Social Networks Final

C2 Industry Report
Monetizing Social Networks: Transforming Triple-Digit Growth Rates into Specific Revenue Streams
Prepared by Gabriel Garcia and Rachana Iyengar (646) 471-6183 (813) 348-7802 March 13, 2007
Research & Analytics Group

ISO / KSO
Internal Use Only
PwC
Research & Analytics Group Transforming Triple-Digit Growth Rates into Specific Revenue Streams
How this Report Is Organized

The PricewaterhouseCoopers Business Analysis Framework serves as the main organizing element for the content of this report. PwC developed the Framework as a tool to present corporate performance and valuation information in a simple, standardized format that facilitates sharing and benchmarking. Industry information includes both management and investor viewpoints as well as information from academic sources. Research has shown that the elements of the Framework hold true regardless of the business or industry. For different industry sectors, however, some elements may prove particularly useful or insightful. The Framework presented below highlights in bold the most important elements for the entertainment and media sector, which is the larger group to which the social networks industry belongs. Because of the private nature of financial performance information for all social networks, this report excludes the financial performance section entirely.
Entertainment & Media Business Analysis Framework
For Internal Use Only. Explicit permission from sources needed for other use.
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Executive Summary Market Overview Social Networks Growth Outpacing Every Other Internet Category 1) From Global Advertising to Social Networks 2) Social Network as Part of Social Computing 3) Social Networks Metrics in the Context of the Internet Space 4) Zooming in the Growth Dynamics of the Largest Social Networks 5) U.S. Social Networks Metrics Integrating Social Networks into the Telecom/Media/Technology Space 1) Identifying Social Networks Junction Points with Media Conglomerates and Communication Companies 2) Comparing Social Networks and TV Advertising Models 3) Social Networks Informational Advantage in the Audience Measurement Process 4) Developing Electronic Social Networks by Transforming Existing Non-Electronic Social Networks 5) Closing the Advertising Expertise Gap 6) M&A Scenarios for Social Networks Improved Advertising Pricing and Service Upgrades Maximize the Value of Social Networks 1) Improving Advertising Pricing by Borrowing Lessons From Other Internet Advertisers 2) Creating or Increasing Subscription Revenues by Making Available Additional Services 3) E-Commerce Opportunities in Virtual and Real Social Networks 4) Social Networks' Main Concerns
7 10 12 15 17
Strategy
20 24 26 29 31 32
Value Creating Activities
36 39 41 42
Appendices
Social Networks Analysis Defined Glossary
45 46 53 54
Sources Endnotes
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Monetizing Social Networks Transforming Triple-Digit Growth Rates into Specific Revenue Streams Executive Summary
MARKET OVERVIEW: SOCIAL NETWORKS GROWTH OUTPACING EVERY OTHER INTERNET CATEGORY HIGHEST VISITOR GROWTH RATE IN THE INTERNET SPACE. The social networks industry is the Internet category that has experienced the largest growth in unique visitors in the past year on a worldwide basis. Between November 2005 and November 2006, the number of unique visitors to Fox sites, including MySpace, increased 393 percent, leaving behind Google, Yahoo, and other established Internet leaders. These gains boosted Fox sites' 2006 worldwide internet reach to 18 percent, more than quadrupling its November 2005 reach of four percent. YouTube experienced the greatest gain adding 14 percentage points of reach (a 14 times increase year-over-year). A GLOBAL PHENOMENON WITH STRONG LOCAL FLAVORS. Social networks are a global phenomenonsome social networks are developing overseas while others are more U.S. focused. More than 70 percent of all visitors to YouTube, Microsoft Spaces, and other popular social networks come from outside the United States. The opposite is true of MySpace, Facebook, and Classmates where 70 percent or more of the visitor base logs in from the United States. DIFFERENCE IN METRICS BETWEEN DIFFERENT CLASSES OF SOCIAL NETWORKS. Blog-only social networks have a high level of unique visitors but a low level of page views and time spent. Some social networks warrant a greater amount of time spent surfing through more pages because of the content they offer. Other sites attract lots of users who visit only a few pages because of the type of content they seek. IN THE U.S. MARKET, MYSPACE AND FACEBOOK DOMINATE PAGE VIEWS AND AVERAGE TIME SPENT. Page view figures show an exceptionally high concentration on MySpace and Facebook. With 97 percent of the top 10 page views, these two social networks have a virtual monopoly in terms of the attention of their respective demographics. Furthermore, several other social networks have experienced double-digit declines, meaning that users/visitors have switched a significant portion of their attention to the two leaders' sites.
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STRATEGY: INTEGRATING SOCIAL NETWORKS INTO THE TELECOM/MEDIA/TECHNOLOGY SPACE

SOCIAL NETWORKS MAKE A GOOD FIT FOR MEDIA CONGLOMERATES AND COMMUNICATION COMPANIES. The user-generated content
and communications web of user networks make them an interesting fit for both media conglomerates and communication companies (cable/telecom/wireless) for different reasons. The abundance of user-generated content is attractive to media conglomerates because of their expertise in creating and distributing professional content. Cable, telecommunications, and wireless companies not only have enormous expertise in managing communications, but also an existing infrastructure designed to facilitate communication. For these companies, serving the communications needs of members of social networks provides an opportunity to expand the use of their services and to increase their numbers of clients
SOCIAL NETWORKS ARE LOW-COST ENTERTAINMENT COMPANIES. The value chain of social networks compares favorably with that
of other types of media and entertainment because it manages to capture more of the revenues generated in the entertainment process. If one hour of the average viewers attention has the same dollar value regardless of the screen viewed, then social networks will likely gain this hour of attention at a significantly lower cost than TV programmers because of their independent distribution structures and minimal content costs. Compared to TV distribution, social networks:

Eliminate (or significantly reduce) payment for content to producers and performers Reduce the need to advertise the site because of viral effects Reduce the need for infrastructure investment Reduce exposure to regulatory issues Reduce the need for relationships with distributors
INTEGRATING SOCIAL NETWORKS INTO NON-INTERNET COMPANIES PRESENTS CHALLENGES. Integrating Internet-based social networks into media conglomerates or communications companies must clear two hurdles: 1) "cultural" reticence from Internet companies to be acquired by non-Internet companies and 2) adapting to deal sizes that are more promising than transformational in nature. Scouting for the right company may mean focusing more on the promise and less on the current concrete contribution. CRITICAL SUBSCRIBER MASS OR NICHE FOCUSES CREATE BASIS FOR M&A. The critical mass or niche focuses of social networks
make them attractive acquisition targets, at the right price, either for communication companies or for media conglomerates. Access to a well-defined segment of a target market would be the best justification for integrating social networks with media conglomerates. Internet businesses related to social networks (e.g., social mapping) seem more attractive for large Internet search engines such as Google and Yahoo.
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VALUE CREATING ACTIVITIES: IMPROVED ADVERTISING PRICING AND SERVICE UPGRADES MAXIMIZE THE VALUE OF SOCIAL NETWORKS
IMPROVING ADVERTISING PRICING BY BORROWING LESSONS FROM OTHER INTERNET ADVERTISERS.
Offering a full set of advertising alternatives on social networks is likely to increase associated revenue by attracting advertisers to the most successful alternatives. Managing ad space on a site correctly can make a significant difference in the effective delivery of the message. Like TV ads, Internet ads can be sold at a premium in internet primetime. Segmented audiences offer more value than un-segmented audiences. Ads that deliver traffic with higher purchase intent should be priced at higher rates.
CREATING OR INCREASING SUBSCRIPTION REVENUES BY OFFERING ADDITIONAL SERVICES. Upgrading the social network users
communications alternatives creates an opportunity to tap into subscription revenues. MySpace members can access the website wirelessly when they subscribe to Helio or Cingular. This additional communication channel is an upgrade from website-only access, and MySpace is pricing it at $2.99 when accessed from Cingular.
E-COMMERCE TO HAVE A LIMITED ROLE IN SOCIAL NETWORKS. Ecommerce may take the shape of closed micro economies such as Second Life. With 2.5 million total residentsas registered users are calledand 550,000 monthly visitors, Second Life has established itself as the premiere virtual world where real world companies can test their marketing strategies. The site owner collects revenue by selling virtual land and on the "carry" of U.S. dollars exchanged for the virtual currency. SOCIAL NETWORKS PRIMARY CONCERNS.
Lack of entry barriers Click fraud Proprietary content Managing racy content
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almost double from 2005 to 2010, and emerging regions, such as Market Overview Social Networks Growth Outpacing Every Other Internet Category 1) From Global Advertising to Social Networks
Exhibit 1
Asia Pacific and EMEA, will lead global growth. The bulk of that expansion, however, will come from Internet access as more users switch to broadband, and penetration rates increase in lesser developed countries.
Internet Access and Advertising Spend

(figures in $m) LatAm , $8,581 Canada, $3,109
Exhibit 2
Ad Spending Worlwide
(figures in $B) '06 - '10
$250,000
LatAm , $4,341
$200,000
Canada, $2,021
AsiaPac, $110,282
$150,000 $100,000 $50,000 $-
AsiaPac, $48,418 EMEA, $49,524
EMEA, $83,421
Media Format 2006 E 2008 E 2010 E CAGR Television 157.9 180.7 202.1 6.8% Newspapers 119.8 130.3 140.1 4.0% Magazines 54.3 59.9 64.5 4.4% Radio 34.0 37.2 41.2 4.9% Internet Out-of-Home 28.8 21.2 413.3 41.4 24.6 469.6 51.6 28.0 521.3 18.1% 7.3% 6.2%
USA, $40,209
USA, $60,168
Total
Source: PwC, IAB
2005
Source: PwC, IAB
2010
The rapid Internet-user growth rate has been only partially addressed by advertisers because of significant inertia in reallocating marketing budgets. According to Forresters 2004 Benchmark Study, although consumers spend 34 percent of their media consumption time on the Internet, advertisers currently spend only 6 percent of all ad dollars on online advertising. Over time, this gap should shrink with more dollars moving online where consumers spend a greater amount of their time. PricewaterhouseCoopers
Internet user growth rates are expected to continue in the double digits over the next five years, leading to similar growth rates for access and advertising revenues. According to PwC, worldwide spending on online access and advertising is expected to grow 13 percent annually (20062010 CAGR) to reach $266 billion by 2010. As shown in Exhibit 1, total spend will
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estimates global dollars spent on online advertising to be nearly $29 billion in 2006 and to grow at an 18.1 percent compounded annual growth rate (CAGR) from 2006 to 2010 (see Exhibit 2).
overall and still represent close to 10 percent of total ad spending worldwide (see Exhibit 3).
Internet advertising growth rates are expected to be higher on search- and classified-based ads. According to ZenithOptimedia's
Exhibit 3
Monthly Advertising Estimates release (Exhibit 4) online ad sales are expected to grow 128 percent from $18.7 billion in 2005 to $42.7 billion by 2009, a 23 percent four-year CAGR. At the end of 2006,
Ad Spending Worldwide (%Total)

5% 7% 8% 13% 29% 5% 9% 8% 13% 28% 5% 10% 8% 12% 27%
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Out-of-Hom e Internet Radio Magazines New spapers Television
search-based advertising is expected to grow 35 percent year-overyear to $10.6 billion, while online classifieds are estimated to increase 39 percent year-over-year to $4.6 billion. Within these two categories, advertisers have access to more information about a consumersuch as interest (search) or location (classified/local) than when using display ads on the Internet.
38%
38%
39%
2006 Source: PwC, IAB
2008
2010
Exhibit 4
Online Advertising Spending Worldwide

