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INTERNET TRENDS –
                                       Web 2.0 Summit
                                       San Francisco, CA
                                       Mary Meeker (marym@kpcb.com) – October 18, 2011




Copyright 2011. All rights reserved.
Copyright 2011. All rights reserved.   www.kpcb.com/internettrends2011
                                                                                         1
KPCB (Digital Venture + Digital Growth) 2011 Investments




Copyright 2011. All rights reserved.
                                                                              2
Internet Trends

      1.          Globality – We Aren’t In Kansas Anymore…
      2.          Mobile – Early Innings Growth, Still…
      3.          User Interface – Text  Graphical  Touch / Sound / Move
      4.          Commerce – Fast / Easy / Fun / Savings = More Important Than Ever…
      5.          Advertising – Lookin’ Good…
      6.          Content Creation – Changed Forever
      7.          Technology / Mobile Leadership – Americans Should Be Proud
      8.          Mega-Trend of 21st Century = Empowerment of People via Connected
                  Mobile Devices
      9.          Authentic Identity – The Good / Bad / Ugly. But Mostly Good?
      10. Economy – Lots of Uncertainty
      11. USA Inc. – Pay Attention!
      12. Closing Thoughts
Copyright 2011. All rights reserved.
                                                                                       3
GLOBALITY –
             WE AREN’T IN KANSAS
             ANYMORE…
Copyright 2011. All rights reserved.
Apple, Google, Amazon.com & Facebook Remain Mega-Leaders;
                   Chinese (& Russian) Companies Continue to Step Up
Rank      Y/Y Trend Company                                                      Region               2011 Market Value ($B)              2010 Revenue ($MM)
 1                  Apple                                                         USA                             $373                           $76,283
 2                  Google                                                        USA                              177                            29,321
 3                  Amazon.com                                                    USA                              108                            34,204
 4            ↑     Facebook                                                      USA                              77*                                 --
 5            ↑     Baidu                                                        China                              46                             1,216
 6                  eBay                                                          USA                               42                             9,156
 7                  Tencent                                                      China                              41                             2,967
 8                  Priceline.com                                                 USA                               24                             3,085
 9                  Yahoo!                                                        USA                               20                             6,325
 10                 Yahoo! Japan                                                 Japan                              20                             2,995
 11                 Salesforce.com                                                USA                               17                             1,657
 12                 Rakuten                                                      Japan                              15                             4,286
 13                 NHN                                                          Korea                              10                             1,062
 14                 Liberty Interactive                                           USA                                 9                            8,932
 15           ↑     Yandex                                                       Russia                               8                              447
 16                 Expedia                                                       USA                                 8                            3,348
 17                 LinkedIn                                                      USA                                 8                              243
 18                 Netflix                                                       USA                                 6                            2,162
 19           ↑     Mail.ru                                                      Russia                               6                              324
 20                 Netease                                                      China                                6                              836
 21                 Alibaba.com                                                  China                                5                              854
 22                 Verisign                                                      USA                                 5                              681
 23                 Ctrip                                                        China                                5                              424
 24                 Sina.com                                                     China                                5                              403
 25                 Rackspace                                                     USA                                 5                              781
Total                                                                                                                  $969                     $191,992
Note: 2011 data as of 10/12/2011; *Facebook market value per most recent trades (week of Sep 26) on SharesPost. Source: Google Finance.
Copyright 2011. All rights reserved.
                                                                                                                                                               5
81% of Users of Top Global Internet Properties =
                   Outside USA
                             Top 10 Internet Properties by Global Monthly Unique Visitors, 8/11

                            Google

                       Microsoft

                       Facebook

                            Yahoo!

                       Wikipedia

                Amazon.com
                                                                   USA Users
                               Apple
                                                                   International Users
                          Tencent

                               VEVO

                               Baidu

                                       0     200       400        600        800         1,000    1,200
                                                     Monthly Unique Visitors (MM)
Source: comScore Global, 8/11.

Copyright 2011. All rights reserved.
                                                                                                          6
In 3 Years, China Added More Internet Users than Exist in USA…
                   China / India / Nigeria / Russia / Iran = Biggest Adders

                                                 07-10 Internet
                                                 User Additions                        2010 Internet                                Population
 Rank              Country                           (MMs)                             Users (MMs)                    Y/Y Growth    Penetration
      1            China                                         246                                459                       20%         34%
      2            India                                           42                                 88                      43          8
      3            Nigeria                                         35                                 45                        2        28
      4            Russia                                          25                                 60                        0        42
      5            Iran                                            24                                 37                       31        49
      6            USA                                             22                               244                         2        79
      7            Brazil                                          21                                 79                        4        41
      8            Philippines                                     18                                 23                      292        25
      9            Mexico                                          13                                 35                       24        31
    10             Pakistan                                        12                                 29                       43        17
                   Top 10                                        457                            1,099                         16%      29%
                   World                                         693                            2,054                         13%      30%
Note: *Russia data as of 6/10; all other data as of 12/10. Source: United Nations / International Telecommunications Union.
Copyright 2011. All rights reserved.
                                                                                                                                                  7
Social Networkers (October, 2011) Exceed Internet Users
                   (December, 2006) & 70% of Them (800MM) Use Facebook

                                Hours Spent on Social Networking Sites per User per Month
                                                          (8/11)
                     Israel                                                                                                                    11.1
            Argentina                                                                                                                      10.8
                  Turkey                                                                                                                 10.3
                      Chile                                                                                                             10.2
                  Russia                                                                                                           9.7
         Philippines                                                                                                         9.0
         Venezuela                                                                                                           8.9
            Colombia                                                                                                       8.5
                Canada                                                                                       7.4
                 Mexico                                                                                      7.4
                       Peru                                                                                7.2
                       USA                                                                             6.8
                                       0           2                    4                   6                   8                  10            12
Source: Social Networking users & time spent data per comScore, Internet users data per ITU, Facebook data per Facebook.

Copyright 2011. All rights reserved.
                                                                                                                                                      8
If it Plays in Peoria…Take it to Broadway!
                     Especially in Mobile / Social World…


                                             ‘Test Market’ /
            Company                             Origin*                                      Social Service                                        Users

                                                                                     Sound Recognition /
                                                          UK                                                                                    100MM+
                                                                                      Music Discovery

                                                                                       Music Discovery &
                                                    Sweden                                                                                       15MM+
                                                                                          Streaming


                                                       Israel                          Driving Navigation                                          7MM+


                                             Germany / UK                              Sound Discovery &
                                                                                                                                                   7MM+
                                               / Sweden                                    Sharing

Note: *Shazam first gained traction in UK, Spotify first gained traction in Sweden, Soundcloud first gained traction in Germany / UK / Sweden, Waze first
achieved critical mass in Israel. All of these services have successfully expanded to other regions / countries, including USA.
Copyright 2011. All rights reserved.
                                                                                                                                                            9
MOBILE –
         EARLY INNINGS GROWTH, STILL

Copyright 2011. All rights reserved.
Breakthrough Communications Technologies / Services
                                         Can Breakout Even During Breakdown Times
                                            Technology Adoption (Measured by Population Penetration) in USA
                                                Radio vs. TV vs. Internet vs. Mobile Internet, 1920 – 2011E
                                  100%




                                  80%
     Population Penetration (%)




                                                                                     AM Radio
                                  60%
                                                                                     TV

                                                                                     Internet
                                  40%
                                                                                     Mobile Internet (Smartphone)

                                                                                      Recessions
                                  20%




                                   0%
                                         1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: Radio penetration data per Broadcasting & Cable Yearbook 1996, Internet penetration data per World Bank / ITU, Mobile Internet (smartphone) data per
Morgan Stanley Research; 3G data per Informa.
Copyright 2011. All rights reserved.
                                                                                                                                                               11
35% Y/Y Global Mobile 3G Subscriber Growth
                    to 936MM (17% of all Mobile Subscribers), Q2:11
                                       Q2:11 3G    3G      3G Sub                                                   Q2:11 3G          3G         3G Sub
                                        Subs    Penetra-     Y/Y                                                     Subs          Penetra-        Y/Y
Rank        Country                      (MM)     tion     Growth                  Rank      Country                  (MM)           tion        Growth


   1        USA                          179      56%        26%                     16      Canada                      15             58%        47%
   2        Japan                        117       97        10                      17      Taiwan                      14              48         28
   3        Korea                        43        82        10                      18      Portugal                    12              73         21
   4        China                        40         4       172                      19      Turkey                      11              17        104
   5        Italy                        40        47        22                      20      Malaysia                    10              28         22
   6        UK                           39        51        35                      21      South Africa                9               16         34
   7        Germany                      33        32        24                      22      Sweden                      9               69         35
   8        Spain                        30        53        23                      23      Mexico                      9                   9      85
   9        Brazil                       28        13        79                      24      Philippines                 9               10         87
  10        Indonesia                    27        12        40                      25      Saudi Arabia                9               18         18
  11        Poland                       26        54        24                      26      Netherlands                 8               40         41
  12        France                       25        39        29                      27      Austria                     7               54         29
  13        India                        23         3      1,050                     28      Vietnam                     6                   6     103
  14        Australia                    20        71        22                      29      Israel                      6               58         16
  15        Russia                       15         7        59                      30      Argentina                   5               10        102

                         Global 3G Stats:        Subscribers = 936MM             Penetration = 17%                 Growth = 35%
Note: *3G includes CDMA 1x EV-DO and Rev. A/B, WCDMA, HSPA; One user may have multiple mobile subscriptions and may be counted as multiple
subscriber. Source: Informa WCIS+.
Copyright 2011. All rights reserved.
                                                                                                                                                          12
Smartphones Surpassed Feature Phone Shipments in
                                                W. Europe (Q2:10) / USA (Q1:11); ROW to Follow
 Smartphone Shipments as % of Total Mobile Phone Shipments by Region, Q1:08 – Q2:11
                                              100%


                                                             North America
                                                                                                   Smartphone > Feature
      % of Quarterly Mobile Phone Shipments




                                              80%
                                                             Western Europe                         Phone Shipments

                                                             Rest of World (ex. Japan)

                                              60%

                                              50%

                                              40%




                                              20%




                                               0%
                                                     Q1:08      Q3:08         Q1:09      Q3:09   Q1:10                Q3:10   Q1:11

Source: Data per Ehud Gelblum, Morgan Stanley Research. Note: In Japan, smartphone exceeded feature phone in Q4:08.

Copyright 2011. All rights reserved.
                                                                                                                                      13
Despite Tremendous Ramp So Far,
                              Smartphone Usage Still Has Huge Upside
                                       Global Smartphone vs. Mobile Phone Subscribers, 2011E
                              6,000                                                                                5.6B Mobile
                                                                                                             Phone Subscribers

                              5,000



                              4,000
          Global Users (MM)




                              3,000



                              2,000
                                          835MM
                                        Smartphone
                              1,000
                                        Subscribers


                                 0
                                       Smartphone Users                                                         Mobile Phone Users
Source: Smartphone subscriber estimates per Morgan Stanley Research; Mobile phone subscribers per Informa (as of Q2:11).
Note: While there are 936MM global 3G subscribers as of Q2:11, not all of them were smartphone users. One user may have multiple mobile subscriptions,
therefore actual user #s may be lower than subscriber #s.

Copyright 2011. All rights reserved.
                                                                                                                                                         14
iPods Changed Media Industry…iPhones Ramped Even
                                         Faster…iPad Growth Leaves “Siblings” in Dust
                                             First 6 Quarters Cumulative Unit Shipments, iPod vs. iPhone vs. iPad

                             15,000
                               700
                               45,000
                                                                iPad
                                                              iPad             iPhone
                                                                                 iPhone
                                                                               iPhone                iPod
                                                                                                       iPod
                                                                                                      iPod
                               40,000
                             13,000
                               600

                               35,000
         Global Unit Shipments (000)




                             11,000
        Global Unit Shipments (000)




                               500
                               30,000
                                       9,000
                                        400
                                        25,000

                                       7,000
                                        20,000
                                        300

                                       5,000
                                        15,000
                                        200
                                        10,000
                                       3,000
                                        100
                                         5,000
                                       1,000
                                    0 0
                                -1,000 00 0             1
                                                        1 1            2
                                                                       22              3
                                                                                       33             44      5
                                                                                                              5
                                                                                                              5     6
                                                                                                                    6
                                                                            Quarters After Launch
                                                                             Quarters After Launch
                                                                                     After Launch

Source: Apple, as of Q2:11 (6 quarters post iPad launch).

Copyright 2011. All rights reserved.
                                                                                                                        15
Android ‘Phone’ Adoption Has Ramped Even
                                                  Faster than iPhone
                                                        First 11 Quarters Cumulative Global Android & iPhone Unit Shipments

                                                  180
                                                                        Android Global Units Shipped
                                                                            Android                            iPhone
                                                                                                          iPhone
                                                  160
          Global Cumulative Unit Shipments (MM)




                                                  140

                                                  120

                                                  100

                                                  80

                                                  60

                                                  40

                                                  20

                                                   0
                                                        0    1      2       3        4         5         6     7        8   9   10   11
                                                                                         Quarters After Launch

Source: Gartner, Morgan Stanley Research, as of Q2:11.

Copyright 2011. All rights reserved.
                                                                                                                                          16
Two Horse Races in Smartphones & Tablets, So Far


                                                                   Smartphones                                                        Tablets

                                                               Apple                Google                                Apple                   Amazon
                                                              iPhone                Android                               iPad                     Kindle


        Cumulative Shipments
                                                              129MM                  152MM                                29MM                     16MMa
        as of Q2:10


        ASP**                                                   $606                  <$600                                $650                     <$200



        Launch Date                                            Q2:07                   Q4:08                              Q2:10                     Q4:07



Note: a) Kindle shipment estimates per Scott Devitt, Morgan Stanley Research. ** ASP is average selling price, data are estimates for Android and Kindle.
Source: Apple, Morgan Stanley Research.

Copyright 2011. All rights reserved.
                                                                                                                                                            17
Mobile Usage –
                                      Big & Ramping Fast
                                      % of Traffic From Mobile Devices, Pandora, Twitter & Facebook, 2008 – 2011
                                      75%


                                                                                             60%
                                                                                                         Pandora
           % of Traffic from Mobile




                                                                                             55%
                                      50%
                                                                                                         Twitter


                                                                                             33%         Facebook
                                      25%


                                              5%

                                              1%
                                        %
                                                2008          2009          2010          2011

Source: Pandora S1, Twitter, Facebook.

Copyright 2011. All rights reserved.
                                                                                                                    18
Mobile Search –
                   Growing Rapidly
                                       Google US Mobile Queries (Indexed), 2007 – 2011

   120


   100                                                                   4x Growth
                                                                           in past years
     80


     60


     40


     20


        0
              2007                       2008               2009              2010         2011

Source: Google.
                                                                                                  19
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                                                                                                   19
Mobile Advertising –
                                         Ramping Quickly in all Geographies
                          InMobi – # of Fortune 1000 Companies Launching Mobile Ad Campaigns &
                                      Quarterly Smartphone Ad Impressions, 10/09-9/11

                                                   Africa                                                      250
                                             25                                                                       250
                                                   South America




                                                                                                                            # of Global Fortune 1000 Advertisers
                                                   Middle East                                          203
            Quarterly Smartphone Mobile Ad




                                             20                                                                       200
                                                   Europe
                                                   North America
                    Impressions (B)




                                                                                                 138
                                             15    Asia                                                               150

                                                   # of Global Fortune 1000 Advertisers
                                             10                                                                       100

                                                                                          62

                                             5                                    37                                  50
                                                                          25
                                                   3         4      8
                                             0                                                                        0
                                                  10/09     1/10   4/10   7/10   10/10    1/11   4/11   7/11   9/11

Source: InMobi.

Copyright 2011. All rights reserved.
                                                                                                                                                                   20
Global Mobile App + Advertising Revenue =
                                          $12B in 2011E Revenue, Up 17x in 3 Years

                                                Global Mobile App + Advertising Revenue, 2008 vs. 2011E
                                          $15

                                                                          Mobile Apps
         Mobile Ad + Apps Spending ($B)




                                                                                                                                         $12B
                                                                          Mobile Advertising
                                          $10




                                           $5



                                                    $0.7B
                                           $0
                                                     2008               2009                             2010                            2011E
Source: Gartner. CAGR is compound annual growth rate.
Note: Apple has paid >$3B $’s to developers as of 9/11, implying gross app market revenue of $4B in 3 years; Google indicated during CQ3 earnings call that it expects
$2.5B mobile ad revenue in 2011E

Copyright 2011. All rights reserved.
                                                                                                                                                                         21
‘Hierarchy of Needs’ Revisited?

                              1943 – Maslow                                                                              2011 – ? ;)



                                     Self-                                                                                Internet /
                                 Actualization                                                                             Mobile
                                                                                                                           Phone

                                       Esteem
                                                                                                                            Shelter
                                   Belonging

                                       Safety
                                                                                                                      Food / Water
                               Physiological


Note: Created for discussion purposes and a bit of humor. Not intended to discredit Maslow's hierarchy, which we believe to be accurate.
Originally presented in Morgan Stanley’s “The Age of Engagement” presentation, dated April 2005

Copyright 2011. All rights reserved.
                                                                                                                                           22
USER INTERFACE –
             TEXT  GRAPHICAL 
             TOUCH / SOUND / MOVE
Copyright 2011. All rights reserved.
What Has One Insanely Great Designer / Entertainer /
                   Leader / Businessman Wrought?


     Before Steve Jobs…
      computers were utilitarian tools for
      computation.

     After Steve…
       computers became beautiful objects we could
       use in thousands of ways to aim to make life
       better.

     Steve’s design aesthetic was second to none.

Copyright 2011. All rights reserved.
                                                                          24
Natural User Interface Revolution –
                     Now in Touch / Sound / Move Era
                      1980s             1990s                 2000s
                       Text            Graphical      Touch / Sound / Move




Copyright 2011. All rights reserved.
                                                                             25
The Next Big Thing(s)?
                   Those Two Big Things on the Sides of Your Head…
                                              High Quality / Compact                           Connected
                                                Wireless Speakers                              Car Audio



                  Noise Cancellation /
                  Better Audio Quality                                                                     Sound Recognition +
                       Headsets                                                                              Understanding




          4B+ Bluetooth                                                                                          Sound Creation +
         Enabled Devices                                                                                             Sharing


                                                                      ONLINE
                                                                      AUDIO

Source: Bluetooth enabled devices shipment per iSuppli and Instat, assumes a 2.5 year replacement cycle.

Copyright 2011. All rights reserved.
                                                                                                                                    26
Perhaps its Time to Hear About the Ear




      Sound is going to be bigger than video…
      ‘Record’ is the new QWERTY.

                                       -   Alexander Ljung, Founder & CEO, SoundCloud




Copyright 2011. All rights reserved.
                                                                                        27
COMMERCE –
     FAST / EASY / FUN / SAVINGS =
     MORE IMPORTANT THAN EVER…


Copyright 2011. All rights reserved.
eCommerce =
                                                        Four Quarters of Accelerating Growth

                                                                USA Retail Sales & eCommerce Y/Y Growth Rates, Q1:03 –Q2:11
                                                     30%
     USA Retail Sales & eCommerce Y/Y Growth Rates




                                                     20%




                                                     10%




                                                      0%
                                                            Q1:03   Q1:04   Q1:05     Q1:06        Q1:07      Q1:08   Q1:09   Q1:10   Q1:11

                                                                                    U.S. Retail E-Commerce Sales

                                                     -10%                           U.S. Total Retail Sales


Note: eCommerce sales excludes travel, auto and auctions. Source: U.S. Census Bureau, comScore.

