The Kelsey Group November 28-30, 2007 Industry Overview 1:00 pm – 1:45 pm Neal Polachek, CEO, The...

The Kelsey Group November 28-30, 2007

Industry Overview

1:00 pm – 1:45 pm

Neal Polachek, CEO, The Kelsey Group Matt Booth, SVP and Program Director Interactive Local Media Peter Krasilovsky, Program Director and Senior Analyst

Next Session: Keynote Address

Introduction – The Kelsey Group

TKG is an independent Analyst and Advisory firm covering: Global Yellow Pages and Directories: Print and Internet Search: Local, Social, Mobile and Video Marketplaces: Verticals, Classifieds and Transactions

Data drawn from quantitative user and SMB research Forecasts based on quantitative data and industry

knowledge Recommendations founded on data, forecasts and

industry experience and insight Advisory services, consulting, conferences, reports

The Kelsey Group Analyst Team – Expansion Driven by 360 Client Feedback

Michael Boland – New Technologies Matt Booth – Search/Ad Models John Kelsey – Cofounder and Chairman Peter Krasilovsky – Marketplaces, Verticals Charles Laughlin – Yellow Pages – Print/Online Bobbi Loy-Luster – Client Inquiry Steve Marshall – Consulting and Research Michael Taylor – Sales Channel Analytics Princeton team – Al Hou, Nanci Karas, Pam Kelsey, Kathleen

Passarelli, Eileen Pacheco, Sheila Steinmuller

TKG in 2007

Advisory support for investment banks, private equity and venture capitalists seeking to understand the local space

Blog coverage is much enhanced and expanded blog.kelseygroup.com

Added three new FT professionals – Peter Krasilovsky, Steve Marshall and Michael Taylor

Proprietary research expanded internationally We have added a new coverage area called

Marketplaces: Verticals, Classifieds and eCommerce to address the needs of many of our existing clients and many new emerging companies around the world

The Kelsey Group Equation

If The Kelsey Group = Local And

Local = CommunityThen

Community = The Kelsey Group

At the End of the Day “A Global Community”

Local Search

YP/IYP

VerticalsVendors

Social

Newspapers

Mobile

Local Sales

Others

A Wide and Deep Community

Over 250 companies are represented 60 percent of attendees at first Kelsey

Group conference 30% are CEO, President, Chairman,

Founder, Managing Director, Principal 25% are senior vice presidents or vice

presidents 20 percent are director level. More than 20 countries are represented

No Shortage of M&A within the Community

FindWhat = MivaIngenio Inc. = AT&T (pending) Espotting = MivaInterchange = Local.comLeads.com = WebSite ProsSME Global Solutions = WebvisibleStepUp.com = IntuitAsk Jeeves = IACDigital Envoy = Landmark CommunicationsDex Media = RHDLiveDeal.com = YP.netPremierGuide = Local.comHomeGain, Inc. = Classified VenturesPlanet Discover = GannettYellowpages.com = AT&T

American Town Network = Idearc Media InfoSpace = DogpileJudy's Book = Asset SaleLocalLaunch.com = RHDInsiderPages = IACIPIX = AdMissionClick Forward = Yellow Book USAOpenList = MarchexBackfence = Out of businessDCCI = TelemetricsIntelliSeek = NielsonBuzz MetricsVoicestar = Marchexi411 Inc. = Intelligenx Vista.com = Out of businessQuigo Inc. = AOL (pending)Switchboard = Idearc Media

And People Stay a Part of the Community

Simon Greenman = European DirectoriesMark Cannon = Auto By Tel Peter Hutto = Local.comErron Silverstein = Yellow BotAndrew Shotland = LocalSEOGuideDick Larkin = WeblisticJim Larrison = AdifyJen Dulski = FatdoorPeter Krasilovsky = The Kelsey GroupDavid Galvan = TopixHilary Schneider = YahooChamath Pailhapitiya = FacebookKara Nortman = IACBrendan Benzing = InfoSpace

Anna Zornosa = DealixTim Lambert = SpotRunnerGeoff Avard = SensisJohnson Goh = SPH Rod Diefendorf = Idearc Media (pending)Matt Booth = The Kelsey GroupSafa Rashtchy = RetiredJim Riesenbach = Auto By TelPat Marshall = Yellow Book USAUdi Manber = GoogleTed Meisel = Veoh NetworksMark Pincus = Mark Pincus BlogAndrew Day = World DirectoriesPaul Levine = AdBrite

34,000 Air Miles . . . 2 Hemispheres

Many Big Questions . . .

• What is Google Doing in Local?

• Is Yahoo back on track?

• Portals – friend or foe of YP?