(figures in $M)
% of Total
The expected faster growth rate of Internet advertising will still amount to only a 10 percent share of the advertising market in 2010, providing ample
opportunity for growth. Because of Internet advertisings relatively small share size, the Internet sector can support a growth rate three times faster than that of the industry
Display Search Classified Other Total
2005 7,043 7,833 3,291 545 18,712
2007E 10,462 13,993 6,169 721 31,344
2009E 13,292 19,711 8,856 825 42,685
2005 2007E 2009E 31% 38% 33% 46% 42% 45% 21% 18% 20% 2% 3% 2%
'05 - '09 CAGR 17.2% 26.0% 28.1% 10.9% 22.9%
Source: ZenithOptimedia, December 2006
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EMarketer estimates that advertising revenues of social networks will grow at 57 percent CAGR between 2006 and 2010, twice the rate of all other Internet advertising. Exhibit 5 shows eMarketer's estimate for Internet advertising sales. The 2007 estimate of $1.1 billion would be 3 percent of the total Internet advertising market, which seems conservative because of the extraordinary growth experienced by social networks. However, most social networks advertising falls into the display category, which has the least attractive economics. Social networks advertising is heavily concentrated with the lion's share of revenues (47 percent) going to MySpace, the market leader. Geographically, the United States is also the most important market with over 77 percent of all revenues expected to be generated there in 2007. The relative importance of the U.S. market will decline in the future as revenue outside of the United States is expected to grow faster in the next three years.
Exhibit 5
Social Networks Advertising Estimate

2006 350 2007E 2010E 865 2,150 525 200 95 45 85 435 80% 20% 260 1,125 77% 23% 665 2,815 76% 24% 67% 59% 2006-10 CAGR 57%
US of which MySpace Other SN (Facebook etc) SN from other portals Vertical Social Networks Rest of the World Total US ROW
Source: eMarketer
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2) Social Networks as Part of Social Computing
2.3) Tagging sites such as Digg.com allow users to "label" information on the Internet so that it becomes easier for users of the
Social networks are embedded in a broader group of Internet companies called social computing. Social computing is the sub-category of Internet sites defined by interaction among users of the site. Interaction between users and the site defines most others. Although the lines are not always clearly drawn, this report uses Charron (2006) general definitions for the following seven
site to review/identify. 2.4) Blogs, such as Xanga.com, allow users to track their activities, express opinions, and so on. 2.5) P2P sharing sites allow users to share documents (music, video, others) by contributing their own computer to work as a server. This has generated significant controversy for copyright issues. BitTorrent.com is an example. 2.6) Podcasts, probably the least interactive of all, allow consumers to broadcast their music or video information in a format that is easy
categories of social computing (see also Exhibit 6).
2.1) Social networks lie at the heart of social computing and are sites where each user displays personal information (using text, pictures, and video). Users interact using common characteristic/preference tags. This
to download into a portable, such as an iPod, with a potential audience of millions. NPR radio broadcasts are an example. 2.7) User review portals, such as CNET.com, are an
"independent" venue for sharing experiences and opinions on a variety of issues from vacation hot-spots to electronic gadgets.
exchange ultimately creates a network. Some social networks, like MySpace, have mass appeal; others, like Bakespace (recipes based), appeal to niche audiences. The primary differentiator for social networks is that users display a significant amount of personal information and interact with other members based on that profile.
This report concentrates on the core social networks, but includes sites like YouTube and Blogger, which could fit into more than one category.
2.2) Wikis allow users to collaborate on the creation of software or the compilation of information. Wikipedia is an example.
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Exhibit 6
Social Mapping
Social Networks are part of a larger social computing phenomenon
The creators of social maps analyze, for marketing among personal purposes, the interactions and the
network
members they
information
display.
Compared to the single-user information generated from cookies, the interactions among members of a network help refine the analysis of each members taste to develop more efficient, effective advertising.
Source: Forrester Research
Source: Forrester
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3) Social Networks Metrics within the Context of the Internet Social networks is the Internet category that has experienced the fastest growth in unique visitors in the past year on a worldwide basis. As shown in Exhibit 7, between November 2005 and November 2006, the number of unique visitors to Fox sites (which include MySpace) increased 393 percent, leaving behind Google, Yahoo, and other established Internet leaders. These gains boosted Fox sites' 2006 worldwide internet reach to 18 percent, more than quadrupling its November 2005 reach of four percent. Social computing champions Wikipedia and YouTube also experienced significant growth.
Exhibit 7
Top 20 Most Visited Websites, Worldwide

(millions of unique visitors)
The five largest Internet sites posted visitor growth rates below the growth rate of new Internet users overall, implying a decline in audience reach. For example, Microsofts reach dropped to 70 percent of Internet users, while eBay and Time Warner also experienced 4 percent declines. YouTube experienced the greatest gain, adding 14 percentage points of reach (a 14fold increase year-over-year).
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Y/Y Website Nov '05 Nov '06 Nov'05 Nov'06 Growth Microsoft 486 502 75% 70% 3% Google 436 476 68% 66% 9% Yahoo! 452 475 70% 66% 5% eBay 253 251 39% 35% -1% Time Warner 224 222 35% 31% -1% Wikipedia 84 172 13% 24% 105% Amazon 135 144 21% 20% 7% Fox 26 130 4% 18% 393% Ask 113 111 18% 15% -2% Youtube 4 108 1% 15% 2307% CNET 94 101 15% 14% 7% Apple 77 99 12% 14% 27% Adobe 96 98 15% 14% 3% Lycos 95 85 15% 12% -11% Viacom Dig N/A 75 N/A 11% N/A NY Times 58 71 9% 10% 21% Real.com 72 64 11% 9% -11% Sony 57 61 9% 8% 7% Sina.com N/A 58 N/A 8% N/A Tencent N/A 56 N/A 8% N/A Tot Users 645 718 11%
% Reach
Note: Fox Sites is primarily represented by MySpace Source: comScore
Social networks are a global phenomenon: some social networks are developing overseas, while others are more U.S. focused. As Exhibit 8 shows, more than 70 percent of all visitors to YouTube, Microsoft Spaces, and other popular social networks come
from outside the United States (noted here as ROW, the rest of the world). The opposite is true for MySpace, Facebook, and Classmates, where 70 percent or more of the visitor base logs in from the United States.
roughly in line with total Internet users worldwide. Its reach figures are fairly similar. However, a site like Orkut, with 98 percent of its users outside the United States, has only 5 percent reach worldwide. This is because the majority of its members are from one country only (Brazil). U.S. sites that based their networking in attendance to
Exhibit 8
U.S. college affiliation (e.g., Facebook) have a high reach within the United States but this is minimal outside of the country.
Social Networks International Breakdown Analysis

(millions visitors, Nov. 2006)
Total Visitors YouTube MSN Spaces MySpace Hi5 Flickr LiveJournal Facebook Orkut Friendster Classmates Yahoo!360 Tagged Xanga LinkedIn Total SN Universe
Source: comScore
% Total US ROW 24% 9% 69% 11% 30% 21% 90% 2% 6% 86% 39% 19% 50% 40% 22% 76% 91% 31% 89% 70% 79% 10% 98% 94% 14% 61% 81% 50% 60% 78%
% Reach US ROW 24% 9% 55% 2% 6% 4% 16% 0% 1% 13% 4% 2% 5% 1% 22% 25% 7% 6% 4% 4% 1% 5% 4% 1% 2% 2% 1% 0%
Exhibit 9
107,994 100,679 82,608 23,079 21,749 19,383 18,586 17,693 17,201 15,303 11,931 10,423 9,876 1,897 476,315
Increased Use of Social Network Tools by Americans
% U.S. Internet Users that...
Keep a Blog 2003 2006 Post Pictures 2003 2006 Maintain a Personal Website 2006 0 5 10 12.5 15 20 25 11 28% CAGR 23.6 3.2 7.4 32% CAGR
Source: University of Southern California, PwC
The growth of social networks in the United States reflects Analysis of reach data provides more insight into the global/local nature of each social network. YouTube gets 76 percent of its unique visitors from overseas, changes in Americans relationship with the Web. As Exhibit 9 shows, a study from the Center of Digital Future at the University of Southern California (2006) survey found an increase of (roughly) 30
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percent CAGR between 2003 and 2006 in the percentage of Internet users who kept a blog or posted pictures. Furthermore, 12.5 percent of those surveyed in 2006 maintained a personal website. These figures reflect an increasing demand from Internet users to maintain personal information on the Web. That repository of personal information together with communication features is what creates a social network.
Exhibit 10
Why Media Conglomerates Should Care about Social Networking
Generation Y's distrust of traditional media is a powerful force behind the increased popularity of social networks. According to Charron (2006) survey, there was an-across-the-board decline in trust in every type of media between 2002 and 2004 (see Exhibit 10) except on the Internet. Clearly, the ability to obtain information on ones own increases the trust placed in it.
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4) Zooming in on the Growth Dynamics of the Largest Social Networks Globally, page views and average time spent on social networks sites have also shown triple-digit growth. As Exhibit 10 shows,
Exhibit 11
the top 10 most viewed sites (by pages viewed) have grown on average 147 percent between November 2005 and November 2006. However, the bulk of this growth occurred in the largest social networks, with the top three representing more than 70 percent of all page views for the top 10.
Top 10 Social Networking Sites Worldwide

(millions of visitors)
%
1 2 3 4 5 6 7 8 9 10 Unique Visitors Youtube MSN Spaces Yahoo! Geocites Blogger MySpace Lycos Six Apart Sites Yahoo! Groups Hi5 Flickr Internet Users
Source: comScore
Nov '05 Nov '06 Growth 4.5 108.0 2308% 83.4 100.7 21% 90.9 91.5 1% 52.6 86.3 64% 26.7 82.6 209% 47.0 43.3 -8% 24.3 30.3 25% 22.3 24.3 9% 21.6 23.1 7% 7.7 21.7 182% 667.7 736.1 10%
% Reach Nov '05 Nov '06 1% 15% 12% 14% 14% 12% 8% 12% 4% 11% 7% 6% 4% 4% 3% 3% 3% 3% 1% 3%
Exhibit 12
Top 10 Most Viewed Sites, Worldwide

(in billion views) Y/Y % Page Views Nov '05 Nov '06 Growth Top 10 MySpace 9.6 40.7 324% 40% Orkut 10.9 22.9 110% 22% Facebook 4.5 10.1 126% 10% Mixi 3.3 6.2 91% 6% Fotolog 1.5 4.9 229% 5% Bebo 0.3 4.6 1626% 4% Hi5 3.6 4.0 11% 4% Friendster 2.6 3.8 45% 4% Skyblog 1.7 2.9 68% 3% MSN Spaces 3.4 2.1 -38% 2% Average 4.1 10.2 147% Total 41 102
Social networking growth has been concentrated in a few key sites. Exhibit 11 details the global social network landscape and provides unique visitor growth statistics for the 10 most visited sites. YouTube and MySpace have achieved the highest year-over-year growth rates, while YouTube and MSN Spaces are clearly the leaders in total unique visitors on a worldwide basis. Old social
1 2 3 4 5 6 7 8 9 10
Source comScore
networks/community-based sites like Yahoo! Geocities, and Lycos have experienced hardly any growth or decline.
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Growth in network users increases number of "browsable" pages and as a consequence, increases the average time spent per time unit. As shown in Exhibit 13, Bebo experienced a 420 percent rate increase in average time spent, although in terms of users it remains among the smaller of the top 10 sites. The logic behind time spent comes from the large number of page views that Bebo users accumulated. Between November 2005 and November 2006, page views increased 1600 percent and placed the sites total at five billion page views (one-eighth of My Space's total). Blog-only social networks have a high level of unique visitors but are low on page views and time spent. Some social networks warrant a greater amount of time spent surfing through more pages because of the type of content available. Other sites attract lots of
Exhibit 13
MySpace has a significant lead in market share. In terms of global page views, MySpace commands the largest share with almost 41 billion page views as of November 2006 (see Exhibit 11). Orkut and Facebook occupy the second and third places. This changes slightly when the figures are analyzed on a U.S.-visitors only basis.
users who visit only a few pages because of the type of content they seek. In the Orkut website, users can start on their personal web page and connect to a friend's web page, then connect to someone else's site through the friend's page, and so on. This would result in numerous page views. On the other hand, a more popularly visited site, like Blogger, could have one or two blogs that are read by a large number of users, which would result in many unique visitors who view a small number of pages while on Blogger.com.
Top 10 - Average Time Spent, WW

