Creative product strategy_-_10-14-08

Advanced Ads & Creative Management Platform

Creative Product Strategy Creative & Advanced Ads Recommendation

Oct 14, 2008


VIDEO ADS


Agenda

1. Market environment and opportunity for video

2. Strategic/competitive positioning overview

3. Sizing the video opportunity for Y! -- market potential

4. Requirements for Y! to compete and succeed in video


1. Video is one of the fastest growing segments of the online ad marketplace. Ad spending is growing > 50% per year CAGR.

2. Video is strategic -- it enables Y! to compete for a portion of the $74B annual TV ad market and helps broaden display buys.

3. Despite being one of the largest video publishers, Y! is underperforming the market in revenue and market share growth.

4. Major video advertisers want to advertise alongside professionally produced, relevant and “brand-safe” content

5. Major content providers want to distribute their content on Y! but only if they can sell ads and share revenue (“You Sell”).

6. As with display, video advertisers make buys based on scale and efficiency of reach, targeting and ROI measurement

7. YouTube owns 41% of video streams viewed on the web. Several ad networks have grown significantly and are now offering major agencies and advertisers more efficient buys—increasing competitive pressure for Y!

8. Major publishers are interested in having Yahoo sell and serve video ads on their sites (“we sell”), but only if we can monetize their content more efficiently than our competitors

9. Advertisers and publishers expect innovative and effective ad formats—overlay formats in particular have gained traction.

10.Accelerating the shift of TV dollars to the web requires a simple, end-to-end creative management solution—our competitors are doing this for free.

Video LandscapeExecutive Summary – 10 Truths About Online Video


What Makes Video Ads Different?

“In-Player” Video(aka “In-Stream”)

“In-Banner” Video(Rich Media Display Ads)

Video Ad Demo page (use videoads/yahoodemo to log in)

Ability to “Tell a Story” and Connect Emotionally• 45% of online video viewers report taking action after viewing ad¹

• Higher unaided recall scores versus print• Higher intent to purchase scores• Higher preference scores

http://videoads.brandcreativegroup.com/VAM/StandAlone/videoAdModule/_VideoAdDemo.html


What Makes Video Ads Different?

“In-Player” Video(aka “In-Stream”)

“In-Banner” Video(Rich Media Display Ads)

Where its played In a video player, typically prior to the content.

In a display banner ad. No video content to draw user interest.

Full Sight, Sound & Motion? Yes. Ad is shown prior to content Only when user initiates ad play

Skipable? No. Ad plays prior to content and not skipable.

Yes. Ad is not played unless user initiates it.

Typical CPMs $25-$45 on Y! properties.Can be higher on premium sites like WSJ.com

$1-$7 on Y! properties.

“In-Player” vs “In-Banner” Video Ads• Online video ads as discussed in this deck refers to video ads played in a video player

around content

¹ Source: Online Publishers Association and OTX, June 2007


Target: The $74 Billion US TV Ad Market Top 100 Largest US TV Advertisers (2006)

Source: Advertising Age, Top 100 Leading National Advertisers, June 25, 2007

0

500

1000

1500

2000

2500

Reven

ue (

$ M

illi

on

s)

$17 B

Key Stats

• $35 Billion Spent by Top - Top 20 US TV Advertisers100 US TV Buyers comprise 23% of total TV ad

market

$18 B


Video Market Growth Estimates

Consensus 2009 Market Size: $750M to $1.85B• All major analyst forecasts show strong growth over the next 3-5 years.

- eMarketer projects a 3 year CAGR of 65% - Forrester projects a 3 year CAGR of 80% - Lehman projects a 2 year CAGR of 48%

• Huge upside potential. All video advertising today = <2% of TV ad spending• Annual TV ad spend = $74B

• Strong story in a cost-cutting environment - Key drivers of growth include:

cost efficiency performance measurement targeting


Agenda






Synopsis

Understanding the Major Brand Advertiser Segment

Needs

1. Reps understand my business (Partner)

2. Brand adjacency (Ad context)

3. Reach mass audience (Audience)

4. Create an emotional connection (Ad detail)

5. Quantify ROI (Performance)

6. Innovative ad formats (Innovate)

7. Demographic targeting (Targeting)

8. Reps provide insights into campaign effectiveness (Partner)

9. Audience able to interact with Ad (Ad detail)• Best value given cost

1. Stop campaign easily

2. Not willing to pay premium CPM

3. Cost

4. Motivate to act within a specific time frame

• Medium to large, national “mass” branders• Heavy TV spenders struggling to justify ROI on traditional media• Need to establish emotional connection with their audiences; value

innovation and partnership• Require cross-media measurement• Heavy focus on media partnerships, including agencies

• Potential example advertisers: BMW, Merck

Care about Don’t care about

Source: 2008 Advertiser Needs-based Segmentation Study


Positioning: Quality Content & Reach

User Generated Content

HigherReach

Professionally Produced Content

LowerReach

Web sites

“Heads”High CPMs with scale

“Tails”

Low CPMs

“Necks”

High CPMs without scale

Large Brand Advertisers’sweet spot


Y! O&O Video Viewership Falling Behind Competition

July 2007 Share of Video Streams Viewed (Y! #3)

* All data from comScore press releases

In the last year, Google/YouTube’s share of streams grew 69%, while Y!’s share declined 43%.

Google Sites, 44%

All Others, 37.9% ABC/CBS/NBC Combined, 1.2%

Fox Interactive Media, 3.9%

Yahoo! Sites, 2.4%

Microsoft Sites, 2.5%

AOL/Time Warner/Turner, 2.7%

Viacom Digital, 2.2%

Disney, 1.6%

HULU.COM, 1.0%

ESPN, 0.6%

Google Sites, 26.7%

All Others, 52.9%

Fox Interactive Media, 4.4% Yahoo! Sites, 4.2%

Microsoft Sites, 1.6%

AOL/Time Warner/Turner, 2.0%

Viacom Digital, 3.1%

Disney Online, 2.0%

ESPN, 0.8%

ABC/CBS/NBC Combined, 2.3%

July 2008 Share of Video Streams Viewed (Y! #5)

Source: ComScore Video Metrix, July 2007 and July 2008 reportsAOL/Time Warner/Turner figures aggregated


Increasing Competition from Ad Networks

Yahoo! BrightRoll YuMeBroadband Enterprises Tremor

Monthly Ad Impressions Served

200M 250M (?) 300M 1 Billion 200M-300M Impressions

US Potential Reach

82% Not Available 71% 68% 53%

Targeting Capabilities

Content ChannelAgeGenderBasic GeoBT

Content ChannelAgeGenderBasic Geo

Content ChannelGenderAgeGeo

Content ChannelGeo (DMA)Age & Gender (via ComScore or where supported by publisher)

Content ChannelAgeGenderBasic Geo

Top Advertisers ABC, HP, Lenovo, MSFT, Visa

Kellogg’s, Blackberry, Microsoft, Nokia, Hilton, WaMu

Procter & Gamble, AMEX, Army, Intel, Honda

WalMart, Mars, Ford, AT&T, IBM

• Advertisers are looking for scale, context and efficient reach with their buys.

• Ad inventory on Y! O&O sites is shrinking relative to video ad networks.

• Ad nets are aggressively competing with us for major ad buys putting our O&O revenue at risk.

• Most networks are VC backed and focused on growing scale

• Examples: YuMe/MSFT deal, BrightRoll $1M buy, BBE P&G deal, etc.


Video | Healthy Demand Is Stifled• Y! turned away demand in 2007 and 2008 due to lack of inventory and/or lack of

advertiser solutions.• With ~$20MM in Upfront dollars already committed for 2009 and flattening video

streams, we will likely continue to turn away demand in 2009 if additional Supply is not opened.

• Assuming Ad Supply stays flat Y/Y at 975MM, and the bulk of 2009 Upfront dollars fall in calendar year 2009, this implies we are already more than 80% sold out of 2009 inventory.

*Note that “Unmet Demand” is calculated based on market-movers, big buys that we couldn’t accommodate. Does not include day-to-day RFPs looking to book against sold-out demos.

2007 2008 2009 UpfrontO+O Revenue $24MM $28MM $20MMUnmet Demand ~$43MM* ~$40MM* ??Total Demand $67MM $70MM ??All revenue numbers above are pre-TAC


“We Sell” for Video Ads v1.0 Planned for 10/22/08

Yahoo leverages its user insights to sell and serve more relevant video ads off-network onto other publishers sites and take a share of revenue.

Advertisers

Y! Sales & Ad Serving

Video Ad NetworkVideo Content Channels

News Sports Entertainment Lifestyle

NPCOtherVertical Content Channels

• By Content Channel

• Demo Targeting• Geo Targeting• Behavioral

Targeting• Publisher

exclusion

Off-Network Targeting

* Example WS publishers listed


“You Sell” for Video Ads

Ad Serving/Reporting

Y! YEP Compatible

Player

You Sell enables premium content providers with sales forces to leverage Y!’s audience to create new advertising opportunities.

Sales

ContentDistributio

n

Content provider (e.g. CNet) distributes

content onto Yahoo sites

Advertisers

Content provider sells ads to advertisers and books ad inventory on Y! via a 3rd party ad server.

When partner content runs, Y! makes an ad call to 3rd party ad server who delivers ad to be played in Y! player.


Agenda






Top Down Market Opportunity Sizing

“What If” Scenarios Online Video Advertising Sales(does not include Sponsorships or YS revenue)

What would be required to grow market share?

