emarketer Estimates & Projections

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1 An inside look at the emarketer Methodology emarketer Estimates & Projections The power of emarketer s research derives from our uniquely comprehensive approach we look at and analyze all the relevant data on a given topic. emarketer clients do not rely on information and intelligence from only one or two sources; they get the widest possible perspective by seeing the best from over 2,000. THE FIRST PLACE TO LOOK

2 emarketer s Unique Approach There is no such thing as a perfect research study. No single source can ever have all the latest available data on a given topic. No research company can consistently achieve accuracy in all areas all the time. This is why emarketer s research methodology is founded on a simple philosophy: an accurate and reliable statistical picture can only be painted by aggregating and analyzing data from as many different sources as possible. Moreover, history and statistical theory confirm that a careful evaluation and weighting of multiple sources inevitably yields a more accurate analysis than a single source ever could. Unlike many other market research providers, emarketer has no datagathering technique to defend nor do we rely on a single survey population or respondent base.we look at all of the relevant data on a given topic and provide a perspective that is based on the collective wisdom of multiple and diverse research sources, as well as on our objective expertise and experience. emarketer provides clients with a wide variety of critical market estimates and projections, including, but not limited to, the following: Number and penetration of Internet users, by region and country Broadband users, households and penetration, by region and country Mobile Internet users, by region and country Online advertising spending, including totals and individual components such as search, display ads, rich media, video, etc. Spending on mobile marketing and advertising B2C ecommerce sales, by region and country Number and penetration of online shoppers and buyers PVR, VOD, HDTV and IPTV households and penetration Digital TV, by region and country Comparative Estimates: US Online Advertising Spending, 2005 (in billions) Forrester Research*, August 2005 $14.7 JMP Securities, December 2005 $13.2 emarketer, January 2006 $12.9 Piper Jaffray, April 2005 $12.8 Deutsche Bank, April 2005 $12.6 Veronis Suhler Stevenson, August 2005 $12.6 J.P. Morgan, January 2005 $12.5 SG Cowen, December 2005 $12.5 Merrill Lynch, June 2005 $12.4 Morgan Stanley, September 2005 $12.2 JupiterResearch, August 2005 $11.9 PricewaterhouseCoopers, June 2005 $11.5 Myers Report, September 2005 $11.1 The Kelsey Group, February 2005 $10.1 TNS Media Intelligence**, June 2005 $8.0 Universal McCann**, December 2005 $7.9 Note: emarketer benchmarks its US Internet ad spending projections against the Interactive Advertising Bureau (IAB)/PricewaterhouseCoopers (PwC) data, for which the last full year measured was 2004; *includes marketing along with media spending; **does not include paid search spending Source: emarketer, January 2006; various, as noted, emarketer, Inc. The Business Need for Numbers Quantitative data are important in business for a variety of obvious (and some notsoobvious) reasons. Business executives commonly use statistics to: 2

3 make better, more informed business decisions; answer the questions raised during strategic planning; quantify markets and industries and their potential; identify important trends that can benefit their businesses; measure critical performance benchmarks; understand the potential impact of new or evolving markets; identify potential competitive threats and support key business proposals and recommendations with hard data ie to make the business case. With these uses in mind, emarketer aggregates market research data from as many sources as possible on every topic we cover. Then our analyst team provides objective analysis around the numbers and trends, as well as generating their own market estimates and projections. With emarketer s aggregation approach business professionals can fill in data gaps and obtain a unique picture of the present and future to support business decisionmaking. The Problem of Conflicting Numbers Research statistics, particularly those focused on Internet markets and trends, are often confusing. The estimates and projections offered by research and analyst firms can vary significantly, even when they supposedly relate to the same variable. The reasons for these disparities fall into three broad areas: A. Researchers use different definitions of the variables reported B. Researchers use different methodologies when they develop studies, surveys and projections C. Researchers are inevitably influenced by subjective factors when they generate estimates and projections A. Different Definitions A good deal of the variance between researchers estimates and projections is explained by the use of different definitions. Even when the same name or term is used, the actual variable that is being measured can be significantly different. For example, while most research firms and banking analysts include online paid search in their estimates for online advertising growth, at least two wellknown research outfits do not: TNS Media Intelligence and Universal McCann. With search being the largest and fastestgrowing segment, it is no wonder that the estimates from these two companies are the lowest among 16 sources. As another example of how differing definitions can affect results, consider online consumer commerce.the estimates from numerous research firms can vary by billions of dollars because they either include or exclude various components such as travel, auction sales or automobile sales. Comparative Estimates: US Online Advertising Spending Growth, 2005 (as a % increase vs. prior year) JMP Securities, December % emarketer, January % Veronis Suhler Stevenson, August % Deutsche Bank, April % Myers Report, September % SG Cowen, December % The Kelsey Group, February % JupiterResearch, August % Piper Jaffray, April % Merrill Lynch, June % Morgan Stanley, September % J.P. Morgan, January % Forrester Research*, August % PricewaterhouseCoopers, June % Universal McCann**, December % TNS Media Intelligence**, June % Note: Growth figures were calculated by emarketer based on the dollar figures provided by each research firm; emarketer benchmarks its US Internet ad spending projections against the Interactive Advertising Bureau (IAB)/PricewaterhouseCoopers (PwC) data, for which the last full year measured was 2004; *includes marketing along with media spending; **does not include paid search spending Source: emarketer, January 2006; various, as noted, emarketer, Inc. THE FIRST PLACE TO LOOK 3

4 B. Different Methodologies Not all research is created equal. Research firms employing different methodologies and measurement techniques will usually arrive at different results. For example, a nationally conducted survey using random digitdialing to reach 10,000 respondents via telephone will typically yield more accurate results than a 30person survey conducted among a selfselected group of people online. emarketer evaluates all the components of a study or survey, including: Sample size; Other characteristics of the population being studied; Method of respondent recruitment and any incentives used; Statistical sampling methods employed; Timing of survey or study and Any sponsorship or other vested interest that might influence results As an illustration of how different methodologies can produce dramatically different results consider estimates and projections of the number of podcast listeners in the US.The Diffusion Group put the total number of US podcast listeners at 4.5 million in 2005 and expected the total to hit nearly 57 million by US Podcast Audience, (millions) Note: CAGR=101% Source: The Diffusion Group, May emarketer, Inc. The likely accuracy of these numbers was confirmed in November 2005, when Bridge Ratings published a forecast for the US podcast audience, putting the total number of listeners at 5 million in 2005, growing to 63 million by These figures, however, do not completely meet the needs of emarketer s clients. It is the active audience that will potentially respond to advertising and marketing. The totals given above refer to those who have ever listened to a podcast. By incorporating data on those who listen to podcasts at least once a week, emarketer showed that the active podcast audience was significantly smaller than implied by the earlier estimates. US Podcast Audience, 2006, 2008 & 2010 (millions) Total podcast audience* 10.0 Active podcast audience** Note: *individuals who have ever downloaded a podcast; **individuals who download an average of one or more podcast(s) per week Source: emarketer, February emarketer, Inc. C. Guesswork and Subjectivity Researchers attempting to measure any aspect of Internet activity or ebusiness will inevitably have to supplement their raw data with qualitative judgments. These involve varying levels of interpretation, extrapolation, explanation or prediction. This process inherently entails a degree of subjectivity, introducing the possibility of bias and even potential conflicts of interest. The effect of subjective factors is amplified when researchers are trying to predict the future. The further out the forecast horizon, the more assumptions that have to be made about interrelated future events. Predicting the number of wireless Internet users next year is hard enough; trying to pick a number for 2010 can be akin to a shot in the dark. Such projections are typically based on a set of related assumptions about future events. However, without a clear explanation of those assumptions and their relevance to the forecast, their use to business decisionmakers is still limited. 4

