INTERNET TRENDS

D10 CONFERENCE 5/30/2012 Mary Meeker

Outline
1) Basic Stats Internet Growth Remains Robust, Rapid Mobile Adoption Still in Early Stages 2) Re-Imagination of Nearly Everything 3) Economy Mixed Trends, With Negative Bias 4) USA, Inc. A Lot to be Excited About in Tech, A Lot to be Worried about in Other Areas 5) Bubble or Not?

BASIC STATS INTERNET GROWTH REMAINS ROBUST, RAPID MOBILE ADOPTION STILL IN EARLY STAGES

INTERNET USERS

2.3B Global Internet Users in 2011* 8% Growth*, Driven by Emerging Markets

2008-2011 Internet User Adds (MMs) 215 69 37 28 21 19 16 15 14 11 444 663

Rank 1 2 3 4 5 6 7 8 9 10

Country China India Indonesia Philippines Nigeria Mexico Russia USA Iran Turkey Top 10 World

2011 Internet Users (MMs) 513 121 55 34 45 42 61 245 37 36 1,189 2,250

Y/Y Growth 12% 38 22 44 --* 19 3 1 --* 26 12% 8%

Population Penetration 38% 10 23 35 28 37 43 79 48 49 32% 32%

Note: *Nigeria / Iran data as of 12/10; Other 8 countries data as of 12/11, 2.3B global Internet users and 8% Y/Y growth rate based on the latest available data (most as of 12/11, some as of 12/10). Source: United Nations / International Telecommunications Union, internetworldstats.com.

MOBILE USERS

1.1B Global Mobile 3G Subscribers, 37% Growth, Q4 @ Only 18% of Mobile Subscribers
Rank Country 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 USA Japan China Korea Italy UK Brazil India Germany Spain France Indonesia Poland Australia Russia CQ4:11 3G 3G Sub 3G Subs Penetr Y/Y (MM) ation Growth 208 122 57 45 44 42 41 39 38 33 30 29 28 22 17 64% 95 6 85 51 53 17 4 36 57 45 11 57 76 8 31% 9 115 10 25 25 99 841 23 21 35 27 17 21 45 Rank 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Country Canada Taiwan South Africa Turkey Portugal Vietnam Mexico Malaysia Sweden Philippines Saudi Arabia Netherlands Egypt Austria Nigeria CQ4:11 3G 3G Sub 3G Subs Penetr Y/Y (MM) ation Growth 16 14 13 13 13 12 11 10 10 10 10 9 8 7 6 62% 48 21 20 78 11 11 27 73 11 19 44 10 58 6 34% 17 49 62 19 358 55 7 25 45 17 34 60 24 51

Global 3G Stats:

Subscribers = 1,098MM

Penetration = 18%

Growth = 37%

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+.

MODERN MOBILE DEVICE EVOLUTION

iPods Changed Media IndustryiPhones Ramped Even FasteriPad Growth (3x iPhone) Leaves Siblings in Dust
First 8 Quarters Cumulative Unit Shipments, iPod vs. iPhone vs. iPad
1,400 70,000

20,000 1,200 60,000 Global Unit Shipments (000) Global Unit Shipments (000)

iPad iPad iPad

iPhone iPhone iPhone

iPod iPod iPod

1,000 50,000 15,000 800 40,000

10,000 600 30,000

400 20,000

5,000
200 10,000

000 000

1 11

2 22

3 4 5 33 44 55 Quarters After Launch Quarters After Launch Quarters After Launch

6 6

7 7

8 8

Source: Apple, as of CQ1:12 (8 quarters post iPad launch).

Android Phone Adoption Has Ramped Even Faster 4x iPhone

First 13 Quarters Cumulative Global Android & iPhone Unit Shipments
300
Android iPhone

Global Cumulative Unit Shipments (MM)

250

200

150

100

50

0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 Quarters After Launch

Source: Gartner, Morgan Stanley Research, as of Q4:11.

10

Despite Tremendous Ramp So Far, Smartphone User Adoption Has Huge Upside
Global Smartphone vs. Mobile Phone Subscriptions, Q4:11
7,000

6.1B Mobile Phone

Subscriptions

6,000

Global Subscriptions (MM)

5,000

4,000

3,000

2,000

953MM
Smartphone Subscriptions

1,000

0 Smartphone Mobile Phone

Source: Mobile phone subscriptions per Informa (as of Q4:11), Smartphone subscriptions estimate based on Morgan Stanley Researchs estimated smartphone user as % of total mobile user at the end of 2011 (16%). Note: While there are 1B global 3G subscribers as of Q4:11, not all of them were smartphone users. One user may have multiple mobile subscriptions, therefore actual user #s may be lower than subscriber #s.