1.Significantly more inventory to sell- Grow audience and streams on Y! O&O (“You Sell”)- Grow video ad network of other publishers (“We Sell”)

2. Focused, effective channel based sales against TV budgets not allocated online

3. Innovative ad formats that provide strong performance and are easy for advertisers to run

4. Robust campaign performance reporting including unduplicated reach across network

5. Video in exchange to enable efficient monetization of unsold inventory.

All revenue numbers above are pre-TAC.

Share RevY/Y Rev Growth Share Rev

Y/Y Rev Growth Share Rev

Y/Y Rev Growth

Low End Online Video Spending Forecast $750 $1,150 $1,9001. Y! Share of Mkt declines 33% per year 3.7% $28 -0.5% 2.5% $29 3% 1.7% $32 11%2. Y! SOM flat 5.5% $42 49% 5.5% $64 53% 5.5% $105 65%3. Y! SOM grows 33% per year 7.4% $55 98% 9.8% $113 104% 13.0% $248 120%

2009 20112010


Agenda




4. Requirements for Y! to win in video


Video Ads

Y! Desired End-StateSecure & Grow Yahoo’s O&O video content deals

– Bring in exclusive & “hot” video content with competitive ad features– Severe video business downside if content deals are not secured

Efficiently monetize current inventory– Remove buy friction & meet ad metrics needs of large TV advertisers– Fill unsold inventory (caused by “spiky” video traffic) gap

Grow sellable inventory via an effective video ad network– Extend Yahoo’s vid ad inventory reach by expanding beyond O&O– Build effective video ads support on Y!’s ad network & ad exchange


DYNAMIC ADS


1. Advanced Targeting2. Dynamic Creative3. Reporting and Optimization

coupling 1 and 2

Retail Smart Ad example

Target Example• Rich Media expandable ad• Interaction metrics• Smart Ads providing listing

selection and optimization• Retail Listings from ShopLocal


Dynamic Ads

Market Opportunity

Retail• $20B US Retail yearly ad spend, $7B (35%) on newspaper, $1B (5%) online• Dynamic Ads well suited for weekly printed circular shift to online from declining newspaper market• Category team revenue estimates based on achieving 10 of the top 26 advertisers is $100M

– Target, JC Penny, Kohl’s, Walgreens, CVS, Staples, Lowes, Old Navy, Safeway

Autos• Category team revenue estimates based on achieving 6 top advertisers is $62M

– Ford, GM, Chrysler, Toyota, Honda, Nissan

Revenue Analysis• Platform-agnostic market opportunity, focus on Retail and Auto categories; Travel marginally supported• 2009 TAC estimates would include the following fees:

– $3.7M Retail listing aggregation fees to ShopLocal (contractual 10% of ad spend)– $6M partner fees ($3.7M Retail; $2.3M Autos; estimated 10% of ad spend)

Category Market Size CAGR3-yr

Y! Revenue (Ops Fin; GAAP; Annualized)

Market Share

2008 2009E* 2008E1 2009E2 2008E 2009E

Retail $30M $267M 78% $6M $37M 20% 14%

Autos $20M $104M 79% $1.8M $23M 9% 22%

Travel $5M $48M 68% $300k 6%

Total $55M $419M 77% $8.1M $60M 15% 14%

Total (all verticals)

$65M $457M 87% $8.1M $60M 12% 13%

* Market sizing provided by PMM; methodology and data sources in appendix(1) Based on September forecast(2) PMM preliminary estimate; Sales estimate due 11/08

Advanced Ads & Creative Management PlatformDynamic Ads

Market Dynamics

Risks• Y! loses pricing power if Creative providers:

– Buy targeted inventory on Exchange at lower CPMs– Distribute ad spend across Y! and non-Y! inventory sources

• Y! loses targeting competitive advantage as Ad Networks evolve– Search retargeting tests demonstrate significant performance benefits– Multiple ad networks and technology providers developing BT

