,INTERNET TRENDS 2019,Mary MeekerJune 11 Code 2019,Internet Trends 2019,UsersE-Commerce + AdvertisingUsageFreemium Business ModelsData GrowthUsageWorkEducationImmigration + USA Inc.HealthcareChina (Provided by Hillhouse Capital),Thanks,Bond PartnersMichael Brogan & Ansel Parikh helped steer ideas & did a lot of heavy lifting. Noah Knauf, Collin Ebert, Jesse Ellingworth, Everett Randle, Nancy Xiao, Daegwon Chae, Paul Vronsky & Juliet de Baubigny also dug in & were more than on call with help.Hillhouse CapitalLiang Wu & colleagues contribution of the China section provides an overview of the worldslargest market of Internet users.Participants in Evolution of Internet ConnectivityFrom creators to consumers who keep us on our toes 24x7 & the people who directly help us prepare the report. And, Kara & team, thanks for continuing to do what you do so well.,Context,4,We use data to tell stories of business-related trends we focus on. We hope others take the ideas, build on them & make them better.At 3.8B, the number of Internet users comprises more than half the worlds population. When markets reach mainstream, new growth is harder to find as evinced by declining new smartphone shipments in 2018. While E-Commerce continues to gain share vs. physical retail, growth rates are slowing. While Internet advertising growth is solid & innovation is healthy, there are areas where customer acquisition costs may be rising to unsustainable levels.While Internet user growth is slowing, global innovation & competition continue to drive product improvements, new types of usage & monetization especially in areas of digital video, voice, wearables, on-demand + local services & traditionally underserved markets. Outside of USA, we focus on especially high growth & innovation in data-driven / direct fulfillment & financial services. We highlight massive global usage changes related to the evolution of images & interactive gaming as communications tools & the broad emergence of freemium businesses at scale.The rapid rise of gathered / analyzed digital data is often core to the holistic success of the fastest growing & most successful companies of our time around the world. Context-rich data can help businesses provide consumers with increasingly personalized products & services that can often be obtained at lower prices & delivered more efficiently. This, in turn, can drive higher customer satisfaction. Better data-driven tools can improve the ability for consumers to communicate directly & indirectly with businesses & regulators.Core constituents (consumers / businesses / regulators) are increasingly drinking from a data firehose & management challenges continue to rise for all parties. Broad awareness of challenges (& related vigorous / heated debates) can be the first step in driving change.,Context,5,Consumers are aware of concerns about Internet usage overload & are taking steps to reduce usage leading USA-based Internet platforms have rolled out tools to help monitor usage & social media usage growth appears to be decelerating following a period of strong growth. Privacy & problematic content concerns are also top-of-mind & are following similar patterns.Owing to social media amplification, reveals / actions / reactions about events can occur quickly resulting in both good & bad outcomes. In markets where online real-time rating systems exist, accountability can be improved vs. offline options as consumers & businesses interact directly while regulators can also benefit.Rapidly expanding connectivity has helped amplify voices of good & bad actors. This has brought new focus to an age-old challenge for regulators around the world finding the most effective ways to amplify good & minimize bad, often resulting in different regional interpretations & strategies.As Internet systems become increasingly sophisticated, data-rich & mission critical, so has the opportunity for cyber attacks. We are in a new era of cyber security where technology issues are increasingly intermixed with international diplomacy & defense.We focus on the impact of the Internet on work (via on-demand services & remote options), education & healthcare the materiality of current trends imply inflections are occurring. We update USA trending around government finances & the importance of immigration to the technology sector.The Hillhouse Capital team provides insights into China the largest market of Internet users & a leader in innovation / scale.,INTERNET USERS = >50% GLOBAL PENETRATIONNEW GROWTH REMAINS HARDER TO FIND,Internet user data is as of mid-year. Source: United Nations / International