Banking for 7 billion and 7 million

More documents

Info

GLOBAL INVESTOR 3.06 Enrichment — 46 Figure 2 The digital economic paradigm Digitization is combining with powerful secular forces, such as the aging of the PC and Internet generations, to change the basic way companies sell their products and how consumers buy them. Source: Credit Suisse Industrial revolution Popularity paradigm: Mass-market economics Digital revolution Niche paradigm: Economics of abundance Consumer choice limited by local store inventory Consumer choice freed from store inventory confines High product transaction/ overhead costs One-sizefits-all economy High shopping opportunity costs (time, effort) Low transaction costs with little or no product overhead Individuallpreference economy Highly efficient shopping process; low opportunity costs Profitability dependant on high turnover of few products Advertising and brand building done through mass market media Profitability dependant on high turnover of many products Advertising and brand building done through targeted digital media Figure 3 Source: Credit Suisse The PC generation is maturing As the PC generation matures, the online population is becoming dominated by consumers with strong purchasing power and technological savvy. This trend will increase as the Internet generation ages. Figure 4 Source: OECD Global broadband proliferation As broadband penetration increases, people spend more time and do more things online. This trend changes the way companies communicate with consumers. Advertisers must go where the eyeballs are. % 100 Broadband subscribers per 100 inhabitants 25 90 80 20 Canada 70 60 50 40 From 9% to 77% 15 10 Japan United States United Kingdom France OECD Germany Italy 30 20 5 10 0 0 Adult PC users Adults online 1995 1999 2006 PC users online 10.2001 01.2002 04.2002 07.2002 10.2002 01.2003 04.2003 07.2003 10.2003 01.2004 04.2004 07.2004 10.2004 01.2005 04.2005
GLOBAL INVESTOR 3.06 Enrichment — 47 In early 2006, major US television networks began making primetime television shows and major sporting events freely available on the Internet. In June, Google announced plans to make video commercials available on its advertising partners’ Web sites, using the same auction process as for keywords. Traditional ad platforms disrupted: TV, cable. Representing 2005 ad spend: over USD 64 billion. The trend is irreversible Digital technologies can be highly useful tools, but they are really only one cylinder in the engine powering the digital revolution’s evolution. MySpace and YouTube would have no gravity if they did not meet growing economic demand. We believe four broad secular forces are combining to fuel the economic transformation: Aging of the computer and Internet generations: These demographics are comfortable with digital interaction and commerce. Over the next 10 years, they will steadily become the world’s wealthiest and most powerful demographic (see figure 3). Global broadband proliferation: Broadband users “spend more time online… they visit more Web sites, and they buy more products online.” – PricewaterhouseCoopers’ Global Entertainment and Media Outlook 2006 – 2010. Free wireless services are rapidly expanding broadband’s effective reach. Globally, 9% of adults went online from public locations last year, such as bars, parks, restaurants and airports, up from 5% in 2004. In the USA, the figure was 5%, up from 1% (Ipsos Insight, MediaPost). Roughly 250 US cities have initiated municipal access projects, largely led by the most densely populated ones (see figure 4). Government regulations: Most developed economies are currently debating how best to adapt their regulatory infrastructures to the digital economic paradigms. Evolving net neutrality legislation in the USA is one example. The need to establish a socio-economic infrastructure that encourages outside investment and domestic economic expansion is forcing nearly every emerging market economy to adopt rules that encourage broadband proliferation, even if at controlled rates. Emerging market development: Strengthening financial, transportation, and telecommunications infrastructures facilitate digital economics. Global prosperity further supports online usage. Statistically, people spend more time online as they rise up the income scale. Advertising to the 21st century family As manual labor shifts overseas, developed economies have tilted towards technology-based service societies, with a focus on education and productivity. Higher-educated couples trend toward twoincome households. The proportion of married wage and salaried employees who live in dual-earner couples in the USA has increased from 66% in 1977 to 78% today. The US Department of Labor publishes a detailed study on the nation’s socio-economic structure every seven years, with the latest in 2002. We find one segment especially telling in identifying the early stages of a powerful developed-market