• Y! loses unique user reach advantage as Exchanges consolidate inventory

Content Aggregation & Inventory

Targeting

Targeting Optimization of dynamic

creative

Creative Authoring

Creative Agencies

Media Planners/

Buyers

Advertisers$$$

Simplified Value ChainListings

Aggregation

• Technology• Partners

• Services

• Services

• Technology• Technology• Technology• Partners

Feed Mgmt

Creative Providers adding core technology to any inventory

Yahoo! making our inventory & reach advantage more valuable


Dynamic Ads Competitive Landscape*

Capability ShopLocal Dapper Smart Ads Retail

Smart Ads Retail++1

Teracent Choice-Stream

Tumri PointRoll Eye-Blaster DART Motif Eye-Wonder

Adv / Agency Relationships ● ○ ◒ ◒ ◔ ○ ◔ ● ● ● ●

Creative Mgmt ○ ○ ◒ ◒ ◒ ○ ◒ ● ● ● ●

Creative Authoring ◔ ○ ◒ ◒ ○ ◕ ● ● ● ●

Campaign Booking ○ ○ ◕ ◕ ◕ ○ ◕ ◕ ●

Reporting ◒ ○ ◒ ◕ ◒ ○ ● ◕ ◕ ◕ ◕

Business Rules ◒ ◔ ◒ ◕ ● ○ ● ◒ ○ ○ ○

Optimization ◔ ○ ◒ ◒ ◒ ◒ ● ◔ ○ ○ ○

Targeting ◔ ● ◕ ● ● ● ● ◕ ○ ○ ○

Access to Inventory ◕ ◕ ◒ ◒ ◕ ◕ ◕ ● ● ● ●

Feed Management ◒ ◒ ◒ ◒ ◔ ◔ ◔ ○ ○ ○ ○

Listings Aggregation ● ● ◔ ◔ ○ ○ ○ ○ ○ ○ ○

Infrastructure Strength and Stability

● ◔ ◕ ● ◒ ◔ ◕ ● ● ● ●

Campaign Launch Time ● ◒ ◒ ◒ ◒ ● ● ● ●

Business Strength ● ◔ ● ● ◔ ○ ◒ ● ● ● ●

Feed providers Integrated end-to-end Dynamic Ads providers Creative providers

*Selection of industry players is representative1Not currently available

1. Creative providers have strong advertiser relationships and professional services model2. Creative providers provide single-stop across all inventory (Y! and non-Y!)3. Limited providers listings aggregators (ShopLocal acquired by PointRoll)

1

23

YAHOO!


Market Evolution

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Current Scenario:Smart Ads / GD

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• It is likely that advertisers will switch to NGD for approximately the same delivery• Y! must convert today’s GD markup to other sources of value-add• If Y! does not invest, our competitors will fill the gap

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External Provider:PointRoll / Y! Exchange

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Yahoo! must protect our revenue• Aggressively control end-to-end Dynamic Ad solutions (internal or partnered)• Further develop core competencies in targeting and optimization of dynamic creative • Understand how to step-wise create an ecosystem that maximizes long-run Y!’s profit

Dynamic Ads

Market Dynamics Conclusion

Content Aggregation & Inventory

Targeting

Targeting Optimization of dynamic

creative

Creative Authoring

Creative Agencies

Media Planners/

Buyers

Advertisers$$$

Simplified Value ChainListings

Aggregation

• Technology• Partners

• Services

• Services

• Technology• Technology• Technology• Partners

Feed Mgmt

Creative Providers adding core technology to any inventory

Yahoo! making our inventory & reach advantage more valuable


Product Solutions Strategic Impact

1. Y! maintains/ grows pricing power

•Control majority of technology stack (internal or partner)•Invest in targeting & dynamic creative optimization to sustain competitive advantage of Y! inventory

•Mitigate risk of losing up to 50% of ad spend on external solutions gaining market power•Mitigate risk of external solutions buying non-Y! inventory

2. Targeting Optimization of Dynamic Creative

•In-house optimization •Maximize use of existing Y! targeting data making Y! a partner of choice with differentiated offering

3. Targeting •Zip-based targeting reach improvements•Deep Targeting (aka SOUP)•Off-network use of Y! targeting•Search History Retargeting

•Bias ad spend to Y! inventory by enhancing Y! targeting•Zip-code necessary for Autos (currently only x% coverage)•Q1’08 SA Deep Targeting exceeded search ad performance

4. Y!-centric Healthy Ecosystem

•Expose user information to SA-certified vendors•Develop optimization to enable creative providers•Open Y!Post to make listings widely available

•Bias ad spend to Y! inventory•Lower barriers of entry for Creative partners to compete with integrated end-to-end solutions (PointRoll)•Enable external professional services for creative design•Enable partners to base solutions on Y! technology rather than compete to develop alternatives

Dynamic Ads

Y! Win Conditions (12+ months)


ADINTERAX – SITE UP


Rich Media – AdInterax Site Up Opportunity Summary• Opportunity Overview

– Total Rich Media Market Revenue (US) $1.96B 2008, $2.19B 2009– Current Y! Revenue from Rich Media including 3rd party ad servers: $167mm (Q408-Q409)– Revenue via AdInterax: $43.9mm ex-TAC (Q408-Q409)

• If we do not support AdInterax in a site up manner we will maintain majority of revenue streams for a forecast of $30.5mm (Q408-Q409)

– AdInterax can drive an additional $13.4M in revenue if maintained • Keep 100% of AI ad related revenue but pay 3rd Party subsidy to keep it (+1.2M cost)• Loss of all $6M of Publisher ASP revenue paid to Y!• Loss of 10% of Smart Ads revenue ($2M) but pay 3rd Party fee to keep it• Loss of $5M of revenue due to no RM house ads

