Random Bits - Mobile, Internet &amp The Cloud

For Immediate Release May 2012
Random Bits
Mobile, Internet & the Cloud
May 2012 Volume 5
Overview
The three inter-related platforms of Mobile, the Internet and the Cloud are in various stages of emergence and maturity while enabling businesses to obtain significant scale at an unprecedented pace. Each requires substantial on-going investment in infrastructure and IT and the trends that they support are the basis for significant investment in both new and legacy businesses and new business models. The Internet is increasingly described as a mature medium. The data and statistics counter this assertion and continue to demonstrate that the Internet remains a dynamic and evolving market and platform. The Mobile market has clearly matured with substantial penetration gains across the globe while simultaneously undergoing a fundamental and dramatic shift in consumer usage. Once largely a voice communication medium, the mobile market is incredibly diverse and consumer usage is now predominantly internet and data driven. Apples introduction of the iPhone in 2007 radically and irreversibly changed the game while the iPad and Android OS have further contributed to a dramatic reshuffling of the Mobile market. Finally, with the proliferation and ownership of multiple fixed and mobile devices consumers increasingly expect access to content, applications and subscriptions anytime, from anywhere, from any network and over any device. This is true at home, on-the-go and in the office and the Cloud is the emerging platform to make this happen. The Internet, Mobile and the Cloud are three dynamic and increasingly inter-related platforms that will continue to drive investment and innovation and both shape and satisfy evolving and demanding consumer behaviors.
Life Online is Constantly Changing

The internet has become fundamental to daily life extraordinarily rapidly. Approximately 80% of the U.S. population has access to the internet up from 44% in 2000. On a global basis 2.3 billion individuals access the internet, a 35% penetration rate, up from 361 million or 5% penetration in 2000. It is forecast that by 2015 approximately 3.1 billion people will have non-mobile internet access, a 40+% penetration rate.
We provide mergers and acquisitions, private capital markets and strategic advisory services to growth companies in digital media, mobile and other industries.
Coady Diemar Partners 1370 Avenues of the Americas New York, NY 10019 (212) 901-2600 www.coadydiemar.com
Coady Diemar Partners is a registered broker / dealer with the U.S. Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority (FINRA)
Random Bits: Mobile, Internet & the Cloud
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Clearly, growth in internet penetration over the last decade has been phenomenal. The internet is still relatively immature and consumer behavior patterns continue to evolve and shift over time. In fact, the web is much more complex today than a decade ago reflecting, in part, growth in mobile internet activity and the emergence of the Cloud.
Social and Entertainment Driving Engagement

The web is transitioning from primarily a functional, information seeking medium to one more oriented to social engagement and entertainment. The most significant share shifts over the last year are declining engagement with the Portals and increasing engagement with social networks as shown in the two charts following. A number of the key drivers of traditional Portal engagement such as, e-mail, instant messaging and homepages, have shown declines in the last year. In fact, Instant Messengers experienced a 40% decline in time spent online last year, the largest decline of all. Further, market share of web-based email fell below 10% for the first time with the most significant usage declines occurring in the age 12-24 demographic. At the same time, mobile email usage for the same demographic experienced double digit growth.
Social networking continued to gain momentum in 2011. Facebook had 845 million monthly active users around the world as of December 31, 2011, up 39% over 2010. In the U.S., Facebook now accounts for approximately 15% of total time spent online (7 hours in December 2011) and 16% of all page views. Not surprisingly, Facebook is also the leader in the display advertising market with a 14% share of display ad revenue. The forthcoming IPO of Facebook will focus further attention on the value of social networks while raising substantial growth and acquisition capital for Facebook. As a matter of strategy, Facebook has prioritized global expansion of its tightly controlled platform and user engagement relative to near-term
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financial metrics. Facebook and Apple are alike in this sense. Both want to control as many dimensions of the user experience as possible. Both have built substantial walled gardens on top of the internet park.
The Web is Dead. Long Live the Internet

Much has already been written about this Wired magazine cover story in August 2010. The debate over the webs evolution continues while the mobile revolution becomes more evident. To quote from the Wired magazine article, One of the most important shifts in the digital world has been the move from the wide-open web to semi-closed platforms that use the internet for transport but not the browser for display . . . Its driven primarily by the rise of the iPhone model of mobile computing . . . And its the world that consumers are increasingly choosing, not because theyre rejecting the idea of the Web but because these dedicated platforms often just work better or fit better into their lives The fact that its easier to make money on these platforms only cements the trend. In 2008, Apple launched its iPhone App Store. The mobile app market that year generated revenue of approximately $350 million. In 2011 the app market approximated $7.7 billion with forecasted growth to $22.8 billion by 2015. One month ago Apple announced that 25 billion apps had been downloaded and in December 2011 Googles Android market achieved 10 billion downloads. Although time spent online continues to grow, much of this growth is attributable to time spent with mobile applications. As shown below, the average smartphone user now spends more time on mobile apps than the mobile web. Games and social networking account for 74% of consumers total app time with games at just over 50%.
Another key trend in the evolution of the Internet is the use of mobile devices to conduct commerce. Currently, 52 % of adult cell phone owners use their devices while in a store to get help with purchasing decisions and purchases from a mobile device represented approximately 3.9 % of all online purchase in 2011, up from 1.9 % nine months earlier.
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Reports on the death of the web are clearly premature, but there is no denying that the Internet is substantially more complex and variable resulting from device and app explosion. As HTML5 is widely adopted consumer and enterprise experience with the mobile web and apps will likely converge as will time spent on each. In any event, Mobile will play an increasingly important role in the evolution of the Internet and web as it is likely that by 2014 more internet users in the U.S. will access the internet through mobile devices than through PCs or other wireline devices.
The Mobile Digital Revolution

While internet availability continues to increase globally, the penetration and use of mobile devices has absolutely exploded. Globally, there are 5.9 billion subscriptions (over twice the number of internet users) or 87% penetration. In the U.S. there are approximately 320 mm mobile subscriptions representing a penetration rate of approximately 102%.
The Power of Personal and Mobile Computers

Mobile devices are increasingly smart and powerful computers with the ability to access more and more information at faster and faster speeds as networks migrate from 2G through 3G to 4G. The era of mobile computing is driving one of the largest shifts in consumer behavior in the last half century and this shift is occurring at a much faster pace than internet access and PC adoption. In fact, the number of smartphones activated in the five years after the introduction of the iPhone in 2007 is two times the increase in the number of internet users after its first five years. As shown in the following chart, smartphones now represent 50% of the U.S. device market.
Source: Nielsen
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Tablet sales also increased dramatically last year, with 40 million tablets now in use in the U.S. after less than two years, significantly outpacing smartphones which took seven years to reach the same level of adoption. IDC forecasts dramatic growth for both smartphones and tablets as the chart below demonstrates.
Smartphone shipments are forecast to increase from nearly 500 million shipped in 2011 to 1 billion in 2015 while tablets are forecasted to increase from 63 million to just under 200 million in 2015. A number of prognosticators think that these tablet estimates are far too low. Both GigaOm Pro and Gartner forecast tablet shipments of approximately 300 million in 2015. Tablets are increasingly becoming the proverbial fourth screen in a heretofore three screen market. The four screens (TV, internet, mobile and tablet) accounted for 81% of time spent on media in 2011. TV remains the dominant medium with a 45% share, followed by the Internet with a 26% share and Mobile comprising a 10% share. According to Nielsen data, 70% of consumers time spent with tablets occurs at home. Forrester has recently reported that 85% of U.S. tablet owners use their devices while in front of the TV while 57% of smartphone and tablet owners checked email, 44% visited a social network and 19% searched for product information while watching TV. The rapid adoption of tablets in the U.S. and their usage in front of the TV is adding fuel to emerging TV Everywhere, social TV and tablet-TV commerce strategies.
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Strong Growth of Mobile Data Traffic

Not surprisingly, traffic on the mobile networks reflects the device as computer phenomena and growth in the consumption of data or web services. The following chart demonstrates that data traffic surpassed voice traffic commencing in Q4 2009 and now represents two and a half times voice traffic.
Source: Akamai The State of the Internet, 3rd Quarter 2011
Currently, mobile and connected devices account for only approximately 8% of the internet traffic in the U.S. With the proliferation of smartphones and tablets and the roll-out of faster wireless networks, Cisco estimates a 78% CAGR in mobile data traffic through 2016, reflecting continued smartphone adoption.
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In terms of use, mobile video will generate the largest share of this growth in part because mobile video content has much higher bit rates than other mobile content types. Cisco estimates that mobile video will grow at a CAGR of 90% between 2011 and 2016, the highest growth rate of any mobile application category forecasted generating over 70% of mobile data traffic by 2016.
A continued proliferation of mobile device form factors, increases in computing power, longer battery life, improved screen resolution, and other quality enhancements, will drive mobile device penetration and usage, expectations and behavior. Consumers already expect access to their content, applications and subscriptions anytime, from anywhere, over any device and from any network. As both fixed and mobile devices and multiple device ownership proliferates consumer expectations for ubiquitous access to content will escalate. The Cloud is increasingly the platform that provides the foundation on which this seemless interactivity will occur. In fact, cloud applications globally will account for 71 % of total mobile data traffic in 2016, compared to 45 % at the end of 2011. Mobile cloud traffic is projected to grow 28-fold from 2011 to 2016, a compound annual growth rate of 95 %.
The Cloud and Consumerization of the Enterprise

The term the Cloud has become popularized and is most often used as a metaphor for the Internet in the sense that just as information is accessed via the Internet, it can be stored there as well. The Cloud infrastructure enables the delivery of computing, software applications and information as a service where the computing infrastructure is shared and located remotely. The availability of high capacity networks (both wired and wireless) and the declining cost of computing and storage devices have provided the economic foundation for cloud computing. At the same time,
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consumer behavior around internet use, mobility and multiple device ownership and usage are driving rapid adoption of the Cloud. As noted earlier, one of the important trends in consumer technology and behavior is the proliferation of affordable and powerful consumer devices. The chart below shows the ownership penetration of consumer gadgets in the U.S. since 2006. In addition to these devices, 290 million Americans own at least one TV, 253 million own a DVD player and 129 million own a DVR. It is worth noting that all of the mobile devices shown below show substantial increases in penetration while the fixed devices have either declined (desktop computers) or stabilized (game consoles).
Currently, 88% of American adults have a mobile phone, 57% have a laptop, 19% own an e-book reader, and 19% own a tablet while 13% of U.S. adults own a laptop, smartphone and tablet. Approximately six in 10 adults (63%) go online wirelessly with one of those devices. As the chart on the following page demonstrates, Cisco estimates that by 2015 nearly 70% of internet users will use more than five network-connected devices, up from 44% at the end of 2011.
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2010
2011
2012
2013
2014
2015
Source: Cisco Global Cloud Index: Forecast and Methodology, 20102015
As relates to mobile users, 25% will have more than one mobile-connected device and 9% will have three or more by 2015. Mobile devices have memory and speed limitations which Cloud applications and services mitigate. For example, a consumer with an 8 GB smartphone who streams video and music will consume more content over the course of two years than can be stored on the device itself. Similarly, a smartphone user adopting Netflix, Pandora, and Facebook will generate more than twice the volume of traffic generated by a smartphone user adopting only email and web applications. Consumer behavior trends of mobility, social network usage and ownership of multiple devices are also exerting pressure on businesses to make enterprise applications available in similar ways. A significant proportion of the mobile devices used in the business arena today are personal devices, sourced by the employee rather than provided by the employer company. Research firm Forrester forecasts that 200 million of the 350 million employees who will use mobile devices for work in 2016 will use their own devices rather than devices provided by their employers while the average business will need to support twice as many end-user devices in 2015 compared to the end of 2010. This bring your own device culture is increasingly leading to the embrace by corporate IT departments of the consumerization of the enterprise, further driving Cloud adoption. According to Forrester, the global Cloud computing market will grow from $40.7 billion in 2011 to more than $241 billion in 2020. A Forrester report published in mid-2011 provides forecasts for the three core layers of cloud computing the public cloud, the virtual private cloud, and the private cloud. While each segment has its own key drivers, rapid growth is forecast across all three segments. The Cloud is a key facilitating platform for continued innovation of the Internet, the web and Mobile.
Looking Ahead
The Internet, Mobile and the Cloud are rapidly and profoundly changing the way that we consume content and conduct commerce. The ubiquity of wireless connectivity combined with increasing
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functionality and speed of connected devices and networks will drive continued growth in the creation and consumption of media, content and products enabled by and across these platforms. The evolving Mobile market will result in more rapid internet penetration globally while the functionality of mobile devices will continue to increase inherently and through the Cloud. Facebook has built a business with 850 million global users in 10 years. Online social networking and microblogging service Twitter launched six years ago and now reports 140 million active users generating over 340 million tweets daily. Five years after its founding, social gaming company Zynga has 240 million users across 175 countries. Instagram, founded less than two years ago offering a free mobile photo sharing program, ramped to 30 million registered users and was acquired by Facebook recently for $1.0 billion in cash and stock. These and other companies have successfully leveraged the infrastructure and services of the Internet, Mobile and the Cloud to achieve unheard of reach and scale in unbelievably short timeframes. The Digital Media & Commerce markets are growing and evolving rapidly fueled by investment in new technology and fundamental shifts in consumer behavior. We have written widely on these topics. Please access all of our thought pieces via the Resources tab on our website at www.coadydiemar.com. Colin Knudsen (212) 901-2620 colin@coadydiemar.com
About Coady Diemar Partners

