Grace Huang, Founder / CEO February 2010

What is an ad network?

An advertising network (or ‘ad network’) is a company that connects online publishers who want to host advertisements with advertisers who want to access their inventory and audience.

Different types of ad networks

–  Publishers: All quality sites –  Typical

advertisers: ROI driven brands

–  Pricing: typically CPM/

CPC

Behavioral ad network

–  Publishers: Longtail sites

–  Typical advertiser: internet service brands

–  Pricing: typically CPA

–  Publishers: non-selective –  Typical advertiser:

medium to small brands

–  Pricing: CPC

–  Publishers: Vertical sites –  Typical advertiser:

vertical brands –  Pricing: typically CPM

Long-tail ad network

Contextual ad network

Vertical ad network

Time

Traditional internet advertising solutions are trapped by a reach vs. relevancy ‘curse’

High

Low Small

Rel

evan

cy

Scale/Reach Large

Contextual targeting Index page content to

target

Untargeted banner Index site content

THE ‘CURSE’:

Diminishing reach to gain relevancy

Search marketing Index key words through search

e.g., Baidu (China) Google (U.S.)

e.g., NarrowAd (China) Google AdSense (U.S.)

e.g., Allyes (China) Advertising.com (U.S.)

e.g., Sina (China) Excite (U.S.)

Vertical Index audience

singular dimension

Behavioral targeting advertising solves the problem by delivering ads against audience

Behavioral targeting is not about page

Different persons will see different ads when landing on the same page

Behavioral audience segments are built on observable behaviors

•  Recency, frequency and volume of visits to content relevant to an interest

•  Active searches for information relevant to the interest

•  Use of tools, surveys and quizzes, etc.

•  Ad interactions (clicks, downloads, demo views, games played, etc.)

•  SNS activities

Behavioral targeting ad network business model

Operator Publishers Advertisers

•  Advertisers pay BT network operator to deliver behavioral targeting ad �

•  Behavioral targeting operator delivers BT targeted ad on the publishers network�

•  The operator gets ad inventory from publishers and after delivering target ad on the publishers, shares revenue with the publishers on CPM or CPC basis

Behavioral targeting is typically supported by sophisticated ad serving technology

Leading BT ad serving technology: •  Fully scalable •  Real time targeting �

Self learning profiling system: •  Proprietary profiling database •  Proprietary self-learning algorithm

BT advertising in the U.S.

Different BT algorithms

Cluster

Business rule

Predictive

•  Assign each visitor to one and only one segment �

•  Target visitors who have done X events in Y days or Y events in X days �

•  Automate business rules to identify the ideal recency and frequency of activities that best correlate with brand and performance goals �

Behavioral targeting ad network is estimated to be over US$ 2 billion by 2015 in China �

US$ mn Growth of Online Ad and behavioral targeting ad network �

* J.P Morgan expects YOY market growth from 2010 to 2015 is 18% for online ad market in China in near term as conservative

Source: JP Morgan, CTR, Jupiter Research

•  Overall market is growing at 29.9% CAGR

•  Behavioral targeting will be the fastest growing category, expected to reach 20-30% of the overall spend by 2015, or $1.5-2 billion.

2005 2007 2011 2013 2015 2009

Behavioral ad

Other format of internet ad

CAGR=29.9%

Advertisers’ perspective

•  Better targeting mechanism

•  Easy to buy since it sells audience instead of page

•  Generates better ROI

•  Generally better quality publishers than contextual ads

Case Study: PinYou achieved better ROI for English education client in China

Background / business challenge:

•  Our client is a leading English education brand. It spends majority of its advertising budget on display ads and search marketing. The key KPI it measures is the conversion rate from clicks to registration for their trial classes and the acquisition cost of each registration.

Conversion rate

PinYou improved

PinYou initial

Other display ad

Search marketing

PinYou solution:

•  PinYou firstly targeted people who have visited English education sites in the past 3 months and resulted in 6% conversion rate.

•  Later, through model optimization, we found income level is a key factor that affects the conversion rate, and we adjusted the target audience. As a result, we improved the conversion rate to 11%.

•  The cost per acquisition continues to be lower than other advertising format.

Publishers’ perspective

•  Better monetize the unsold inventory

•  Access to premium advertisers / non-vertical advertisers

•  Save on sales force

Economics of ad networks

•  Other ad network

•  Traditional agency buy

•  Behavioral targeting

% Publishers Operators

Typical metrics

•  Click-through rate

•  Conversion rate of clicks

•  Cost per lead

•  Return On Investment (ROI)

BT’s own headache

Who is PinYou (品友)?

•  First and largest behavioral targeting network, founded in 2008 (http://www.ipinyou.com.cn/).

•  Blue chip clients include P&G, Elong, Nestle, English First, etc.

•  Nearly 1,000 quality publishers, with about 180 million UV’s/month and 1.5 billion page views.

•  Reached profitability in mid-2009.

•  Recently launched a re-targeting platform (http://www.userback.com.cn/).

Why did I start it?

•  P&G Marketing

•  McKinsey Consultant

•  UCLA MBA

In 2006, everything changed …

Entrepreneur’s life …

-  Making decisions (making mistakes and correcting them).

-  Title means nothing.

-  You are spending more time with your partners than with your family.

-  You are 24/7 on call!

-  There is no boss!

Key success factor in starting up companies

1. It’s all about the team

2. Persistence is the key

3. Lots of little things (sandwich story)

4. Don’t worry about competition

5. Start with something practical

6. Understand your strength and leverage it

PinYou’s business is supported by a powerful team

Business Strategy

Operation strategy

CEO VP of sales

VP of publishers

Investors

External network

Advisors

CTO

Employees

Persistence is the key

•  Founders always misjudge the market and are over optimistic.

•  You will face all the difficulties you can ever imagine.

•  Don’t expect your company to become YouTube or Facebook overnight.

•  The “trend” is changing over time (三十年河东，三十年河西). �

Nothing is too small

Sandwich story …

Don’t worry too much about competition

•  Don’t believe your idea will be “yours only”

•  Don’t spend too much time studying your competitors’ strategy, because they may be wrong

•  PinYou’s case

Start with something practical

•  Cashflow is key

•  Speed is key

•  Don’t think you will get funded in a year

Q&A