11

Impressive 29% of USA Adults Own Tablet / eReader, Up from 2% Less Than Three Years Ago
% of USA Adults Who Own Tablet Computers or eReaders, 4/09 1/12
35% USA Adults that own tablet computers or eReaders (%) 30% 25% 20% 15% 10% 5% 0% 4/09 9/09 5/10 9/10 11/10 5/11 8/11 12/11 1/12

29%

2%

Source: Pew Research Center, 1/12.

12

MOBILE MONETIZATION TRANSITION

13

Good News = Global Mobile Traffic Growing Rapidly to 10% of Internet Traffic
Global Mobile Traffic as % of Total Internet Traffic, 12/08 5/12 15% 10% in 5/12 % of Internet Traffic

10% 4% in 12/10 5% 1% in 12/09

0% 12/08

4/09

8/09

12/09

4/10

8/10

12/10

4/11

8/11

12/11

4/12

Source: StatCounter Global Stats.

14

Good News = Mobile @ 8% of USA eCommerce & Helping Accelerate Growth

USA eCommerce Y/Y Growth vs. Mobile Commerce as % of Total eCommerce, Q1:10 Q1:12
20% USA eCommerce Y/Y Growth eCommerce Y/Y Growth Rate USA Mobile Commerce as % of eCommerce 15% 15% Mobile Commerce as % of Total eCommerce
15

20%

10%

10%

5%

5%

0% Q1:10 Q2:10 Q3:10 Q4:10 Q1:11 Q2:11 Q3:11 Q4:11 Q1:12

0%

Source: comScore.

Good News = Mobile Monetization Growing Rapidly (71% Apps, 29% Ads)
Global Mobile App + Advertising Revenue, 2008 vs. 2011E
$15 Mobile Ad + Apps Spending ($B) Mobile Apps Mobile Advertising $10

$12B

$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

16

Good News = Material Upside for Mobile Ad Spend vs. Mobile Usage
% of Time Spent in Media vs. % of Advertising Spending, USA 2011
Time Spent % of Total Media Consumption Time or Advertising Spending 50%
Internet Ad Mobile Ad = $1.6B*

Ad Spend

40% 30% 20% 10% 7% 0% Print Radio 25%

43% 42%

= $30B*

26% 22% 15% 11% 10% 1% TV Internet Mobile

~$20B+
Opportunity in USA

Note: *Internet (excl. mobile) advertising reached $30B in USA in 2011 per IAB, Mobile advertising reached $1.6B per IAB. Print includes newspaper and magazine. $20B opportunity calculated assuming Internet and Mobile ad spend share equal their respective time spent share. Source: Time spent and ad spend share data eMarketer, 12/11, Internet and mobile ad dollar spent amount per IAB.

17

Good / Bad News Rapidly Growing Mobile Internet Usage Surpassed More Highly Monetized Desktop Internet Usage in May, 2012, in India
India Internet Traffic by Type, Desktop vs. Mobile, 12/08 5/12
100%

80% % of Internet Traffic

60%

Desktop Internet Mobile Internet

40%

20%

0% 12/08

4/09

8/09

12/09

4/10

8/10

12/10

4/11

8/11

12/11

4/12

Source: StatCounter Global Stats.

18

Bad News = eCPMs 5x Lower on Mobile than Desktop

Effective CPM, Desktop Internet* vs. Mobile Internet**
Desktop Internet* Mobile Internet** $3.50 $0.75

Mobile eCPM by Category

Weather Education Lifestyle Utilities Health & Fitness Entertainment Medical Reference Games Navigation $$1.24 $1.17 $0.89 $0.68 $0.68 $0.68 $0.63 $0.55 $0.51 $0.49 $1 $2 $3 $4
19

Note: * Desktop Internet is a weighted average CPM calculation based on comScore Display ad share data and Vivaki CPM by category data as of Q3:11. **Mobile Internet is a simple average eCPM calculation based on Mobclix Exchange USA data as of 3/12.

Bad News = ARPU (Average Revenue per User) 1.7-5x Lower on Mobile than Desktop

Company

ARPU Definition
Ad Revenue per User (Trailing 12-Month) Revenue per Paying User (Annualized) Bookings per Daily Active User (Annualized)

Desktop ARPU

Mobile ARPU

Desktop ARPU / Mobile ARPU

Pandora

$6.62

$3.87

1.7x

Tencent

$58.95

$17.61

3.3x

Zynga

$25.00

$5.00*

5.0x

Note: *Zynga data are estimates. All data as of 5/12. Source: Pandora, Tencent, Zynga.

20

Google Mobile Growth Helping Boost Clicks but Reducing Cost per Click thus Constraining Revenue Growth

Q1:11 Gross Advertising Revenue ($MM) Y/Y Growth $8,306 28%

Q2:11 $8,716 33%

Q3:11 $9,335 33%

Q4:11 $10,174 25%

Q1:12 $10,225 23%

Aggregate Paid Clicks (MM) Y/Y Growth

15,245 17%

15,004 18%

16,876 28%

19,661 35%

21,116 39%

Cost per Click (CPC - $) Y/Y Growth Q/Q Growth

$0.54 10% (3%)

$0.58 12% 7%

$0.55 4% (5%)

$0.52 (8%) (8%)

$0.48 (12%) (6%)

Source: Google, Paid clicks and CPC data per Morgan Stanley Research estimates.