• Proposal– Maintain site up support for AdInterax Rich Media solution

• Maintains functional solution for NC partners and Y!AN for house ads and custom projects• Not a competitive product that will be taken to market for additional customer engagement

– Continue engaging partners to ease friction in ad submission/validation process in APT• Market Dynamics

– Competition is stiff and entrenched – attacking the market with a competitive solution is not recommended– No “self-service” Rich Media solutions exist – research is in progress to determine if we can deliver this

solution, and the associated value for Y!• Assumptions/Comments

– Site up support would be limited to critical bugs and any additional site up issues– Longevity of the platform past 12 months is questionable– Platform will maintain current revenue levels if supported in site-up fashion

• Where does this get us from a Market perspective?– Maintaining AdInterax in a site up manner enables us to continue offering Rich Media to Y! globally as a

custom service and at a lower cost than via a partner– We are not a market player in the Rich Media space currently, and this does not get us there


CUSTOMER CRITICAL CREATIVE VALIDATION & ASSEMBLY


Creative Platform – Customer Critical Validation and Assembly• Opportunity Overview

– Creative platform and its core services including Validation, Ad Assembly, Creative/Ad Mgmt, Trafficking, etc… enable our Advanced Ad solutions and is key to demand acquisition strategies

– Value associated with the Creative platform is not explicitly captured in $$

• Proposal– Validation improvements enabling more support for 3rd party ad servers, flash creative acceptance, and

visibility into detailed publisher ad specifications– Increased support of custom html ad development flows to accept more forms of demand – Deploy new capabilities such as advertiser self-classification to assist in ad review and matching processes,

and trafficked visibility to improve integration points between demand and creative experiences– Support for International market rollout

• Market Dynamics– Creative development and submission processes are a primary friction point in online graphical advertising

– we reduce friction– Creative Mgmt takes an open approach enabling demand generation through acceptance of all 3 rd party ad

servers and ad validation to ensure the ad is functional and acceptable for impressions– Critical to focus on core competencies and differentiators, while partnering for the rest

• Assumptions– Continue to partner with 3rd party ad servers, as well as with solution providers like Adobe to give us access

to more capabilities and users throughout the demand generation chain

• Where does this get us from a Market perspective?– Provides APT with a solid platform enabling the implementation of Advanced Ad formats and eases friction

in the Creative Mgmt process – Core capabilities enable partner ecosystem and movement into player on agency desktop


Appendix - Video


Video | Unmet Demand, Sold-Out Demos• Constrained inventory in most desirable demos continues to hamper sales progress

– Below table is a snapshot of what Sales sees when trying to book Female impressions in our largest video properties – mostly sold out

– Smaller ‘lifestyle’ properties even more constrained• B-cookies utilized to get more targetable inventory• Pursuing strategic WS deals (Demand Media, Real Networks, etc.) can also open up more inventory

in sold-out demos

Female Demo (all ages) STR (as of 9/22/08)Property Position Oct Nov DecNetwork SAV30 66% 62% 65%Network VID 100% 100% 100%News SAV30 86% 79% 77%News VID 93% 92% 100%Music VID 100% 100% 100%Movies VID 100% 100% 100%Sports SAV30 45% 36% 8%Sports VID 100% 100% 100%TV VID 97% 93% 100%Health VID 41% 40% 37%Entertainment VID 100% 100% 91%Y! Living VID 100% 100% 100%OMG VID 100% 100% 92%


Video Ads

Market Opportunity

Video is one of the fastest growing segments of the online ad marketplace.– Total streams viewed growing at >50% Y/Y– 2009 online video ad spend only <2% of the $74B TV spend

All major analyst forecasts show strong growth over the next 3-5 years. – Analyst’s 2009 Market Size: $750M to $1.85B

(up from $500M – $1B in 2008) Not captured in above revenue projections:

– Video sponsorship (includes both in-stream & regular display ad units)– Comcast, NPC (<$1M ex-TAC)– New 2009 capabilities increasing video content acquisitions & eyeballs

* Market size numbers are derived by taking the conservative end of analyst projections.** Projected revenues do not include sponsorship; market share calculated based on gross. See Appendix for full list of financial assumptions

Market Size* CAGR3-yr

Y! Revenue** Y! Market Share**

2008E 2009E 2008E Low 2009E

High 2009E

2008E Low2009E

High2009E

GAAP ~$500M ~$750M 35% $28M $57M $68M 6% 8% 9%

Ex-TAC $12M $16M $23M

Advanced Ads & Creative Management PlatformVideo Ads

Market Dynamics (OLD)

Increasing competition for streams & eyeballs– YouTube’s stream share jumped from 27% to 44% from ’07 to ’08– Y!’s stream share dropped from 4.2% to 2.4% from ’07 to ’08

Tight supply of premium streams & ad inventory– Publishers rely on Content Licensor partnerships for video streams– Tight supply means Content Licensors will increasingly dictate content contract models

(i.e., demand “You-sell Video”)– Y! consistently sells out of predicted ad inventory

Increasing competition from Ad Networks.– All of above are exacerbated by increasing competition from ad networks on scale,

context, and reach– Y! will capture ~6% in 2008 (down from ~8% in 2007).

