search is the ultimate online marketing tool, because the behavior of search is more of an indicator of purchase intentthan any other online activity.”

--Frederick Marckini, CEO, iProspect

Search will continue to grow…

• Could top $7 billion by 2007 (Safa)

• Meets the need for measurement and accountability

• Leading to the development of truly relevant online advertising, i.e., “contextual” ads

• In addition to the media value, search provides valuable, real-time learning about consumers and how they express their needs

But as the pay-for-performance market heats up…• The bidding costs for advertisers will

increase, particularly as larger firms step in

• And so too will the time, money and effort it takes to keep your listings up on top

• Besides, if you target only those who’ve done their research and are ready to buy – NOW –you’ll miss 80% of your market opportunity!

It’s like putting all of your ad budget into the Yellow Pages:

ABC Paint Company, Inc.

Search is only one way that Internet users begin an online shopping expedition

WebSideStory = 13.4%

(March ’03)

InternetStores

TelevisionDirect Mail,TV, etc

Yellow Pages

Public Relations

Magazines,Newspapers

Promotion

Outdoor

The Bigger picture: The Internet is best used when integrated within the overall media mix

BRAND

Radio

Sales force

We have a ways to go…

Who directs the media integration effort???

74%

6%22%

93%

4% 1%0%

20%

40%

60%

80%

100%

Agencies Clients OtherAgencies Clients Sources: New York American

Marketing Association, for Advertising Age, March 2003

Can eMarketer help your business?

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More information is available:

For more information on every aspect of online advertising, e-mail marketing, B2B marketing online, online demographics, usage patterns, e-commerce, e-business, broadband or wireless trends, contact eMarketer at:

www.emarketer.com, or 212-677-6300

You can also call or e-mail Kimberly Pagan directly at:T: 212.763.6032Kpagan@emarketer.com

Geoffrey Ramseygramsey@emarketer.comT: 212.677.6042

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