21

Facebook Mobile Growth Helping Drive Users but Containing ARPU thus Constraining Revenue Growth

Q1:11 Ad Revenue ($MM) Y/Y Growth $637 87%

Q2:11 $776 83%

Q3:11 $798 77%

Q4:11 $943 44%

Q1:12 $872 37%

Mobile Active Users (MAUs) (MM) Y/Y Growth % of Total MAUs

288 123% 42%

325 110% 44%

376 92% 47%

432 76% 51%

488 69% 54%

Annualized Ad ARPU ($) Y/Y Growth Q/Q Growth

$3.96 15% (13%)

$4.37 18% 11%

$4.15 19% (5%)

$4.59 1% 11%

$4.00 1% (13%)

Source: Facebook S-1.

22

Good News = Mobile ARPU Can Rise Rapidly, as Evinced by Japan Mobile Game Maker GREE
GREE Annualized Mobile ARPU (per Registered Member), Q3:09 Q1:12
$30 7/11 New Game Tanken Driland Introduced $20 $17 $12 $10 $6 $7 $7 $8 $8 $9 $10 $24 $23

Annualized ARPU ($)

$0 Q3:09 Q4:09 Q1:10 Q2:10 Q3:10 Q4:10 Q1:11 Q2:11 Q3:11 Q4:11 Q1:12
Note: GREE is a Japanese social / mobile gaming company. Source: GREE, Mia Nagasaka, Morgan Stanley Research.

23

Good News = Mobile ARPU Should Surpass Desktop ARPU, as Evinced by Japan Mobile Game Maker CyberAgent
CyberAgent Ameba Annualized ARPU* (Per Paying User), Desktop vs. Mobile, 6/09 12/11
$450 Average Revenue per Paying User ($) $400 $350 $300 $250 $200 $150 $100 $50 $0 6/09 9/09 8/09 Mobile ARPU = $60 12/09 3/10 6/10 9/10 12/10 3/11 6/11 9/11 12/11
24

Desktop ARPU Mobile ARPU

12/11 Mobile ARPU = $418

Note: CyberAgent is a Japanese social / mobile gaming company. *Users can purchase 1 AmeGold for 1 Japanese Yen. Users could also earn a small amount of AmeGold from completing certain in-game tasks. Source: CyberAgent.

Mobile Monetization Good News = Desktop Internet Proved Ad $ Follow Eyeballs, it Just Takes Time
1995E Global Internet Ad Revenue Ad Revenue per User Global Internet Users $55MM $9 6MM 2011E $73B $49 1.5B

Mobile Monetization has More Going for It than Early Desktop Monetization Had:
Very Rapid User Growth App + In-App Monetization (44% of apps are free, 56% of apps priced at $3.77 average) Rapid Growth of Mobile Commerce + Payment Systems Large Number of Innovative Developers Broad Base of Sophisticated Advertisers + Marketers Highly Engaged Consumers Assisted by Social + Curation Tools Rapid Acceptance of Two Device Platforms Smartphones + Tablets Essential Utility / Ultra Useful Apps Being Created Lessons from Developed Mobile Markets like Japan Using Japanese Market Pattern Recognition, Mobile Monetization Levels in USA Could Surpass Desktop Within 1-3 Years
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. App price data per 148apps / AppBrain.

25

PLATFORM FIRE HOSES

26

Facebook Open Graph Distribution Example of Onboarding 17MM New Users in 7 Days*!
Viddy Monthly Active Users (MAU) and Daily Active Users (DAU) on Facebook Platform, 3/31/12 5/29/12 40 Viddy Monthly & Daily Active Users on Facebook (MM)

30 4/24 Facebook Begins Highlighting Viddy in News Feed 20 Monthly Active Users Daily Active Users 10

0 3/31 4/7 4/14 4/21 4/28 5/5 5/12 5/19 5/26

27

Note:* Viddy added 17MM new monthly active users between 4/24 (when Facebook began highlighting Viddy in the newsfeed) and 5/1. Source: AppData.

Apple App Store Distribution iTunes App Store Driving 46MM+* Downloads per Day
First 15 Quarters Cumulative # of Downloads, iTunes Music vs. Apps
2,500 30,000
Apps Downloaded iTunes Songs Downloaded

Cumulative # of Songs / Apps Downloaded (MM)

25,000 2,000 20,000 1,500 15,000 1,000 10,000 500 5,000

0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Quarters After Launch

Note: * 46MM daily app downloads calculation based on days between Apple announced milestones (18B downloads as of 10/4/11 and 25B downloads as of 3/5/12). iTunes Music store launched in CQ2:03, App Store launched in CQ3:08. Source: KPCB estimates based on Apple data, as of CQ1:12.