Video Publisher

(inventory)

Video Ad Technology

Creative Authoring

Creative Agencies

Media Planners/Buyers

Advertisers$$$

• Technology• Services

• Services• EyeWonde

r• EyeBlaster• Tremor

• Yahoo!• Tremor• EyeWonde

r• YouTube

• Yahoo!• Comcast• YouTube

Video Ad Server or Network

• Yahoo!• YuMe• YouTube•

DoubleClick

Where Yahoo plays today

Ad Network space

Sales Force

Content Licensor

• CBS• Turner

You-Sell Deals(via Content Licensor sales force)


Video Market Growth Estimates Consensus 2009 Market Size: $750M to $1.85B• All major analyst forecasts show strong growth over the next 3-5 years.

• eMarketer projects a 3 year CAGR of 65%• Forrester projects a 3 year CAGR of 80%• Lehman projects a 2 year CAGR of 48%

• Forecast sources are ambiguous about if in-banner dollars are included:• eMarkert and MAGNA states they include in-banner in their analysis• Lehman Brothers states it includes in-stream only• Other forecasts do not specify what are included• Large variance between forecasts, with or without banner dollars

• Key drivers of growth include cost efficiency, performance, measurement, targeting

Estimates of Online Video Advertising Spending in the United States, 2007 - 2013 (in Millions)2007 2008 2009 2010 2011 2012 2013

Borrell Associates Inc., April 2008 $522.00 $10,000.00eMarketer, August 2008 $324.00 $505.00 $750.00 $1,150.00 $1,900.00 $3,400.00 $5,800.00Forrester Research, December 2007 $471.00 $989.00 $1,859.00 $3,198.00 $4,875.00 $7,153.00International Data Corporation (IDC), May 2008 $500.00 $3,800.00JupiterResearch, June 2008 $5,100.00Lehman Brothers, August 2008 $669.00 $1,091.00 $1,669.00 $2,387.00LiveRail, September 2008 $371.00 $619.00 $962.00 $1,399.00MAGNA, June 2007 (3) $365.50 $560.00

Market Opportunity – Analyst Forecasts


Video Ads Video You-Sell and We-Sell Overview• Self-Sell

– Yahoo has content partnership deals with content providers. – The business model is limited to revenue sharing with content partners– Who can sell: Yahoo! Sales

• We-Sell (WS)– Yahoo sells and serves video ads into a partner publisher’s site and shares revenue

with the publisher– Ability to split inventory between 3PAS and Y! ad system X% and (100-X)%– Who can sell: Yahoo! Sales

• You-Sell (YS)– A Video YS deal is based on the following relationship with Content Licensor (i.e., CBS

& Turner):• Content Licensor syndicate their content on Yahoo• Content Licensor sells ads against the inventory created by their content

– Yahoo receives a share of the sales revenue for distributing the content on its site(s).– Who can sell: Content Partner Sales

• Video YS is different from Display Ad YS because:– Content syndication is unique to Video YS– Content owner has rights to sell ads against syndicated inventory


39

2009 Projections by Product Capabilities

Assumptions & Caveats• All project revenues are annualized; no dependency on when features are rolled out• The ’09 stream projections that should come from the Audience team; Audience has not provided the official projection yet• Deals such as WS and MLB are still up in the air; overall impact are uncertain. Therefore, low estimates are made assuming

• MLB does not go through and • WS deal is halved

• No YS 1.0 specific projections are made OTHER than dollars from new ad formats; no new content partner dollars are assumed• Sponsorship dollars (campaigns sponsored by video content but conists of display, video, and custom ad formats) were taken out of the above.

