Morgan Stanley's Meeker: The Internet Has Just Begun to Make an Impact

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SAN FRANCISCO -- Only Morgan Stanley managing director Mary Meeker could rush through 50 slides in 25 minutes to make the point that the Internet's impact was just starting.


But her analysis of interactive marketing and e-commerce for attendees yesterday at ad:tech05 San Francisco included the belief that the Internet's potential and upward trajectory were self-evident. And she showed a glimpse of the chief online evangelist she once was.


"The Internet is the most underutilized advertising medium," Meeker said.


She lamented that the Internet accounted for only 3 percent of the total ad spend despite the channel's consumer consumption being vastly higher. A few exceptions like auction site eBay spent 62 percent online.


Perhaps that could change with easier-accessed content like videos online driving Internet use worldwide to more than 900 million consumers. Add to that the more than 1 billion cell phone users for the ideal combination of low prices and high CPMs.


Content ownership and rights create adoption governors, Meeker said. Content owners can make it up on volume.


But she was clear that innovation will drive interactive usage growth.


Chief among the factors are broadband, mobile media, user experience, search and personalization with more effective targeting. Other catalysts include user-generated content -- RSS, blogs, reviews, images, audio -- as well as music, payments, short- and long-form video, local application and accessibility on PCs, cell phones and other devices.


Meeker has observed patterns emerge over a decade that are critical to the Internet's success as a commercial proposition. In terms of company creation, she saw a boom followed by a bust and now a boom-let. On the wealth creation side, a boom-let led to a bust followed by a spectacular boom now under way.


Consider the top five global Internet market cap leaders: Google, Yahoo, eBay, Yahoo Japan and Amazon, which combined for a $2 billion market value in pre-2000 IPO. That soared to $178 billion in market value at the Nasdaq's peak in March 2000, only to fall to $32 billion at the trough on Oct. 9, 2002.


As of April 22, 2005, these five companies had a total market value of $197 billion. That new peak resulted from the Internet's ubiquity and widespread consumer acceptance.


Google had 5 billion global searches, up 62 percent year-over-year for February 2005. In the same month, the search engine attracted 355 million global unique visitors, up 36 percent year-over-year, according to comScore Networks.


Broadband subscribers numbered 135 million, up 51 percent year-over-year in the final quarter of 2004. Of them, 39 million were in North America and 63 million in Asia.


Yahoo had more than 40 million estimated My Yahoo users and 917 million music-led streaming video sessions, which is up 119 percent year-over-year for fourth-quarter 2004.


Digital music is a key driver of Internet use. Also, 300 million cumulative iTunes have been downloaded and 16 million Apple iPods have been sold. Digital music accounted for 15 percent of U.S. music units sold last year.


Catching on equally fast is blogging, or the maintenance by consumers of online journals for public consumption. An estimated 27 percent of Internet users indicated they read blogs.


Other media technologies gaining critical mass include the wireless Internet, voice-over Internet protocol for telephone calls, Shanda networking for online gaming and eBay's PayPal online payment method and other mobile variations.


Markets other than the United States lead in some trends where interactive may not necessarily mean PC-based Internet. China had 196 million messaging subscribers in fourth-quarter 2004, making it the No. 1 market worldwide. It has 334 million cell phones, 94 million Internet users and 42 million installed PCs. It has more online users under 30 than any other country. And its cell phone-to-Internet user ratio is 3.6 to 1.


The United States has far fewer cell phones -- 180 million -- and a lower cell phone-to-Internet user ratio of 0.9 to 1. It maintains the lead in the number of Internet users -- 201 million -- and the 204 million PCs installed.


The United States trails markets like Japan, Germany, Britain, Italy and South Korea, where the cell phone-to-Internet user ratios, respectively, are 1.4 to 1, 1.6 to 1, 1.8 to 1, 2.1 to 1 and 1.1 to 1.


The Netherlands has taken mobile use a step higher. Dutch Railways is rolling out SMS ticketing for trains.


In South Korea, broadband penetration exceeds 70 percent, making it the No. 1 market worldwide to access the Internet through such high speeds.


Broadband penetration undoubtedly will aid the cause of online advertising and e-commerce, Meeker said.


The U.S. residential subscriber penetration level of 25 percent to 30 percent from 2004 to 2005 is the sweet spot and the turning point in a new technology's acceptance. Morgan Stanley predicts half of residential subscriptions in 2011 will be broadband.


Meeker cited the examples of Google, Yahoo and eBay, particularly their attention to content, rich media such as videos, responsive ad tools, search and user experience.


Mickey Alam Khan covers Internet marketing campaigns and e-commerce, agency news as well as circulation for DM News and DMNews.com. Mickey is reporting from the ad:tech show in San Francisco. To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting www.dmnews.com/newsletters


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