28

RE-IMAGINATION OF NEARLY EVERYTHING* POWERED BY NEW DEVICES + CONNECTIVITY + UI + BEAUTY WHERE WE ARE NOW

*Note that this section includes more slides than were presented at D10 Conference, May 30, 2012.

29

First Generation of Re-Imagination - After 125 Years, Landlines Were Surpassed by Mobiles in 2002
Global Fixed Telephone Lines vs. Mobile Subscriptions, 1994 - 2009
5,000 Global Installed Base (MMs) Fixed Telephone Lines 4,000 Mobile Subscriptions 3,000

2009 4.7B Mobile Subscribers

2,000

2002: Inflection Point Mobiles > Landlines

1,000

2006 Landlines Peaked at 1.3B

0 1994 1996 1998 2000 2002 2004 2006 2008

Source: International Telecommunications Union.

30

First Generation of Re-Imagination After 244 Years, Encyclopedia Britannica is Going Out of Print in 2012
Encyclopedia Britannica Hard Copy Sales, 1990 2011
150 Annual Hard Copy Sales (000) 1990 Sales Peaked at 120K/year

1993 Microsoft Introduced Encarta Encyclopedia for PC @ $99

100 2012 Encyclopedia 2001 Wikipedia Founded, Britannica Announced Today* Wikipedia Has End of Print Editions 470MM Monthly Unique Users 2008 Microsoft Shut Down Encarta

50

0 1990 1993 1996 1999 2002 2005 2008 2011

Note: *as of 4/12, per comScore global data. Source: Kellog School of Management, Shane Greenstein and Michelle Devereux, The Crisis at Encyclopedia Britannica.

31

First Generation of Re-Imagination After 305 Years,* Newspaper Ad Revenue Was Surpassed by Internet in 2010
U.S. Newspaper (Print) Advertising vs. Internet Advertising Spending, 1995 - 2010
$50 U.S. Advertising Spend ($MM)

$40

$30

$20

$10

$ 1995 1997 1999 2001 2003 2005 Internet Internet Trendline (2006-2010)
32

2007

2009

Newspaper (Print) Newspaper Trendline (2006-2010)

Note: *Americas first newspaper ad appeared in 1704 in a Boston local newspaper, per AdAge. Internet advertising includes online newspaper advertising. Source: Print newspaper ad spending per Newspaper Association of America (NAA); Internet ad spending per Interactive Advertising Bureau (IAB).

Re-Imagination of Computing Devices

THEN (Desktops / Notebooks) NOW (Tablets / Smartphones)

33

Re-Imagination of Connectivity
THEN NOW

34

Re-Imagination of Connectivity

We hope to rewire the way people spread and consume informationWe think a more open and connected world will help create a stronger economy with more authentic businesses that build better products and services.

Mark Zuckerberg, Founder / CEO, Facebook Letter to Potential Shareholders, May 2012

35

Re-Imagination of Life Stories

THEN
Biographies / Item Exhibitions For Famous People or Loved Ones

NOW
(Facebook Timeline)
Broad Personalized Media Discovery Feed / Automatically Created / Widely Accessible

36

Re-Imagination of News + Information Flow

THEN
Delayed / Dedicated Reporters + Cameramen / Regional or National Reach

NOW
(Twitter)
Real-Time / Citizen Reporting via Mobile Devices / Global Reach

37

Re-Imagination of Note Taking

THEN
Pencil + Notepad

NOW
(Evernote)
Always Synced / Multi-Device / Picture + Audio Enabled / Searchable

38

Re-Imagination of Drawing
THEN
Dedicated Canvas / Paint Supplies / Studios / Limited Distribution

NOW
(Paper by Fiftythree)
Reusable Canvas (Screen) / Creating Art Anywhere Anytime / Digitally Enhanced Creation Tools / Instant Sharing

39

Re-Imagination of Photography
THEN
Dedicated Camera / Manually Transfer Digital Files / Develop Films

NOW
(Instagr.am / Camera+ / Hipstamatic)
Always With You Camera (Smartphone) / Instant Digital Effects / Share / Sync / Discover

40

Re-Imagination of Diaries
THEN
Hand-Written / Drawn

NOW
(Path)
One-Tap to Add Entry / Multimedia / Location-Aware / Share / Search

41

Re-Imagination of Scrapbooking / Aspiration

THEN
Paper / Scissors / Glue

NOW
(Pinterest)
One-Click to Pin / Share / Follow / Always Accessible

42

Re-Imagination of Magazines
THEN
Piles of Print Copies

NOW
(Flipboard)
More Content / Always Up-To-Date / Personalized / Access Everywhere / Interactive (Video + Audio) / Share

43

Re-Imagination of Books
THEN NOW (Amazon Kindle / Apple iBooks)

44

Re-Imagination of Music
THEN
Buy Albums + CDs in Stores / Playback via Dedicated Players