Telecommunications Union, USA Census Bureau. Pew Research (USA), China Internet Network Information Center (China), Islamic Republic News Agency / InternetWorldStats / Bond estimates (Iran), Bond estimates based on IAMAI data (India), & APJII (Indonesia).,Global Internet User Growth =Solid But Slowing +6% vs. +7% Y/Y,0%,9%,18%,0,2B,4B,2009201020112012201320142015201620172018,Y/Y Growth (Red Line),Internet Users, Global (Blue Bar),Internet Users vs. Y/Y Growth,Global New Smartphone Unit Shipments =Declining -4% vs. 0% Y/Y,New Smartphone Unit Shipments vs. Y/Y Growth,-25%,0%,25%,50%,75%,0,0.4B,0.8B,1.2B,1.6B,2009201020112012201320142015201620172018,Y/Y Growth (Red Line),New Smartphone Shipments, Global,AndroidiOS,Other,0%,8,Global Internet Users = 3.8B >50% of Population,51%,9,35%24%,70%,0%2009201020112012201320142015201620172018,Internet Penetration, Global,Internet Penetration, 2018,Global Internet Users =Asia Pacific Leads in Users + Potential,89%,62%,32%,78%,48%,0,3B,6B,North America,South America &Carribean,Africa & Middle East,Asia Pacific,Population,Internet Users,Non-Internet Users,Internet Users by Region, 2018,Asia Pacific,Europe(15%),Europe,Africa & Middle East,Latin America & Caribbean,North America,53% of Global Internet Users48% Internet User Penetration in Region,15%78%,13%32%,10%62%,9%89%,10,Global Internet Users =China 21% of Total.India 12%.USA 8%,0,0.8B,1.6B,China IndiaUnited States IndonesiaBrazilJapan Russia Mexico GermanyThe Philippines United KingdomIran (I.R.) Nigeria France Turkey,Internet Users,Non-Internet Users,11,Internet Users Top Countries, 2018,Global Internet Market Capitalization Leaders =USA Stable 18 of 30China Stable 7 of 30,Rank 2019,Company,Region,% Change,Market Cap Value ($B) 6/7/196/7/16,Global Market Capitalization Leaders =USA Stable 23 of 30Technology Stable 9 of 30,USA stable at 23 of 30 refers to the fact that 21 USA companies were in the top 30 using same parameters in 2018. Technology in 2018 = 10 of 30.Source: CapitaIIQ data collected 6/7/19. Reflects a global list of publicly traded companies, some companies (e.g., ICBC) derive the majority of their revenue from one country.,% Change,RankMarket Cap Value ($B) 2019CompanySectorRegion6/7/196/7/16,Global Internet Market Capitalization Leader Revenue Growth = Slowing +11% vs. +13% (Y/Y Q1 vs. Q4),0%,15%,30%,$0,$200B,$400B,Q1:16 Q2:16 Q3:16 Q4:16 Q1:17 Q2:17 Q3:17 Q4:17 Q1:18 Q2:18 Q3:18 Q4:18 Q1:19,Global Internet Leaders Revenue vs. Y/Y Growth,Revenue (Blue Bar),Y/Y Growth (Red Line),Global Market Capitalization Leader Revenue Growth = Slowing +2% vs. +7% (Y/Y Q1 vs. Q4),-16%,0%,16%,$0,$600B,$1,200B,Q1:16 Q2:16 Q3:16 Q4:16 Q1:17 Q2:17 Q3:17 Q4:17 Q1:18 Q2:18 Q3:18 Q4:18 Q1:19,Global Leaders Revenue vs. Y/Y Growth,Revenue (Blue Bar),Y/Y Growth (Red Line),0%,E-COMMERCE + ONLINE ADVERTISING =SOLIDBUT SLOWING GROWTH,17,E-Commerce,18,2019,E-Commerce Growth =Solid +12.4% vs. +12.1% (Y/Y Q1 vs. Q4),E-Commerce Sales vs. Y/Y Growth, USA,0%,10%,20%,$0,$70B,$140B,E-Commerce Sales (Blue Bar),Y/Y Growth (Red Line),Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1201020112012201320142015201620172018 2019,-10%,0%,10%,$0,$400B,$800B,Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1,Physical Retail Growth =Solid +2.0% vs. +1.6% (Y/Y Q1 vs. Q4),Physical Retail Sales vs. Y/Y Growth, USA,0%,Physical Retail Sales, USA (Blue Bar),Y/Y Growth (Red Line),2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019,19,E-Commerce Share =Gains Continue 15% of Retail vs. 14% Y/Y,E-Commerce as % of Retail Sales, USA,8%,20,16%,0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1,E-Commerce Share,2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019,Online Advertising,21,8%,16%,25%,8%,27%,11%,43% 43%,0%,25%,50%,Print,Radio,TV,Desktop,Mobile,% of Time Spent in Media / Advertising Spending, 2010, USA,0.5%,Media Time vs. Advertising Spending =Mobile Equilibrium (2018)Desktop (2015),3%,12%,34%,7%,8%,34%,0%,25%,50%,Print,Radio,TV,Desktop,Mobile,Print,Radio,TVDesktop Mobile,Print,Radio,TVDesktop,Mobile,% Time Spent in Media vs. % Advertising Spending20102018,19%,18% 18%,33% 33%,% of Time Spent in Media / Advertising Spending, 2018, USA,Ad Spend,Time Spent,22,Internet Ad Spending (Annual)=Accelerated +22% vs. +21% Y/Y,Internet Advertising Spend,0%,15%,30%,0,$60B,$120B,2009201020112012201320142015201620172018,Y/Y Growth (Red Line),Internet Advertising Spend, USA (Bars),Desktop Advertising,Mobile Advertising,Y/Y Growth,23,Internet Ad Revenue (Quarterly Leading USA Platforms) = Decelerating +20% vs. +29% (Y/Y Q1 vs. Q4),Leading USA-Based Online Ad Platform