Copyright 2011. All rights reserved.
                                                                                                                                              29
eCommerce Continues to Gain Share from Offline…
                                                at 8% Share of USA Commerce with Lots of Headroom

                                                USA eCommerce % Share(1) of Total Retail Sales, Q1:04 – Q4:13E
                                              12%
                                                                                                             eCommerce
                                                                                                             Penetration
       eCommerce as % of Total Retail Sales




                                              10%                                                            8% in Q2:11

                                              8%


                                              6%


                                              4%


                                              2%


                                              0%
                                                Q1:04    Q1:05   Q1:06   Q1:07     Q1:08   Q1:09     Q1:10    Q1:11   Q1:12
                                                    eCommerce Penetration        Linear Trendline (y=0.1443x + 4.0428, R^2=0.8512)
Note: (1) : e-Commerce share is shown as a percent of DOC’s Total Retail Sales excluding Food Service &
Drinking, Food & Bev. Stores, Motor Vehicles & Parts, Gasoline Stations and Health & Personal Care Stores
Source: US Dept. of Commerce, comScore.

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                                                                                                                                     30
Mobile Commerce =
                                         We Have Lift Off!
                                                     Mobile Sales or Payment Volume –
                                          eBay / PayPal / Amazon.com / Target / Square, 2009-2011E
                                         $5
         Gross Mobile Sales or Payment




                                         $4
                                                                                                 eBay
                 Volume ($B)




                                                                                                 PayPal
                                         $3
                                                                                                 Target
                                         $2
                                                                                                 Amazon.com

                                         $1                                                      Square



                                         $0
                                                 2009                  2010               2011
Note: Amazon.com disclosed 2010 mobile gross sale, 2009 / 2011 data are KPCB estimates.
Source: eBay, Amazon.com, Target, Square.

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                                                                                                              31
Old Magazine Paradigm Finally Comes Alive =
                   It’s a Bird, It’s a Plane? It’s Click & Buy (on Mobile Device)…




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                                                                                     32
In a Mobile-ized / Transparent World =
                    Pricing Matters A LOT!

        Reasons for In-Store Purchase Abandonment Among USA Smartphone Users, 7/11


                            Found it online for a better price                                                                              52%

        Found it at another store for a better price                                                                                        51%

                Saw a negative review about the item                                                                     34%

                                I bought a similar item instead                                            21%

                                       It was not available in-store                                   17%

                                       No longer needed the item                            7%

                                                None of the above                    1%
                                                                                                   % of Respondents
Source: comScore US smartphone user survey, 7/11.
Note: the same survey also indicated that 50% of USA smartphone users have used their smartphones to find a nearby store. So while mobile Internet is helping
drive foot traffic to local stores, it is also helping make pricing info more transparent for the consumers.
Copyright 2011. All rights reserved.
                                                                                                                                                                33
Local Commerce =
                    Rejuvenated by Mobile
Coupons + Demand                            Payments + Inventory   Reviews + Business    Check Ins + Driving
   Generation                                  Management          Information / Leads      Foot Traffic

   20MM+ Users*                                      2MM+ Users*    40MM+ Users*           15MM+ Users*




                                                             LOCAL
Note: *Users are comScore USA’s aggregate
monthly unique visitor data for companies listed
                                                           COMMERCE
under each category.
Total USA local advertising for 2011E is $68B, per
Morgan Stanley Research.
Copyright 2011. All rights reserved.
                                                                                                          34
ADVERTISING –
             LOOKIN’ GOOD…


Copyright 2011. All rights reserved.
Media Time Spent vs. Ad Spend Still Out of Whack
                                               Internet / Mobile (upside…) vs. Print (downside…)


                              % of Time Spent in Media vs. % of Advertising Spending, USA 2010

                                                                     Time Spent                 Ad Spend
                                                 50%
           % of Total Media Consumption Time
                 or Advertising Spending




                                                 40%                              43% 43%


                                                 30%
                                                             27%
                                                                                                      25%                          ~$20B
                                                 20%                                                                               Opportunity
                                                                                                                                     in USA
                                                                                                                 19%
                                                                   16%
                                                 10%
                                                                         11%
                                                        8%                                                             8%
                                                                                                                            0.5%
                                                  0%
                                                         Print       Radio           TV                Internet        Mobile


Note: Print includes newspaper and magazine. $20B opportunity calculated assuming Internet and Mobile ad spend
share equal their respective time spent share. Source: eMarketer, 3/11.

Copyright 2011. All rights reserved.
                                                                                                                                                 36
Advertising $s Follow Eyeballs –
                   Ad Revenue per User = $49 in 2011E vs. $0 in 1994E




                                                                                    1995E                                           2011E


        Global Internet Ad Revenue                                                 $55MM                                        $73B
        Ad Revenue per User                                                            $9                                          $49
        Global Internet Users                                                        6MM                                         1.5B



Source: Global online ad revenue per Jupiter Communications (1995), ZenithOptimedia (2011). Internet users per Morgan Stanley estimate (1995)
and comScore (2011). We note that comScore reports a lower global Internet user # than International Telecommunications Union.

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                                                                                                                                                37
Google Paid Clicks & Cost-Per-Click Continue to Grow Rapidly;
                   Mobile Helping


                                           Q2:10    Q3:10    Q4:10    Q1:11    Q2:11    Q3:11
     Gross Advertising
     Revenue ($MM)                         $6,562   $7,032   $8,167   $8,306   $8,716   $9,335
        Y/Y Growth                           23%      22%      26%      28%      33%      33%


     Aggregate Paid Clicks
     (MM)                                  12,651   13,157   14,669   15,245   15,004   16,876
        Y/Y Growth                           15%      16%      18%      17%      18%      28%



     Cost per Click (CPC - $)               $0.52    $0.53    $0.56    $0.54    $0.58    $0.55
        Y/Y Growth                            7%       6%       7%      10%      12%       4%




Source: Google, Morgan Stanley Research.

Copyright 2011. All rights reserved.
                                                                                                 38
Time Spent on Social Networking Sites Surpassed Portals,
                                                  June 2011, USA

                                                  USA Monthly Time Spent, Portals vs. Social Networking Sites, 6/08 – 7/11
                                            120
                                                                                             Portals

                                                                                             Social Networking
                                            100
       Monthly Time Spent (Bs of Minutes)




                                                                                                                          June 2011 Time Spent
                                                                                                                        Social Networking > Portals
                                             80



                                             60



                                             40



                                             20



                                              0
                                                  6/08   9/08   12/08   3/09   6/09   9/09     12/09   3/10      6/10   9/10   12/10   3/11   6/11

Source: comScore Media Metrix USA panel-only data.

Copyright 2011. All rights reserved.
                                                                                                                                                     39
Social Networking CPMs =
                   Have Begun to Punch Closer to Their Weight

    Share of Total USA Online Display Ad Units (as of 8/11) + CPM (as of Q3:11),
                           by Top Publisher Categories

  Business / Finance                        2%                                                                             $9.90

                 Directories                2%
         Online Gaming                      3%                                                       $2.70

                        Sports               5%                                                                 $6.00

                          Email                   10%                                        $0.89

  News / Information                              11%                                                         $5.30

           Entertainment                           14%                                                   $4.25

                       Portals                           21%                                     $2.45
    Social Networking                                              30%                                  $3.80

                                       0%    10%    20%       30%       40%             $0               $5               $10      $15
                Share of Total US Online Display Ad                                                             CPM ($)
                                Units

Source: comScore, Display ad unit share as of 8/11, CPM data per Vivaki, as of Q3:11.

Copyright 2011. All rights reserved.
                                                                                                                                         40
CONTENT CREATION –
             CHANGED FOREVER…

Copyright 2011. All rights reserved.
Content Commoditization –
                    Value Shift from Creators to Aggregators
• Newspapers, once the bastions of                                                             USA Total Newspaper Print + Online Revenue
  content creation / curation, are                                                               vs. Google USA Revenue, Q1:06 – Q2:11
  experiencing 5th straight year of                                                          $16
  declining revenue.




                                                                    Quarterly Revenue ($B)
• With undifferentiated products,                                                            $12

  price is competed down to
  marginal cost. And the marginal
                                                                                             $8
  cost for digital content is $0.

• How does one create
                                                                                             $4
  differentiated content in an
  economically viable manner, when
  few want to pay for it? – For
                                                                                             $0
  insights, check out Joanne                                                                   Q1:06 Q4:06 Q3:07 Q2:08 Q1:09 Q4:09 Q3:10 Q2:11
  Bradford’s Web 2.0 presentation.
                                                                                                   USA Total Newspaper Print + Online Revenue

Source: Demand Media.
                                                                                                   Google USA Revenue
Note that Search = ~50% of USA Online Ad Revenue ($15B based on Q2 run rate) in 2011 vs. <5% in 2001;
Display = 23% of Online Ad Revenue ($7B) in 2011 vs. 62% in 2001

Copyright 2011. All rights reserved.
                                                                                                                                                 42
TECHNOLOGY / MOBILE
     LEADERSHIP –
     AMERICANS SHOULD BE PROUD

Copyright 2011. All rights reserved.
We are Living Through a Once Every 10-20 Years
                   Technology Evolution – The Mobile Computing Cycle…



      • Smartphones + tablets outshipped PCs
        (notebooks + desktops) in Q4:10.

      • Windows operating system fell to
        installation on <50% of Internet-enabled
        devices in Q2:10.




Source: Morgan Stanley Research, Gartner.

Copyright 2011. All rights reserved.
                                                                        44
‘Made in USA’ Smartphone Operating Systems =
                                          64% Share from 5% Five Years Ago

                                              Smartphone Operating System Market Share, 2005 vs. 2011E

                                       100%
       Market Share of Smartphone OS




                                       80%

                                                                                             Other OS
                                       60%                                                   iOS
                                                                                             Android
                                                                                             Windows Mobile
                                       40%                                                   BlackBerry OS
                                                                                             Linux
                                                                                             Nokia Symbian
                                       20%



                                        0%
                                                      2005                   2011E

Source: Morgan Stanley Research, Gartner.

Copyright 2011. All rights reserved.
                                                                                                              45
Still Early-Innings Era of Smart-Phones to Smarter-Phones


  • Pace of innovation in Silicon Valley may be
    unprecedented.

  • Intensity / focus / leadership of USA-based
    companies (Apple / Google / Amazon.com /
    Facebook) may be unprecedented.

  • Combination of technology improvements and
    elegant design may be unprecedented.


Copyright 2011. All rights reserved.
                                                                           46
MEGA-TREND OF 21ST
           CENTURY =
           EMPOWERMENT OF PEOPLE VIA
           CONNECTED MOBILE DEVICES


Copyright 2011. All rights reserved.
Global Information Flow -
                   Real-Time + Fast + Broad
                                        16 Minutes Before / After Japan Earthquake on 3/11/11
                                       Snapshots of @replies From & To Twitter Users in Japan

                   2:30pm Japan Time                                                                         2:46pm Japan Time
               Before Earthquake / Tsunami                                                               After Earthquake / Tsunami




      In 140-character bites, the story unfolded: the shock and terror; the sense of human
     frailty mixed with lifesaving information; the messages of those seeking comfort and
             those seeing some kind of divine retribution, all mixing at hyper-speed.
                                                                            – LATimes, 3/11/11
Note: Yellow lines indicate tweets coming out of Japan; Pink lines indicate tweets coming into Japan. Source: Twitter.

Copyright 2011. All rights reserved.
                                                                                                                                      48
Global Information Flow –
                   Remote Locations Getting Connected


             • 85% of world’s population covered by
               commercial wireless signals, providing
               greater reach vs. electrical grid (80%).*

             • 200MM+ farmers in India receiving
               government payments / subsidies via mobile
               devices.**



Source: *GSM Association, United Nations. **There are 90MM Kisan credit card users and 118MM job card users, both of which do not require bank
accounts but utilize mobile phones as identity verification / payment confirmation, per Ministry of Rural Development, Government of India.

Copyright 2011. All rights reserved.
                                                                                                                                                 49
Global Economies / People =
                                       Increasingly Connected / Co-Dependent

                                                     World Trade as % of World GDP, 1960 - 2010
                                 30%



                                 25%
       World Trade as % of GDP




                                 20%


                                                                                                                              2010 World Trade =
                                 15%
                                                                                                                              24% of World GDP

                                 10%



                                 5%



                                 0%
                                       1960   1965   1970   1975          1980          1985          1990          1995          2000          2005      2010
Note: World trade calculated as the sum of all countries’ imports (or exports). The biggest trading partners of USA includes EU nations, Canada, China,
Mexico, Japan and South Korea. Source: Trade data per World Trade Organization (WTO), GDP data per United Nations (UN).

Copyright 2011. All rights reserved.
                                                                                                                                                                 50
AUTHENTIC IDENTITY –
             THE GOOD / BAD / UGLY.
             BUT MOSTLY GOOD?
Copyright 2011. All rights reserved.
Authentic Identity – The Good / Bad / Ugly.
                    But Mostly Good?
           With 800MM global active Facebook users…50% that log on in any given
           day…with an average of 130 friends…and an average of 80 community
           pages / groups / events…and more than 250MM photos uploaded per day
           and 350MM active mobile users…*

           And 835MM smartphone users (likely ramping to 1.4B within two years)…

           It’s hard to hide. The ‘truth’ is often just a photo/click–send away.

           ‘Clean, well-lighted place to do business?’ ‘People are basically good?’

           In a world with tremendous uncertainty – owing to the rapid ramp in
           always-on, connected citizens of the world, perhaps, the world is on the
           cusp of being safer than ever?

           There are lots of sacrifices. This is new terrain.

           Only time will tell how all this plays out…
Source: Facebook, 10/11.

Copyright 2011. All rights reserved.
                                                                                      52
ECONOMY –
           LOTS OF UNCERTAINTY


Copyright 2011. All rights reserved.
Stock Market Volatility =
                              2x Historical Average, Illustrating Uncertainty
                       100%
                                 Chicago Board Options Exchange (CBOE) Volatility Index (VIX), 1990 – 2011 YTD


                       80%
 VIX Index Value (%)




                       60%


                                                                                                    Current (10/11)
                                                                                                     Level = 40%
                       40%

                                            1990-2011
                                          Average = 20%
                       20%




                        0%
                          1990     1992     1994     1996           1998          2000     2002   2004    2006    2008   2010
Note: Data as of 10/11. VIX is a measure of implied volatility of S&P 500 index options.
Source: CBOE, Morgan Stanley Research.

Copyright 2011. All rights reserved.
                                                                                                                                54
Consumer Confidence =
                                                 Well Below Historical Average, Illustrating Uncertainty
                                                       The Conference Board Consumer Confidence Index, 1978 – 2011 YTD
                                           160


                                           140

                                                                               30 Year Average                                                 10/11
    Consumer Confidence Index (1985=100)




                                           120                                    CCI = 92.7                                                 CCI = 45.4

                                           100


                                            80


                                            60


                                            40
                                                                                                                   2/09 Trough
                                                                                                                    CCI = 25.3
                                            20


                                             0
                                              1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Note: Index started in 1967 / benchmarked to 1985=100. The Index is calculated each month on the basis of a household survey of consumers'
opinions on current conditions and future expectations of the economy. Source: The Conference Board, 10/11.
Copyright 2011. All rights reserved.
                                                                                                                                                          55
USA Corporate Capital Spending Budgets =
                              Being Revised Down, Illustrating Uncertainty

                         Survey Results of Corporate Capital Spending Budget Revisions, 1/08 – 7/11
                          Think about your company’s overall capital budget for the current quarter, have
                          there been any adjustments made over the past 90 days?
                        50%
                                                                                    Revised Lower

                                                                                    Revised Higher               23% of Respondents
                        40%
                                                                                                                    Have Revised
                                                                                                                   Capital Budgets
     % of Respondents




                                                                                                                   Lower in CQ3:11
                        30%



                        20%



                        10%



                        0%
                               1/08    4/08   7/08   10/08   1/09   4/09   7/09   10/09   1/10   4/10   7/10   10/10   1/11   4/11   7/11

Source: ChangeWave Research.

Copyright 2011. All rights reserved.
                                                                                                                                            56
GDP Growth Forecasts =
                    Being Revised Down, Illustrating Uncertainty
                                                                                                     Difference from 6/11
                                                                                 IMF Forecasts, 9/11    IMF Forecasts
            Country / Region                     2009              2010              2011E   2012E    2011E      2012E

            USA                                  -3.5%              3.0%              1.5%    1.8%     -1.0%      -0.9%
            Euro Zone                              -4.3               1.8              1.6     1.1      -0.4       -0.6
            UK                                     -4.9               1.4              1.1     1.6      -0.4       -0.7
            Japan                                  -6.3               4.0             -0.5     2.3       0.2       -0.6
            China                                   9.2             10.3               9.5     9.0      -0.1       -0.5
            India                                   6.8             10.1               7.8     7.5      -0.4       -0.3
            Russia                                 -7.8               4.0              4.3     4.1      -0.5       -0.4
            Brazil                                 -0.6               7.5              3.8     3.6      -0.3        0.0

            Developed Markets                      -3.7               3.1              1.6     1.9      -0.6       -0.7
            Emerging Markets                        2.8               7.3              6.4     6.1      -0.2       -0.3

            World                                  -0.7               5.1              4.0     4.0      -0.3       -0.5
Note: Data is annual GDP percent change. Source: IMF World Economic Outlook, 9/11.

Copyright 2011. All rights reserved.
                                                                                                                            57
Stock Markets = Often Leading Indicators of Economic Activity
                                           Russia -33% from 52-Week High; Oil (-24%) / China (-23%) / Europe (-23%) / S&P500
                                           (-12%) / Nasdaq (-9%)

                                    180%        Stock / Commodity Markets Performance (% Change From 1/10), 1/10 – 10/11


                                    160%




                                    140%
    Index Value (1/1/2010 = 100%)




                                    120%




                                    100%




                                    80%


                                                                                                     New 2-Week Trendline?
                                    60%
                                       1/10      3/10    5/10     7/10      9/10     11/10    1/11         3/11      5/11      7/11     9/11


                                       S&P500       NASDAQ      China Shanghai Composite     MSCI Europe          Russia RTS      Oil     Gold

Note: All values are indexed to 1 (100%) on Jan 1, 2010. Data as of 10/17/11.
Source: Morgan Stanley Research, Yahoo! Finance.

Copyright 2011. All rights reserved.
                                                                                                                                                 58
USA INC. –
           PAY ATTENTION!


Copyright 2011. All rights reserved.
America’s Revenue & Expenses as % of GDP Over 110 Years;
                                               Current State = Revenue Problem? Spending Problem?
                                                          USA Inc. Revenue & Expenses as % of GDP, 1901 – 2011E
                                         50%                                                                                            $16
                                                    Revenue as % of GDP
                                                    (Left Axis)                                                                         $14
                                                                                                 Biggest Peace Time Gap




                                                                                                                                              Real GDP (in Trillions of 2005 Dollars)
                                         40%        Expenses as % of GDP                           Between Revenue &
        Revenue & Expenses as % of GDP




                                                    (Left Axis)                                  Expenses in USA History                $12
                                                    Real GDP (Right Axis)
                                                                                                                                        $10
                                         30%

                                                                                                                                        $8

                                         20%
                                                                                                                                        $6


                                                                                                                                        $4
                                         10%
                                                                                                                                        $2


                                         0%                                                                                             $0
                                           1901    1911     1921   1931     1941   1951   1961     1971   1981        1991   2001   2011E


Source: 1910 – 1930 per Census Bureau, 1940-2010 per White House OMB. Real GDP adjusted for inflation, in 2005 dollars.