NOW
(Spotify)
Discovery of Music Through Friends + Experts / Instant On-Demand Streaming on InternetEnabled Devices

45

Re-Imagination of Sound
THEN
Tape Recorder / Hard to Edit / Share

NOW
(SoundCloud)
Record / Edit / Upload / Playback Anywhere / Anytime / On Any Device / Playlist sharing / Discovery

46

Re-Imagination of Artists / Concerts

THEN
Big Screen Tributes

NOW
(Tupac @ Coachella)
3D / Life-Like / Programmable Hologram / Bringing Past Icons Back to Life

47

Re-Imagination of Video
THEN
Physical Retail / Rental Stores

NOW
(YouTube / Netflix)
On-Demand / Instant Streaming / Accessible Everywhere

48

Re-Imagination of Video Creation / Production

THEN
Dedicated Set / Camera / Lighting / Editing Equipment

NOW
(SocialCam / Viddy / GoPro)
Live Digital Effects / Wearable Recording Device / Real-Time Upload / Discovery

49

Re-Imagination of Distribution + Monetization for Talent

THEN
(Glenn Beck on Fox News)

NOW
(GBTV - Digital)
With 300K Subscribers + Lower Production Costs, GB Making Materially More Money

50

Re-Imagination of Home Entertainment

THEN
Lean Back / Lean Forward

NOW
(Chill)
Curl Up Visual Layout / Social Discovery / Distribution / Interaction

51

Re-Imagination of TV
THEN
Linear Programming / Pre-Set Channels / Little Control Over Content

NOW
(YouTube Channels / Bleacher Team Stream)
On Demand Personalized Content on Big Screen

52

Re-Imagination of Communication
THEN
Dedicated Devices / Limited Function & Range / Intrusive

NOW
(Voxer)
Push-To-Talk / Voice Message / Picture / Text / Location / Group Chat

53

Re-Imagination of Navigation + Live Traffic Info

THEN
Physical Copies of Map in Car / TV, Radio Reporting of Traffic Info

NOW
(Waze)
User-Generated Digital Map / Live Crowd-Sourced Traffic Data

54

Re-Imagination of Sports Info

THEN
Professional Commentators / Reporters / Limited Coverage & Reach

NOW
(Bleacher Report)
Anyone Can Be a Contributor / Opinion-Oriented Analysis / Multimedia / Social & Mobile Enabled

55

Re-Imagination of Home Improvement

THEN
Magazines / Cable TV Channels / Limited Interaction With Consumers

NOW
(Houzz / One Kings Lane)
Communication Platform for Designers & Consumers / Share / Discover & Click-And-Buy

56

Re-Imagination of Calling a Cab

THEN
Long Lines During Rush Hours / Rain / Some Areas May Not Have Taxis Roaming on Streets

NOW
(Uber)
One-Tap Taxi Call / Location-Aware / Electronic Payment

57

Re-Imagination of Cars
THEN
Gasoline / Diesel Powered Internal Combustion Engine With Exhaust

NOW
(Hybrid / Electric Cars)
Plug-in Electrical Powertrain / Regenerative Brake / Solar Panel Roof / Little-to-Zero Emission

58

Re-Imagination of Yellow Pages

THEN
Big Heavy Printed Business Listings / No Reviews / No Easy Search Feature

NOW
(Yelp)
User Reviews / Pictures / Recommendations / Location-Aware / Easily Searchable

59

Re-Imagination of Coupons + Local Services

THEN
Non-Personalized / Smaller Discounts / Easily Lost or Forgotten

NOW
(Groupon)
Personalized / Location-Aware / Instant Deals / Group-buying Discount

60

Re-Imagination of Getting Food Quickly

THEN
Permanent Store Locations

NOW
(Kogi Food Truck)
~100K Twitter Followers / Real-Time Location Updates

61

Re-Imagination of Cash Registers

THEN
Big + Odd Looking Machines / Receipt Printers Cash Drawers

NOW
(Square)
Simple + Elegant Tablet + Square Reader / Email Receipts / Touch Signing

62

Re-Imagination of Window Shopping

THEN NOW
(One Kings Lane / Fab)
Click & Buy

63

Re-Imagination of Marketplaces
THEN
Tent + Pickup Truck @ Street Fairs

NOW
(Etsy)
Integrated Platform For Listings / Advertising / Payment / Inventory Management

64

Re-Imagination of Manufacturing
THEN
Mass Production of High-Volume Standardized Items

NOW
(Zazzle / Shapeways)
Customized / Personalized Design / 3D Printing Process

65

Re-Imagination of Instant Gratification / Personal Services...