(in minutes)
1 2 3 4 5 6 7 8 9 10
Avg Time Spent Person.com Gaiaonline Mercora Arto Orkut Cherrytap Nexopia Bebo.com MySpace Friendster
Nov '05 Nov '06 15.9 60.8 61.0 54.8 25.4 54.0 51.6 48.2 38.5 41.0 N/A 35.8 21.4 33.0 5.5 28.6 N/A 26.7 11.8 25.3
Average
Source: comScore
28.9
40.8
Y/Y Growth 282% -10% 113% -7% 6% N/A 54% 420% N/A 114% 41%
Social networks that emphasize live interaction dominate the average time-spent category. Chatting sites like Person.com or Gaianoline require their members to interact live, reducing the number of "voyeurs" or visitors who are not members of the site. This
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is reflected in a longer time spent metric because of the greater interaction that is associated with members of the network versus casual visitors.
Facebook lead the group in terms of growth metrics. When comparing the domestic top 10 with the global figures, the message remains the same: social networks are evolving rapidly and growing in number as their popularity increases.
5) U.S. Social Networks Metrics U.S. visitor data show some commonalities with worldwide
Exhibit 14
figures (see Exhibit 14). YouTube has increased over 2700 percent year-over-year making it the fastest growing site in the United States.
% Reach Nov '05 Nov '06 14% 33% 1% 15% 11% 13% 13% 11% 7% 10% 9% 8% 8% 8% 6% 6% 7% 6% 3% 5%
Top 10 Social Networking Sites, U.S

(millions of visitors)
%
1 2 3 4 5 6 7 8 9 10 Unique Visitors Nov '05 Nov '06 Growth MySpace 24.5 57.2 134% YouTube 0.9 25.5 2730% Blogger* 18.8 21.8 16% Yahoo! Geocities 22.9 18.3 -20% Facebook 11.1 16.7 51% Classmates 15.2 13.1 -13% Lycos 13.6 13.1 -3% Six Apart Sites 9.4 10.3 9% AOL Hometown 12.1 9.9 -18% MSN Spaces 4.5 9.4 110% 2% Internet Users 169.7 173.7
This increase is similar to worldwide figures, although YouTubes U.S. reach is only 15 percent of all Internet users. MySpace leads the reach metric with 33 percent of all Internet users domestically, making it the largest social networking site at 57.2 million users in November 2006. MSN Spaces growth within the United States was remarkable at 110 percent, but the U.S. market still represents less than 10 percent of worldwide visitors. Finally, Facebooks growth at 51 percent represents a great indicator of pure U.S.-based social networks with 90 percent of its visitors coming from the United States (this is the highest percentage among all social networks reviewed).
Source: comScore * Blogger posted no data for Nov-05, figure shown is for Mar-06
Important names absent from the U.S. market. When comparing Domestic trends follow the same pattern as Exhibit 15 with Exhibit 11, sites such as Flickr and Hi5 don't appear on the top 10 U.S. list. Also, Orkut, Friendster, and Linked In did not reach the critical mass to appear on the top 10 list. This is important because marketers will focus on geography when looking to
international with certain sites commanding triple-digit and even quadruple-digit year-over-year growth in unique users, page views, and average time spent on these sites. MySpace, YouTube, MSN Spaces, and
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advertise their products and services for the most effective return on investment.
declines, meaning that users/visitors have switched a significant part of their interaction to the two leaders' sites.
Exhibit 15
Exhibit 16
Top 10 Most Viewed Sites, U.S.

(in million views) Page Views Nov '05 Nov '06 MySpace N/A 38,727 Facebook 4,451 9,039 MSN Spaces 110 282 Blogger N/A 224 AOL People Connection 313 202 Classmates 246 185 Yahoo! Geocities 216 151 Six Apart Sites 344 149 Lycos 80 72 AOL Hometown 61 32 Average 727.6 4,906 Total Top 10 5,821 49,063 Y/Y % Growth Top 10 N/A 78.9% 103% 18.4% 156% 0.6% N/A 0.5% -35% -25% -30% -57% -10% -48% 574% 0.4% 0.4% 0.3% 0.3% 0.1% 0.1%
Top 10 - Average Time Spent, U.S.

(in minutes)
1 2 3 4 5 6 7 8 9 10
1 2 3 4 5 6 7 8 9 10
Avg Time Spent MySpace Facebook Classmates MSN Spaces Six Apart Sites AOL People Connection Blogger Yahoo! Geocites Lycos AOL Hometown
Y/Y Nov '05 Nov '06 Growth N/A 28.1 N/A 17.7 20.4 15% 2.9 4.7 63% 5.7 4.0 N/A 5.7 3.9 -31% 3.1 N/A 2.1 1.6 1.7 3.4 2.5 2.3 1.8 1.3 11% N/A 10% N/A -22%
Source: comScore
Source: comScore
Average time spent is dominated by MySpace and Facebook. As Page view figures show exceptionally high Exhibit 16 shows, MySpace again is the domestic leader in terms of average time spent with 28 minutes spent per usage-day followed by Facebook with 20.4 minutes. Classmates.com, which may be benefiting from the renewed attention on social networks, has shown the highest level of annual growth with a 63 percent year-over-year increase in a users average time spent on the site.
concentration on MySpace and Facebook. With 97 percent of the top 10 page views, these two social networks have a virtual monopoly in terms of the attention of their respective demographics. Furthermore, several other social networks have experienced double-digit
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The Evolution of MySpace as Proxy for Other Social Networks i
Viral effects ii have been monetized through display ads sales. As shown in Exhibit 18, total ad impressions on MySpace follow the same pattern as page views. Although ad impressions have
Exhibit 17
Social Networks: Page View Growth Outpaces Unique Visitor Growth

May 2005 =1
4 3.5 3 2.5 2 1.5 1 0.5 Aug-05 Nov-05 May-05 Feb-06 Apr-06 May-06 Dec-05 Jun-05 Sep-05 Oct-05 Jul-05 Jan-06 Mar-06
generally outpaced the growth rate of visitors, the rate of that outpacing has increased quite significantly. This is because of both MySpaces improved ability to place its ad inventory in the market and greater demand from advertisers.
Exhibit 18
Advertisers Are Catching Up with Visitors

May 2005 = 1 206
5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5
# Visitors
Source: comScore
# Pages
Time spent online and total page views on social networks are rapidly outpacing visitor growth. Exhibit 17 details the evolution of MySpaces unique visitor and monthly page views from May 2005 to May 2006. After December 2005, growth rates of pages viewed were much higher than that of unique visitors, indicating that visitors were reading many more pages than in previous visits. The increasing growth rates reflect the "viral" nature of social networks.
1.0 0.5 Nov-05 Jun-05 Oct-05 Aug-05 Feb-06 Jul-05 Dec-05 Jan-06 May-05 Sep-05 Apr-06 May-06 Mar-06
# Ads Source: comScore
# Visitors
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Strategy Integrating Social Networks into the Telecom/Media/Technology Space
professionally generated content is through broadcast TV, cable, DVDs, and other media. However, social networks content is acquired at little or no cost, opening up the opportunity to achieve substantial returns on the sale of content even at relatively low price
1) Identifying the Junction Points of Social Networks with Media Conglomerates and Communication Companies
points.
Exhibit 19
Social networks are characterized by 1) the existence of a repository of user-generated content and 2) the need of members to communicate. User-generated content in a social network can include text, pictures, video, and any other electronically stored content. Users communications needs are satisfied using email, SMS, voice, video, or any other method that can exchange information electronically.
Integrating Social Networks into Telecom and Media
User Generated Content Social Netw orks
Professionally Generated Content
Media Conglomerates
MySpace, YouTube Communications Need IP-Based Communications Cable, Telco, Wireless
Boost Mobile
Social networks user-generated content and communications web make them an interesting fit for both media conglomerates and cable/telecom/wireless companies for different reasons (see Exhibit 19).
Source: PwC
Cable, telecom, and wireless companies have considerable expertise in managing communications and existing
infrastructures designed to facilitate communications. For these The abundance of user generated content is attractive to media conglomerates because of their expertise in creating and distributing professionally generated content. Social networks like MySpace and YouTube have become owners of a great deal of content that can be processed and distributed in the same way as
iii
companies, serving the communications needs of social networks members is an opportunity to expand the use of their services and to increase their number of clients. Wireless carriers with strong youthoriented brands, such as Boost Mobile, already are trying to build social networks from their customer bases by adding content to their
Page 20
wireless
service
offering
(see,
for
example,
authorization. Such use may also entail a payment to the content owners, which will likely be a token amount to each individual because content will be sold in bulk (based on grouping features).
www.boostmobilecommunity.com).
Exhibit 20
Social Networks from Media Conglomerates' Perspective

Using the synergies on content sale:
Exhibit 21
Social Networks from Communication Companies' Perspective