• Can YP and Classifieds Integrate?

• How do we Verticalize and Localize?• Mobile – is it real now?

A Global Perspective

Trends in Australia similar to U.S. market – fragmentation, mobile expectations exceed

mobile results, classifieds and directories boundaries blurring

A Global Perspective

In Singapore and Asia, emerging vertical sites to

capture deep, comprehensive content and then build supporting ad models

A Global Perspective

In Israel, 110% mobile penetration; YP publisher builds out comprehensive user experience across the

Internet and in print

A Global Perspective

In Riga, Latvia – European DA and Telco operators gather to address the emerging “free”

ad sponsored DA proposition

A Global Perspective

In Amsterdam, classifieds operators debate the virtues

of “free” v. “paid” listings and the eventual marrying of UGC

and classified listings

A Global Perspective

At Geodomain Expo, operators explore the

integration of “local search” into their tourist oriented sites

Today, Tomorrow and Friday

650 attendees gather at ILM ’07/SES Local to explore the real opportunities just now emerging in the local space

Looking Ahead

TKG and SES collaborate in

Chicago – December 4 - 6

Looking Ahead

TKG and SES again collaborate at SES London –

February 19 – 21, 2008

$585B Global Advertising Market – 2007

Newspapers, 14%

Classifieds, 7%

Magazines, 10%

Television, 29%

Radio, 6%

Outdoor, 4%

Internet, 6%

Yellow Pages, 5%

DM, 19%

By 2011 – $711B Advertising Market

Newspapers, 11%

Classifieds, 6%

Magazines, 6%

Television, 29%

Radio, 5%

Outdoor, 6%

Internet, 14%

Yellow Pages, 5%

DM, 18%

Significant Share Shift

CAGR 2007-2011

-0.5% -1.1%

-6.4%

5.0%

-0.5%

14.2%

28.6%

5.0% 4.9%

Newsp

aper

s

Class

ified

s

Mag

azin

es

Telev

isio

n

Radio

Outdoor

Inte

rnet

Yello

w Pag

es

DM

Significant Share Shift

$83

$41$56

$170

$36$23

$35 $32

$109

$82

$39 $43

$206

$36 $40

$96

$38

$132

Newsp

aper

s

Class

ified

s

Mag

azin

es

Telev

isio

n

Radio

Outdoor

Inte

rnet

Yello

w Pag

es

DM

2007 2011

By 2011 – $134B Global Internet and YP Advertising Market

Search, 29%

Display, 24%Video, 11%

Mobile, 5%

YP/IYP, 28%

Other, 3%

Global Display Ad Forecast

0

5,000

10,000

15,000

20,000

25,000

2001 2002 2003 2004 2005 2006E 2007E 2008E 2009E 2010E

0

5

10

15

20

25

30

35

40

45

Pa

ge

s V

iew

ed

pe

r D

ay

pe

r U

se

r

Sources: JP Morgan, The Kelsey Group (2007)

To

tal

Pa

ge

s V

iew

ed

pe

r m

on

th (

B)

CAGR: Pages viewed per day / user 2.4%; Total Pages viewed 10.5%

Global Forecast: More Consumers Searching More Frequently

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

2001 2002 2003 2004 2005 2006E 2007E 2008E 2009E 2010E

0

10

20

30

40

50

60

Se

arc

he

s p

er

Us

er

pe

r M

o.

Sources: JP Morgan, The Kelsey Group (2007)

Se

arc

he

s (

M)

CAGRs: Search 8.4%; Queries 11.4% (2006-2010)

Revenue Per Search

$0.00

$0.02

$0.04

$0.06

$0.08

$0.10

$0.12

2001 2002 2003 2004 2005 2006E 2007E 2008E 2009E 2010E

US RPS

Int. RPS

Sources: JP Morgan, The Kelsey Group (2007)

Re

ve

nu

e P

er

Se

arc

h

US RPS 7.1% CAGR, International 11.6% (2006-2010)

Source: JP Morgan, Kelsey Group (2007)

Like Yellow Pages, Search is a Directional Media that Offers Superior Targeting

3.2%

SearchRevenue

$8.6 b

BrowseRevenue

$5.9 b

96.8%

Summary

In 2006, Search accounted for 3.2 percent of the usage but $8.6 billion in revenue. Internet browsing and resulting display ad revenue, conversely, accounted for nearly 97 percent of the usage but only $5.9 billion in revenue. This comparison between Internet search usage and browse usage shows the power of directional media in terms of revenue generated.