THEN
Mass Production of High-Volume Standardized Items

NOW
(Zaarly / TaskRabbit / Fiverr)
One Click & Delivered to You

66

66

Re-Imagination of Idea Building / Funding

THEN
Flyers / Loudspeakers / Dinners / Checks

NOW
(KickStarter)
Online / Social Distribution / Real-Time Progress

67

Re-Imagination of Personal Borrowing / Lending

THEN
Borrowers Paper Application / Lengthy Approval Process / High Interest Rates Investors Little Access For Retail Investors / No Customization Based on Risk Tolerance

NOW
(Lending Club)
Borrowers Online Application / Funded in Days / Lower Interest Rates Investors Easy Customization / Diversification / Better Returns

68

Re-Imagination of Business Collaboration

THEN
Meetings / Whiteboards / Teleconferences

NOW
(Salesforce.com / Yammer / Jive)
Online Working Groups / Data Sharing / Instant Messages

69

Re-Imagination of Recruiting / Hiring

THEN
Job Fairs / Campus Recruiting Events / Paper Resumes

NOW
(LinkedIn)
Online Resumes / Social Relevancy For Recruiters / Searchable Skill Sets / Endorsements / Recommendations

70

Re-Imagination of Focus Groups

THEN
Fixed Time / Location / Small Group / No Real-Time Feedback

NOW
(Affectiva)
Real-Time Video Emotion Detection + Analysis / Effortless Participation / Data Capture / Moodometer

71

Re-Imagination of Data
THEN
Store Everything Because We Can Do It Inexpensively

SOON
Data Obesity / Data Quality Issues How To Find a Needle in a Haystack?

Source: Mike Abbott, KPCB.

72

Re-Imagination of Signatures
THEN
Scan / Fax / Mail to Return Signature Page

NOW
(DocuSign)
Electronic Documents / Secure Audit Trail / Instant E-Signature

73

Re-Imagination of Healthcare Access

THEN
Call to Make Appointments / Days or Weeks to See Doctors

NOW
(ZocDoc / Teladoc)
On-Demand Access to Doctors in Minutes or Same Day / In Person or Via Phone Video Call

74

Re-Imagination of Learning
THEN NOW

From learning by listening to learning by doing Education and learning will become as much fun as videogames. And we call it full body learning.
Bing Gordon Partner, KPCB
75

Re-Imagination of Engagement
THEN
Buttons / Joysticks / D-pads / Wires

NOW
(Xbox Kinect)
Camera-Based Gestures / Voice Control

76

Re-Imagination of Education
THEN
Classrooms / Lectures / Reading Materials

NOW
(Codecademy / Coursera / Khan Academy)
Interactive / Online / Accessible by Anyone Anywhere Anytime

77

Re-Imagination of Rewards / Satisfaction

THEN NOW
(Klout / FourSquare / Zynga)

78

Re-Imagination of Government Subsidies

THEN
Gather in Town / Wait in Line to Receive Subsidies

NOW
200MM+ Farmers in India Receive Government Subsidies Via Mobile Devices*

Note: 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.

79

Re-Imagination of Communication
THEN Caveman Drawings NOW Instagr.am

80

Re-imagination of Crime Awareness

THEN
Warning Signs / Community Reports

NOW
(SFPD / CrimeMapping)
Centralized Database / Customized Crime Alerts / Mobile Viewing

81

Re-Imagination of Thermostats
THEN
On/Off Switch + Temperature Setting

NOW
(Nest)
Wi-Fi Enabled / Auto-Learning / Auto-Sensing / Remote Control / Energy Efficient

82

Re-Imagination of Pet Care

THEN
Flyers on Lamp Posts for Missing Pets

NOW
Internet-Enabled / GPS Tracking Pet Collars

83

Re-Imagination of Feeds... ;)
THEN NOW
(Facebook News Feed / Ticker / Twitter Feed)

84

Magnitude of Upcoming Change Will be Stunning We are Still in Spring Training

Nearly Ubiquitous High-Speed Wireless Access in Developed Countries Unprecedented Global Technology Innovation Ultra Competitive Markets for Mobile Operating Systems + Devices Broadly Accepted Social Graphs / Information Transparency Fearless (& Connected) Entrepreneurs Difficult What Do I Have to Lose Economic Environment for Many Available (& Experienced) Capital Fearless (& Connected) Consumers Inexpensive Devices / Access / Services (Apps) Ability to Reach Millions of New Users in Record (& Accelerating) Time Social Emerging as Starting Distribution Point for Content, (Brian Norgard, Chill) Aggressive (and Informed) On My Watch Executives at Traditional Companies Unprecedented Combo of Focus on Technology AND Design Nearly Plug & Play Environment For Entrepreneurs Marketplaces / Web Services / Distributed Work / Innovative Productivity Tools / Low Start Up Cost Beautiful / Relevant / Personalized / Curated Content for Consumers
85

Addressable Market For Re-Imagination Aggregate Market Cap of Global Public Companies = $36+ Trillion*
2012 Market Cap ($B) Financials Consumer Staples Information Technology Energy Consumer Discretionary Health Care Industrials Materials Telecommunication Services Utilities Total $6,855 4,386 3,966 3,926 3,734 3,380 3,198 3,129 2,572 1,188 $36,335 2011 Revenue ($B) $4,647 3,972 2,298 6,652 4,734 2,204 4,407 2,607 2,045 1,501 $35,066 2011 EBITDA ($B) $1,035 543 422 1,068 624 455 608 712 699 315 $6,483

