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A Venture Perspective:
Future of Advertising in
Digital Media

Richard P. Wong
May 16, 2007

Michigan Growth Capital Symposium

rwong@accel.com

Accel Confidential and Proprietary

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Today’s Discussion

 Backdrop: High Level VC Trends

 Digital Media & Advertising

 Sector Discussion: Mobile &

Wireless
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2007 Investment On Track
Deal Flow and Equity into Venture-Backed Companies

6351
$100
6,000
$94.8
Amount Invested ($B)

4590 5,000

Number of Deals
$75

4,000
3311
$49.5
$50 2547
2429 2454 2527 3,000
2211 $36.4 2221 2338
$26.7 2,000
$25 $22.2 $19.7 $22.5 $24.0
$17.9
$13.1 584 1,000
$7.0
$0 0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 1Q07
Amount Invested ($B) Number of Deals
Source: Dow Jones VentureOne/Ernst &Young
Deal Flow Analysis – Sector Activity 4

U.S. – based Investing Entities

September 2005 to August 2006
329 New Investments
35
33%

30 • 54% in in Internet Services and Software

25
21%
• Many of these plays in Digital Media & Advertising
20
Percentage

15 13%
11%
10
7%
6%
5 4% 4%

1%
0

Consumer Devices
Internet-based

Energy / Clean

Optics / Nano
Infrastructure

Mobile-based

Other Services
Software

Semiconductors

Services
Systems
Services

Tech
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Today’s Discussion

 Backdrop: High Level VC Trends

 Digital Media & Advertising

 Sector Discussion: Mobile &

Wireless
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Media Consumption vs. Ad Spend

Gap between consumption and spend shows large potential for online ad growth

40
35 The average US consumer spends
14 hours per week watching
30 television and 14 hours per week
25 online. Other media types trail far
20 behind: radio (5), newspapers (2),
magazines (1).
15
10 %of Media
5 Consumption
%of 2005
0 Ad Spend
Television

Online

Radio

Newspapers

Magazines

Source: Universal McCann (Dec 05); eMarketer (May 05); Outdoor Advertising Association (Mar 05), IAB/PwC (Aprl 06), Jupiter Research (Feb 06)
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Less Time on Traditional Media

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Newspaper Readership

 Steady decline in newspaper readership

 Online classifieds further exacerbating revenue model
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Where are the $$?
Revenue and Growth By Offline Media Type
Direct News- Cable Yellow
TV Radio Magazine Online
Mail paper TV Pgs

Revenue (2005)

$57.2B $49.6B $46.7B $21.0B $22.6B $14.5B $13.0B $12.5B

Growth (2005 vs. 2004)

+9.5% +5.7% +1.4% +6.1% +7.1% +3.3% +7.3% +30%

• Approx $250B ad market across all mediums

• Online still a relatively small part of overall… but
• Online growth rate of 30% CAGR is 4x the growth rate of
median
Source: Universal McCann (December 2005); eMarketer (May 2005); IAB/PwC (April 2006)
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Fragmentation of Time Spent Online

 …but fragmentation of time spent online will drive the

channelization of the Internet, opening up new
opportunities much like cable TV.

Source: Goldman Sachs Research estimates & Synovate (May 2006)

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New Players Entering Top 20

New entrants:

 Fox: mainly
myspace

 Facebook

 Social networking
sites

Is communitainment what’s next?

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Importance of the Internet Generation

 Critical 18-25 demographic spends

more time online than anywhere
else
• Generation that “grew up” with
the Internet
• Active creators of user generated
content
• Half of the Top 10 fastest growing
sites have been fueled by this
group’s usage & content creation
(e.g. Facebook, MySpace)
Source: Pew Internet ( May 2006) Universal McCann (Dec 05); IAB/PwC (April 06), Jupiter Research (Feb 06), AdWeek,
Piper Jaffray, Goldman Sachs
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On-line Advertising and Media

Trends to Invest Behind:

 Continued growth of current online advertising driven by audience
growth
• Continued investment in direct marketing/search
• Continued need for measurement/analytics & enabling technologies
• New opportunities for brand advertising dollars
 Importance of Internet Generation and two-way nature of web today
(web 2.0)
• User generated content and participatory communities
• Video & rich media sites
 Continued fragmentation of audience and dramatic growth in amount of
online content
• Increased need for discovery & categorization: vertical media & vertical
search
• Aggregate & segment fragmented audience: syndication, RSS & tagging

Long-tail of content and fragmented audience create new

monetization opportunities
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Accel’s Digital Media Investments

Social & Vertical Community Driven Off-Deck Mobile Online Gaming
Media Networks Media Networks Networks Networks

Aggregate content, Destination sites for Grass-roots creation &

audience & community grass-roots creation, programming; viral
Develop global
programming, & consumption
communities outside
sharing “walled garden”

Monetization Platforms

Cross-platform advertising solutions

Analytics & Targeting Platforms

Cross-platform analytics & asset management

Delivery & Infrastructure Platforms

Application-specific media delivery systems

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Today’s Discussion

 Backdrop: High Level VC Trends

 Digital Media & Advertising

 Sector Discussion: Mobile &

Wireless
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Mobile Content is about to explode
By 2009, millions/billions of will be accessed via mobile
mobile-designed web sites / pages
advertisers / campaigns
downloadables
Amount of mobile-accessible content

ringtones & music tracks

images / wallpaper
hours of video and television
news stories
mobile social networks
mobile blogs
mobile commerce transactions
micropayments
…

WE ARE HERE

2006 2007 2008 2009

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Mobile 2007 is Similar to “Web 2005”

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Emergence of Mobile Advertising

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Mobile Advertising Opportunity (NA)

US TV Ad Market (broadcast, syndicated and cable)

• 280 million viewers (Nielsen)

• $73 billion (IAB)

US Internet Ad Market
• 203 million users (Nielsen)  Informa projects mobile
• $16 billion (IAB) advertising at $11.35
billion by 2011

US Mobile Ad Market
• 204 million subscribers (CTIA)
• $100 million (WSJ)

Source: Medio
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Mobile Advertising Models

Text Ads
Major Brand Adoption Beginning
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(Adidas World Cup)

Source: Admob
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Consumer Feedback: Ad Support

• Up to 40% of users respond “Yes”, and up to 70% respond

“Don’t Know or Yes” to ad-subsidy for data service
• Not surprisingly 18-24 and 25-34 youth demographics are
most open to ad-supported model
Source: Jupiter Research
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Accel Partners Overview

• “Be First”: Back companies with category-defining, breakout potential

• Active, lead investors in early stage technology companies for over 25 years
• Global footprint: US (9 partners), Europe/Israel (7 partners), China IDG-Accel
(11 partners)
• Manage over $3B, created over $150B of market value

• Sample of Accel companies include: