Russian and Ukraine Digital Market Overview

Growing Online Revenue:Advertising, Sales and Classifieds

Moscow, Russia

27 – 28 September 2012

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TopicPresenter

Online Advertising Market Overview Ross

Sales Teams: Organization & Motivation Ross

Advertising Networks Ross

Online Classifieds: Local Opportunities Ross

Social Media: Building Audience & Revenue Kevin

Agenda

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Online Market Overview

Growth in regional Internet audiences has created a growing market for online advertising.

46% 33% 51% 41% 54%Penetration Rates

Total Internet Population(millions)

Growth Rates 2010 vs 2011

Source: iabEurope 2012; Gemius, 2012.

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But these audiences are mostly concentrated in Moscow, Kyiv and St. Petersburg.

Regional Internet Penetration, 2010

Russia

Est. Audience Penetration Est. Audience Penetration (millions) (%) (millions) (%)

Moscow 8,421 73% Kyiv ~ 4,500 ~90%St. Petersburg 2,863 59% Odessa 1,193 44%National Average -- 46% National Average -- 33% Chelyabinsk Oblast 1,760 51% Zaporizhia Oblast 528 28%Tomsk Oblast 421 40% Lviv Oblast 695 27%Perm Krai 846 32% Crimea Republic 362 18%Tula Krai 485 31% Kherson Oblast 136 12%Altai Krai 703 29% Chernivtsi Oblast 76 8%Buryatia Republic 280 29%Rostov Oblast 945 22%

Ukraine*

Russian Source: Рейтинг регионов по доле пользователей сети Интернет по итогам 2010 г

Ukrainian Source*: Estimated from Kyiv Post, “Report: Ukrainians browse more, online advertising yet to boom”

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Internet advertising in 2011 grew dramatically in Russia and Ukraine and will likely continue to grow until it reaches European averages.

+ 56% +59% -16% +26% +23%Growth Rates

Total Internet Ad Spending, 2011(millions)

Estimated Spending/User, 2011

Source: iabEurope 2012; Gemius, 2012. Note*: Russian estimate does not include €50 to 70 million in online classified spending.

European Avg = € 33

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Over the next two days we will discuss the three major types of online advertising.

DescriptionRelated to site audience/contentSold directlyMultiple pricing models

Directory/database drivenSold directly or self-serveHigh volume, low price or free

Search engine drivenSold by technology companies w/ specialized sales teamsDriven by page views and clicks

Display

Search/Context

Classifieds/Directory

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Online Display Advertising

Display Advertising ElementsAdvertisers: Who are they?

Advertising Standards: What are they?

Pricing Models

Advertising Management

First we will start with Online Display Advertising and focus the discussion on the following elements.

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Online display advertising is dominated by national, international advertisers in Russia.

Distribution of Online Advertising Spending, 2011

Source: ACAR, 2012

By Industry

1. Renault-Nissan 885 2. Proter & Gamble 590 3. Nokia 472 4. MTS 472 5. Samsung 448 6. Megafon 448 7. Beeline 413 8. Unilever 342 9. Sberbank 295 10. Microsoft 283

By Advertiser(rubles millions)

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Local advertisers tend to adopt online advertising much more slowly than national/international advertisers.

Local Online Advertising Trends

Source: Borrell Associates, 2012; eMarketer, 2012.

Online Ad Mix – US Example (US $ billions)

Obstacles to Local Advertising

Relative risk to the business

Lack of understanding/familiarity

Target audience (local) too small or difficult to track

Measurement

Generational issues

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The sales and marketing challenge to generating online advertising revenue is two-part.

1.How to attract a portion of the national/international advertising budgets?- Do you offer sufficient size to interest them?- Is your online reach to the local market important?- Is some aspect of your market important for the sales/marketing of their service (e.g. sports equipment, airlines,…)- Is it easy to buy your ads? Credit process? Sales channels?

2.How do you encourage local advertisers to trust you and try online ads?- Do you have any ability to educate them?- Do you have any way to reduce the risk in trying online advertising? - Can you work with the advertiser to develop a verifiable way to prove the value of online advertising.

Find creative ways to use your traditional products to introduce your online products to both types of advertisers.

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One of the most common actions to attract local and national advertisers is “standards”.

Value of Standards

Cost: Lowers the costs of ad creation and ad serving

Creative and Clarity: Allows for greater creativity in ad design and creates a clear distinction between ads and editorial.

Access: Helps support media’s ability to deliver online sites quickly, with no delays because of large non-standard ads.

Support: Provides media with support to argue against unreasonable advertiser requests.

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Online advertising standard are fluid, global and set in most European markets by an industry association of advertisers and media – The Internet Advertising Bureau.

iab Europe

Education and Events

News and consulting

Research and measurement

Standard setting

New standard development

IAB Contacts: iab Europe =

www.iabeurope.eu Iab Ukraine (affiliate) =

www.uair.org.ua iab Russia = iabrus.ru

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Online advertising standards are defined by two key attributes of each ad.

Ad size: Defined in terms of the width and length of an ad unit measured in pixels.

Weight: Defined as the size of the advertising file in megabytes (MB).

Other: For new or emerging ad units there are new attributes constantly being defined:- Length of video play- Automatically play or user initiate play- Duration of ad placement in games

Ad standards are constantly evolving – let’s look at the current standards ad standards most commonly used for news media sites.

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Pricing for online display advertising must address two questions:

What is the revenue model? What are you selling the advertisers?- Fixed Price by position; by time of day or week- Price per thousand ad impressions (CPM Pricing)- Price Per Action taken by the reader- Hybrid pricing of two of the above times

What is the price level? For each unit purchased how much does the advertiser pay?

Setting pricing levels require you to consider several factors. The three key factors are:- Competitive Prices- Ad Availability/Inventory- Audience size/reach/uniqueness

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Fixed price models offer many advantages for local news media and advertisers who are still new to online advertising.

Fixed Price Models

Used broadly worldwide:- Schibsted (Norway)- SCMP (Hong Kong)- Gannett (USA)

Ad positions are fixed and limited in number

Each ad position has a price for some fixed period of time:

For example: 1 leaderboard on the homepage for 1 week

Inventory grows by adding positions or splitting positions by time of day/day of week.

Price levels generally set relative local TV, print and outdoor.

PRO’s: Familiar sales pitch

Easy to verify/document for advertisers

Easy to price

Easy to track and serve

CON’s Not easily included in national

advertising pricing models

Creates some risk of under performance for advertisers

May under value sites with high traffic growth rates.

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Increasingly CPM Pricing models are the standard for national and international advertisers.

CPM Pricing Models

Driven by national/international agencies and advertisers.

Ad inventory determined by - Number of ads on each pageX Number of pages served (Page Views)= Total Ad Impressions

Advertisers purchase blocks of ads by the thousands.

For large sites (> 1mm page views), ads are often run in “rotation”, called “run of site” ROS.

Price levels are set in relation to competitive online price ranges. Range has two ends:- High = price points of competitive media.- Low = Ad Network Price + cost of sales.

Calculating Ad Inventory:

1.5 million page viewsX 3 ads/page 4.5 million ad impressions

Price Calculation:

Advertiser purchases 2 million ad impressions for P 300 per thousand

2,000 (thousands) x P 300 = P 600,000

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CPM Pricing models also have pros and cons.

Pro’s of CPM Pricing:Easily understood and incorporated into national/international advertiser programs.Maximizes inventory value in high demand situationsRotating ads keep site fresh and up-to-date

Con’s of CPM Pricing:Complicated sales and verification process for advertisers new to onlineRequires ad serving technology – AdRiver, OpenX, Google DoubleClickCan result in substantial unsold inventory in low demand situationsCan result in advertisers “cherry-picking” only the best times/days of the week to run their ads

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Price per action advertising is the most sophisticated and often used by e-commerce advertisers like ozon.ru or amazon.com.

Price per Action Models

Used extensively by e-commerce advertisers

Advertisers only pay when the reader performs some pre-defined action:- Click- Register- Purchase

Used heavily by ad networks like Yandex Direct and Google AdSense

Frequently added as a bonus on top of CPM purchase.

Works best when content is related to advertising category.

PRO’s: Direct link to ad effectiveness

High yields on very highly targeted content – electronics, travel, directory…

Simple to implement

CON’s Does not perform well on most daily

news sites; performs best on “features related content” like travel or product reviews

Can be difficult to track and verify for actions beyond “click”

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Depending on a website’s media mix, there are progressively sophisticated technologies to manage advertising.

Manual Staff managed

Best for:- Fixed price models- Low ad volume sites- Local advertiser sites

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Staff salaries

CMS Based CMS includes a simple

tool to upload and manage advertisers

Low volume fixed price or CPM priced models

Bitrix, WordPress, Joomla

Software – free Staff salaries

Ad Server External technology

which manages display/tracking of ads

Often linked to external ad networks

Moderate to high volume CPM/Network advertising

AdRiver, DoubleClick, OpenX

Software – Priced Per Thousand Ads Served

Staff salaries

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Media sites over 1 million monthly page views use one of three different ad serving technologies to manage ad placement and tracking.

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Russian Version:

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Developing online display advertising requires focus on advertiser needs, standards and pricing, and efficient management.

Advertiser Needs:Be prepared to address very different needs from national/international and local advertisers.

Standards and Pricing:Online ad standards help attract advertiser by reducing costs and increasing flexibility

Ad Serving and Management:As site traffic and advertising volume grow, ad management needs will become more complex and require more sophisticated tools.

Business

Russian and Ukraine Digital Market Overview