Coady Diemar is a boutique investment banking firm providing mergers and acquisitions, private capital markets and strategic advisory services to growth companies in digital media, mobile and other industries. We offer a breadth of transaction experience and expertise, industry knowledge and institutional relationships and provide clients creative solutions and unparalleled access to ideas and capital. We are acutely sensitive to the specific and unique requirements of each client and opportunity. Visit our website www.coadydiemar.com to learn more about Coady Diemar Partners and to download presentations on digital and traditional media and the M & A and private capital markets. Contact Colin Knudsen at colin@coadydiemar.com or Chris Ensley at chrise@coadydiemar.com for additional information or to arrange a meeting. If you would like to be added to our email distribution list for periodic industry and market commentary, please contact Ryan Williams at ryan@coadydiemar.com.
Independent Advice. Seamless Execution.

This announcement is neither an offer to sell nor a solicitation to buy securities. This announcement appears as a matter of record only. Copyright (C) 2011 Coady Diemar Partners, LLC. All rights reserved.

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For Immediate Release May 2012

Life Online is Constantly Changing

Random Bits: Mobile, Internet & the Cloud

Social and Entertainment Driving Engagement

Random Bits: Mobile, Internet & the Cloud

The Web is Dead. Long Live the Internet

Random Bits: Mobile, Internet & the Cloud

The Mobile Digital Revolution

The Power of Personal and Mobile Computers

Random Bits: Mobile, Internet & the Cloud

Random Bits: Mobile, Internet & the Cloud

Strong Growth of Mobile Data Traffic

Source: Akamai The State of the Internet, 3rd Quarter 2011

Random Bits: Mobile, Internet & the Cloud

The Cloud and Consumerization of the Enterprise

Random Bits: Mobile, Internet & the Cloud

Random Bits: Mobile, Internet & the Cloud

Source: Cisco Global Cloud Index: Forecast and Methodology, 20102015

Random Bits: Mobile, Internet & the Cloud

About Coady Diemar Partners

Independent Advice. Seamless Execution.

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