INVESTMENT RESEARCH
`
`THE USER REVOLUTION
`
`THE NEW ADVERTISING ECOSYSTEM AND
`THE RISE OF THE INTERNET AS A MASS MEDIUM
`
`FEBRUARY 2007
`
`Safa Rashtchy
`Jvf,maging Direct01~ Senior Analyst, Internet Media, Commerce and Marketing
`
`Aaron M. Kessler, CFA
`Vice President, Senior Analyst, Internet Media, Commerce and lvLnketing
`
`Paul J. Bieber
`Research Analyst, Internet Media, Commerce <Tnd Marketing
`
`Nathaniel H. Schindler
`Research Analyst, Internet Medici, Commerce ,md Marketing
`
`Judith C. Tzeng
`Rese.zrch Analyst, Internet lv1edi<~, Commerce ,md .A1arketing
`
`GumEs FOR
`
`THE jOURNEY.' I PiperJaffray
`EXHIBIT 2089
`Facebook, Inc. et al.
`v.
`Software Rights Archive, LLC
`CASE IPR2013-00479
`
`

`

`I N V E S T M E N T R E S E A R C H
`
` February 2007
`
`T H E U S E R R E V O L U T I O N
`
`The New Advertising Ecosystem And The Rise Of The Internet
`As A Mass Medium
`
`
`Safa Rashtchy
`Managing Director,
`Senior Analyst,
`Internet Media, Commerce
` and Marketing
`650 838-1347
`safa.a.rashtchy@pjc.com
`
`Aaron M. Kessler, CFA
`Vice President,
`Senior Analyst,
`Internet Media, Commerce
` and Marketing
`650 837-1434
`aaron.m.kessler@pjc.com
`
`Paul J. Bieber
`Research Analyst,
`Internet Media, Commerce
` and Marketing
`650 838-1378
`paul.j.bieber@pjc.com
`
`Nathaniel H. Schindler
`Research Analyst,
`Internet Media, Commerce
` and Marketing
`650 838-317
`nathaniel.h.schindler@pjc.com
`
`Judith C. Tzeng
`Research Analyst,
`Internet Media, Commerce
` and Marketing
`650 838-1348
`judith.c.tzeng@pjc.com
`
`East Palo Alto
`
`Piper Jaffray does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may
`have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their
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`certification, found on pages 421 - 422 of this report or at the following site: http://www.piperjaffray.com/researchdisclosures.
`
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`5128 to request a copy of this research.
`
`

`

`February 2007
`
`CHAPTER 8
`The Golden Search
`
`
`
`(cid:120) Five key trends in search today:
`1. Search is the new portal
`2. Search is becoming a branding tool
`3. Google(cid:216)s dominance is increasing
`4. Local search remains a looming opportunity
`5. New search technologies are likely to expand the field by
`broadening search applications
`
`
`(cid:120) Search is the second most commonly used application on the Web,
`with nearly 600 million searches daily, and search marketing globally
`is a $15.8 billion industry growing to $44.5 billion in the next five
`years.
`
`
`(cid:120) There are three types of search: navigational, informational, and
`commercial. Each represents about one-third of total search queries.
`
`
`(cid:120) We estimate U.S. and International search query volume CAGR of
`12% and 23% (2006-2011); 77% of Internet users search at least
`once per day.
`
`
`(cid:120) Google controls approximately 60% of the worldwide search query
`volume and percentage of the total search marketing spend.
`
`
`(cid:120) Certain key international markets, including Japan, China, South
`Korea, and Russia, have developed around local players, who are
`unlikely to lose share to Google or other global players.
`
` Piper Jaffray Investment Research The User Revolution | 155
`
`