Using the synergies on communications:
Professionally Generated Content
Movie theater Internet TV Portables User Cable Generated CD, DVD, others Content Internet Portables DVD - The 100 "hottest" YouTube videos
CD - The 100 most popular MySpace tunes Book - The funniest MySpace pickup lines
IP-Based Communications
Source: PwC
Email Email Communications Text Text Need Voice Data (Pics) Video Data Wireless Capabilities + Wireless All IP Voice and Video Satelite Position
Source: PwC
New distribution systems create additional opportunities for monetization of social networks' user generated content (see Exhibit 20). Just as Disney can sell Desperate Housewives on broadcast TV, cable TV (re-runs), CD/DVD, Internet, Itunes, and wireless TV (in the future), social networks can repackage their content for sale under various arrangements. YouTube could well create DVDs of its "top 100 hottest videos of 2006" or capitalize on its users preferences by producing a "top 100 summer 2006 music downloads." Doing so would, of course, entail securing the appropriate licensing, revenue share, and other required
Integrating a social network into a cable/telecom/wireless company builds on the synergy between the communication needs of social network users and the communications expertise and service infrastructure of the communication companies (see Exhibit 21). Most communications through social networks are still based on text exchanges through blogs or e-mails as well as some data exchange in the form of photos and images. Most consumers, however, have a much broader array of communication services available to them. Social networks likely will begin to expand their communications menus to the extent that their
agreements. User-generated content that is exhibited or packaged by social networks should be treated similarly in terms of
Page 21
investments
in
these
upgrades
can
be
recovered
through
communication needs: blogs, e-mails, perhaps even "innetwork conference calls" among users. Getting YouTube customers to use such services would create an opportunity for
advertising, subscriptions, or both.
The Internet can deliver low-tech communication services at extremely competitive rates, but it fails to offer the allencompassing solution that communication companies can. An integrated communication system gives customers the ability to switch easily between voice or video communication through fixed line or wireless. On the Internet, voice is available from Skype and video through YouTube or Yahoo, but none offer wireless service. Cable/telecom/wireless companies own and operate pieces of these communication networks, which creates an incentive to cultivate social networks as a source for their own growth
Verizon to develop a deeper, stickier relationship with them. It could also revitalize growth in products like conference calling that have reached maturity in the corporate segment.
Exhibit 22
Analyzing the YouTube/Verizon Deal
Home-made Videos YouTube Need to upload/download videos wirelessly "VCAST " 3G CDMA network Verizon
The Verizon/YouTube Agreement
The Verizon/YouTube deal is typical of the complement between communication companies and social networks (see Exhibit 22). The key component here is Verizon's ability to provide connection speeds and wireless handsets to support video uploading capabilities that are necessary for YouTube to satisfy its users need for wireless video exchange. As the owner of content, YouTube has an incentive to establish agreements with all carriers and has only provided temporary exclusivity to Verizon. Because of its sheer size, YouTube can decide with whom it is willing to sign an agreement. Assuming that Depending on how the relationship between these two companies evolves, Verizon could meet even more other carriers can deliver the same service as Verizon, YouTube's
Note: VCAST is Verizon's brand for high-speed data netw ork Source: PwC
Page 22
incentives for an exclusivity agreement will decrease. However, a "package deal," which includes the progressive addition of additional communication services, could develop into an exclusivity deal.
Exhibit 23
Integrating Social Networks into Existing Internet Models

Google Organize Content & Sell Keywords & Sell Display Ads, Generate Traffic to other Yahoo areas Promote Business Transactions Under C2C and B2C Models
As with any other Internet property, the scale of the audience of social networks determines the nature of the relationship with a communications company. Micro-sized social networks are not interesting to communication companies. Massive social networks are, but they would rather be partners than be acquired. To be attractive, potential acquisition candidates should have a scale large enough to grow as a business but not too large to dictate the terms of the business.
Source: PwC Social Netw orks
User Generated Content
Yahoo
Communications Need
Ebay Amazon
Yahoo and Google would rather build social networks to connect with users using their existing base of e-mail and other
Integrating Social Networks into Pure Internet Companies
personal services. Yahoo has launched at least two initiatives: Yahoo360 and Mixd.com to give members social networking
Although social networks user-generated content and users' communications needs make them attractive acquisition targets to the four largest Internet companies, there is less synergy than with media conglomerates or communications companies (see Exhibit 23). User-generated content is attractive to both Yahoo and Google. Google could organize Facebooks enormous amount of data and perhaps sell that data rather than selling more display ads. Yahoo could not only boost display ad sales, but also engage members in other services offered by their websites portal.
capabilities. Google bought Orkut (a Brazilian social network), but has yet to offer the service in the United States. Google entered into an agreement with MySpace to capture search revenues. Perhaps this is a more efficient way to capture the revenues generated by social networks advertising.
Better communications among internet users is of great interest to both Amazon and EBay because it facilitates the completion of transactions. Here, a social network is a consumer of
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communication technologies, not a producer. The rationale for combining an internet company and a social network would be that members (who have already established trust among themselves) could extend that relationship for a commercial purposeto buy or sell something. This e-commerce aspect of social networks has been most successful in networks where users conceal their identities (e.g., Second Life) or when identities are fairly public
Social networks eliminate (or significantly reduce) payments for content to producers and stars. Because members produce social networks content, the cost of content creation is lowered, but not totally eliminated. Creating content involves the cost of the tools provided for members to build their sites and the cost of policing illegal content. Depending on the social network's ability to tap into content in the future, paying members for content may become more popular. Currently only a few social networks (e.g., Revver) offer revenue sharing agreements to members.
(entertainers/celebrities promoting their work). More e-commerce revenue models may develop in the future, depending on members desire to conduct business within a "social" setting.
2) Comparing Social Networks and TV Advertising Models
Social networks need to advertise their sites less because of viral effects. These viral effects among existing social
The value chain of social networks compares favorably with that of other types of media and entertainment because it manages to capture more of the revenues generated in the entertainment process. If one hour of viewers attention has the same value regardless of the screen viewed, delivering that hour costs social networks significantly less than it does TV programmers because of the networks independent distribution structure and minimal content cost. Using Exhibit 24 as a guide, five elements seem to give social networks an economic advantage over the media conglomerates:
networks members attract more members reducing the need to advertise to recruit new uses.
Social
networks
have
less
need
for
infrastructure
investment. As an Internet business dealing with electronic content, social networks have minimal needs for infrastructure other than servers and server space.
Social networks have less exposure to regulatory issues. Because they operate in cyberspace, Internet-based social networks are not subject to the sometimes burdensome level of
Page 24
regulation imposed on other media and entertainment systems under current U.S. legislation.
Social networks reduce the need for relationships with distributors. As long as social networks maintain their content in an internet protocol (IP) format, they
Exhibit 24
need
not
go
through
specific
Comparing the Cost of Attaining One Hour of Teen Attention Using TV and the Internet
Case A: One hour of The O.C. shown in Fox Program Distribution
TV Screen TV Screen TV Screen Cable/Satellite Distribuitors Fox Netw ork
distributor or system to make content available to the public.
Program Creation
Advertising
$ $ Producers for
The O.C.
Talent On and Off Screen
3)
Social
Networks
Informational
Advantage in the Audience Measurement Process.
Relationships Contracts & negotiation Licenses / regulatory compliance
With the ability to record information on its visitors preferences, social networks
Case B: One hour of MySpace running Program Creation and Distribution

PC Screen Advertising PC Screen PC Screen My Space Significantly low er capital investment and operating costs
obtain richer feedback than that obtained through traditional media. Although sites on the Internet and TV systems are competing for the same consumer attention, the differences in measuring them does not allow comparability among audiences and ultimately leads to imperfect pricing of advertising offered by both.
Content
The Internet
No need for relationships except community Terms of the contract w ritten once No license and minimal regulatory compliance requirements Non-celebrity, IT staff
Source: PWC
Page 25
As presented in Exhibit 25, social networks' feedback process offers these advantages over the existing rating process:
compared to the projected statistics on a sample that TV broadcasters use. This gives social networks owners an informational advantage over owners of other entertainment
1) Population vs. sample data. Social networks capture information on visitors through their websites. In aggregate, this represents the real statistics of the population served as
Exhibit 25
and media.
2) Instant
vs.
delayed
information
exchange.
By
incorporating a multi-
Comparing the Audience Measurement Process Between TV and Internet

TV: Sample information and audience measurement agencies with exceptional leverage
TV Screen TV Screen TV Screen Partial population Information at best Cable/Satellite Distribuitors Fox Netw ork Rating Agencies Ad Agencies
level communication component (e.g., email, blogs), social networks provide the
Rating agencies control the process metrics through sampling process, subject to their "boxing".
network owner with quick and deep on
Client
information
viewers' preferences ("todays popular is" most or
Sample Information
Internet: Better information with reduced set of relationships

PC Screen PC Screen PC Screen Source: PWC Information on w hole universe w ith greater segmentation (from social profile)
The Internet
My Space
In-house Creative Team Offers Customized Products
Client
Auditor/Independent Compiler Verifies
Site owner has all population information. With appropiate systems owner can segment and deliver this info directly to clients, who can then create strategies. In house advertising
"XOgu37 says that this is cool because "). Services of
companies that are experts in analyzing users' behavior on the Internet will be in
Page 26
demand from social networks owners.
consumer profiles would be revealed as people navigate the mobile web. This will enable marketers to target advertising much more
3) Rich information vs. standard information. Websites pay for referred traffic directed to them under various
accurately than it has been on the Internet.
agreements. Because of the abundant personal information provided by members of social networks about themselves, the network owners can provide better tagged traffic to other websites. The richer information should improve the marketing process of various e-commerce sites and thus increase their willingness to pay for this traffic.
Because of the private nature of wireless browsing, wireless carriers have a significant degree of control over Internet browsing, creating an opportunity to test "network neutrality." Mobile networks could be the first place where carriers will try to charge premium fees for content providers to deliver their information at a faster pace. This could affect the audience measurement process in wireless networks because sites that refuse to pay higher
Adding Wireless Distribution to Social Networks
rates might receive fewer visitors.
In measuring audience, wireless screens will likely be measured as Internet sites rather than TV distributors. As with the Internet, mobile users are navigating onto specific sites, clicking, interacting, and so on. Its likely, therefore, that the way "viewership" will be rated will be similar to the way Internet data are analyzed: unique users, page views, and average time spent.
The Future: Advertising Algorithms?
New distribution formats like mobile are already leading advertisers to create multi-platform campaigns. Measuring the success of these campaigns will require multi-platform ratings. Electronic securities exchanges have changed the way securities are traded around the world. Instead of focusing only on the official
Analyzing mobile users' data offers an additional advantage: information would be much more personalized than on the Internet. In a household, individuals often share a computer: husband/wife, brothers/sisters, and others. Mobile, on the other hand, is for the most part a personal service, which means that new
exchanges (e.g., NYSE, NASDAQ), traders now must monitor what is happening in aggregators, ECNs, and now "dark" liquidity pools (private exchange networks) simultaneously because its all happening at the same time.
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The
advertising
market
could
face
similar
situation.
they will have to compete not only with those in their category, but with other distribution systems (e.g., Internet, wireless) as well.
Advertisers would need to monitor the use data of each distribution system (e.g., TV, Internet, wireless) and the cost of reaching that audience in real time with ads placed most effectively. Feeds from websites, wireless carriers, cable providers, and others will generate a massive amount of data about consumer behavior, data that should be processed quickly and effectively. In the trading markets, participants have developed mathematical algorithms to place their trades at the most advantageous rates. Assuming that the data being retrieved from all these sites becomes available, perfect knowledge of the audience on each screen (and its cost) will allow advertisers to maximize the efficiency of their ad dollars.
Information availability/sharing would be crucial to develop this market. An essential ingredient for algorithms to be useful is to have a continuous set of reliable data. This is still a work in progress for many websites. Furthermore, the extent of information sharing about users behavior is and will be an issue that could require further discussion among the different market participants. It is in the interest of multi-platform distribution owners to provide abundant information on the audiences that they reach to achieve better pricing. However, firms that only participate in one distribution system (e.g., TV) will resist using multi-platform measurements as
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4) Developing Electronic Social Networks by Transforming Existing Non-Electronic Social Networks
incentives for subscribers to register their networks of friends or family with the company. The idea is to create a sticky relationship with the wireless carrier (from the user and its network of
4.1)
Strengthening
Communications
Companies'
Social
relationships).
Networks Using these networks as a blueprint, and after adding specific