Sponsorship projections for ’08 and ’09 are both:• GAAP: ~$60M• Ex-TAC, CC: ~$30M

HIGH Estimate LOW Estimate

Project GAAP Ex-TAC, CC Assumptions GAAP Ex-TAC, CC Assumptions

O&O Self-Sell $41,411,497 $20,705,749 46% growth from 2008 $33,600,000 $16,800,000 20% growth from 2008

WS* $3,141,758 $1,256,703 60% TAC rate $785,440 $314,176 75% reduction from High estimate3rd Party Remnant (VQW) $4,000,000 $2,000,000 $3,000,000 $1,500,000 50% reduction from High estimate

Targeting (part of VQW) $300,000 $150,000 Targeting, applies to YS 0.5 only $300,000 $150,000 Overlay+targeting, applies to YS 0.5 only

FP (part of VQW) $2,500,000 $1,250,000 From FinOps estimates week of 10/6 $2,028,422 $1,014,211 Assumes the same gr. Rate as rest of O&O

YS (part of YS 0.5 & 1.0) $1,875,000 $1,875,000 Assumes normal ramp $1,000,000 $1,000,000 Assumes 4 additional YS deals similar to CBS and Turner

Overlay (part of YS 1.0) $2,000,000 $900,000 $1,622,738 $730,232 Adjusted proportionally to O&O self-sell

Pharma (part of YS 1.0) $1,500,000 $750,000 $1,217,053 $608,527 Adjusted proportionally to O&O self-sell

MLB $3,000,000 ($9,000,000)Very prelim, assumes switch to Flash $0 ($12,000,000) Assumes no MLB revenue

Total $59,728,255 $19,887,452 $43,553,653 $10,117,146

* - excludes Comcast


Value Chain – Self-Sell

Video Publisher

(inventory)

Video Ad Technology

Creative Authoring

Creative Agencies


Advertisers$$$


• Services

• EyeWonder

• EyeBlaster

• Tremor

Yahoo! Yahoo!

Content Licensor

• CBS• Turner


Yahoo!

Yahoo Components

Sales Force

• Who can sell: Yahoo! Sales • Yahoo sells and serves ad against video content aggregated across its

multiple content partners • Yahoo shares ad revenue sharing with its content partners


Value Chain – We-Sell (WS)

Video Publisher

(inventory)

Video Ad Technology

Creative Authoring

Creative Agencies


Advertisers$$$


• Services

• EyeWonder

• EyeBlaster

• Tremor

Yahoo! Comcast

Content Licensor

• ABC• FOX


Yahoo!

Yahoo Components

Sales Force

• Who can sell: Yahoo! Sales • Yahoo sells and serves video ads into a publisher partner’s site • Partner publishers can split inventory between 3PAS and Y! ad system by %• Yahoo shares ad revenue with its publisher partner (who then shares that

revenue with its content partners)


Value Chain – You-Sell (YS)

Video Publisher

(inventory)

Video Ad Technology

Creative Authoring

Creative Agencies


Advertisers$$$


• Services

• EyeWonder

• EyeBlaster

• Tremor

Yahoo! Yahoo!

Content Licensor

• CBS• Turner


DoubleClick

You-Sell Deals(via Content Licensor sales force)

Yahoo Components

Sales Force

• Who can sell: Content Licensor• Based on relationship with Content Licensor (i.e., CBS & Turner):

– Content Licensor syndicate their content on Yahoo– Content Licensor sells ads against the inventory created by their content

• Content licensor shares ad revenue with Yahoo for distributing their content• Video YS is different from Display Ad YS because:

– Content syndication is unique to Video YS– Content owner has rights to sell ads against syndicated inventory


YouTube is not just for UGC anymore

YT building a solid position in pro content:• 17 of top 25 most viewed videos of all time are music videos• 21 of top 25 are professionally produced• Approximately 20% of new video content and 50% of video views are pro¹

YT has deals with:• CBS: short-form video programming from its news, sports and entertainment divisions on a daily basis YOU SELL deal

• HBO: select promotional content from its shows on HBO’s new branded YouTube channel

• PBS: selected online-only features, program excerpts and extended previews. (700 videos on channel)

• BBC: branded BBC “Channels” on YouTube

• Oprah Winfrey: exclusive, behind-the-scenes footage from the “Oprah” show and special guest moments.

• Hearst Argyle TV: posting local video content to dedicated channels

• Disney/ABC TV: Studio 9 focused on original short-form programming by merging innovative creativity with superior production quality. Will distribute via YouTube.

¹(Based on samples taken in May 2008. Exact results of sample in appendix)

http://www.youtube.com/browse?s=mp&t=a&c=0&l=&b=0

http://www.youtube.com/press_room_entry?entry=iXG7e1g-BWI

http://www.youtube.com/press_room_entry?entry=tVJDkkQT37w

http://www.youtube.com/www.youtube.com/hbo

http://www.youtube.com/press_room_entry?entry=ABL6IQ3GaSw

http://www.youtube.com/press_room_entry?entry=0VMEPAJuK7Y

http://www.youtube.com/press_room_entry?entry=RrlQbXnmC4Y

http://www.youtube.com/press_room_entry?entry=O0mUGYCmBvw

http://www.youtube.com/press_room_entry?entry=mQo18KAiYps


Video Ads Competitive Landscape*

Capability Yahoo O&O YouTube YuMe BBE BrightRoll Tremor EyeWonder EyeBlaster PointRoll Atlas DART

