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The number of smartphone users in the U.S. is consistently growing and the connected user is turning to mobile more and more frequently for everyday consumption. Global mobile data traffic is predicted to increase 26-fold between 2010 and 2015. Smartphone and tablet revenues overtook traditional desktop and laptop revenues in 2013. At the same time, the amount of time users are spending on mobile daily is increasing. Mobile commerce sales are reaching all-time highs, and now represent 12% of total digital commerce, while mobile traffic represent about 40% for major eCommerce retailers such as Amazon, eBay, Apple, and Walmart. The mobile industry was unquestionably the most important growth channel across digital media. Some of the most important trends we’ve seen in the sector include: Average mobile (plus tablet) time spend now equal to desktop Mobile is no longer just for gaming. Growing number of use cases and apps hitting mass adoption— utilities, productivity,shopping, media & entertainment Total mobile ad revenue grew twofold in 2013, and still only represents 2% of total ad spend but 12% of total media time spend Strong M&A and funding environment – First $1bn M&A deal in mobile. Q3’13 was record quarter for mobile Digital media leaders such as Facebook and Twitter realigned their organizations to mobile over the past two years and now see 40% plus of their revenue from the mobile channel The evolution of mobile as the next computing platform is just beginning to take shape, bringing new billion market opportunities to the digital media ecosystem. We believe it is still early in this evolution and expect to see new technologies and innovative applications to fuel continued growth over the next five years.
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January 2014
2
A Word from Gridley & Company, LLC
The number of smartphone users in the U.S. is consistently growing and the connected user is turning to mobile more and more frequently for everyday consumption. Global mobile data traffic is predicted to increase 26-fold between 2010 and 2015. Smartphone and tablet revenues overtook traditional desktop and laptop revenues in 2013. At the same time, the amount of time users are spending on mobile daily is increasing. Mobile commerce sales are reaching all-time highs, and now represent 12% of total digital commerce, while mobile traffic represent about 40% for major eCommerce retailers such as Amazon, eBay, Apple, and Walmart.
The mobile industry was unquestionably the most important growth channel across digital media. Some of the most important trends we’ve seen in the sector include:
• Average mobile (plus tablet) timespend now equal to desktop• Mobile is no longer just a just for gaming. Growing number of use cases and apps hitting mass adoption— utilities, productivity,
shopping, media & entertainment• Total mobile ad revenue grew twofold in 2013, and still only represents 2% of total ad spend but 12% of total media time spend• Strong M&A and funding environment – First $1bn M&A deal in mobile. Q3’13 was record quarter for mobile• Digital media leaders such as Facebook and Twitter realigned their organizations to mobile over the past two years and now see 40%
plus of their revenue from the mobile channel
Source: Pew Research Center, ComScore, Equity Research.
Linda GridleyPresident & CEO
Pratik PatelManaging Director
The evolution of mobile as the next computing platform is just beginning to take shape, bringing new billion market opportunities to the digital media ecosystem. We believe it is still early in this evolution and expect to see new technologies and innovative applications to fuel continued growth over the next five years
We hope you enjoy this overview and our perspectives. Please call us to discuss the content of this report.
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I. Key Themes
II. Mobile Sector Overviews
- Advertising
- Location Based Marketing
- Payments
- Vertical Apps
III. Summary Thoughts
Table of Contents
I. Key Themes
5
2010 2011 2012 2013
142153 147
139
1022
43
67
112
40
63
Desktop/laptop Smartphone Tablet
Mobile Timespend is Spread Broadly
Average Timespend Per Day (minutes)
Source: eMarketer, Jul. 2013. US Data
Source: Experian Marketing Services, May 2013. US Data
2009 2010 2011 2012E
2013E
2014E
2015E
0.0
0.5
1.0
1.5
2.0
2.5
3.0 Desktops+NotebooksSmartphones+Tablets
2013 Projected Inflection Point Mobile Usage > PC Usage
(in billions)
Note: Notebook PCs include Netbooks. Assumes the following lifecycles: Desktop PCs – 5 years: Notebook PCs – 4 years; Smartphones – 2 years; Tablets – 2.5 years. Source: Equity Research, 2012. Global data.