Exhibit 26
functionality, communication companies should be able to create (or enhance) their social networks. The ability to store content and provide a greater set (more than voice) of
The Social Network Nature of Wireless Voice Offerings
communication tools should be pre-requisite to creating a social network. Examples of possible upgrades to social networks using wireless services include:
1) AAA members and car clubs. A space to meet fellow drivers, wireless mapping of locations, dining tips for travelers, and/or the ability to locate other AAA travelers in the area to share information on common car problems or maintenance.
2) University affiliations. Access to university content, alumni, As telecom/wireless companies try to promote heavier use of their services by offering discounted rates for family and friends "networks," they areinadvertentlybuilding social networks. As the example in Exhibit 26 shows, T-Mobile and Alltel among other wireless providers have been offering financial profiles, backgrounds, and so on. These are strong social networks that already exist; they simply need access to additional technology.
Page 29
The most significant software provider to develop this functionality is AirG, which has created several social networking sites for carriers around the world (www.airg.com). The company has six groups of products of which the most relevant are: mobile community (creates interactive "lounges" for cellphone users with chat, pictures, and other functionality); community marketing (delivers context-sensitive marketing and promotions); community content (sells specific content to the community such as games); and community storefront (sells third party content).
(e.g., "I love the 80s") could be necessary to attract enough members. In this case, the underlying theme of the social network would be the ability to acquire or to view or listen to content through the website.
4.3) Creating Social Networks from Powerful Brands
Powerful brands like Coca-Cola, Johnson & Johnson, Gerber, and others have created social networks de facto by dedicating space on their websites where customers can exchange
4.2) Building Media Conglomerates' Social Networks
information. Coca-Cola lovers exchange experiences about their taste in drinks or about various events promoted by the company.
Developing a social network from a media conglomerate perspective is more difficult than from that of a communications company. In essence, media conglomerates would be creating social networks around their characters/artists (the "fan club" model). Although still an interesting model, as the availability of content increases the importance of each individual artist declines, and the ability to attract sufficient attention to keep a social network alive may be questionable.
Johnson & Johnson gets individuals to exchange information about their ailments and illnesses. These interactions among website visitors represent a social network. Companies can use such inhouse networks not only to advertise their products, but also as sources of market intelligence about users preferences and daily activities. The potential exists for e-commerce, although it is not likely to be the most interesting use of these social networks.
The power of brands to create traffic is so important that Yahoo An alternative would be to create social networks by grouping specific content or artists like music compilers do. Although Elvis lovers would likely gather the critical mass needed to maintain a social network on their own, some content aggregation themes will launch a brand zone on its website. In an attempt to attract traffic to its website, Yahoo will soon launch a "brand zone," which will include articles, games, pictures (Flickr), links to shopping.com, and bookmarks from del.icio.us.com. The content of the site will not
Page 30
be exclusive, and the endorsement of the site by the brands to be included is welcomed but not required. This underscores Yahoo's belief in the capacity of brands to create connections among its users.
phone creates the opportunity to sell advertising. For example, this ad could be for a nearby store (e.g., a supermarket) where a hypothetical viewer (say a mom) tells her teenage daughter to buy Downy on the way home.
5) Closing the Advertising Expertise Gap
Communication companies could also bridge their advertising experience gap by partnering with Internet companies (Yahoo,
Exhibit 27
Google). As an example, Vodafone recently announced that it has established a joint venture with Yahoo to create a full set of advertising options for its wireless service. Ad options will include banners, short video clips, and text ads (to be displayed after local searches). Additionally, Yahoo will provide the sales force and will use its proprietary profiling technology to customize ads based on the demographic user data collected by Vodafone.
Advertising will become a primary source of revenue for wireless providers.
Mobile can provide rich user information for advertisers

Sour ce: Lucent , PWC
because of the high proportion of postpaid customers in the United States. Although occasionally pre-paid clients register their companies must acquire or develop
Communications
financial profile, the preponderance of prepaid service outside of the United States eliminates important credit and geographic references about the customer. Mobile profiling
iv
advertising capabilities to take full advantage of their social networks. Wireless providers and broadband providers (to some extent) own the screens that people use to communicate. The partial use of these screens as a source of advertising revenue should be one of these companies' top priorities. As shown in Exhibit 27, a cable screen that shows the location of an associated wireless
is likely to be an area of
important growth as mobile Internet continues to develop.
Page 31
6) M&A Scenarios for Social Networks
uncommon, the difference here is significant. Mergers in which Internet companies buy non-Internet companies were also
Exhibit 28
infrequent: only eight such transactions between 2004 and 2006.
It is Hard for Outsiders to Buy into the Internet Space

U.S. Internet M&A #Transactions
120 100 80 60 40 20 0 Int-> Int Non-Int -> Int
(Acquirer-> Acquiree) Source: Citigroup, PWC
Scouting for the right company may mean focusing more on the promise and less on the current tangible contribution. As Exhibit 29 shows, the majority of Internet acquisitions fall into the $10 to $50 million range, a figure that may not even appear on the radar screen of many media conglomerates and communication companies. Gaining expertise in analyzing enterprises of this size may be beneficial for media conglomerates and communications companies.
Int -> Non-Int
Exhibit 29
David and Goliath: How to Bolt a $50m Company onto a $50bn One?
U.S. Internet M&A #Transactions
80
Integrating
Internet-based
social
networks
into
media
70 60 50
conglomerates or communications companies requires clearing two hurdles: 1) "cultural" reticence from Internet companies to be acquired by non-Internet companies and 2) adapting to deal sizes that are more promising than transformational in nature. As shown in Exhibit 28, of all Internet M&A activity between June 2004 and July 2006, over 118 transactions were between Internet companies; in only 34 cases were non-Internet companies the purchasers. Although mergers within the same industry are not
40 30 20 10 0 $10 m $10-50m $50-100m $100-500m >$500m (Transaction Value $m ) Source: Citigroup, PWC
Page 32
Fox buying MySpace. The advantage of family-run businesses.
Despite such challenges, critical mass or the niche focus of some social networks make them attractive acquisition targets
Perhaps Foxs most significant hurdle to clear in its acquisition of the Intermix assets was its own management. Because the vast majority of Fox executives came from TV distribution, newspapers, or other forms of "old" media, their greatest expertise is in those areas. A strategy of aggressive expansion on the Internet will bring in new peers to compete for the CEOs attention and reduce the existing manager's relative importance. Mr. Murdoch's dual role as CEO and owner of News Corp may have favored News Corp in bidding aggressively for the asset. Other media
for communication companies or media conglomerates, at the right price. Exhibit 30 shows some potential combinations based on either filling the gaps (AT&T) or building on a strong strategy (Verizon). A match between AT&T and Facebook would strengthen AT&T's presence in the youth market, while potentially giving Facebook a richer set of communication alternatives. The addition of Linked In (a social network for professional networking) to Verizon could result in a testing ground for business applications. Successful adoption of Verizon's communication applications on the social network could create the standard for widespread utilization within the real "work" environment. Social network affiliation could be made exclusive to the specific carrier or have a smaller set of
conglomerates with less active shareholders may be delaying their Internet strategies for as long as possible.
Some key Internet assets may be acquired only by purchasing even larger assets, which may challenge some corporations. Fox could only acquire MySpace by acquiring Intermix, which meant Fox had to find a place for the remainder of the assets or put them back on the market, not an easy task. Staff and key personnel unhappy with the uncertainty of frequent changes who then move elsewhere reduce the value of the portfolio. In November 2006, 14 months after completing the purchase, News Corp sold the remainder of Intermix assets back to its original owner (Mr. Rosenblatt, now with Demand Media).
communication alternatives for outside users.
Differences in regional coverage significantly limit M&A transactions between communications companies and social networks. Internet businesses generally operate on a global scale, while communication companies are typically limited geographically. M&A opportunities like the ones described here would have to involve social networks that primarily operate in the United States. Not even Vodafone, with its considerable international presence, could fully support a global social networking business.
Page 33
users. Their technologies have the potential to facilitate Internet

Exhibit 30
advertising sales. Other software providers that are creating software to manage (mobile) groups include Microsoft with its new SLAM product. This add-on to MS Mobile helps group members locate each other, send messages to groups, and share files.
Speculative M&A Combinations Including Social Networks

Acquirer Acquiree Rationale AT&T Facebook Facebook could provide a great start base for AT&T youth branding. Pic exchange perfect for Cing Network. Verizon Linked In Linked in focus on professionals would match Verizon's strength on corporate segment. Reliability key aspect for businesses. Piczo's focus on teenage female appeals to Disney's network programming. Advertising synergy. Focus on high-school relationships in tune with much of TV network programming. Advertising synergy.
Exhibit 31
Disney Viacom
Piczo Sconex
Search Engines Find Social Mapping Attractive

Relevance Now Surveys information on text format (email, blogs, etc.), compiles and creates a social "profile" for users.
Source: PwC
Aggregate Aggregates web visitors information using algorithms that record Knowledge sequence of website visits and then creates group profiles.
Source: CNET, PwC
Access to a well-defined segment of a target market would be the best justification for integrating social networks and media conglomerates. Exhibit 30 presents two possible integration examples: Sconex with Viacom and Piczo with Disney. Adding the social networks to the conglomerates portfolios of product would open up new channels for advertising sales to existing clients. The site could also create e-commerce opportunities either for proprietary or third-party products. Completely disruptive technologies should also top the communication companies' interests. A company called Paltalk is a social network with a distinctive characteristic: it connects people using video. Through a giant video-conferencing site, users can see and talk to each other. The service is offered for $60 a year, much lower than price points for comparable professional services. Integrating this service into a communication company could reduce its costs and provide an opportunity to attract more clients using the Internet businesses related to social networks (e.g., social mapping) seem more attractive to large Internet search engines like Google and Yahoo. Exhibit 31 describes two companies involved in mapping the behavior of Internet users and groups of power of the communication companys brand. Alternatively, this type of technology could help new entrants to the corporate market (e.g., cable) leap-frog other corporate services technology offerings.
Page 34
the report offers specific recommendations to develop each of these Value Creating Activities Improved Advertising Pricing and Service Upgrades Maximize the Value of Social Networks
Exhibit 32
revenue sources.
Exhibit 33
Social Networks' Revenue Streams