Revenue, Global,0%,24,20%,40%,$0,$30B,$60B,Q1:17,Q2:17,Q3:17,Q4:17,Q1:18,Q2:18,Q3:18,Q4:18,Q1:19,Revenue (Blue Bar),Y/Y Growth (Red Line),Internet Ad Platforms =Google + Facebook Lead But Others Gaining Share,Select USA-Based Advertising Platform Revenue, Global,$0,$20B,$40B,Google+1.4x,Facebook+1.9x,Amazon / Twitter / Snap / Pinterest+2.6x,25,Internet Ad Buying = Programmatic Gains vs. Direct ContinueNegatively Impacting Pricing,10%,26,62%,0%,40%,80%,2012,2013,2014,2015,2016,2017,2018,Programmatic Buying % Digital Display Advertising, Global,% Display Advertising Spend Programmatic, Global,Ad Share Gain Drivers =Better Targeting + New Creative + Commerce + High-Relevance,Facebook,TargetingAudience Customization,YouTube,Machine LearningAutomatically Time-Edited Clips,Twitter,High-RelevancePromoted Tweets,Pinterest,CommerceShoppable Catalogs,27,Customer Acquisition Cost (CAC) =Rising in Highly Competitive / Capitalized Sectors,$0,28,$30,$60,1/17,4/17,7/17,10/17,1/18,4/18,7/18,10/18,1/19,Cost Per User Activation Mobile Finance Apps, Global per Liftoff,Average Cost per User Activation, Global,Reality =CAC Cant Exceed LTV for Very Long,29,Effective + Efficient Marketing=Ones Own Product +Happy Customers + Recommendations,30,Effective + Efficient Marketing = Can Be Free Trial / Tier,26%,29%,38%,42%,0%,25%,50%,Good User Experience,Access to Exclusive Content,Content Library,Free Trial,Free Trial / Tier,42%,31,Online Streaming Reasons For Trying New Service,Happy CustomersSpotify = Free User Conversion to Paid Subscribers,Rising LTV / Subscriber Acquisition Cost Ratio,Free Ad-Supported Product,1.5x,3.0x,0x,2x,2015,2016,2017,2018,Lifetime Value of Premium Subscribers (Adjusted for AdvertisingRevenue from Free Users) / Subscriber Acquisition Cost,Our freemium model accounts for60% of our gross added premium subscribers. the ad-supported service is a subsidy program that offsets costs of new subscriber acquisition.,Developing a better user experience produces by far the most viral effect & impact when investing in growth.Engagement drives conversion from free consumption to paid subscription.,Barry McCarthy CFO, Spotify, 3/18,Morgan Stanley LTV:CAC Estimate4x,32,Happy CustomersZoom = Free User Conversion to Paid Subscribers,High LTV / CAC Ratio*,Free to Join, When Paid User Hosts,3.7x,3.7x,0x,3x,6x,FQ1:19,Lifetime Value to Customer Acquisition Cost Ratio,FQ2:19 FQ3:19 FQ4:19 FQ1:20FY = January,.we really want to get customers to test our productIts really hard to get customers totry Zoom without a freemium product.We make our freemium product work so well If they like our product, very soon they are going to pay for the subscription.The most important thing is to make sure the existingcustomer is happy rather than chasing after new prospects.Our NPS is in the 67-69 range vs. our peers in the 20sWe do not want to spend money on the marketing side to generate leads.Eric Yuan Founder / CEO, Zoom, 8/17,Goldman Sachs Investment Research LTV:CAC Estimate,Effective + Efficient Marketing = Can Be Recommendations,10%,11%,12%,22%,22%,23%,0%,15%,30%,Flexibility to Cancel,Like Subscription Model,Like the Product,Financial Incentive,Try Something New,Reccomended by Someone,Recommended by Someone,23%,E-Commerce Reasons for Trying New Subscription Box,Happy CustomersStitch Fix = Recommendations Drive Growth,Stitch Fix Active Clients,Data-Driven / Personalized Recommendations,The better way to sell clothing is through personalization get to know product, get to know people & generate really good recommendations What's really special about Stitch Fix is that100% of what we sell is based on recommendations.,We have over 4,000 stylistswhat makes them successful is listening, empathy & delivering what the client wants & doing that without judgmentOur business is about helping people feel their best, not necessarilyselling the big high-end fashion trends.,Katrina Lake Founder / CEO, Stitch Fix, 6/18,0,1.5MM,3.0MM,1/14,1/15,1/16,1/17,1/18,1/19,Stitch Fix Active Clients,36,Advertising TBDs,TBD = To Be Determined,TBD = Impact on Ad TargetingPrivacy Changes,37,privacy concerns are a headwind for Facebook in 2019.It's one of the factors that's contributing to our expected deceleration of revenue growth throughout the year.You've got regulatory which was GDPR in 2018the regulatory arc will be longer-term in playing outPlatforms like iOS are making biggerpushes in privacy & that has the potential impact then changes that we're making ourselveswe've elected to rollout GDPR-type controls globallylater this year, we'll be launching Clear History,which will also affect our ability to do third-party targeting.,