Global Installed Base
Mobile = Most Important Broad Theme in 2013
Non-Talk Applications = 70% Of Timespend
Text20%
Browser14%
Email9%
Social16%
Talk26%
Games 8%
Other7%
6
Key Trends in Mobile
• 2013 was the year of mobile from many perspectives
‒ Positive mobile consumption trends, overtaking desktop
‒ Internet leaders executed multiple large scale M&A deals
‒ Scaled consumer adoption of vertical specific applications such as and
• and are educating the broader market on value of mobile marketing
• Mobile driving much of the innovation in the payments sector today
‒ Exciting opportunity in the convergence between marketing and payments
7
72
44 3829
0
20
40
60
80
100
120
140
160
180
Amazon eBay Apple Wal-Mart
Uni
que
Vis
itor
s by
Pla
tfor
m (
in m
illio
ns)
0%
5%
10%
15%
20%
25%
30%
35%
Mobile Commerce is Rapidly Growing
Mobile Share Of Traffic & Commerce Traffic Split for Notable Commerce Companies
Source: comScore, Dec. 2013. US DataSource: Walker Sands Digital, comScore. Based on US based firms, measuring traffic from US and non-US users
44%
56% 38%47%
2.5%
12%Mobile % 44% 47% 56% 38%
% of Internet Traffic
% of Digital Commerce
Mobile Only
PC Only
PC + Mobile
8
Rapid Scalability Drives Investment in Mobile
Unprecedented Mobile Adoption Cycle
Source: Digital Buzz Blog, Extreme Networks
Radio TV Internet
38
13
4 3.5
0.550
days35
days
• Mobile funding and deals have grown steadily over the past eight quarters
• Q3 2013 was the biggest VC financing quarter in the history of mobile, crossing the $1B mark
• Q3 2013 also saw the highest number of deals in mobile ever, the first time mobile VC deal share surpassed the healthcare sector
Time It Took to Reach 50 Million Users (Years)
Source: CB Insights, 2013
VC Investment Commentary
9
Social is Mainstream
• Chart showing how many users facebook, instagram, twitter, pinterest have over time (should show a lot currently). Use whatever the largest number is—doesn’t have to be MAU, could just be registered users
10
Notable M&A
Top 2013 Mobile M&A and Private Financings
$155MM
$225MM
$66MM
$60MM
$361MM
$100MM
$100MM
Notable Private Financings
Acquirer Target Company$966MM
$350MM
$261MM
Jun. 2013
Sep. 2013
Aug. 2013
Feb. 2013
Apr. 2013
Aug. 2013
May 2013
Jul. 2013
May 2013
Sep. 2013
$70MMNov. 2013
$50MM
Dec. 2013
Acquiring mobile teams
2013
11
Using M&A to Build out Multi-Channel Capabilities
Discover Pay
In-store scanner
Nearby
Used, online
Online retail
Nearby
Used, online
Online retail
Virtual goods
Local Retailers / SMB
Any product
Store locator and location- based deals
Retailer
At Home
eBay made a series of mobile related acquisitions to become the early leader in omnichannel/next generation retailing
Better Merchandising
Card-in-cloud
Online social retail
12
The Mobile UniverseSelect Leading Independent Players
Media & Entertainment
Productivity
Messaging
Gaming
Vertical AppsPaymentsAdvertising Location BasedMarketing
13
Sector
Payments
Advertising
Location Based Marketing
Vertical Apps
14
TV Online Radio Mobile Print0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
40%
25%
13%12%
5%
39%
21%
9%
2%
21%
119.3%
105.9%
62.1%
44.6%
33.5%
27.2%$8.8
$18.2
$29.4
$42.6
$56.9
$72.3
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
$80.0
2012 2013 2014E 2015E 2016E 2017E
CMO’s Are Recognizing the Opportunity in Mobile
Gap in Media Exposure vs Ad Spend Mobile Internet Ad Spending Worldwide
2012
Source: eMarketer, Oct. 2012 (left), Jan. 2014 (right)
($ billions)
YoY Growth
15
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2011 2012 2013
Google Other Facebook
Pandora Twitter Millennial Media
Yellow Pages
Internet Leaders See Significant Growth in Mobile
Facebook Has Scaled Mobile in 2013
Rapid Market Shift in 2013 (1)Market Leaders Turn To Mobile
Facebook and Twitter Ad Revenue Mix
2011 2012 2013 2014 2015
0%
18%
42%
53% 55%
0%
52% 55%60% 62%Facebook
Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013
7.0%
14.0%
23.0%
30.0%
41.0%46.4%
Mob
ile
% A
d R
even
ue
Mob
ile
% A
d R
even
ue
% M
ark
et S
har
e
Source: Company reports and filings, 2012 & 2013; eMarketer, Dec 2013.