Social Networks as Part of Marketing Evolution
Advertising The main revenue generator in a social network Minimizes the barrier of entry to the network Less commonly used. Possible on some social networks that have unique content. E-commerce in social networks limited by extensive commerce dedicated sites.
Subscription
E-commerce
Source: PWC
Social networks greatest revenue component will continue to be advertising, but subscription and e-commerce revenues will grow at a faster rate. Because of the open access allowed by
Source: Forrester Research
advertising-based models, social networks that use advertising models will continue to attract the broadest set of users (and Social computing has significantly expanded the marketing tool kit currently available to advertisers. As depicted in Exhibit 32, new channels that run on the Internet and cell phones along with new technology to monitor consumer behavior provide opportunities to improve the advertising process. Social networks lie at the center of social computing alternatives, providing an audience for advertising, subscription, and e-commerce revenues. This section of advertisers) as the Internet crowds out TV, magazines, and other communications channels for consumer attention. Subscription revenues will grow quickly as the pace of migration of social networks into mobile picks up in 2007 and 2008. E-commerce models will likely be business-to-consumer and niche focused, with some social networks becoming the preferred avenue to reach certain audiences. Replication of or challenge to Amazon or EBay models is not anticipated.
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1) Improve Advertising Pricing by Learning Lessons from Other Internet Advertisers
ads. So far, social networks have avoided cluttering their members' sites with large advertisements. At the same time, they may be less effective in reaching their audiences. Ad pricing should reflect these
Exhibit 34 Lesson 1: Larger ad units generate higher click rates
differences.
Exhibit 35
Lesson 2: Keywords are really key
Source: Doubleclick
Offering a full set of advertising alternatives on social networks is likely to increase associated revenue by attracting
Source: Marketing Sherpa
advertisers to the most successful alternatives. The TV screen leaves little choice but to watch commercials or completely skip them. On the Internet, where content and advertising are shown at the same time, larger banners provide the highest success rate. Studies on CTR done by Bruner and Gluck (2005) indicate that larges ads lead to seven times greater click rates than full banner Managing ad space on a site correctly can make a significant difference in the effective delivery of the message. Exhibit 35 shows an eyetracking v heat map from the Marketing Sherpa Marketing Benchmark Guide 2007. Areas in red show where most viewers concentrated (first two results obtained). Users paid little or
Page 36
no attention to the advertising on the right side. Also, few users went below the red line (which marks the screen initial view). This indicates that Internet users show little interest in their complete search results and overwhelmingly concentrate on specific areas of the screen. The effectiveness of ads placed in other areas is lower and should be priced accordingly. Social networks owners should refer to the various heat-maps for their networks and place advertising accordingly to maximize advertising revenues.
lowest at the start of the week and expand significantly during the weekends, creating a primetime audience. In a similar way, advertising on social networks that focuses on teenagers should have lower pricing during school hours and late evening and higher pricing in the afternoon.
Exhibit 37
Segmenting Social Networks According to User's Age
Exhibit 36 Lesson 3: Pricing primetime in the internet
Age
13
18
22
35
Source: PwC
Segmented audiences prove more valuable that un-segmented audiences. Although audience size commands clout and the ability
Source: Doubleclick
to be an ad-price setter rather than a price taker, segmented audiences can also command a premium ad price from those targeting the segment. Using the TV analogy, in Exhibit 37, MySpace would be the equivalent of a national broadcast network and the other sites would be various cable networks. Additionally, segmented
Selling Internet ads, as with television ads, should take primetime blocks into consideration. Just as TV audiences are segmented by time of day, owners of Internet sites should leverage peak usage times to optimize the pricing of advertising during these times. In Exhibit 36, daily unique visitors to Yahoo Movies are at their
Page 37
audiences would probably lend themselves to e-commerce as an additional source of revenue.
Beyond the banner: using social networks information to create advertising features using internal advertising agencies. Social networks owners have opened their sites to companies that want to
Ads that deliver traffic with higher purchase intent should be priced at higher rates. Full-page and floating ads create a higher purchase intent making them more valuable. Social networks should offer these types of ads and price them according to their higher value. Exhibit 38 shows the result of a study presented in Bruner and Gluck (2006) where a full-page ad increased purchase intent 10 times more than a standard banner.
register their brand as a "member." Site development for these brands is usually done by an in-house advertising agency. By July 2006, for example, MySpace had 15 active brand sites (see Exhibit 39). For the most part, these sites were created by the in-house agency to take advantage of all the network features offered by MySpace (as opposed to regular stand-alone movie websites that are not part of a social network).
Exhibit 38 Lesson 3: Greater Purchase Intent Requires a Premium
Exhibit 39
Brand as a MySpace Friend - July 2006

Adidas soccer http://www.myspace.com/adidassoccer Burger King http://www.myspace.com/burgerking Cingular http://www.myspace.com/cingularstudio Disney "Pirates of the Cahttp://www.myspace.com/deadmanschest Fox "24" http://myspace.com/24onmyspace Twentieth Century Fox:X http://www.myspace.com/xmenthelaststa GE http://www.myspace.com/ellifont HBO "Entourage" http://www.myspace.com/entourage Honda Element http://www.myspace.com/hondaelement Motorola MotoQ http://www.myspace.com/motoq Nike soccer http://www.myspace.com/nikesoccer Paramount "Failure to Lahttp://www.myspace.com/failuretolaunch Pepsi Aquafina http://www.myspace.com/aquafina Procter & Gamble Secre http://www.myspace.com/secret Toyota Yaris http://www.myspace.com/yaris Verizon http://www.myspace.com/callingallbands Wendy's http://www.myspace.com/wendysquare
Source: Emarketer
Source: Doubleclick
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2) Creating or Increasing Subscription Revenues by Making Additional Services Available.
at Cingular (yet no advertising) or bundled with other services as in the case of Helio.
Exhibit 40
Exhibit 41
The Migration of Internet Social Networks to Mobile
Use of Mobile Video is Heavily Skewed Towards Younger Gen

Users Grouped by Age, % Total
50% 40% 30% 20% 10% 0% 18-24 25-36 37-55 56+
Mobile Video Source: Telephia
All Mobile
Source: Helio website
Use of mobile video is more widespread in younger generation. Upgrading the communications alternatives of social networks provides an opportunity to tap into subscription revenues. MySpace members can access the website wirelessly when they subscribe to Helio or Cingular. This additional communication channel is an upgrade from website-only access, and MySpace is pricing it at $2.99 when it is accessed from Cingular. In the case of Helio, the fee is probably embedded in the higher wireless monthly subscription fee. Subscription revenue is being collected individually Exhibit 41 show two percentages of total mobile use figures: all mobile (purple) and video mobile (magenta). For example, 45 percent of total users are between the ages of 37 and 55, while 50 percent of mobile video users are between 25 and 36. Although users from 18 to 36 are a smaller proportion of the total than those 37 and over, their use of video services is much more important.
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The move from Internet to mobile is complex and entails negotiations with different carriers. Every social network
associated with reformatting the content to fit into the handsets offered by each carrier and to establish revenue sharing agreements. These agreements can include advertising and/or subscription fees.
interested in providing a wireless channel will need to establish partnerships with one or several different carriers (see exhibit 42). These partnerships are necessary to sort out the technical issues
Subscription fees could be items

Exhibit 42
Migration from the Internet to Mobile Is Dominated by Wireless Carriers

A worlwide standard with key difference on speed
PC Screen PC Screen My Space
billed to the customer explicitly or buried in a higher price plan. As in the early days of the Internet, carriers want wireless websites to proliferate because it will ultimately drive the growth of their wireless data product.
Content
The Internet
National, even regional important differences

LG Phone Sprint Verizon Moto Razor Handset determined by carrier Source: PWC Cingular My Space Customization + Payment
Social Netw orks need a critical size to migrate to Wireless
In the interest of preserving the "free" nature of social networks, revenue sharing agreements, where social
networks bill their service as part of the data plan charge (i.e., bundling), might
The Internet
be the best approach for obtaining subscription revenues.
3 or more individual netw orks depending on region/country
SN still depends on the Internet for (large) uploads and ubiquitousness
Unique
functionality,
such
as
picture/video wireless uploads or updates on friends' activities, are additional upgrades. Once the social
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network transitions to the wireless environment, successive unique upgrades can be added to the subscribers menu. The promotion of these premium features constitutes an entirely new topic. A sponsored upgrade, bundles of file uploads at a discount, and other promotional activities could foster the use of these services.
corroborates some of the ideas discussed in the Strategy section report. This may change in the future. As both needs are better met, "buy stuff" may become more important.
Exhibit 43
Additional Features Desired by Social Networks Users

Downgrading technical capabilities as a way to eliminate compatibility issues. Yahoo has launched a pure mobile social network (mixd.com) with the salient feature that the network can be accessed from any carrier using the SMS system. In essence, Mixd is creating groups of SMS users and using a website to add the capability to exchange pictures or videos (recipients get a notification to go to the Mixd website). Although the idea is attractive because of its nearly nil implementation costs and cross-carrier implementation, it seems unlikely that users will be satisfied with a less technologically advanced solution in a world full of rich-media sharing and 3G communication speeds. E-commerce may take the shape of closed micro economies such as Second Life. With 2.5 million total residentsas registered 3) E-commerce Opportunities in Virtual and Real Social Networks. users are calledand 550,000 monthly visitors, Second Life has established itself as the premiere virtual world. Exhibit 44 provides three key statistics: Linden$ held by residents (L$ is a virtual E-commerce is not among social networks users priorities. As shown in Exhibit 43, social networks users surveyed by Bear Stearns (see Peck (2006)) placed "buy stuff" as a third priority, far below the ability to have better video and voice communications, which currency L$268=$1US), user-to-user transactions, and economic velocity. All metrics have increased in the last year, as more residents move into premium subscriptions, purchase land, and establish virtual businesses (see growth in virtual land, Exhibit 45).
Source: Bear Stearns
Streaming Video Voice Buy Stuff Other

