Internet Trends

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Internet Trends
March 18, 2008
mary.meeker@ms.com / david.joseph@ms.com / anant.thaker@ms.com

Morgan Stanley is currently acting as a financial advisor to Microsoft Corp. ("Microsoft") in relation to their proposed offer to acquire Yahoo! Inc. ("Yahoo!"), as announced on February 1, 2008. The proposed offer is subject to definitive documentation, due diligence, the consent of Yahoo! shareholders, required regulatory approvals and other customary closing conditions. This report and the information provided herein is not intended to (i) provide voting advice, (ii) serve as an endorsement of the proposed transaction, or (iii) result in the procurement, withholding or revocation of a proxy or any other action by a security holder.

Please refer to the notes at the end of the report.

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Internet Trends

• Usage Patterns
• Social Networking
• Widget-ization + Component-ization
• Measurability + Transparency + Customer Satisfaction
• Video
• Monetization
• Mobile
• Emerging Markets
• Recession
2

Changes in Usage Patterns

3

Consumers Leading Way –
58% CAGR in IP Traffic, 2005E-2011E
Global IP Traffic

IP Traffic (TB / month)

30,000,000
25,000,000
20,000,000
Consumer IP traffic
surpasses Business

15,000,000
10,000,000
5,000,000
0
2005E

2006E

2007E
Total

2008E

2009E

Consumer

2010E

2011E

Business

Source: Cisco Systems, Global IP Traffic Forecast and Methodology; Mobility segment (0.1% of traffic in 2007) not displayed

4

Consumer Information Technology –
Advancing Faster Than Enterprise

Fifteen years ago, enterprise technology was higher-quality
than consumer technology. That's not true anymore. It
used to be that you used enterprise technology because
you wanted uptime, security and speed. None of those
things are as good in enterprise software anymore [as they
are in some consumer software].
Douglas Merrill
Google Chief Information Officer, 3/18/08

Source: Interview with Vauhini Vara, ‘The Wall Street Journal’, 3/18/08

5

YouTube + Facebook Page Views > Yahoo! or Google –
Massive Transition in Available Ad Units & Supply > Demand
Alexa Global Traffic – Relative Page Views

Daily Page Views (%)

10

8

6

4

2

0

2002

2003

2004

2005

2006

2007

2008

Source: Alexa Global Traffic as of 3/12/08

6

Social Networking –
Fast Growth + Low Penetration

Category Penetration (% of Online Users)

Worldwide Online Category Growth vs. Penetration

Visitor Growth by Category (1/07-1/08)
Source: comScore ‘Digital World – State of the Internet’ 3/08

7

Social Networking –
Significant Share Gains of Internet Traffic
Alexa Global Traffic Rankings
2005 (1)

2008 (2)

Rank

Web site

Rank

Web site

1
2
3
4
5
6
7
8
9
10

yahoo.com
msn.com
google.com
ebay.com
amazon.com
microsoft.com
myspace.com
google.co.uk
aol.com
go.com

1
2
3
4
5
6
7
8
9
10

yahoo.com
youtube.com
live.com
google.com
myspace.com
facebook.com
msn.com
hi5.com
wikipedia.org
orkut.com

Traffic rank is based on three months of aggregated historical...
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