Internet

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I N V E S T M E N T

R E S E A R C H

November 2009

THE ONLINE MEDIA AND ADVERTISING PRIMER
A Compendium Of Information On Online Media And Advertising
The Internet media landscape has evolved significantly over the past 5 years and numerous trends have become both apparent and subtle. While things like search and display advertising have become ingrained and accepted as a significantpart of the Internet, this section of the report focuses on 5 trends that we believe will be critical to the Internet media space over the next 5 years: Social. Social companies have worked to capitalize on their massive user bases and virtual goods have become an alternative way to advertising in the quest to monetize the audiences. Additionally, the data inherent in the interactions on socialnetworks has become more valuable to advertisers and many companies are seeking ways to utilize it in various targeted products. In short, social has pervaded the web and we expect to see continued growth in the industry leaders and some intriguing smaller players as a result. Paid Services. While advertising tends to be the primary way many websites are monetized, there have been a growing number ofonline services that have charged consumers directly for service. We expect a growing number of sites to attempt to move in this direction, such as newspapers moving to a micropayment model for some content. Established segments in the paid service vertical include online dating sites, ancestry/genealogy sites, and domain registration. Ad Networks and Syndicated Content. Ad networks play animportant role in aggregating audiences for advertisers, but the term ad network does not do justice to the targeting technology that the more advanced players have developed. We believe there are three key areas to consider in ad network targeting: demographically relevant content, advanced contextual targeting, and behavioral targeting. Furthermore, we believe syndicated content models, whichbasically involve algorithms determining what content is demanded online, could be the future of online news and publishing. Local Lead Generation. The local advertising markets are undergoing a transformation with traditional local staples like newspapers and yellow pages directories seeing continued declines in audience. At the end of the day, local businesses want leads, not clicks or engagement orother abstract metrics used by big brand advertisers. Therefore local advertising is all about online lead generation. We believe there are a number of key players in the local lead gen space that guide local small business advertisers through getting online for the first time and generating measurable ROI. Mobile. The promise of mobile as an advertising channel has encouraged businesses andinnovators to develop the space for years with moderate returns. However, with the introduction of the iPhone we believe mobile is finally reaching a stage where advertisers and consumers will be spending significantly more dollars over the next five years. Both mobile ad networks and mobile search represent meaningful advertising opportunities, while paid mobile applications have proven to be a fastgrowing segment as well. Risks. Risks include more competition from offline media companies, mobile carriers interfering with the development of mobile, and changing trends of online usership.

Gene Munster
Senior Research Analyst Internet 612 303-6452 gene.a.munster@pjc.com Piper Jaffray & Co.

Douglas Clinton
Research Analyst Internet 212 294-9488 douglas.j.clinton@pjc.com Piper Jaffray & Co.Nicholas Gallus
Research Analyst Internet 612 303-6324 nicholas.r.gallus@pjc.com Piper Jaffray & Co.

Piper Jaffray does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor...
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