Facebook takes 20% of market in two years
16
The Mobile Advertising Universe
Considerable increase in available budgets over past three years and brands/agencies follow their targeted audience onto mobile
Many companies moving across channels to include traditional display and leveraging location based data in varying degrees to effect a media buy
2013 was an important year for mobile RTB with many key players building or acquiring technologies to enhance programmatic buying
Mobile is increasingly dominated by apps, with 80% of consumer time spent vs. browser Different technical requirements to drive
performance in app environment given different data sets creating clear differentiation in the market
Notable Themes
Source: IAB Mobile.
Advertising
Select independent companies.
17
Mobile Advertising M&A and FinancingsNotable M&A
$16MM
$261MM
Notable Private Financings
Acquirer Target Company
$25MM
Feb. 2013
Aug. 2013
Feb. 2013
$14MM
$36MMJul. 2013
May 2013
$16MM
$13MM
Jul. 2013
Dec. 2013
$316MMJul. 2013
$16MMApr. 2013
$155MMFeb. 2013
$350MMSep. 2013
$14MMFeb. 2013undisclosed
May 2013
Jul. 2013
May 2013
Jul. 2013
Nov. 2013undisclosed
undisclosed
undisclosed
undisclosed$7MMMay 2013
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Advertising
Sector
Payments
Location Based Marketing
Vertical Apps
19
Consumers Use Mobile Phones to Evaluate Real-World Purchases, Creating New Marketing Opportunities
Source: “Mobile In-Store Research,” Google and Shopper Marketing Council (Apr. 2013)
90% Of smartphone shoppers use their phone for pre-shopping activities
Of smartphone shoppers use their devices to help shop while in a store
Shoppers use their smartphones to find information instead of asking store employees
Increase in Health & Beauty
84%
1 in 3
Mobile Influences Path To Purchase
Mobile Increases Median Basket Sizes
Increase in Household Care
Increase in Electronics
Increase in Appliances
50% 34%
25%40%
20
2011 2012 2013 2014 2015 2016
$1.0$1.5
$2.2$2.9
$3.6$4.1
$0.7
$1.2
$2.1
$3.1
$4.5
$5.8
$1.7
$2.7
$4.3
$6.0
$8.1
$9.9
National Local
Massive Strategic Opportunity with Mobile + Local
Rise of Localized Mobile Marketing
Sources: BIA Kelsey, (Jan. 2013); BI Intelligence; Balihoo (Oct 2012)
41%
58%
Local vs. National Mobile Ad Spend ($ billions)
Nearly 20% of the world population is using LBS
Worldwide Users: 2011-2016 (in millions)
LBS expected to bring in $10 billion in revenue from consumers and advertisers by 2016. Over 50% will come from location based search advertising
2011 2012 2013 2014 2015 2016
502
747
1,054
1,391
1,746
2,093
+ 416%
21
Location Based Marketing Mobile Leaders
• Over 90% of US consumers make local purchase after using Yelp app
• Qype acquisition to accelerate in Europe
• Launched a Nearby feature in mid 2013 for local business discovery
• Nearby Places combines local location discovery and friend recommendations
• Places directory allows tagging, commenting, posting and social mapping by location
• Merchant Platform helps developers build mobile experiences for customers that respond to check-ins
• Venue Push API gives real-time view of activity at venues
• All user check-ins are now public
• Considerable clout in retail vertical with various retailer solutions plus Paypal
• Various acquisitions (Milo, Where, Red Laser) to connect online/offline commerce
• Experimenting with eBay Now offers one-hour delivery for a flat rate of $5
• Testing a feature called Nearby that shows recent local tweets and whether you follow the tweeter
• Trends services hundreds of cities, allowing users to see what tweeters in other locations are talking about
• Largest network of local advertisers of any digital company
• Waze acquisition to improve real-time updates on Maps
• Zagat acquisition provided credibility in local content
22
The Location Based Marketing Mobile Universe
Location based marketing quickly become a battleground among technology incumbents eBay with Paypal Google with maps, payments, search, O/S and
commerce capabilities Apple with Passbook and recent location
based M&A deals
Near-store and in-store solutions currently served by different companies as location technologies develop Near-store solutions leveraging geofencing
technologies to drive marketing campaign In-store location technologies vary based on
approach and radio protocol and is still early in retail adoption
Notable ThemesLocation BasedMarketing
Select independent companies.
23
Location Based Marketing M&A and FinancingsNotable M&A
$11MM
Notable Private Financings
Acquirer Target Company
Mar. 2013
Oct. 2013
Jan. 2013
$1.1BN
Mar. 2013$13MM
Apr. 2013$20MM
May 2013
$41MMApr. 2013
$3MM
$8MMMay 2013
Sep. 2013
Jul. 2013
$10MM
$6MM
Sep. 2013
Sep. 2013
$30MMDec. 2013
$16MM
undisclosedNov. 2013
undisclosed
undisclosed
undisclosed
$3MMDec. 2013
$10MMOct. 2013
$3MMFeb. 2013
24
Location Based Marketing
Advertising
Sector
Payments
Vertical Apps
25
38%
36%
35%
30%
16%
Concerned payment security
Other pay methods easier
Do not see benefit
Do not have feature on phone
Do not trust the technology
Considerable Excitement for Mobile Payments Globally, Early Stage in Consumer Adoption
Sources: Federal Reserve Bank, Equity Research, Gemalto, eMarketer, Yankee Group..
In U.S. a Number of Reasons for Slower AdoptionCompelling, High Growth Category Globally
Consumers are Interested but Uptake is Slow
Mobile PaymentGrowing 12x faster than card payment from 2008 - 2012
Card PaymentGrowing 3x faster than total consumer spending from 2003- 2012
Retail PurchasesGrowing 3x faster than total consumer spending from 2003- 2012
$30 Trillion
$10 Trillion
$160 Billion
68%
14%
Interested Used in the Last Three Months
26
Targeted Marketing is a Very Important Use Case for Consumer Adoption
Internet Coupons Drive Significantly Higher Redemption Rates
1%
10%
Free-standing Insert Internet
Source: Inmar, Morgan Stanley Research
Although Vast Majority of Coupons Are Still FSIs
That Should Change in Two Years
27
POS – A Major Battleground in Mobile
Point of SaleTraditional Coupons
In-S
tore
Mar
keti
ng
Custom
er Loyalty
Rew
ards
/CL
O
Digital C
oupons
Bar Code Scanners
Integrated
Systems
Market Research / Data Analytics
Digital Commerce
Account Marketing
Payments
eReceipts
Consumer
28
The Independent Mobile Payments Startup Universe
PaymentsNotable Themes
Multiple players going after in-store for mobile payments, with mixed results
For consumers, overcrowded and confusing digital wallet market‒ Host of overlapping products and services ‒ Lack of standards for technology used in mobile
wallets‒ Environment ripe for further consolidation via
M&A
• Healthy M&A environment for emerging players
Select independent companies.