`

`February 2007
`
`PART I:
`THE FIVE KEY TRENDS IN SEARCH TODAY
`
`Trend One: Search,
`The New Portal
`
`The tendency to search has
`continued to increase as
`search has provided answers
`to users(cid:183) questions, queries,
`problems, and shopping
`needs, turning search into
`the New Portal.
`
`Over the past five years, search has gradually changed from a tool for finding Websites
`to what we consider to be the new navigational platform, or the modern portal. The
`tendency to search has continued to increase as search has provided answers to users(cid:183)
`questions, queries, problems, and shopping needs. As such, many users are increasingly
`turning to search first when trying to accomplish a task online. Our 2006 Online Media
`Survey indicated that 41% of respondents use search to navigate to a Website.
`Interestingly, this represents a larger percentage than other navigational vehicles, such
`as bookmarks or typing a URL into a browser.
`
`
`Exhibit 114
`
`SEARCH AS A NAVIGATION PLATFORM
`
`How do you most often navigate to a Website?
`
`Use Search
`Engines
`41%
`
`Bookmarks
`22%
`
`Type Web
`address
`directly into
`browser
`37%
`
`
`
`Source: Piper Jaffray & Co. 2006 Online Media Survey
`
`We believe a key driver for this trend is the increasing efficiency of search, a trend that
`we called Googlism in our Golden Search Report in 2003 (see Sidebar on page 157).
`Googlism created both efficiency and trust, offering users a path of least friction for
`navigating online.
`
`We consider all searches to fall into three broad categories:
`
`1. Searching for navigation: Finding a Website
`2. Searching for information
`3. Searching for products and services
`
`156 | The User Revolution Piper Jaffray Investment Research
`
`

`

`February 2007
`
`SIDEBAR
`GOOGLISM: THE RISE OF RELEVANCE
`
`Google has brought relevancy to the forefront of search and made the search
`experience easy, efficient, and fast. While portals and other search technologies all
`but abandoned the investment in, and development of, new search technologies,
`Google provided rebirth of search relevancy, at a time when other portals and
`search engines became more focused on other technological and commerce
`advancements. In fact, search was nearly declared dead only a few years ago, as the
`belief was that users are fairly knowledgeable as to which Websites have the
`information they need and are bound to go to the portal(cid:183)s various channels or
`specific Websites to get information. This was partly driven by massive advertising
`dollars that small Websites were spending to draw the consumers. Even search sites
`such as AltaVista, Ask Jeeves, and LookSmart were focusing more on the auxiliary
`services and monetization of the traffic by various partnerships and other offers,
`rather than core search technologies. As it turned out, consumer behavior didn(cid:183)t
`change with the proliferation of specialty Websites, and in fact, got more focused
`on a quick and relevant response to an inquiry: Users expect the Internet to be the
`provider of answers to simple queries, and they do not want to navigate through
`directory trees or channels or remember which Websites cover a given topic. This
`trend was nearly single-handedly embraced and answered by Google, which put a
`sharp focus on quick, relevant results. Typically, top relevancy search technologies
`would spider the Internet, indexing the results and running an algorithm for
`relevancy. Google added a twist: link analysis and its PageRank methodology.
`PageRank was the gating factor for relevancy. The basic premise was that Websites
`that are popular would link to other sites with similar content. The origin of this
`technology was innovative but not unique. Similar technologies were developed at
`various research centers but Google was the first to improve it and continuously
`add new relevancy features to keep results fresh. As a result of its success, Google
`was able to unseat the once behemoth Inktomi as the search provider for Yahoo!.
`This was a wake-up call to others, and now a number of search technology
`companies are racing to catch up with Google(cid:183)s relevancy.
`
`While many companies have refocused spending on improving search relevancy, we
`believe Google is taking search to another level, attempting to gradually change
`user behavior to use search as the main interface to the Internet and the way to
`navigate through the Internet. Even without this goal, Googlism has clearly taken
`center stage and consumers will be the big beneficiaries of this new trend, as faster
`and more relevant searches make the Internet more useful. By Googlism, we are
`now referring not just to the company Google, but also to the trend we described
`here, which is increasingly encompassing a number of companies in the search
`space. We believe that the full success of Googlism will be the ultimate promise of
`the Internet: to put everything at one(cid:183)s fingertips.
`
`Source: Golden Search, Piper Jaffray & Co., March 2003
`
`We estimate that each category is approximately one-third of the total search volume.
`It is important to note that when you combine all three of these categories, search
`encompasses nearly everything that users want to do online. As such, we believe search
`and search engines have become the new portals. Searching for information, for
`example, is an extremely broad category, and it includes search as diverse as finding
`weather info to learning about celebrities, or getting an update on a disease.
`
` Piper Jaffray Investment Research The User Revolution | 157
`
`