0% 5% 10% 15% 20% 25% 30% 35% 40%
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Another example of this type of social network is bakespace.com. At this site, members can build their own virtual kitchens, exchange recipes, and share other cooking tips. Although the site was launched only in August 2006, it already has over 4,000 subscribers.
Exhibit 44
Exhibit 45
Sales of Land Are Increasing
Second Life Created Its own Economy
Source: Second Life
Source: Second Life
4) Social Networks' Main Concerns
4.1) Lack of Entry Barriers Threatens the Profitability of the Business Model
As with any website based on user-generated content and nonproprietary communication technology, there are few if any
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barriers to entry for newcomers to the social network business. With new social networks being formed daily and under many different formats, the competitive advantage of the largest and most popular sites is constantly under threat.
4.3) Proprietary Content Management
Like all websites that allow user-generated content, social networks must routinely monitor their sites to eliminate copyrighted content posted by users. As a result of a recent, well-
Network effects are powerful and social network members are typically drawn to the website that has the most members. For a new network to surpass one of the three most visited sites (MySpace, Facebook, and Friendster), it will have to deliver special features, such as a better search engine like the one Google offered compared to Yahoos, to make the move worthwhile for users. Nichefocused social networks can continue to proliferate, but they will lack the technical advances necessary to continue to grow and challenge the leaders.
publicized case following Google's acquisition of YouTube, social networks are only responsible for the prompt removal of copyrighted content on their sites. Use of the social network by a user to post copyrighted content does not create a liability for the owner of the network. On the positive side, the creation of alliances between social network owners and proprietary content owners can result in profitable e-commerce activities.
4.4) Racy Content Management
4.2) Click Fraud
Racy contents presence in various social networks is an unavoidable issue and must be monitored. Because of the high
Advertising on the Internet is sold partially under "pay-perclick" models, creating incentives for perpetrators of click fraud. Because of the heavy weight of advertising in the total revenues mix for social networks, they will be subject to even greater threats from click fraud in the future. Like other websites, social networks can take preventive action only by using click fraud tracking software and other security measures. This is an issue that affects the entire Internet-based advertising model.
level of advertising revenues in most social network models, companies that want to appeal to the largest number of advertisers, must guarantee that the content being displayed at least complies with a certain level of decency. As users are responsible for uploading content, the network owner is required to screen this content and eliminate that which does not comply. Lack of adequate controls on content may hinder the ability of social networks to
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sustain their growth rate, as the mainstream advertising buyers do not shift their dollars due to decency concerns.
Better racy content management is a positive feature for subscription-based models. Typically, these social networks have better screening tools for users to provide better control for site visitors and the ability to select the type of content desired by the network owner and its advertisers.
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Appendix Social Networks Analysis Defined a) Level of Activity: Individuals like Susan (center of exhibit) have a high activity level. She has relationships with six other nodes, more
Exhibit 45
than any other member. She is referred to as a "connector." Connectors play an important role in creating the viral effects commonplace in social networks because they can essentially "broadcast" information. The most powerful social networks include
Betweennes Connector Closeness
Social Network Analysis
individuals like Susan.
b) Betweeness. Individuals like Claudia (right of exhibit) are the only connection between the "core" of the network and several other individuals (only two in this case). This type of individual is important to the functioning of the network because the network depends on
Source: semanticstudios.com
them for their "exclusive" public.
In its most basic sense, social network analysis is the representation of relationships. These relationships are
c) Closeness Sarah and Steven represent the shortest connection to other nodes on the network. Since information usually travels through the shortest route, Sarah and Steven have a great perspective on the information flows through the network.
represented as a combination of nodes (individuals) and links (relationships). Exhibit 45 is an example of a social network and graphically depicts the relationships among various individuals.
The dynamics at play inside a social network are a subject of Social network analysis is used to understand the ongoing dynamics of the particular social group. Three social networks metrics are commonly used to understand how a particular network works. In the network shown in Exhibit 45, these are: analysis for the owner of the network. By reviewing patterns of use among different members, social network managers can do a better job of expanding the network and controlling information flow among social network users.
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Glossary A Ad For web advertising, an ad is almost always a banner, a graphic image, or set of animated images (in a file called an animated GIF) of a designated pixel size and byte size limit. An ad or set of ads for a campaign is often referred to as "the creative." Banners and other special advertising that include an interactive or visual element beyond the usual are known as rich media. Ad rotation Ads are often rotated into ad spaces from a list. This is usually done automatically by software on the website or at a central site administered by an ad broker or server facility for a network of websites. Ad space A space on a web page that is reserved for ads. An ad space group is a group of spaces within a website that share the same characteristics so that an ad purchase can be made for the group of spaces. Ad view Synonymous with ad impression, a single ad that appears on a web page when the page arrives at the viewer's display. Ad views are what most websites sell or prefer to sell. A web page may offer space for a number of ad views. In general, the term impression is more commonly used. Affiliate marketing The use by a website that sells products of other websites, called affiliates, to help market the products. Amazon.com, the book seller, created the first large-scale affiliate program, and hundreds of other companies have followed since.
Banner An advertisement in the form of a graphic image that typically runs across a web page or is positioned in a margin or other space reserved for ads. Banner ads are usually graphics interchange format (GIF) images. In addition to adhering to size, many websites limit the size of the file to a certain number of bytes so that the file will display quickly. Most ads are animated GIFs because animation has been shown to attract a larger percentage of user clicks. The most common larger banner ad is 468 pixels wide by 60 pixels high. Smaller sizes include 125 by 125 and 120 by 90 pixels. These and other banner sizes have been established as standard sizes by the Internet Advertising Bureau. Beyond the banner This is the idea that, in addition to banner ads, there are other ways to use the Internet to communicate a marketing message. These include sponsoring a website or a particular feature on it; advertising in e-mail newsletters; co-branding with another company and its website; contest promotion; and, in general, finding new ways to engage and interact with the desired audience. "Beyond the banner" approaches can also include the interstitial and streaming video infomercial. The banner itself can be transformed into a small rich media event. Booked space The number of ad views for an ad space that are currently sold out. Brand, brand name, and branding A brand is a product, service, or concept that is publicly distinguished from other products, services, or concepts so that it can be easily communicated and usually marketed. A brand name is the name of the distinctive product, service, or concept. Branding is the process of creating and disseminating the brand name. Branding can be applied to the entire corporate identity as well as to individual product and service names. In web and other media advertising, it is recognized that there is usually some kind of branding value whether or not an immediate, direct response can be measured from an ad or campaign. Companies like Proctor and Gamble have made a science out of creating and evaluating the success of their brand name products.
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Broadband video commercials TV-like advertisements that may appear as in-page video commercials or before, during, and/or after a variety of content in a player environment including, but not limited to, streaming video, animation, gaming, and music video content. This definition includes broadband video commercials that appear in live, archived, and downloadable streaming content.
for a click to result not in a link to another site but to an immediate product order window. What a successful click rate is depends on a number of factors such as the campaign objectives, how enticing the banner message is, how explicit the message is (a message that is complete within the banner may be less apt to be clicked), audience/message matching, how new the banner is, how often it is displayed to the same user, and so forth. In general, click rates for high-repeat, branding banners vary from 0.15 to 1 percent. Click stream A recorded path of the pages a user requested in going through one or more websites. Click stream information can help website owners understand how visitors are using their site and which pages are getting the most use. It can help advertisers understand how users get to the client's pages, what pages they look at, and how they go about ordering a product. Clickthrough What is counted by the sponsoring site as a result of an ad click. In practice, click and clickthrough tend to be used interchangeably. A clickthrough, however, seems to imply that the user actually received the page. A few advertisers are willing to pay only for clickthroughs rather than for ad impressions. Co-branding On the Web, often two websites or website sections or features display their logos (and thus their brands) together so that the viewer considers the site or feature to be a joint enterprise. Cobranding is often associated with cross-linking between the sites, although it isn't necessary. Contextual search Text links appear in an article based on the context of the content, instead of a user-submitted keyword. Payment only occurs when the link is clicked. Cookie A file on a web user's hard drive (it's kept in one of the subdirectories under the browser file directory) that is used by websites to record data about the user. Some ad rotation software uses cookies to see which ad the user has just seen so that a different ad will be rotated into the next page view.
C Caching In Internet advertising, the caching of pages in a cache server or the user's computer means that some ad views won't be known by the ad counting programs and is a source of concern. There are several techniques for telling the browser not to cache particular pages. On the other hand, specifying no caching for all pages may mean that users will find a site to be slower than desirable. Classifieds and auctions Fees advertisers pay Internet companies to list specific products or services (e.g., online job boards and employment listings, real estate listings, automotive listings, auctionbased listings, yellow pages). Click According to ad industry recommended guidelines from FAST, a click is "when a visitor interacts with an advertisement." This does not apparently mean simply interacting with a rich media ad, but actually clicking on it so that the visitor is headed toward the advertiser's destination. (It also does not mean that the visitor actually waits to fully arrive at the destination, but just that the visitor started going there.) Click rate The percentage of ad views that resulted in clickthroughs. Although there is visibility and branding value in ad views that don't result in a clickthrough, this value is difficult to measure. A clickthrough has several values; it's an indication of the ad's effectiveness, and it results in the viewer getting to the advertiser's website where other messages can be provided. A new approach is
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D Cost-per-action What an advertiser pays for each visitor that takes some specifically defined action in response to an ad beyond simply clicking on it. For example, a visitor might visit an advertiser's site and request to subscribe to its newsletter. Cost-per-lead A more specific form of cost-per-action in which a visitor provides enough information at the advertiser's site (or in interaction with a rich media ad) to be used as a sales lead. Note that cost-per-lead can be estimated regardless of the payment method for the ad. In other words, buying on a pay-per-lead basis is not required to calculate the cost-per-lead. Cost-per-sale Sites that sell products directly from the websites or can otherwise determine sales generated as the result of an advertising sales lead can calculate the cost-per-sale of web advertising. CPA See cost-per-action. CPC See cost-per-click. CPM "Cost per thousand" ad impressions, an industry standard measure for selling ads on websites. This measure is taken from print advertising. The "M" has nothing to do with "mega" or million. It's taken from the Roman numeral for "thousand." CPS See cost-per-sale. CPTM "Cost per thousand targeted" ad impressions, apparently implying that the ad is targeted to particular demographics. CTR See clickthrough rate. Demographics Data about the size and characteristics of a population or audience (e.g., gender, age group, income group, purchasing history, personal preferences, and so forth). Display advertising Advertisers pay an Internet company for space to display a static or hyper-linked banner or logo on one or more of the Internet company's pages. E-mail Banner ads, links, or advertiser sponsorships that appear in e-mail newsletters, e-mail marketing campaigns, and other commercial e-mail communications. Includes all types of electronic mail (i.e., basic text or HTML-enabled).
F FAST A coalition of the Internet Advertising Bureau, the ANA, and the ARF that has recommended or is working on guidelines for consumer privacy, ad models and creative formats, audience and ad impression measurement, and a standard reporting template together with a standard insertion order. FAST originated with Proctor and Gamble's Future of Advertising Stakeholders Summit in August, 1998. FAST's first guideline, published in March, 1999, was about "Basic Advertising Measures." Definitions in this glossary nclude the FAST definitions for impression and click. Filtering The immediate analysis by a program of a user web page request to determine which ad or ads to return to in the requested page. A web page request can tell a website or its ad server whether it fits a certain characteristic, such as coming from a particular company's address, or that the user has a particular level of browser. The web ad server can respond accordingly. Fold "Above the fold," a term borrowed from print media, refers to an ad that is viewable as soon as the web page arrives. The viewer
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doesnt have to scroll down (or sideways) to see it. Since screen resolution can affect what is immediately viewable, it's good to know whether the website's audience tends to set their resolution at 640 by 480 pixels or at 800 by 600 (or higher).
IO See insertion order.
M Media broker Because it's often not efficient for an advertiser to select every website it wants to put ads on, media brokers' aggregate sites for advertisers and their media planners and buyers based on demographics and other factors. Media buyer A person, usually at an advertising agency, who works with a media planner to allocate the money provided for an advertising campaign among specific print or online media (magazines, TV, websites, and so forth), and then calls and places the advertising orders. On the Web, placing the order often includes requesting proposals and negotiating the final cost.
H Hit The sending of a single file whether an HTML file, an image, an audio file, or other file type. Because a single web page request can bring with it a number of individual files, the number of hits from a site is a not a good indication of its actual use (number of visitors). It does have meaning for the website space provider, however, as an indicator of traffic flow.
I Impression According to the "Basic Advertising Measures," from FAST, an ad industry group, an impression is "the count of a delivered basic advertising unit from an ad distribution point." Impressions are how most web advertising is sold, and the cost is quoted in terms of the cost-per-thousand impressions (CPM). Insertion order A formal, printed order to run an ad campaign. Typically, the insertion order identifies the campaign name, the website receiving the order and the planner or buyer giving the order, the individual ads to be run (or who will provide them), the ad sizes, the campaign beginning and end dates, the CPM, the total cost, discounts to be applied, and reporting requirements, and possible penalties or stipulations relative to the failure to deliver the impressions. Inventory The total number of ad views or impressions that a website has available to sell over a given period of time (usually, inventory is figured by the month). O Opt-in e-mail E-mail containing information or advertising that users explicitly request (opt) to receive. Typically, a website invites its visitors to fill out forms identifying subject or product categories that interest them and about which they are willing to receive e-mail from anyone who might send it. The website sells the names (with explicit or implicit permission from their visitors) to a company that specializes in collecting mailing lists that represent different interests. Whenever the mailing list company sells its lists to advertisers, the website is paid a small amount for each name that it generated for the list. Users can sometimes identify 0pt-in e-mail because it starts with a statement that tells them that they have previously agreed to receive such messages.
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P Paid inclusion Guarantees that a marketer's URL is indexed by a search engine. The listing is determined by the engine's search algorithms. Paid listings Text links appear at the top or side of search results for specific keywords. The more a marketer pays, the higher the position it gets. Marketers only pay when a user clicks on the text link. Pay-per-click In pay-per-click advertising, the advertiser pays a certain amount for each clickthrough to the advertiser's website. The amount paid per clickthrough is arranged at the time of the insertion order and varies considerably. Higher pay-per-click rates recognize that there may be some "no-click" branding value as well as clickthrough value provided. Pay-per-lead In pay-per-lead advertising, the advertiser pays for each sales lead generated. For example, an advertiser might pay for every visitor that clicked on a site and then filled out a form. Pay-per-sale The customary way to pay websites that participate in affiliate programs, such as those of Amazon.com and Beyond.com. It is not customarily used for ad buys. Pay-per-view Because this is the prevalent type of ad buying arrangement at larger websites, this term tends to be used only when comparing this most prevalent method with pay-per-click and other methods. Proof of performance Some advertisers may want proof that the ads they've bought have actually run, and that clickthrough figures are accurate. In print media, tearsheets taken from a publication prove that an ad was run. On the Web, there is no industry-wide practice for proof of performance. Some buyers rely on the integrity of the media broker and the website. The ad buyer usually checks the website to determine the ads are actually running. Most buyers
require weekly figures during a campaign. A few want to look directly at the figures, viewing the ad server or website reporting tool. Psychographic characteristics Personal interest information gathered by websites by request from users. For example, a website could ask users to list the websites that they visit most often. Advertisers could use this data to help create a demographic profile for that site.
R Referrals/lead generation Fees advertisers pay to Internet advertising companies that refer qualified purchase inquiries (e.g., auto dealers who pay a fee in exchange for a qualified purchase inquiry online) or provide consumer information (demographic, contact, behavioral) where the consumer opts into being contacted by a marketer (e-mail, postal, telephone, fax). Prices are based on performance (e.g., cost-per-action, -lead or - inquiry), and can include user applications (e.g., for a credit card), surveys, contests (e.g., sweepstakes), or registrations. Reporting template Although the media must report data to ad agencies and media planners and buyers during and at the end of each campaign, no standard report is yet available. FAST, the ad industry coalition, is working on a proposed standard reporting template that would enable reporting to be consistent. Rich media Advertisements that incorporate animation, sound, and/or interactivity in any format. It can be used either singularly or in combination with such technologies as: sound, Flash, and with programming languages such as Java, JavaScript, and DHTML. It is deployed through standard web and wireless applications including e-mail and static (e.g. html) and dynamic (e.g. asp) web pages. It may appear in ad formats such as banners, buttons, and interstitials. Included in the rich media category, interstitials are full- or partialpage text and image server-push advertisements that appear in the
Page 50
transition between pages of content. They can include splash screens, page takeovers, and pop-up windows. ROI Return on investment, "the bottom line" on how successful an ad or campaign was in terms of the returns (generally sales revenue) were for the money expended (invested). RON See run-of-network. ROS See run-of-site. Run-of-network An ad placed to run on all sites within a given network of sites. Ad sales firms handle run-of-network insertion orders to optimize results for the buyer consistent with higher priority ad commitments. Run-of-site An ad that rotates on all non-featured ad spaces on a site. CPM rates for run-of-site ads are usually less than those for specially-placed ads or sponsorships.
Splash page Also known as an interstitial, a preliminary page that precedes the regular home page of a website and usually promotes a particular site feature or provides advertising. A splash page is timed to move on to the home page after a short period of time. Sponsor Depending on the context, a sponsor is simply an advertiser who has sponsored an ad and, by doing so, has also helped sponsor or sustain the website itself. A sponsor can also be an advertiser that supports a special feature of a website, such as a writer's column, a flower-of-the-day, or a collection of articles on a particular subject. Sponsorship An association with a website that gives an advertiser particular visibility and advantage above that of run-of-site advertising. When associated with specific content, sponsorship can deliver a more targeted audience than run-of-site ad buys. Sponsorship also implies a "synergy and resonance" between the website and the advertiser. Some sponsorships are available as value-added opportunities for advertisers who buy a specified minimum amount of advertising. Targeting Purchasing ad space on websites that match audience and campaign objective requirements. Techtarget.com, with over 20 websites targeted to special information technology audiences, is an example of an online publishing business built to enable advertising targeting. (The) creative Ad agencies and buyers often refer to ad banners and other forms of created advertising as "the creative." Since the creative requires creative inspiration and skill that may come from a third party, it often doesn't arrive until late in the preparation for a new campaign launch.
S Search Fees advertisers pay Internet companies to list and/or link their company site domain name to a specific search word or phrase (includes paid search revenues). Site optimization Modifies a site to make it easier for search engines to automatically index the site with the goal of better placement in results. Slotting fees Charged to advertisers by Internet companies to secure premium positioning of an advertisement on the site, category exclusivity, or other preferred positioning (similar to slotting allowances charged by retailers).
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U Unique visitor An individual with a unique address who enters a website for the first time for some specified period, a day for example. Thus, a visitor who returns within the same day is not counted twice. A unique visitors count tells how many different people are in the audience during the time period, but not the extent to which they used the site during the period. User session When an individual with a unique address enters or reenters a website each day or some other specified period. A user session is sometimes determined by counting only those users who haven't reentered the site within the past 20 minutes or a similar period. User session figures are sometimes used, somewhat incorrectly, to indicate "visits" or "visitors" per day. User sessions are a better indicator of total site activity than "unique visitors" since they indicate frequency of use.
V Visit When a web user with a unique address enters a website for the first time that day or for the first time in a lesser time period. The number of visits is roughly equivalent to the number of different people who visit a site. This term is ambiguous unless the user defines it, since it could mean a user session, or it could mean a unique visitor that day.
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Sources
Mahaney, Mark & others The Outlook for Internet M&A, Citigroup, August 2006 YHOO: Why Yahoo!'s Q3 Challenge May Be Company Specific, Citigroup Marketing Sherpa, Business Technology Marketing Benchmark Guide 2006 (excerpt). www.sherpastore.com Ecommerce Benchmark Guide 2006 (excerpt),
Bruner, Rick The Decade in Online Advertising 1994-2004, DoubleClick.com, April 2005 ____ and Gluck Melissa Best Practices for Optimizing Web Advertising Effectiveness, DoubleClick.com, May 2006 ____ and Koegel, Kathryn, Target Demographics Before and After, DoubleClick.com, June 2005 ____ and Gluck, Marissa the Evolution of Rich Media Advertising: Current Market Trends, Success Metrics and Best Practices, Doubleclick.com, September 2005 Center for the Digital Future: Online World as Important to Internet Users as Real World? University of Southern California, August 2006, 8 pages (abstract). Charron, Chris & others Social Computing, Forrester Research February 2006 Global Entertainment & Media Outlook: 2006-2010, PricewaterhouseCoopers, June 2006 Hallerman, David Internet Video: Advertising Experiments and Exploding Content Strategies for Market Success, eMarketer, November 2006 IAB Internet Advertising Revenue Report 2006 Second Quarter, Interactive Advertising Bureau/PricewaterhouseCoopers
www.sherpastore.com. Search Marketing Benchmark Guide 2007 (excerpt), www.sherpastore.com Pachter, Michael and Woo, Edward, Field of Dreams; An in-depth look at the adoption of the new interactive entertainment technology, Wedbush Morgan Securities, July 2005 Peck, Robert & Others, Consumer Internet: "Web 2.0" and Your Investment Mosaic, Bear Stearns, May 2006 Reid, Glen and Urban, Edward, Interactive Entertainment: The Search for Earnings Growth in the New Cycle, Bear Stearns, April 2006 Williamson, Debra Aho, Social Network Marketing: Carving Out Some MySpace, eMarketer, August 2006
Social Network Marketing: Ad Spending Update, eMarketer, November 2006
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Endnotes Reader Comments Requested Your comments about the content and usefulness of this report will be very valuable to the Research & Analytics Group. Please e-mail your comments to: o R&A.Feedback@us.pwc.com, or o PwC Internal Lotus Notes: R&A Feedback If you have questions or want more information, please contact: Gabriel Garcia, (646) 471 6183, gabriel.garcia@us.pwc.com Rachana Iyengar (813) 348 7802, rachana.iyengar@us.pwc.com Thank you
Taking MySpace as an example, this report examines the trends that are emerging as users, time spent, and page views all continue to increase ii Viral marketing and viral advertising refer to marketing techniques that use pre-existing social networks to produce increases in brand awareness, through self-replicating viral processes, analogous to the spread of pathological and computer viruses. It can often be word-of-mouth delivered and enhanced online; it can harness the network effect of the Internet and can be very useful in reaching a large number of people rapidly. (Source: http://en.wikipedia.org/wiki/Viral_marketing). iii Ownership of this content depends on how the contract between the site owner and the user is written. Preferably agreements should include a clause like "all content submitted becomes property of the site owner and so on. Alternatively, the site owner could facilitate the transfer of these rights under a revenue sharing agreement. iv Mobile profiling is the use of information about wireless users, combining both their personal information (available through the carrier) with wireless positioning (knowledge of the geographical area where the user is) to target local, relevant advertising, for example, high-end clothing stores. v Eyetracking maps measure the frequency with which users stare at an area of a website. The larger the number of users that stare at a particular area, the greater the "heat" map. In Exhibit 35 this occurs at the top of the Google search.
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Entertainment & Media Business Analysis Framework

