Internet Trends
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Internet Trends June 7, 2010 CM Summit – New York City [email protected] / [email protected] / [email protected] www.morganstanley.com/techresearch Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report. Internet Trends Outline Mobile Internet – Unprecedented Early Stage Growth Innovation – Unprecedented Intensity? Online Advertising – May Be Entering Golden Age, Finally Online Commerce – Mobile Should Be Share Gain Accelerator Communications – Share Shift to Sharing ‘Cloud Computing’ – Consumer First, Enterprise Next Technology – What’s Next… Beyond Technology – It’s Complicated… 2 Mobile Internet – Unprecedented Early Stage Growth 3 Mobile Internet Ramping Faster than Desktop Internet Did – Apple Leading Charge iPhone + iTouch vs. NTT docomo i-mode vs. AOL vs. Netscape Users First 20 Quarters Since Launch 100 ~86MM Mobile Internet Desktop Internet 80 iPhone + iTouch Netscape* Launched 6/07 Launched 12/94 60 Mobile Internet ~31MM NTT docomo i-mode 40 Launched 6/99 Subscribers (MM) ~18MM Desktop Internet 20 AOL* v 2.0 Launched 9/94 ~8MM Q1 Q3 Q5 Q7 Q9 Q11 Q13 Q15 Q17 Q19 Quarters Since Launch iPhone + iTouch NTT docomo i-mode AOL Netscape Note: *AOL subscribers data not available before CQ3:94; Netscape users limited to US only. Morgan Stanley Research estimates ~50MM netbooks have shipped in first 10 quarters since launch (10/07). Source: Company Reports , Morgan Stanley Research. 4 Smartphone > PC Shipments Within 2 Years, Global – Implies Very Rapid Evolution of Internet Access Global Unit Shipments of Desktop PCs + Notebook PCs vs. Smartphones, 2005 – 2013E 700 2012E: Inflection Point Smartphones > Total PCs 600 500 400 300 200 Annual Unit Shipments (MM) Shipments Unit Annual 100 0 2005 2006 2007 2008 2009E 2010E 2011E 2012E 2013E Desktop PCs Notebook PCs Smartphones Note: Notebook PCs include Netbooks. Source: IDC, Gartner, Morgan Stanley Research estimates. 5 Smartphone > Feature Phone Shipments Within 1 Year, N. Amer. – Implies Very Rapid Evolution of Internet Access North America Unit Shipments of Smartphones vs. Feature Phones, 2005 – 2013E 160 154 150 149 140 140 140 119 120 108 93 90 80 71 67 Shipments (MM) 51 38 40 34 21 10 6 North America Feature Phone & Smartphone Unit Phone Unit & Feature Smartphone America North 0 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E Smartphone Shipments Feature Phone Shipments Source: Ehud Gelblum, Morgan Stanley Research. 6 New Computing Cycles – 10x More Devices New = Reduce Usage Friction Via Better Processing Power + Improved User Interface + Smaller Form Factor + Lower Prices + Expanded Services Computing Growth Drivers Over Time, 1960 – 2020E More than Just Phones 1,000,000 Mobile iPad Internet Smartphone 100,000 Kindle n Desktop Tablet io 10,000 at Internet MP3 gr te Cell phone / In g PDA 1000 in s Car Electronics ea PC 10B+ cr GPS, ABS, A/V In Units??? 100 Mobile Minicomputer 1B+ Units / Video Users 100MM+ Home 10 Units Entertainment Mainframe Games 10MM+ Units 1 Wireless Home Devices / Users (MM in Log Scale) Appliances 1MM+ Units 1960 1970 1980 1990 2000 2010 2020 Note: PC installed base reached 100MM in 1993, cellphone / Internet users reached 1B in 2002 / 2005 respectively; Source: ITU, Mark Lipacis, Morgan Stanley Research. 7 3G = A Key to Success of Mobile Internet – 2010E ‘Mainstream’ Inflection Point, 3G Penetration >20% Global 3G+ Subscribers & Penetration, 2007 – 2014E 4,000 43% 45% 2010E: Inflection Point 3G+ Penetration Reaches 38% Sweet Spot 33% 36% 3,000 2,776 27% 2,348 27% 21% 1,928 2,000 1,503 15% 18% 3G+ Users (MM) Users 3G+ 11% 1,055 (%) Penetration 3G+ 1,000 8% 688 9% 430 273 0 0% 2007 2008 2009E 2010E 2011E 2012E 2013E 2014E 3G+ Users 3G Penetration Note: 3G+ technologies include WCDMA, HSPA, TD-SCDMA, 1xEV-DO, LTE and WiMax. Source: Ovum Estimates, Morgan Stanley Research. 8 Wireless Options Growing Rapidly – Creating Broad-Based Wireless Infrastructure GPS – 421MM+ chipsets sold in 2008E, +57% Y/Y; Cell Phones / PDAs = 60% of GPS shipments. 