5 How emarketer Makes Its Own Projections emarketer employs a fourstep forecasting process. This takes into account all of the available research data on a given market or trend. Aggregate > Filter > Organize > Analyze The process consists of aggregating data from as many sources as possible, then normalizing, weighting and evaluating the data and, finally, creating an estimate or projection that has the best fit with all of the information available. Step 1: Aggregate emarketer aggregates data from over 2,000 sources, including research firms, consultancies, government agencies, nonprofit organizations and investment banking firms. This breadth and depth of data yields a richer, far more complete picture of the market than any single source can provide. The Importance of Looking at All the Available Data: There is no such thing as a perfect research study or survey No single source can provide all the answers A careful evaluation and weighting of multiple sources always leads to a more accurate picture of reality Critical business decisions should be based on complete, uptodate and reliable information Step 2: Normalize Merely lumping together raw numbers from various research firms would inevitably result in applestooranges comparisons. emarketer seeks to normalize the data by first understanding and then adjusting for the different definitions used by the research firms. For example, when estimating online consumer retail spending, it is important to note that some research firms include travel, while others, including the US Department of Commerce, do not. Similarly, while most researchers include paid search in their estimates for online ad spending, at least two widelyquoted research firms do not. This makes a significant difference because paid search accounts for about 40% of spending on online advertising and it is the fastest growing segment within it. Step 3: Weight (the Data) emarketer analysts carefully weight the methodologies and results of different research firms based on a number of factors, including (but not limited to) the following: General reputation and credibility of each research organization Historical accuracy of research sources, based on a comparison between projected and actual results (utilizing emarketer s estat Database) The sophistication and sample size of the study or survey, as well as the overall research design and respondent recruitment technique In the weighting process, emarketer will also look at the degree of convergence between different estimates. In some cases numbers from different sources line up very closely. This means the reader can have a higher degree of confidence in the data. For example, leading research firms consistently estimate that the online travel market in the US was approximately $60 billion in Comparative Estimates: US Online Travel Sales, (in billions) comscore, January 2005 (1) Forrester Research, May 2005 (2) JupiterResearch, November 2005 Merrill Lynch, August 2005 (3) PhoCusWright, October 2005 (4) 2003 $40.4 $ $50.9 $52.4 $57.0 $ $62.8 $68.0 $60.2 $ $ $ $119.0 $104.0 Note: (1) consumer unmanaged online travel purchases, the majority of which are leisure; (2) leisure travel only; (3) this figure combines sales estimates for online travel agencies and direct suppliers; (4) leisure/unmanaged business travel Source: various, as noted, 2004 & emarketer, Inc. THE FIRST PLACE TO LOOK 5

6 Step 4: Evaluate (the Bigger Picture) Focusing only on the estimates from other researchers, however, does not necessarily take into account the latest trends or developments in the marketplace. Before creating an estimate or projection, emarketer also looks at the broader economic, technological, market and cultural trends that affect the area being measured. In many cases, emarketer will also look at individual company data. For instance, when measuring broadband households, emarketer tabulates subscriber figures from the leading broadband providers in each market to create a bottomup reality check for total number of broadband households. Similarly, when estimating the online paid search market, emarketer analysts examine the revenue figures from leading players such as Yahoo, Google, MSN and AOL. Step 5: Estimate All of the above is factored into our forecasts. In many cases it is incorporated into an integrated statistical model, along with data on other related trends. Our analysts then create estimates and projections that represent the best fit with all the available information on the market being measured. Importantly, this process is a continuous and selfimproving feedback loop. With each new data point that becomes available, emarketer analysts compare the new information with the existing body of evidence and reassess their statistics. As a result of this fivestep process, emarketer s estimates and projections are frequently among the most accurate available. Projections, Benchmarking & Accountability There is not much point in making predictions about the future unless you have a means of measuring actual results. Without a standard of measurement, any researcher could claim that their projections are the most accurate. emarketer recognizes that certain government departments, nonprofit organizations and other respected, impartial sources are able to provide reliable numbers that can be consistently tracked over time. Most of these established sources, however, only measure past results; typically they do not predict the future. Wherever possible, emarketer identifies a reputable thirdparty source to serve as a benchmark for future projections. For example, emarketer has selected the International Telecommunication Union (ITU) as the benchmark source for its Internet User forecasts. The ITU has been measuring the Internet sector in nearly every country in the world since 2000, and is regarded as a trusted impartial source for international telecommunications statistics. The ITU does not make predictions, but measures past levels of Internet penetration using information gathered directly from national statistical agencies and local research firms. The use of internationallyaccepted and independent benchmark sources for historical data means our estimates and projections can be measured against an accepted standard.as a result we are more accountable for all of our data. A Few of the Benchmark Sources emarketer Uses for its Projections: Internet users Online advertising spending US total media spending US B2C ecommerce sales Mobile phone subscribers ITU (worldwide), Department of Commerce (US) Interactive Advertising Bureau (IAB) & PricewaterhouseCoopers Universal McCann US Department of Commerce CTIA 6