Copyright 2011. All rights reserved.
                                                                                                                                                                                        60
America’s Income Statement –
                     -60% Net Margin in F2010
                                       USA Inc. Profit & Loss Statement, F1995 / F2000 / F2005 / F2010
                                                       F1995 … F2000 … F2005 … F2010        Comments
            Revenue ($B)                                   $1,352           $2,026          $2,154          $2,163          On average, revenue grew 3% Y/Y
               Y/Y Growth                                       --              11%             15%              3%         over past 15 years
                   Individual Income Taxes*                   $590          $1,005            $927            $899          Largest driver of revenue
                       % of Revenue                             44%             50%             43%             42%
                   Social Insurance Taxes                     $484            $653            $794            $865          Payroll tax on Social Security +
                      % of Revenue                              36%             32%             37%             40%         Medicare
                   Corporate Income Taxes*                    $157            $207            $278            $191          Fluctuates significantly with
                      % of Revenue                              12%             10%             13%              9%         economic conditions
                   Other                                      $120            $161            $154            $208          Includes estate & gift taxes / duties &
                      % of Revenue                               9%              8%              7%             10%         fees; relatively stable
            Expense ($B)                                   $1,516           $1,789          $2,472          $3,456          On average, expense grew 6% Y/Y
                Y/Y Growth                                      --               5%              8%             -2%         over past 15 years
                   Entitlement / Mandatory                    $788            $937          $1,295          $1,984
                                                                                                                            Significant increase owing to aging
                       % of Expense                             52%             52%             52%             57%         population + rising healthcare cost
                   Non-Defense Discretionary                  $223            $335            $497            $431
                                                                                                                            Includes education / law enforcement
                      % of Expense                              15%             19%             20%             12%
                                                                                                                            / transportation…
                      "One-Time" Items                           --              --              --           $152
                                                                                                                            Includes discretionary spending on
                        % of Expense                             --              --              --              4%
                                                                                                                            TARP, GSEs, and economic stimulus
                   Defense                                    $272            $294            $495            $694
                      % of Expense                              18%             16%             20%             20%
                                                                                                                            Significant increase owing to on-
                                                                                                                            going War on Terror
                   Net Interest on Public Debt                $232            $223            $184            $196
                                                                                                                            Decreased owing to historic low
                      % of Expense                              15%             12%              7%              6%         interest rates
            Surplus / Deficit ($B)                           -$164            $237           -$318         -$1,293          USA Inc. median net margin between
                Net Margin (%)                                 -12%             12%            -15%            -60%         1995 & 2010 = -8%

Note: USA federal fiscal year ends in September; *individual & corporate income taxes include capital gains taxes. Non-defense discretionary includes federal
spending on education, infrastructure, law enforcement, judiciary functions… Source: White House Office of Management and Budget.
Copyright 2011. All rights reserved.
                                                                                                                                                                      61
America’s Debt Level Relative to Other Countries –
                     You Do the Math…

                                          2010 Gross                                                                     2010 Gross
                                        Government Debt                                                                Government Debt
Rank      Country                            ($MM)           % of GDP                Rank       Country                     ($MM)        % of GDP
 1        Japan                            $12,009            220%                    16        Hungary                     $105           80%
 2        Jamaica                                19            143                    17        Israel                        168           77
 3        Greece                                436            143                    18        UK                         1,699            76
 4        Lebanon                                53            134                    19        Egypt                         161           74
 5        Iraq                                   97            120                    20        Austria                       272           72
 6        Italy                               2,445            119                    21        Sudan                          47           72
 7        Belgium                               452             97                    22        Brazil                     1,397            67
 8        Singapore                             214             96                    23        Jordan                         18           67
 9        Ireland                               196             95                    24        Côte d'Ivoire                  15           67
 10       USA                               13,707              94                    25        India                      1,046            64
 11       Portugal                              213             93                    26        Netherlands                   497           64
 12       Iceland                                12             92                    27        Cyprus                         14           61
 13       Germany                             2,759             84                    28        Spain                         848           60
 14       Canada                              1,324             84                    29        Uruguay                        23           57
 15       France                              2,110             82                    30        Pakistan                      100           57



 Note: Ranking excludes countries with gross government debt less than $10MM in 2010. Gross government debt includes
 intragovernment obligations (such as Treasuries held by the Social Security Trust Fund in US’ case).
 Source: The International Monetary Fund (IMF).

 Copyright 2011. All rights reserved.
                                                                                                                                               62
USA Inc. @ kpcb.com / youtube.com / amazon.com




                    90K+ Total Views
                    14K+ YouTube Views
                    7K+ Facebook Likes
                    2K+ Retweets




Copyright 2011. All rights reserved.
                                                                       63
CLOSING THOUGHTS



Copyright 2011. All rights reserved.
Economy – Often darkest before dawn. At least
      we know what the problems are. Now we need
      the resolve to fix them. Across-the-board
      sacrifice needed.

     Tech Industry – Wow! Unprecedented times! If
       you can keep your head when all about you
       are losing theirs…*

             *Rudyard Kipling - ‘If’




Copyright 2011. All rights reserved.
                                                     65
Disclosure


     The information offered in this presentation speaks to industry trends in general,
     and should not be construed as providing any particular recommendations or
     analysis for any specific company that is mentioned in this presentation. KPCB is
     a venture capital firm that owns significant equity positions in certain of the
     companies referenced in this presentation.




Copyright 2011. All rights reserved.
                                                                                          66