Video Ad Publisher ◕ ● ○ ○ ○ ○ ○ ○ ○ ○ ○

Video Ad Network ◔ ○ ◕ ◕ ◕ ◕ ○ ○ ○ ◕ ○

Video Ad Exchange ○ ○ ○ ○ ○ ◔ ○ ○ ○ ○ ○

Video Ad Technology ◒ ○ ◕ ◕ ◕ ○ ◕ ◕ ◔ ◔ ◔

Creative Authoring ◔ ◒ ◒ ◕ ◒ ◒ ● ◕ ◕ ◔ ◔

Reporting ◒ ◒ ◒ ◕ ● ◒ ● ◒ ◒ ◕ ◕

Creative Agencies ○ ?? ○ ○ ○ ○ ○ ○ ○ ○ ○

Content Licensor ◔ ◔ ○ ○ ○ ○ ○ ○ ○ ○ ○

Publishers Integrated E2E Video Ad Network & Technology Creative providers

*TBD


Appendix – Dynamic Ads


Dynamic Ads – Solution Objective • Personalize creative based on advertising goals and user interests

– Right message– Right user– Right time

• Develop solution that utilizes many ad system components in a scalable manner– Dynamic creative– Advanced audience targeting– Personalization, optimization, and bidding– Listing feeds– Ad rules (business logic)

Revenue Growth1. Enable new advertising products that attract offline $2. Boost display performance to capture Google sponsored search $3. Develop ecosystem that makes Yahoo! the solution partner of choice



Can Yahoo! lose pricing power?

Conclusion• Significant risk of losing pricing power• Yahoo! must protect our revenue using technology and competing aggressively• Further develop core competencies in targeting and optimization of dynamic creative

Hypotheses Assessment

Y! has pricing power • Premium-priced BT on GD is generally not sold out and can be purchased as NGD• Ops Fin / PMM estimates DA displacement revenue at $1 CPM on Exchange• External Dynamic Ads providers can also buy at $1 CPM on Exchange

Right Media enables data provider• Typically 10% revenue share (~$0.20 CPM)

Rich Media / creative costs• PointRoll $0.75 CPM• Teracent $0.50 - $0.25 CPM tiered• Tumri $1 CPMRetail listings fee• ShopLocal 10% of ad spend (~$0.50 CPM for GD; ~$0.20 CPM for Exchange)

Y! BT is sustainable competitive advantage

BT technology providers, and ad networks:• Predicta BT, AdLINK 360, Adaptlogic, Avail, Boomerang, Criteo, Leiki, nugg.ad, prudsys, wunderloop• ValueClick Precision Profiles, and Precision Retargeting, Tacoda (AOL), Burst! Media, Netmining

Deep packet inspection has higher access to user behaviors• Phorm, NebuAd, Front Porch

Y! has reach not available elsewhere

• Ad Networks will consolidate• Exchanges connect these hubs and standardize targeting

• Deep packet inspection has high reach• Right Media enables data providers while consolidating access to user pools

• Estimated monthly unique users in autos category: Y! Autos 12M, Edmunds 6M, KBB 6M


Dynamic Ads

Partner Comparison – SummaryCapability Smart Ads

RetailSmart Ads Retail++

PointRoll Tumri Teracent ChoiceStream

Infrastructure Strength and Stability

◕ ● ● ◕ ◒Campaign Booking

◕ ◕ ◕ ◕ ◕Business Rules (including 3rd party tracking) ◒ ◕ ◒ ● ●Creative

◒ ◕ ● ◕ ◒Targeting

◕ ● ◕ ● ●Reporting

◒ ◕ ◕ ● ◒Optimization

◒ ◒ ◒ ● ◒Campaign Launch Time

◒ ◒ ● ◒ ◒Business Strength

● ● ◕ ◒ ◔


Dynamic Ads

Partner Comparison – ExplanationCapability Retail Retail++ PointRoll Tumri Teracent ChoiceStream

Platform Stability Good Very Good Very Good Good Average (Beta) Likely Below Average

Campaign Booking

Same Level of Complexity across all solutions

Business Rules (includes 3rd party tracking)

Rigid More flexible, but still Rigid

Rigid Flexible Flexible

Creative Good Very Good Excellent Very Good Good

Targeting Good Very Good Good Very Good (with parameter passing)

Very Good (with parameter passing)

Reporting Average Above Average Above Average Excellent (creative heat maps)

Average to Below Average

Optimization CTR only CTR only Website activity only

Interaction, CTR, Conversion, Creative

CTR only

Campaign Launch Time

3 weeks 3 weeks 2 weeks 3 weeks 3 weeks

Business Strength

Excellent Excellent Very Good Good Poor