trend: “Combined work hours for dual-earner couples with children rose 10 hours a week, from 81 hours a week in 1977 to 91 hours a week today (2002). Clearly, today’s working couples have less time for their lives off the job… What has been sacrificed? Parents’ time for themselves is one factor.” As baby boomers age, elder care becomes an interesting tangential item, given the confluence with dual-income families that already have increasing demands placed upon their time. This trend only increases the likely demand outlook for personal digital devices to better organize, and help maximize the efficiency of, increasingly precious available time. In turn, this trend increases the importance, to marketers, of effectively targeting consumers through platforms that are most likely to gather their attention. Digital advertising investment themes/recommendations Rupert Murdoch, News Corp’s chairman and CEO, asked himself a rhetorical question in a recent interview: “Can newspapers make money online? Sure. Can they make enough to replace what’s going out? At the moment… the answer is no.” Follow the money (long/short): As ad spend shifts to digital platforms, and away from mass-market media platforms, a dichotomy could continue to widen in these companies’ valuations. Examples of well-positioned digital advertising leaders with an ability to shape the trend’s evolution include Google (BUY), Yahoo (BUY), aQuantive (NR 2 ), and ValueClick (NR 2 ). Traditional media companies least likely to make an effective transition include Hearst-Argyle (NR 2 ), Entercom (NR 2 ), Gannett (NR 2 ), and Quebecor (NR 2 ). Darwinian media: We believe traditional media companies that have strong digital assets and effective strategies could find the digital revolution to be a significant opportunity, rather than a crisis. In our view, Disney (BUY), News Corp (BUY), and Viacom (HOLD) are best positioned to make the transition to media’s new digital paradigm. All three companies have strong bases of valuable programming content, high cash flows and significant international exposure. Each also owns particularly valuable “new paradigm” platforms – News Corp, for instance, owns MySpace. Similarly, as the digital revolution evolves, the variety of potential advertising platforms and the sophistication of marketing campaigns should increase, particularly as companies struggle to adapt to the new environment. This factor should shift power in favor of well-positioned advertising agencies. Internet data center (long only but diversified): Companies are investing hundreds of billions of dollars in building the infrastructure necessary to chase the evolving online advertising opportunity. Google, for instance, is building roughly 300 data centers, warehouses of computer servers located near key Internet traffic areas, such as major cities. These centers, and others like them, house much of the infrastructure for the developing Internet. Differentiated leaders within this theme include Akamai Technologies (BUY), Equinix (NR 2 ), and Digital River (NR 2 ). 3 1 Our 22 June 2005 investment recommendation titled “The Digital Revolution: Advertising Opportunity” was the first in a series of communications designed specifically to explore investment opportunities in different segments of the digital revolution. The long/short strategy suggested in that note has generated a positive 20% return versus the MSCI World Index… 30% absolute… but is in need of update. 2 NR: non-rated. Note that we do not rate these stocks and make no recommendations on them as investments. 3 For investors seeking more diversification and/or wider theme exposure, please refer to our detailed companion piece, “New economy, new rules, new opportunities.” For further investment recommendations and insight into the new economic paradigms of the digital revolution, please see our July 2005 IPTV report, August and November 2005 Internet seasonality recommendations, and January investment idea regarding “long tail” investment strategies.
Page 1 and 2: Issue 03 September 2006 Expert know
Page 5 and 6: Hangzhou, China
Page 7 and 8: What moves the world 2 World income
Page 9 and 10: GLOBAL INVESTOR 3.06 Editorial —
Page 11 and 12: GLOBAL INVESTOR 3.06 Content — 0
Page 13 and 14: GLOBAL INVESTOR 3.06 Lead — 11 Ba
Page 15 and 16: GLOBAL INVESTOR 3.06 Lead — 13 wi
Page 17 and 18: GLOBAL INVESTOR 3.06 Lead — 15 of
Page 19 and 20: GLOBAL INVESTOR 3.06 Lead — 17 ma
Page 21 and 22: GLOBAL INVESTOR 3.06 Lead — 19 ne
Page 23 and 24: 1020 1005 1010 1020 1025 995 GLOBAL
Page 25 and 26: GLOBAL INVESTOR 3.06 Basics — 23
Page 45 and 46: GLOBAL INVESTOR 3.06 Enrichment —
Page 47: GLOBAL INVESTOR 3.06 Enrichment —
Page 55 and 56: GLOBAL INVESTOR 3.06 Switching —
Page 71 and 72: GLOBAL INVESTOR 3.06 Services — 6
Page 77 and 78: Imprint Publisher Credit Suisse, Gl

Banking for 7 billion and 7 million

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?