Top Companies by Mkt Cap ICBC, China Construction Bank, Wells Fargo Wal-Mart, Nestle, P&G, Coca-Cola Apple, Microsoft, IBM, Google, Samsung Exxon Mobil, PetroChina, Shell, Chevron Toyota, Amazon.com, McDonald's, Walt Disney Johnson & Johnson, Pfizer, Roche, Novartis General Electric, Siemens, UPS BHP Billiton, Rio Tinto, Vale China Mobile, AT&T, Telefonica, Vodafone GDF Suez, National Grid, E.ON, EDF

Note: *Based on 3,000 global publicly traded companies as defined by Morgan Stanley Researchs coverage universe. **EBITDA is earnings before interest, tax, depreciation and amortization. Source: Morgan Stanley Research. Data as of 5/23/12.

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NET, LOTS OF STUFF BEING REIMAGINED AND THERES A LOT MORE

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Consumer Internet White Space

1) Ear (+ Body) - owing to better devices (wireless Bluetooth) / services (Siri / Spotify / Soundcloud...) / products (Up)

2) Car 52 minutes per day by 144MM Americans (76% alone)* spent in cars largely untapped

3) TV 3+ hours per day spent in front of TVs** way better devices / interfaces / interfaces coming rapidly...Apple & Google footsteps raising bar50MM+ Americans have Internet-enabled TVs
Source: *US Census Bureau, **BLS, Morgan Stanley Research estimates.

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ECONOMY MIXED TRENDS, WITH NEGATIVE BIAS

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Stock Markets = Often Leading Indicators of Economic Activity, Recent 10-Week Trendline Not Encouraging...
Stock / Commodity Markets Performance (% Change From 1/10), 1/10 5/12
180%

160%

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

140%

120%

100%

80%

60% 1/10

3/10

5/10

7/10

9/10

11/10

1/11

3/11

5/11

7/11

9/11

11/11

1/12 Oil

3/12 Gold

5/12

S&P500

NASDAQ

China Shanghai Composite

MSCI Europe

Note: All values are indexed to 1 (100%) on Jan 1, 2010. Data as of 5/25/12. Source: Bloomberg, Yahoo! Finance, FactSet.

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Consumer Confidence =
Near Four-Year Highs, Though Still Below 30-Year Average
The Conference Board Consumer Confidence Index, 1978 2012 YTD
160

140 Consumer Confidence Index (1985=100)

120

30 Year Average CCI = 92.2

5/12 CCI = 64.9

100

80

60

40

20

2/09 Trough CCI = 25.3

0 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
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, 5/12.

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Consumer Sentiment Improving but 49% of Americans View Economy as Poor

Q.How would you rate economic conditions today?

Percent of USA Consumers Who View The Economy as Poor, 1/09 4/12

77% 68% 66% 61% 61% 59% 62% 61% 52% 59% 60% 62% 60% 54%

49%

1/09

4/09

7/09

10/09

1/10

4/10

7/10

10/10

1/11

4/11

7/11

8/11

10/11

1/12

4/12

Source: comScore.

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Global GDP Growth Expected to Decelerate in 2012 with Europe Slipping Into Recession
GDP Y/Y % Change, 2009-2012E
Country / Region USA Euro Area Germany France Italy Spain UK Japan China India Russia Brazil Developed Markets Emerging Markets World 2009 -3.5% -4.3 -5.0 -2.6 -5.5 -3.7 -4.9 -6.3 9.2 6.8 -7.8 -0.6 -3.7 2.8 -0.7 2010 3.0% 1.9 3.6 1.4 1.8 -0.1 2.1 4.4 10.4 10.6 4.3 7.5 3.2 7.5 5.3 2011 1.7% 1.4 3.1 1.7 0.4 0.7 0.7 -0.7 9.2 7.2 4.3 2.7 1.6 6.2 3.9 2012E 2.1% -0.3 0.6 0.5 -1.9 -1.8 0.8 2.0 8.2 6.9 4.0 3.0 1.4 5.7 3.5 % of World Total, 2011 22% 19 5 4 3 2 4 8 11 2 3 4 64 36 100
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Source: IMF World Economic Outlook, 4/12.

USA, INC. A LOT TO BE EXCITED ABOUT IN TECH, A LOT TO BE WORRIED ABOUT IN OTHER AREAS

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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.