29
Mobile Payments: Successful Brands
Starbucks
Home Depot
Rewards mobile app users with “Stars” in the Starbucks Rewards program
Mobile app is compatible with Square
Square’s mobile credit card readers are sold at Starbucks cafes
Teamed up with PayPal to allow customers to pay in-store by typing in their phone number
Launched in January 2012, slowly catching up to the “swipe” method of payment
30
Current State of Key Mobile Payments Players
Traditional Networks
• All major network players have released competitive mobile products in the past year
‒ Visa’s V.me, MasterCard’s MasterPass—geared at competing with Square
• Mobile wallets have near-term positive impact for networks
• Accelerate the shift away from cash/checks, especially in emerging markets
• Long term disintermediation risk = adoption of mobile wallets that bypass traditional payments networks
Emerging Digital Networks / mWallets
• Selectively successful in gaining adoption based on‒ Go to market strategy‒ Partner ecosystem ‒ Solving real pain points for consumers and
merchants
• Revenue models and technology choices still vary widely
‒ Revenue model Issuer fees Marketing driven Software Lower acceptance costs
‒ Technologies NFC QR Code Pin based Dongles
31
Mobile Payments M&A and Financings
Notable M&A Notable Private Financings
Acquirer Target Company
Dec. 2013
$20MM
$24MMAug. 2013
Sep. 2013
$43MM
Jun. 2013
$25MMJun. 2013
$10MM
$20MMAug. 2013
Dec. 2013
$22MM
$12MM
Apr. 2013
Jul. 2013
$115MM
Jan. 2013
$11MM
$70MMNov. 2013
$800MMDec. 2013
Dec. 2013
undisclosed
$7.5MMSep. 2013
32
Payments
Location Based Marketing
Advertising
Sector
Vertical Apps
33
64
102
139
180
225
269
2012A 2013E 2014E 2015E 2016E 2017E
387%
268%247% 237%
206% 198%
107%
App Usage Dominates Mobile Consumption
Source: Gartner (Sep. 2013)
Global Mobile App Store Downloads
(Billions of Downloads)
Source: Flurry (Oct. 2013)
+ 420%
Fastest Growing App Categories By Sessions
236% Average Growth
34
Vertical Based Mobile Leaders
Section/Leader Competitors Adjacent Verticals $BN Category 2013 Highlights
• Exercise gamification• Convergence of mobile & wearables
• Pandora only non-game top 10 iPhone app of 2013• “Pandora model” replicated in other content verticals
• Top iOS app of 2013• 9 of top 10 most downloaded apps are in gaming
• Other privacy apps compete and specialty messaging apps gain traction
• WhatsApp has 400mm active users
• Proliferation of the “Uber model” into other transportation-related verticals
Media & Entertainment
Messaging
Utilities
Health & Wellness
Gaming
35
Media & Entertainment
Productivity
Messaging
Gaming
Vertical Apps Notable Themes
Multiple billion dollar categories in mobile‒ Much deeper than two years ago and much broader than
gaming
Gaming apps continue to be most downloaded, but gaming share of total usage declines
Messaging remains a stubbornly fragmented category ‒ Leadership varies with geography
Productivity applications deeper integrated into enterprise work flows, fueling mass adoption
Personalized content becomes the new norm for Media & Entertainment apps
The Vertical Apps Mobile Universe
Select independent companies.
36
Vertical Apps Mobile M&A and FinancingsNotable M&A
$10MM
$16MM
Notable Private Financings
Acquirer Target Company
Aug. 2013
$1.1BN
Jun. 2013
$50MM
$66MMJul. 2013
Aug. 2013
$16MM
Jan. 2013
$361MMAug. 2013
$20MMNov. 2013
$50MM
$25MM
Nov. 2013
Jan. 2013
Mar. 2013
$150MMNov. 2013
$10MM
$18MMAug. 2013
Undisclosed
Undisclosed
Undisclosed
Undisclosed
Undisclosed
May 2013
May 2013
Dec. 2013
Jun. 2013
Feb. 2013
$100MMSep. 2013 $50MM
Dec. 2013
$60MMJun. 2013
III. Summary Thoughts
38
Payments
Summary Thoughts
Advertising
• Market at point of rapid growth
• Facebook and Twitter transformed businesses to become mobile focused on 2013
• In-store mobile usage hitting mass adoption, market looking for a killer app
• Google and Apple investing heavily in local tech capabilities
• Tremendous opportunity, however consumer adoption still in early stages
• Traditional network players building mobile capabilities to compete with emerging players such as Square and Paypal
Location Based
Vertical Apps
• Multiple billion dollar categories formed in 2013
• Scaled usage into multiple verticals such as productivity, entertainment, and travel
Gridley & Company LLC10 East 53rd Street, 24th Floor
New York, NY 10022212.400.9720 tel212.400.9717 fax
Twitter: @gridleycowww.gridleyco.com
Linda GridleyPresident & CEO
Pratik PatelManaging Director