Percent Consumer Search vs. Browse

Revenue Generates from Search vs. Browse

US Search vs. Browse: Comparison Usage & Revenue

Print Yellow Pages is Losing References and Advertisers

0

5

10

15

20

25

30

35

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

0

10

20

30

40

50

60

PY

P R

ev

en

ue

s (

US

$M

)

Source: Census, Kelsey 2006, YPA

US

Off

-lin

e T

rav

el

Ag

en

cie

s(L

oc

ati

on

s 0

00

)

Bars = Off-line LocationsLine = Print YP Revenues

© 2007 The Kelsey Group

Notable Shift: SMBs Use of Specialized Directories

Use of Specialized Directories (Print & Online)

23%

34%

Feb. 07 Aug. 07

SummaryUsage of “Specialized” directories (both print and online) jumped in the last 6 months. Defined as “Specialized directory for your specific business, industry or location”

Source: Kelsey Group (2007)

© 2007 The Kelsey Group

Notable Shift: SMBs Online Usage

Online Metrics Show Growth in 6 Months

30%

4%

34%

9%

Ad Budget for Online PPC (Performance)

Feb. 07 Aug. 07

Summary

SMBs continued to increase spend on online media and performance-based advertising. PPC is a significant sift over past surveys.

Source: Kelsey Group (2007)

Composite of Consumer Usage per Month (2007e)

41

25

1.2

5.5

2007e Usage per Month

Search IYP/LS

Ad Sponsored DA Landline DA

Print YP

Source Kelsey Group (2007)

Internet Search is now the front door for consumers. This trend will compound overtime as search engines push into local search.

Comparing Average Page Views Shows Search Growth Effect

17

2.3

2000 2006

Search engines are indexing more pages. Consumers are using search to find local information. This trend is driving less usage per user session of IYPs and local search engines (company removed)

Average Page views Per User (2000 and 2006)Local Search Company

YP Sales Channels Control Local Advertisers

YP Sales 89%

Search Engines 3%

Resellers 8%

SummaryYellow Page companies dominate the advertiser landscape. They are very effective sales organizations.

The Advertiser Relationship

If…

Consumers are looking at more content

Search is the front door to access information

Search + targeting are driving verticalization

SMB behavior and spend is changing to match

Yellow Page sales channels have the most existing local advertisers but not front door internet traffic . . .

Then – Conclusions and Predictions

2008 will be the year of multi-channel expansion driven by Yellow Page companies

Move advertisers across multiple platforms like Ad Sponsored DA, Mobile, IYP, Search, etc.

Call-tracking will unify platforms

Yellow Pages will begin the move to Value Based Pricing in under-developed headings

Effort to grow ad base and content

Con’t . . . Conclusions and Predictions

SEO / SEM ‘Landing Page Optimization’ will become central to all local efforts

Platforms will be ubiquitous

Verticalization will accelerate

Consumer and expert reviews will continue to grow in importance

Mobile will become the next search product

Push current advertisers into mobile experience

We’ve Gone Thru the First 2 Generations of Local Online Advertising

1st Generation1995-2001: ‘City Guide Era.’ Up-sells from traditional media and cream skimming from them. Large advertisers are Low Hanging Fruit.

2nd Generation2001-2006: + ‘Online Classifieds and Search.’ Search Boosts Value of Local; begins disruptive change. Add Medium Sized Advertisers.

Now Arriving….The Third Generation of Local Online Advertising

3rd Generation2006-Present: + Verticalization, GeoTargeting and New Channels

More Focus and Value; Increases marketing spend by local business; “Localizing” and user generated content. Mobile and TV.

Add Small Advertisers (VOLUME) + National Advertisers

At ILM: 07….Directional

New dimensions to connecting Buyers and Sellers

•CitySearch, RHDi

•Local.com, SuperPages.com,YellowBot, ZipLocal

•Intuit, Merchant Circle

•ShopLocal, Krillion, Shopping.com,

At ILM: 07….Verticalization

•Auto by tel, Yahoo

•Zillow, NCI, Homethinking

•Marchex

At ILM: 07….Social and News Driven

User Generated Content Propels Initiatives

•Facebook, Mahalo

•City Voter, Pegasus

•The LA Times, New West

At ILM: 07….National

Bringing National Players to the Local Level Buyers and Sellers

•GM Planworks, Centro, Atlas

•Consorte Media

•TMP

At ILM: 07….Mobile and Phone Extensions

Anytime, anywhere is everything

•Ingenio/AT&T

•Skyhook Wireless, E-Enable, Idearc media, Yahoo

•Mobile People

•Google, Nokia

At ILM: 07….Money

Injection of Money Moves some things faster than others

Veronis Suhler Stevenson, Hummer Winblad,

IAC