3G – 485MM global users, +46% Y/Y in CQ2, >11% mobile user penetration, rising to 44% by 2013E…Japan / W. Europe / USA already >30% penetration. Wi-Fi – 319MM chipsets sold in 2008E, +42%Y/Y with 862MM installed base; estimate 60% of iPhone / iTouch usage may be on Wi-Fi, providing a crucial (and ~10x faster) offload to stressed 3G networks. Bluetooth – 1.3B Bluetooth-enabled units shipped in 2008, +45% Y/Y; 2B+ Bluetooth devices in use. Source: 3G subscribers data per Informa, Wi-Fi usage estimates per AdMob, Wi-Fi shipments by Wi-Fi Alliance; installed base per iSuppli, assuming 4-yr replacement cycle; Bluetooth shipment per iSuppli, installed base per The Bluetooth Special Interest 9 Group; GPS shipment per Future Horizons. Picture sources: Howstuffworks.com, Boy Genius Report, Cisco, Letsbuy.com. Mobile Apps & Mobile Search – Users of Both Up 2x Y/Y…Search = Most Used Browser Feature, USA Number of USA Smartphone App & Browser Users % of Mobile Browser Users Who Have Done 4/09 vs. 4/10 the Following Activities, 4/10 Mobile App Users Mobile Browser Users Search 48% 40 38 38 Social Networking 2x News 30 Sports Info Movie Info 20 18 18 Bank Accounts General Reference 10 Mobile Apps / Mobile Browsers (MM) Classifieds # of USA Smartphone Users Who Have Who USA Users Used # of Smartphone Online Retail 0 4/09 4/10 0% 20% 40% 60% Source: comScore. 10 Mobile App Usage Ramp = Unprecedented 50 47 40 Apps Downloaded 30 per User 22 20 12 10 10 5 0 iPhone / iTouch Android iPad BlackBerry Nokia Apps Available 200K 50K 3K 5K 7K Apps 4B+ 400MM 12MM+ -- -- Downloaded Installed Base 86MM 10MM+ 2MM 20MM* 50-70MM* Launch Date 7/08 10/08 4/10 4/09 5/09 Note: *BlackBerry / Nokia installed base excludes older devices that cannot support app stores. Nokia apps available / downloaded exclude wallpapers / ringtones / music tracks. 11 Source: Distimo, Apple, Google, RIM, Nokia, Nielsen. Morgan Stanley Research. iPhone + Android Internet Usage = Outsized vs. Unit Installed Base Global Smartphone Share of HTML Mobile Page View / Mobile Internet + App Usage / Unit Shipments 60% 55% 50% HTML Mobile Page View Share (Net Applications, 5/10) 44% 42% Mobile Internet + App Usage Share (AdMob, 4/10) 40% Global Unit Shipment Share (Gartner, CQ1:10) 30% 25% % Share 23%23% 19% 20% 15% 10% 10% 10% 6% 6% 7% 5% 4% 1% 1% 1% 0% 0% 1% 0% iPhone Symbian Android RIM Windows Palm Other Note: Net Applications collects data from ~160MM monthly visitors on mobile devices that render full HTML pages and JavaScript. Visits to WAP pages / on feature phones are excluded. 12 Source: AdMob Mobile Metrics Report (4/10), Net Applications (5/10), Gartner (CQ1:10). Android Unit Shipments Ramping Fast – Annualized Rates Near iPhone Annualized Unit Shipments, Android vs. iPhone, CQ4:08 – CQ2:10E 40 30 20 10 Annualized Unit Shipments (MM) 0 CQ4:08 CQ4:09 CQ1:10 CQ2:10E Android iPhone Note: iPhone annualized shipments based on historical quarterly shipments (CQ2:10E data based on Katy Huberty’s estimate). Android annualized shipments based on daily shipments & activation data provided by Google (e.g. Google disclosed that 100K Android units are activated / shipped daily in 5/10, leading to an annualized units of 36.5MM in CQ2:10E). Source: Company data, Katy Huberty, Morgan Stanley Research. 13 Apple iPad = Among One of the Fastest Growing New Consumer Computing Devices Ever Number of Days to Reach 1MM Units Sold Nintendo Nintendo iPad iPhone Netbooks BlackBerry iPod Wii* DS* ~13 ~15 28 74 ~180 ~300+ ~360+ Note: *Nintendo Wii & DS were launched during holiday seasons (11/19/06 for Wii, 11/21/04 for DS); iPad shipped on 4/3/10; iPhone shipped on 6/29/07, First netbook (Asus Eee PC) shipped on 10/16/07, BlackBerry smartphone first shipped 2002, iPod shipped on 10/23/01. Source: Company data, Katy Huberty, Morgan Stanley Research. 14 Apple iPad Internet Usage = More Like Desktop PCs than Smartphones Monthly Internet Page Views per Device, Normalized to iPhone*, 5/10 7 6.37x Desktop Tablet Mobile per ew 6 i ) e ge V n a o 5 h P et iP n o r t e t d 4 3.65x n e liz y I l a h t m r n 3 o o M N 2.22x , 2.07x e e ( c i 2 v ag e s D 1.00 ve U i 1 t a 0.47x l e 0.21x 0.13x R 0.12x 0.09x 0 Mac Windows Linux iPad iPhone Android iPod Symbian WinMo BlackBerry Touch Note: *We calculate usage as follows: market share of Internet page views by OS (per Net Applications) divided by market share of device installed base (desktop per Gartner, tablet & mobile per company data and our estimate) and then normalize it to iPhone’s level. Source: Company data, Gartner, Net Applications, Morgan Stanley Research. 15 User Interface + Device Usage Evolution Over Past 30 Years – From Input…to Output…to Sharing Text Graphical Touch User Interface Keyboard Mouse Fingers Input Device Creation Communication Consumption + Sharing Device Usage Personal Computing Internet Computing Mobile Internet Computing Computing Cycle 16 Massive / Rapid User Expectation Change In Just 2 Years, Wireless Consumers Expect… Always-On Access with Super-Fast ‘Boot Time’ Near Zero Latency Access to Nearly All Information Day-Long-Plus Battery Life in Elegant Portable Devices 17 Innovation – Unprecedented Intensity? 18 Mobile Internet – Tortoise vs.