7 Building Data Models These principles and techniques are used to construct the data models which yield emarketer s estimates and projections. Example: How Many Online Shoppers & Buyers in 2005, 2010? emarketer has built a demandside model for consumer online buying in several countries, including the US and Canada. Each country model relates total Internet users to those shopping and buying online (as well as to average spending and total dollar purchases). The models are based on a continuous supply of new data compiled from dozens of research and government sources. Each research source provides varying degrees of information on the following interrelated metrics: Country population (for US, data comes from the most recent US Census figures) Number online in the country Number of online shoppers Number of online buyers Percentage of Internet users who shop online Percentage of Internet users who buy online Percentage of the entire population who shop and buy online Average annual online spending per buyer emarketer analyzes this information, accounting for differences in definitions and methodologies, to construct models for Internet purchase behavior. Here is a sample grid of emarketer s online buying model for the United States, covering the years : US Consumer Online Buying and Shopping Grid, (in millions and % penetration) US population ages 14+ (US Census) Internet users* Total US Internet users Internet users ages 14+ Online penetration among population ages % Online shoppers Online shoppers ages 14+ as a % of Internet 73.2% users ages 14+ Online buyers Online buyers ages as a % of Internet 58.3% users ages 14+ Retail ecommerce Retail ecommerce $55,731 (excluding travel) Online travel $38,012 revenues Total retail $93,743 ecommerce % % % $69,238 $48, % % % $86,603 $58, % % % $105,158 $126,400 $150,417 $68, % % % $80, % % % $93,141 $117,741 $144,613 $173,668 $206,625 $243,558 Average annual retail purchase per online buyer (not in millions; excluding online travel) $672 $771 $900 $1,034 $1,184 $1,350 Note: *emarketer's 2003 baseline is from the Department of Commerce's October 2003 estimate of Internet users who had access to the Internet at the time of the survey; **emarketer benchmarks its retail ecommerce revenues figures against US Department of Commerce data, for which the last period measured was Q3 2005; the travel component was formulated based on aggregated data Source: emarketer, December emarketer, Inc. The Benefits of emarketer s Aggregation Approach to Market Research As a result of emarketer s unique approach, the information we provide to our clients is: more comprehensive, objective and ultimately accurate than any single research source can provide; available all in one place, making it easy to locate, evaluate and compare; presented along with clear analysis, which makes sense of all the disparate figures and interrelated trends, and, therefore a uniquelypowerful decisionsupport tool. THE FIRST PLACE TO LOOK 7

8 About emarketer is The First Place to Look for market research information related to the Internet, ebusiness, online marketing and emerging technologies. emarketer aggregates and analyzes ebusiness research from over 2,000 sources, and brings it together in analyst reports, daily research articles and the estat Database the most comprehensive database of ebusiness and online marketing statistics in the world. emarketer s Core Expertise emarketer specializes in researching and sorting vast amounts of publiclyavailable information, and objectively compiling and analyzing this information into widely read reports, articles and newsletters. Our information products help business executives worldwide make smarter, faster decisions about online marketing, emerging technologies and ebusiness. Dedicated Team Our team of researchers and analysts comb through Web sites, data repositories and government statistics, uniquely providing a 360degree overview of available data, combined with original analysis that is quickly accessible, comprehensive, objective, actionable, costeffective and, most of all, intelligent. A Trusted Resource emarketer serves as a trusted, thirdparty resource, cutting through the clutter and hype helping businesses make sense of the ebusiness numbers and trends. emarketer's products and services help companies make better, more informed business decisions by: Streamlining ebusiness research sources and reducing costs Eliminating critical data gaps Providing an objective, bird s eye view of the entire ebusiness landscape Better deploying and sharing information across the company Building solid business cases backed up by hard data Reducing business risk Saving valuable time For more information about subscribing to emarketer, contact: emarketer, Inc. TollFree: Broad Street Outside the US: nd floor Fax: New York, NY sales@emarketer.com 2006 emarketer Inc. All rights reserved.