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internet-trends-2011

  • 1. INTERNET TRENDS – Web 2.0 Summit San Francisco, CA Mary Meeker (marym@kpcb.com) – October 18, 2011 Copyright 2011. All rights reserved. Copyright 2011. All rights reserved. www.kpcb.com/internettrends2011 1
  • 2. KPCB (Digital Venture + Digital Growth) 2011 Investments Copyright 2011. All rights reserved. 2
  • 3. Internet Trends 1. Globality – We Aren’t In Kansas Anymore… 2. Mobile – Early Innings Growth, Still… 3. User Interface – Text  Graphical  Touch / Sound / Move 4. Commerce – Fast / Easy / Fun / Savings = More Important Than Ever… 5. Advertising – Lookin’ Good… 6. Content Creation – Changed Forever 7. Technology / Mobile Leadership – Americans Should Be Proud 8. Mega-Trend of 21st Century = Empowerment of People via Connected Mobile Devices 9. Authentic Identity – The Good / Bad / Ugly. But Mostly Good? 10. Economy – Lots of Uncertainty 11. USA Inc. – Pay Attention! 12. Closing Thoughts Copyright 2011. All rights reserved. 3
  • 4. GLOBALITY – WE AREN’T IN KANSAS ANYMORE… Copyright 2011. All rights reserved.
  • 5. Apple, Google, Amazon.com & Facebook Remain Mega-Leaders; Chinese (& Russian) Companies Continue to Step Up Rank Y/Y Trend Company Region 2011 Market Value ($B) 2010 Revenue ($MM) 1 Apple USA $373 $76,283 2 Google USA 177 29,321 3 Amazon.com USA 108 34,204 4 ↑ Facebook USA 77* -- 5 ↑ Baidu China 46 1,216 6 eBay USA 42 9,156 7 Tencent China 41 2,967 8 Priceline.com USA 24 3,085 9 Yahoo! USA 20 6,325 10 Yahoo! Japan Japan 20 2,995 11 Salesforce.com USA 17 1,657 12 Rakuten Japan 15 4,286 13 NHN Korea 10 1,062 14 Liberty Interactive USA 9 8,932 15 ↑ Yandex Russia 8 447 16 Expedia USA 8 3,348 17 LinkedIn USA 8 243 18 Netflix USA 6 2,162 19 ↑ Mail.ru Russia 6 324 20 Netease China 6 836 21 Alibaba.com China 5 854 22 Verisign USA 5 681 23 Ctrip China 5 424 24 Sina.com China 5 403 25 Rackspace USA 5 781 Total $969 $191,992 Note: 2011 data as of 10/12/2011; *Facebook market value per most recent trades (week of Sep 26) on SharesPost. Source: Google Finance. Copyright 2011. All rights reserved. 5
  • 6. 81% of Users of Top Global Internet Properties = Outside USA Top 10 Internet Properties by Global Monthly Unique Visitors, 8/11 Google Microsoft Facebook Yahoo! Wikipedia Amazon.com USA Users Apple International Users Tencent VEVO Baidu 0 200 400 600 800 1,000 1,200 Monthly Unique Visitors (MM) Source: comScore Global, 8/11. Copyright 2011. All rights reserved. 6
  • 7. In 3 Years, China Added More Internet Users than Exist in USA… China / India / Nigeria / Russia / Iran = Biggest Adders 07-10 Internet User Additions 2010 Internet Population Rank Country (MMs) Users (MMs) Y/Y Growth Penetration 1 China 246 459 20% 34% 2 India 42 88 43 8 3 Nigeria 35 45 2 28 4 Russia 25 60 0 42 5 Iran 24 37 31 49 6 USA 22 244 2 79 7 Brazil 21 79 4 41 8 Philippines 18 23 292 25 9 Mexico 13 35 24 31 10 Pakistan 12 29 43 17 Top 10 457 1,099 16% 29% World 693 2,054 13% 30% Note: *Russia data as of 6/10; all other data as of 12/10. Source: United Nations / International Telecommunications Union. Copyright 2011. All rights reserved. 7
  • 8. Social Networkers (October, 2011) Exceed Internet Users (December, 2006) & 70% of Them (800MM) Use Facebook Hours Spent on Social Networking Sites per User per Month (8/11) Israel 11.1 Argentina 10.8 Turkey 10.3 Chile 10.2 Russia 9.7 Philippines 9.0 Venezuela 8.9 Colombia 8.5 Canada 7.4 Mexico 7.4 Peru 7.2 USA 6.8 0 2 4 6 8 10 12 Source: Social Networking users & time spent data per comScore, Internet users data per ITU, Facebook data per Facebook. Copyright 2011. All rights reserved. 8
  • 9. If it Plays in Peoria…Take it to Broadway! Especially in Mobile / Social World… ‘Test Market’ / Company Origin* Social Service Users Sound Recognition / UK 100MM+ Music Discovery Music Discovery & Sweden 15MM+ Streaming Israel Driving Navigation 7MM+ Germany / UK Sound Discovery & 7MM+ / Sweden Sharing Note: *Shazam first gained traction in UK, Spotify first gained traction in Sweden, Soundcloud first gained traction in Germany / UK / Sweden, Waze first achieved critical mass in Israel. All of these services have successfully expanded to other regions / countries, including USA. Copyright 2011. All rights reserved. 9
  • 10. MOBILE – EARLY INNINGS GROWTH, STILL Copyright 2011. All rights reserved.
  • 11. Breakthrough Communications Technologies / Services Can Breakout Even During Breakdown Times Technology Adoption (Measured by Population Penetration) in USA Radio vs. TV vs. Internet vs. Mobile Internet, 1920 – 2011E 100% 80% Population Penetration (%) AM Radio 60% TV Internet 40% Mobile Internet (Smartphone) Recessions 20% 0% 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Source: Radio penetration data per Broadcasting & Cable Yearbook 1996, Internet penetration data per World Bank / ITU, Mobile Internet (smartphone) data per Morgan Stanley Research; 3G data per Informa. Copyright 2011. All rights reserved. 11
  • 12. 35% Y/Y Global Mobile 3G Subscriber Growth to 936MM (17% of all Mobile Subscribers), Q2:11 Q2:11 3G 3G 3G Sub Q2:11 3G 3G 3G Sub Subs Penetra- Y/Y Subs Penetra- Y/Y Rank Country (MM) tion Growth Rank Country (MM) tion Growth 1 USA 179 56% 26% 16 Canada 15 58% 47% 2 Japan 117 97 10 17 Taiwan 14 48 28 3 Korea 43 82 10 18 Portugal 12 73 21 4 China 40 4 172 19 Turkey 11 17 104 5 Italy 40 47 22 20 Malaysia 10 28 22 6 UK 39 51 35 21 South Africa 9 16 34 7 Germany 33 32 24 22 Sweden 9 69 35 8 Spain 30 53 23 23 Mexico 9 9 85 9 Brazil 28 13 79 24 Philippines 9 10 87 10 Indonesia 27 12 40 25 Saudi Arabia 9 18 18 11 Poland 26 54 24 26 Netherlands 8 40 41 12 France 25 39 29 27 Austria 7 54 29 13 India 23 3 1,050 28 Vietnam 6 6 103 14 Australia 20 71 22 29 Israel 6 58 16 15 Russia 15 7 59 30 Argentina 5 10 102 Global 3G Stats: Subscribers = 936MM Penetration = 17% Growth = 35% Note: *3G includes CDMA 1x EV-DO and Rev. A/B, WCDMA, HSPA; One user may have multiple mobile subscriptions and may be counted as multiple subscriber. Source: Informa WCIS+. Copyright 2011. All rights reserved. 12
  • 13. Smartphones Surpassed Feature Phone Shipments in W. Europe (Q2:10) / USA (Q1:11); ROW to Follow Smartphone Shipments as % of Total Mobile Phone Shipments by Region, Q1:08 – Q2:11 100% North America Smartphone > Feature % of Quarterly Mobile Phone Shipments 80% Western Europe Phone Shipments Rest of World (ex. Japan) 60% 50% 40% 20% 0% Q1:08 Q3:08 Q1:09 Q3:09 Q1:10 Q3:10 Q1:11 Source: Data per Ehud Gelblum, Morgan Stanley Research. Note: In Japan, smartphone exceeded feature phone in Q4:08. Copyright 2011. All rights reserved. 13
  • 14. Despite Tremendous Ramp So Far, Smartphone Usage Still Has Huge Upside Global Smartphone vs. Mobile Phone Subscribers, 2011E 6,000 5.6B Mobile Phone Subscribers 5,000 4,000 Global Users (MM) 3,000 2,000 835MM Smartphone 1,000 Subscribers 0 Smartphone Users Mobile Phone Users Source: Smartphone subscriber estimates per Morgan Stanley Research; Mobile phone subscribers per Informa (as of Q2:11). Note: While there are 936MM global 3G subscribers as of Q2:11, not all of them were smartphone users. One user may have multiple mobile subscriptions, therefore actual user #s may be lower than subscriber #s. Copyright 2011. All rights reserved. 14
  • 15. iPods Changed Media Industry…iPhones Ramped Even Faster…iPad Growth Leaves “Siblings” in Dust First 6 Quarters Cumulative Unit Shipments, iPod vs. iPhone vs. iPad 15,000 700 45,000 iPad iPad iPhone iPhone iPhone iPod iPod iPod 40,000 13,000 600 35,000 Global Unit Shipments (000) 11,000 Global Unit Shipments (000) 500 30,000 9,000 400 25,000 7,000 20,000 300 5,000 15,000 200 10,000 3,000 100 5,000 1,000 0 0 -1,000 00 0 1 1 1 2 22 3 33 44 5 5 5 6 6 Quarters After Launch Quarters After Launch After Launch Source: Apple, as of Q2:11 (6 quarters post iPad launch). Copyright 2011. All rights reserved. 15
  • 16. Android ‘Phone’ Adoption Has Ramped Even Faster than iPhone First 11 Quarters Cumulative Global Android & iPhone Unit Shipments 180 Android Global Units Shipped Android iPhone iPhone 160 Global Cumulative Unit Shipments (MM) 140 120 100 80 60 40 20 0 0 1 2 3 4 5 6 7 8 9 10 11 Quarters After Launch Source: Gartner, Morgan Stanley Research, as of Q2:11. Copyright 2011. All rights reserved. 16
  • 17. Two Horse Races in Smartphones & Tablets, So Far Smartphones Tablets Apple Google Apple Amazon iPhone Android iPad Kindle Cumulative Shipments 129MM 152MM 29MM 16MMa as of Q2:10 ASP** $606 <$600 $650 <$200 Launch Date Q2:07 Q4:08 Q2:10 Q4:07 Note: a) Kindle shipment estimates per Scott Devitt, Morgan Stanley Research. ** ASP is average selling price, data are estimates for Android and Kindle. Source: Apple, Morgan Stanley Research. Copyright 2011. All rights reserved. 17
  • 18. Mobile Usage – Big & Ramping Fast % of Traffic From Mobile Devices, Pandora, Twitter & Facebook, 2008 – 2011 75% 60% Pandora % of Traffic from Mobile 55% 50% Twitter 33% Facebook 25% 5% 1% % 2008 2009 2010 2011 Source: Pandora S1, Twitter, Facebook. Copyright 2011. All rights reserved. 18
  • 19. Mobile Search – Growing Rapidly Google US Mobile Queries (Indexed), 2007 – 2011 120 100 4x Growth in past years 80 60 40 20 0 2007 2008 2009 2010 2011 Source: Google. 19 Copyright 2011. All rights reserved. 19
  • 20. Mobile Advertising – Ramping Quickly in all Geographies InMobi – # of Fortune 1000 Companies Launching Mobile Ad Campaigns & Quarterly Smartphone Ad Impressions, 10/09-9/11 Africa 250 25 250 South America # of Global Fortune 1000 Advertisers Middle East 203 Quarterly Smartphone Mobile Ad 20 200 Europe North America Impressions (B) 138 15 Asia 150 # of Global Fortune 1000 Advertisers 10 100 62 5 37 50 25 3 4 8 0 0 10/09 1/10 4/10 7/10 10/10 1/11 4/11 7/11 9/11 Source: InMobi. Copyright 2011. All rights reserved. 20
  • 21. Global Mobile App + Advertising Revenue = $12B in 2011E Revenue, Up 17x in 3 Years Global Mobile App + Advertising Revenue, 2008 vs. 2011E $15 Mobile Apps Mobile Ad + Apps Spending ($B) $12B Mobile Advertising $10 $5 $0.7B $0 2008 2009 2010 2011E Source: Gartner. CAGR is compound annual growth rate. Note: Apple has paid >$3B $’s to developers as of 9/11, implying gross app market revenue of $4B in 3 years; Google indicated during CQ3 earnings call that it expects $2.5B mobile ad revenue in 2011E Copyright 2011. All rights reserved. 21