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USA, Inc. Biggest Peace Time Gap Between Revenue & Expenses in USA History
USA Inc. Revenue & Expenses as % of GDP, 1901 2011E
50% Revenue as % of GDP (Left Axis) Revenue & Expenses as % of GDP 40% Expenses as % of GDP (Left Axis) Real GDP (Right Axis) 30% $10 $8 20% $6 $4 10% $2 0% 1901 $0 2011E $16 $14 $12 Real GDP (in Trillions of 2005 Dollars)
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Biggest Peace Time Gap Between Revenue & Expenses in USA History

1911

1921

1931

1941

1951

1961

1971

1981

1991

2001

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

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98
Copyright 2012. All rights reserved.

Americas Debt Level Relative to Other Countries You Do the Math

2010 Gross Government Debt ($B) $12,009 19 436 53 97 2,445 452 214 196 13,707 213 12 2,759 1,324 2,110 2010 Gross Government Debt ($B) $105 168 1,699 161 272 47 1,397 18 15 1,046 497 14 848 23 100

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Country Japan Jamaica Greece Lebanon Iraq Italy Belgium Singapore Ireland USA Portugal Iceland Germany Canada France

% of GDP 220% 143 143 134 120 119 97 96 95 94 93 92 84 84 82

Rank 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Country Hungary Israel UK Egypt Austria Sudan Brazil Jordan Cte d'Ivoire India Netherlands Cyprus Spain Uruguay Pakistan

% of GDP 80% 77 76 74 72 72 67 67 67 64 64 61 60 57 57

Note: Ranking excludes countries with gross government debt less than $10B 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).

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USA Inc. @ kpcb.com / youtube.com / amazon.com

110K+ Total Views 23K+ YouTube Views 7K+ Facebook Likes 4K+ Retweets

100

What Can You Do?

Engage in Politics Help Others Understand Key Issues Do What You Can To Innovate, Create Jobs & Improve Education

101

BUBBLE - OR NOT?

102

RECENT INTERNET IPOS WHILE COMPELLING IN MARKET VALUE, NOT COMPELLING IN PERFORMANCE

103

Public Market Investors = More Skeptical than Private Market Investors

Initial IPO 1st Day Filing Range IPO Price Closing Current ($) ($) Price ($) Price ($) $28-35 $38 $38 $29 Current IPO Market Market Cap ($B) Cap ($B) $104 $79

Company Facebook

IPO Date 5/12

% Change From IPO (24%)

Zynga

12/11

$8.50-10

10

10

(40)

Groupon

11/11

$16-18

20

26

12

(40)

13

Pandora

6/11

$10-12

16

17

11

(30)

LinkedIn

5/11

$32-35

45

94

100

137

10

Source: Yahoo Finance, Bloomberg, FactSet, data as of 5/29/12.

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Recent Internet IPO Standout LinkedIn

Averaging 10% Revenue / 2x EBITDA Upside Since IPO, Shares +137%
LinkedIn Share Daily Closing Price, 5/11-5/12

$125
11/11 Follow-on offering @ $71 per share, Raised $714MM 5/12 Q1 Revenue $188MM, 2/12 +101% Y/Y, 5% Q4 Revenue $168MM, above consensus EBITDA $38MM, +105% Y/Y, 5% 31% above above consensus consensus EBITDA $34MM, 62% above consensus

$100

$75
8/11 Q2 Revenue $121MM, +124% Y/Y, 14% above consensus EBITDA $5MM, 5x consensus 11/11 Q3 Revenue $140MM, +129% Y/Y, 10% above consensus EBITDA $12MM, 2x consensus

$50

$25

$0 5/11

5/11 IPO @ $45 Raised $353MM

7/11

9/11

11/11

1/12

3/12

5/12
105

Source: Yahoo Finance, Bloomberg, data as of 5/29/12.

A Key to Successful Financings / Wealth Creation All Stakeholders in Same Boat, Rowing in Same Direction

Cornell Crew team, 1930. Mystic Seaport, Rosenfeld Collection.

106

The Value of a Business is the Present Value of Future Cash Flows

The Riddles: 1) Getting the numbers (financials) right for the Discounted Cash Flow (DCF) model; 2) Getting the macro + micro confidence levels + time horizons right for the market.

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Historical Wealth Creation in Tech Companies = Concentrated

~2% of companies accounted for ~100% of net wealth creation of 1,720 Tech IPOs in USA (19802002).*
*The Technology IPO Yearbook: 9th Edition 23 Years of Tech Investing, Morgan Stanley

108

Tech Cycle of Change / Growth Where are We Now?

Source: Presentation titled The State of Capital Markets and An Update on Technology Trends, July 23, 2001, Morgan Stanley.

109

THIS CYCLE OF TECH DISRUPTION IS MATERIALLY FASTER & BROADER THAN PRIOR CYCLES

110

Outline
1) Basic Stats Internet Growth Remains Robust, Rapid Mobile Adoption Still in Early Stages 2) Re-Imagination of Nearly Everything 3) Economy Mixed Trends, With Negative Bias 4) USA, Inc. A Lot to be Excited About in Tech, A Lot to be Worried about in Other Areas 5) Bubble or Not?

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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.

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