Value Creating Activities

Social Networks Analysis Defined Glossary

STRATEGY: INTEGRATING SOCIAL NETWORKS INTO THE TELECOM/MEDIA/TECHNOLOGY SPACE

IMPROVING ADVERTISING PRICING BY BORROWING LESSONS FROM OTHER INTERNET ADVERTISERS.

Internet Access and Advertising Spend

$150,000 $100,000 $50,000 $-

AsiaPac, $48,418 EMEA, $49,524

Ad Spending Worldwide (%Total)

Out-of-Hom e Internet Radio Magazines New spapers Television

2006 Source: PwC, IAB

Online Advertising Spending Worldwide

Display Search Classified Other Total

2005 7,043 7,833 3,291 545 18,712

2007E 10,462 13,993 6,169 721 31,344

2009E 13,292 19,711 8,856 825 42,685

'05 - '09 CAGR 17.2% 26.0% 28.1% 10.9% 22.9%

Source: ZenithOptimedia, December 2006

Social Networks Advertising Estimate

2) Social Networks as Part of Social Computing

categories of social computing (see also Exhibit 6).

Social Networks are part of a larger social computing phenomenon

Source: Forrester Research

Top 20 Most Visited Websites, Worldwide

Note: Fox Sites is primarily represented by MySpace Source: comScore

Social Networks International Breakdown Analysis

% Reach US ROW 24% 9% 55% 2% 6% 4% 16% 0% 1% 13% 4% 2% 5% 1% 22% 25% 7% 6% 4% 4% 1% 5% 4% 1% 2% 2% 1% 0%

Increased Use of Social Network Tools by Americans

% U.S. Internet Users that...

Source: University of Southern California, PwC

Why Media Conglomerates Should Care about Social Networking

Top 10 Social Networking Sites Worldwide

Top 10 Most Viewed Sites, Worldwide

Top 10 - Average Time Spent, WW

Top 10 Social Networking Sites, U.S

Top 10 Most Viewed Sites, U.S.

Top 10 - Average Time Spent, U.S.

The Evolution of MySpace as Proxy for Other Social Networks i

Social Networks: Page View Growth Outpaces Unique Visitor Growth

Advertisers Are Catching Up with Visitors

# Ads Source: comScore

Strategy Integrating Social Networks into the Telecom/Media/Technology Space

Integrating Social Networks into Telecom and Media

User Generated Content Social Netw orks

Professionally Generated Content

MySpace, YouTube Communications Need IP-Based Communications Cable, Telco, Wireless

Social Networks from Media Conglomerates' Perspective

Social Networks from Communication Companies' Perspective

Professionally Generated Content

advertising, subscriptions, or both.

Analyzing the YouTube/Verizon Deal

The Verizon/YouTube Agreement

Integrating Social Networks into Existing Internet Models

User Generated Content

Integrating Social Networks into Pure Internet Companies

2) Comparing Social Networks and TV Advertising Models

distributor or system to make content available to the public.

Talent On and Off Screen