  • 22. ‘Hierarchy of Needs’ Revisited? 1943 – Maslow 2011 – ? ;) Self- Internet / Actualization Mobile Phone Esteem Shelter Belonging Safety Food / Water Physiological Note: Created for discussion purposes and a bit of humor. Not intended to discredit Maslow's hierarchy, which we believe to be accurate. Originally presented in Morgan Stanley’s “The Age of Engagement” presentation, dated April 2005 Copyright 2011. All rights reserved. 22
  • 23. USER INTERFACE – TEXT  GRAPHICAL  TOUCH / SOUND / MOVE Copyright 2011. All rights reserved.
  • 24. What Has One Insanely Great Designer / Entertainer / Leader / Businessman Wrought? Before Steve Jobs… computers were utilitarian tools for computation. After Steve… computers became beautiful objects we could use in thousands of ways to aim to make life better. Steve’s design aesthetic was second to none. Copyright 2011. All rights reserved. 24
  • 25. Natural User Interface Revolution – Now in Touch / Sound / Move Era 1980s 1990s 2000s Text Graphical Touch / Sound / Move Copyright 2011. All rights reserved. 25
  • 26. The Next Big Thing(s)? Those Two Big Things on the Sides of Your Head… High Quality / Compact Connected Wireless Speakers Car Audio Noise Cancellation / Better Audio Quality Sound Recognition + Headsets Understanding 4B+ Bluetooth Sound Creation + Enabled Devices Sharing ONLINE AUDIO Source: Bluetooth enabled devices shipment per iSuppli and Instat, assumes a 2.5 year replacement cycle. Copyright 2011. All rights reserved. 26
  • 27. Perhaps its Time to Hear About the Ear Sound is going to be bigger than video… ‘Record’ is the new QWERTY. - Alexander Ljung, Founder & CEO, SoundCloud Copyright 2011. All rights reserved. 27
  • 28. COMMERCE – FAST / EASY / FUN / SAVINGS = MORE IMPORTANT THAN EVER… Copyright 2011. All rights reserved.
  • 29. eCommerce = Four Quarters of Accelerating Growth USA Retail Sales & eCommerce Y/Y Growth Rates, Q1:03 –Q2:11 30% USA Retail Sales & eCommerce Y/Y Growth Rates 20% 10% 0% Q1:03 Q1:04 Q1:05 Q1:06 Q1:07 Q1:08 Q1:09 Q1:10 Q1:11 U.S. Retail E-Commerce Sales -10% U.S. Total Retail Sales Note: eCommerce sales excludes travel, auto and auctions. Source: U.S. Census Bureau, comScore. Copyright 2011. All rights reserved. 29
  • 30. eCommerce Continues to Gain Share from Offline… at 8% Share of USA Commerce with Lots of Headroom USA eCommerce % Share(1) of Total Retail Sales, Q1:04 – Q4:13E 12% eCommerce Penetration eCommerce as % of Total Retail Sales 10% 8% in Q2:11 8% 6% 4% 2% 0% Q1:04 Q1:05 Q1:06 Q1:07 Q1:08 Q1:09 Q1:10 Q1:11 Q1:12 eCommerce Penetration Linear Trendline (y=0.1443x + 4.0428, R^2=0.8512) Note: (1) : e-Commerce share is shown as a percent of DOC’s Total Retail Sales excluding Food Service & Drinking, Food & Bev. Stores, Motor Vehicles & Parts, Gasoline Stations and Health & Personal Care Stores Source: US Dept. of Commerce, comScore. Copyright 2011. All rights reserved. 30
  • 31. Mobile Commerce = We Have Lift Off! Mobile Sales or Payment Volume – eBay / PayPal / Amazon.com / Target / Square, 2009-2011E $5 Gross Mobile Sales or Payment $4 eBay Volume ($B) PayPal $3 Target $2 Amazon.com $1 Square $0 2009 2010 2011 Note: Amazon.com disclosed 2010 mobile gross sale, 2009 / 2011 data are KPCB estimates. Source: eBay, Amazon.com, Target, Square. Copyright 2011. All rights reserved. 31
  • 32. Old Magazine Paradigm Finally Comes Alive = It’s a Bird, It’s a Plane? It’s Click & Buy (on Mobile Device)… Copyright 2011. All rights reserved. 32
  • 33. In a Mobile-ized / Transparent World = Pricing Matters A LOT! Reasons for In-Store Purchase Abandonment Among USA Smartphone Users, 7/11 Found it online for a better price 52% Found it at another store for a better price 51% Saw a negative review about the item 34% I bought a similar item instead 21% It was not available in-store 17% No longer needed the item 7% None of the above 1% % of Respondents Source: comScore US smartphone user survey, 7/11. Note: the same survey also indicated that 50% of USA smartphone users have used their smartphones to find a nearby store. So while mobile Internet is helping drive foot traffic to local stores, it is also helping make pricing info more transparent for the consumers. Copyright 2011. All rights reserved. 33
  • 34. Local Commerce = Rejuvenated by Mobile Coupons + Demand Payments + Inventory Reviews + Business Check Ins + Driving Generation Management Information / Leads Foot Traffic 20MM+ Users* 2MM+ Users* 40MM+ Users* 15MM+ Users* LOCAL Note: *Users are comScore USA’s aggregate monthly unique visitor data for companies listed COMMERCE under each category. Total USA local advertising for 2011E is $68B, per Morgan Stanley Research. Copyright 2011. All rights reserved. 34
  • 35. ADVERTISING – LOOKIN’ GOOD… Copyright 2011. All rights reserved.
  • 36. Media Time Spent vs. Ad Spend Still Out of Whack Internet / Mobile (upside…) vs. Print (downside…) % of Time Spent in Media vs. % of Advertising Spending, USA 2010 Time Spent Ad Spend 50% % of Total Media Consumption Time or Advertising Spending 40% 43% 43% 30% 27% 25% ~$20B 20% Opportunity in USA 19% 16% 10% 11% 8% 8% 0.5% 0% Print Radio TV Internet Mobile Note: Print includes newspaper and magazine. $20B opportunity calculated assuming Internet and Mobile ad spend share equal their respective time spent share. Source: eMarketer, 3/11. Copyright 2011. All rights reserved. 36
  • 37. Advertising $s Follow Eyeballs – Ad Revenue per User = $49 in 2011E vs. $0 in 1994E 1995E 2011E Global Internet Ad Revenue $55MM $73B Ad Revenue per User $9 $49 Global Internet Users 6MM 1.5B Source: Global online ad revenue per Jupiter Communications (1995), ZenithOptimedia (2011). Internet users per Morgan Stanley estimate (1995) and comScore (2011). We note that comScore reports a lower global Internet user # than International Telecommunications Union. Copyright 2011. All rights reserved. 37
  • 38. Google Paid Clicks & Cost-Per-Click Continue to Grow Rapidly; Mobile Helping Q2:10 Q3:10 Q4:10 Q1:11 Q2:11 Q3:11 Gross Advertising Revenue ($MM) $6,562 $7,032 $8,167 $8,306 $8,716 $9,335 Y/Y Growth 23% 22% 26% 28% 33% 33% Aggregate Paid Clicks (MM) 12,651 13,157 14,669 15,245 15,004 16,876 Y/Y Growth 15% 16% 18% 17% 18% 28% Cost per Click (CPC - $) $0.52 $0.53 $0.56 $0.54 $0.58 $0.55 Y/Y Growth 7% 6% 7% 10% 12% 4% Source: Google, Morgan Stanley Research. Copyright 2011. All rights reserved. 38
  • 39. Time Spent on Social Networking Sites Surpassed Portals, June 2011, USA USA Monthly Time Spent, Portals vs. Social Networking Sites, 6/08 – 7/11 120 Portals Social Networking 100 Monthly Time Spent (Bs of Minutes) June 2011 Time Spent Social Networking > Portals 80 60 40 20 0 6/08 9/08 12/08 3/09 6/09 9/09 12/09 3/10 6/10 9/10 12/10 3/11 6/11 Source: comScore Media Metrix USA panel-only data. Copyright 2011. All rights reserved. 39
  • 40. Social Networking CPMs = Have Begun to Punch Closer to Their Weight Share of Total USA Online Display Ad Units (as of 8/11) + CPM (as of Q3:11), by Top Publisher Categories Business / Finance 2% $9.90 Directories 2% Online Gaming 3% $2.70 Sports 5% $6.00 Email 10% $0.89 News / Information 11% $5.30 Entertainment 14% $4.25 Portals 21% $2.45 Social Networking 30% $3.80 0% 10% 20% 30% 40% $0 $5 $10 $15 Share of Total US Online Display Ad CPM ($) Units Source: comScore, Display ad unit share as of 8/11, CPM data per Vivaki, as of Q3:11. Copyright 2011. All rights reserved. 40
  • 41. CONTENT CREATION – CHANGED FOREVER… Copyright 2011. All rights reserved.
  • 42. Content Commoditization – Value Shift from Creators to Aggregators • Newspapers, once the bastions of USA Total Newspaper Print + Online Revenue content creation / curation, are vs. Google USA Revenue, Q1:06 – Q2:11 experiencing 5th straight year of $16 declining revenue. Quarterly Revenue ($B) • With undifferentiated products, $12 price is competed down to marginal cost. And the marginal $8 cost for digital content is $0. • How does one create $4 differentiated content in an economically viable manner, when few want to pay for it? – For $0 insights, check out Joanne Q1:06 Q4:06 Q3:07 Q2:08 Q1:09 Q4:09 Q3:10 Q2:11 Bradford’s Web 2.0 presentation. USA Total Newspaper Print + Online Revenue Source: Demand Media. Google USA Revenue Note that Search = ~50% of USA Online Ad Revenue ($15B based on Q2 run rate) in 2011 vs. <5% in 2001; Display = 23% of Online Ad Revenue ($7B) in 2011 vs. 62% in 2001 Copyright 2011. All rights reserved. 42
  • 43. TECHNOLOGY / MOBILE LEADERSHIP – AMERICANS SHOULD BE PROUD Copyright 2011. All rights reserved.
  • 44. We are Living Through a Once Every 10-20 Years Technology Evolution – The Mobile Computing Cycle… • Smartphones + tablets outshipped PCs (notebooks + desktops) in Q4:10. • Windows operating system fell to installation on <50% of Internet-enabled devices in Q2:10. Source: Morgan Stanley Research, Gartner. Copyright 2011. All rights reserved. 44
  • 45. ‘Made in USA’ Smartphone Operating Systems = 64% Share from 5% Five Years Ago Smartphone Operating System Market Share, 2005 vs. 2011E 100% Market Share of Smartphone OS 80% Other OS 60% iOS Android Windows Mobile 40% BlackBerry OS Linux Nokia Symbian 20% 0% 2005 2011E Source: Morgan Stanley Research, Gartner. Copyright 2011. All rights reserved. 45
  • 46. Still Early-Innings Era of Smart-Phones to Smarter-Phones • Pace of innovation in Silicon Valley may be unprecedented. • Intensity / focus / leadership of USA-based companies (Apple / Google / Amazon.com / Facebook) may be unprecedented. • Combination of technology improvements and elegant design may be unprecedented. Copyright 2011. All rights reserved. 46
  • 47. MEGA-TREND OF 21ST CENTURY = EMPOWERMENT OF PEOPLE VIA CONNECTED MOBILE DEVICES Copyright 2011. All rights reserved.
  • 48. Global Information Flow - Real-Time + Fast + Broad 16 Minutes Before / After Japan Earthquake on 3/11/11 Snapshots of @replies From & To Twitter Users in Japan 2:30pm Japan Time 2:46pm Japan Time Before Earthquake / Tsunami After Earthquake / Tsunami In 140-character bites, the story unfolded: the shock and terror; the sense of human frailty mixed with lifesaving information; the messages of those seeking comfort and those seeing some kind of divine retribution, all mixing at hyper-speed. – LATimes, 3/11/11 Note: Yellow lines indicate tweets coming out of Japan; Pink lines indicate tweets coming into Japan. Source: Twitter. Copyright 2011. All rights reserved. 48
  • 49. Global Information Flow – Remote Locations Getting Connected • 85% of world’s population covered by commercial wireless signals, providing greater reach vs. electrical grid (80%).* • 200MM+ farmers in India receiving government payments / subsidies via mobile devices.** Source: *GSM Association, United Nations. **There are 90MM Kisan credit card users and 118MM job card users, both of which do not require bank accounts but utilize mobile phones as identity verification / payment confirmation, per Ministry of Rural Development, Government of India. Copyright 2011. All rights reserved. 49
  • 50. Global Economies / People = Increasingly Connected / Co-Dependent World Trade as % of World GDP, 1960 - 2010 30% 25% World Trade as % of GDP 20% 2010 World Trade = 15% 24% of World GDP 10% 5% 0% 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Note: World trade calculated as the sum of all countries’ imports (or exports). The biggest trading partners of USA includes EU nations, Canada, China, Mexico, Japan and South Korea. Source: Trade data per World Trade Organization (WTO), GDP data per United Nations (UN). Copyright 2011. All rights reserved. 50
  • 51. AUTHENTIC IDENTITY – THE GOOD / BAD / UGLY. BUT MOSTLY GOOD? Copyright 2011. All rights reserved.
  • 52. Authentic Identity – The Good / Bad / Ugly. But Mostly Good? With 800MM global active Facebook users…50% that log on in any given day…with an average of 130 friends…and an average of 80 community pages / groups / events…and more than 250MM photos uploaded per day and 350MM active mobile users…* And 835MM smartphone users (likely ramping to 1.4B within two years)… It’s hard to hide. The ‘truth’ is often just a photo/click–send away. ‘Clean, well-lighted place to do business?’ ‘People are basically good?’ In a world with tremendous uncertainty – owing to the rapid ramp in always-on, connected citizens of the world, perhaps, the world is on the cusp of being safer than ever? There are lots of sacrifices. This is new terrain. Only time will tell how all this plays out… Source: Facebook, 10/11. Copyright 2011. All rights reserved. 52
  • 53. ECONOMY – LOTS OF UNCERTAINTY Copyright 2011. All rights reserved.
  • 54. Stock Market Volatility = 2x Historical Average, Illustrating Uncertainty 100% Chicago Board Options Exchange (CBOE) Volatility Index (VIX), 1990 – 2011 YTD 80% VIX Index Value (%) 60% Current (10/11) Level = 40% 40% 1990-2011 Average = 20% 20% 0% 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Note: Data as of 10/11. VIX is a measure of implied volatility of S&P 500 index options. Source: CBOE, Morgan Stanley Research. Copyright 2011. All rights reserved. 54
  • 55. Consumer Confidence = Well Below Historical Average, Illustrating Uncertainty The Conference Board Consumer Confidence Index, 1978 – 2011 YTD 160 140 30 Year Average 10/11 Consumer Confidence Index (1985=100) 120 CCI = 92.7 CCI = 45.4 100 80 60 40 2/09 Trough CCI = 25.3 20 0 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Note: Index started in 1967 / benchmarked to 1985=100. The Index is calculated each month on the basis of a household survey of consumers' opinions on current conditions and future expectations of the economy. Source: The Conference Board, 10/11. Copyright 2011. All rights reserved. 55
  • 56. USA Corporate Capital Spending Budgets = Being Revised Down, Illustrating Uncertainty Survey Results of Corporate Capital Spending Budget Revisions, 1/08 – 7/11 Think about your company’s overall capital budget for the current quarter, have there been any adjustments made over the past 90 days? 50% Revised Lower Revised Higher 23% of Respondents 40% Have Revised Capital Budgets % of Respondents Lower in CQ3:11 30% 20% 10% 0% 1/08 4/08 7/08 10/08 1/09 4/09 7/09 10/09 1/10 4/10 7/10 10/10 1/11 4/11 7/11 Source: ChangeWave Research. Copyright 2011. All rights reserved. 56
  • 57. GDP Growth Forecasts = Being Revised Down, Illustrating Uncertainty Difference from 6/11 IMF Forecasts, 9/11 IMF Forecasts Country / Region 2009 2010 2011E 2012E 2011E 2012E USA -3.5% 3.0% 1.5% 1.8% -1.0% -0.9% Euro Zone -4.3 1.8 1.6 1.1 -0.4 -0.6 UK -4.9 1.4 1.1 1.6 -0.4 -0.7 Japan -6.3 4.0 -0.5 2.3 0.2 -0.6 China 9.2 10.3 9.5 9.0 -0.1 -0.5 India 6.8 10.1 7.8 7.5 -0.4 -0.3 Russia -7.8 4.0 4.3 4.1 -0.5 -0.4 Brazil -0.6 7.5 3.8 3.6 -0.3 0.0 Developed Markets -3.7 3.1 1.6 1.9 -0.6 -0.7 Emerging Markets 2.8 7.3 6.4 6.1 -0.2 -0.3 World -0.7 5.1 4.0 4.0 -0.3 -0.5 Note: Data is annual GDP percent change. Source: IMF World Economic Outlook, 9/11. Copyright 2011. All rights reserved. 57
  • 58. Stock Markets = Often Leading Indicators of Economic Activity Russia -33% from 52-Week High; Oil (-24%) / China (-23%) / Europe (-23%) / S&P500 (-12%) / Nasdaq (-9%) 180% Stock / Commodity Markets Performance (% Change From 1/10), 1/10 – 10/11 160% 140% Index Value (1/1/2010 = 100%) 120% 100% 80% New 2-Week Trendline? 60% 1/10 3/10 5/10 7/10 9/10 11/10 1/11 3/11 5/11 7/11 9/11 S&P500 NASDAQ China Shanghai Composite MSCI Europe Russia RTS Oil Gold Note: All values are indexed to 1 (100%) on Jan 1, 2010. Data as of 10/17/11. Source: Morgan Stanley Research, Yahoo! Finance. Copyright 2011. All rights reserved. 58
  • 59. USA INC. – PAY ATTENTION! Copyright 2011. All rights reserved.
  • 60. America’s Revenue & Expenses as % of GDP Over 110 Years; Current State = Revenue Problem? Spending Problem? USA Inc. Revenue & Expenses as % of GDP, 1901 – 2011E 50% $16 Revenue as % of GDP (Left Axis) $14 Biggest Peace Time Gap Real GDP (in Trillions of 2005 Dollars) 40% Expenses as % of GDP Between Revenue & Revenue & Expenses as % of GDP (Left Axis) Expenses in USA History $12 Real GDP (Right Axis) $10 30% $8 20% $6 $4 10% $2 0% $0 1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 2011E Source: 1910 – 1930 per Census Bureau, 1940-2010 per White House OMB. Real GDP adjusted for inflation, in 2005 dollars. Copyright 2011. All rights reserved. 60
  • 61. America’s Income Statement – -60% Net Margin in F2010 USA Inc. Profit & Loss Statement, F1995 / F2000 / F2005 / F2010 F1995 … F2000 … F2005 … F2010 Comments Revenue ($B) $1,352 $2,026 $2,154 $2,163 On average, revenue grew 3% Y/Y Y/Y Growth -- 11% 15% 3% over past 15 years Individual Income Taxes* $590 $1,005 $927 $899 Largest driver of revenue % of Revenue 44% 50% 43% 42% Social Insurance Taxes $484 $653 $794 $865 Payroll tax on Social Security + % of Revenue 36% 32% 37% 40% Medicare Corporate Income Taxes* $157 $207 $278 $191 Fluctuates significantly with % of Revenue 12% 10% 13% 9% economic conditions Other $120 $161 $154 $208 Includes estate & gift taxes / duties & % of Revenue 9% 8% 7% 10% fees; relatively stable Expense ($B) $1,516 $1,789 $2,472 $3,456 On average, expense grew 6% Y/Y Y/Y Growth -- 5% 8% -2% over past 15 years Entitlement / Mandatory $788 $937 $1,295 $1,984 Significant increase owing to aging % of Expense 52% 52% 52% 57% population + rising healthcare cost Non-Defense Discretionary $223 $335 $497 $431 Includes education / law enforcement % of Expense 15% 19% 20% 12% / transportation… "One-Time" Items -- -- -- $152 Includes discretionary spending on % of Expense -- -- -- 4% TARP, GSEs, and economic stimulus Defense $272 $294 $495 $694 % of Expense 18% 16% 20% 20% Significant increase owing to on- going War on Terror Net Interest on Public Debt $232 $223 $184 $196 Decreased owing to historic low % of Expense 15% 12% 7% 6% interest rates Surplus / Deficit ($B) -$164 $237 -$318 -$1,293 USA Inc. median net margin between Net Margin (%) -12% 12% -15% -60% 1995 & 2010 = -8% Note: USA federal fiscal year ends in September; *individual & corporate income taxes include capital gains taxes. Non-defense discretionary includes federal spending on education, infrastructure, law enforcement, judiciary functions… Source: White House Office of Management and Budget. Copyright 2011. All rights reserved. 61
  • 62. America’s Debt Level Relative to Other Countries – You Do the Math… 2010 Gross 2010 Gross Government Debt Government Debt Rank Country ($MM) % of GDP Rank Country ($MM) % of GDP 1 Japan $12,009 220% 16 Hungary $105 80% 2 Jamaica 19 143 17 Israel 168 77 3 Greece 436 143 18 UK 1,699 76 4 Lebanon 53 134 19 Egypt 161 74 5 Iraq 97 120 20 Austria 272 72 6 Italy 2,445 119 21 Sudan 47 72 7 Belgium 452 97 22 Brazil 1,397 67 8 Singapore 214 96 23 Jordan 18 67 9 Ireland 196 95 24 Côte d'Ivoire 15 67 10 USA 13,707 94 25 India 1,046 64 11 Portugal 213 93 26 Netherlands 497 64 12 Iceland 12 92 27 Cyprus 14 61 13 Germany 2,759 84 28 Spain 848 60 14 Canada 1,324 84 29 Uruguay 23 57 15 France 2,110 82 30 Pakistan 100 57 Note: Ranking excludes countries with gross government debt less than $10MM in 2010. Gross government debt includes intragovernment obligations (such as Treasuries held by the Social Security Trust Fund in US’ case). Source: The International Monetary Fund (IMF). Copyright 2011. All rights reserved. 62
  • 63. USA Inc. @ kpcb.com / youtube.com / amazon.com 90K+ Total Views 14K+ YouTube Views 7K+ Facebook Likes 2K+ Retweets Copyright 2011. All rights reserved. 63
  • 64. CLOSING THOUGHTS Copyright 2011. All rights reserved.
  • 65. Economy – Often darkest before dawn. At least we know what the problems are. Now we need the resolve to fix them. Across-the-board sacrifice needed. Tech Industry – Wow! Unprecedented times! If you can keep your head when all about you are losing theirs…* *Rudyard Kipling - ‘If’ Copyright 2011. All rights reserved. 65
  • 66. Disclosure The information offered in this presentation speaks to industry trends in general, and should not be construed as providing any particular recommendations or analysis for any specific company that is mentioned in this presentation. KPCB is a venture capital firm that owns significant equity positions in certain of the companies referenced in this presentation. Copyright 2011. All rights reserved. 66