INTERNET TRENDS

Web 2.0 Summit San Francisco, CA

Mary Meeker (marym@kpcb.com) October 18, 2011

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www.kpcb.com/internettrends2011

KPCB (Digital Venture + Digital Growth) 2011 Investments

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Internet Trends
1. 2. 3. 4. 5. 6. 7. 8. 9. Globality We Arent In Kansas Anymore Mobile Early Innings Growth, Still User Interface Text Graphical Touch / Sound / Move Commerce Fast / Easy / Fun / Savings = More Important Than Ever Advertising Lookin Good Content Creation Changed Forever Technology / Mobile Leadership Americans Should Be Proud Mega-Trend of 21st Century = Empowerment of People via Connected
Mobile Devices

Authentic Identity The Good / Bad / Ugly. But Mostly Good?

10. Economy Lots of Uncertainty 11. USA Inc. Pay Attention! 12. Closing Thoughts
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GLOBALITY WE ARENT IN KANSAS ANYMORE

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Apple, Google, Amazon.com & Facebook Remain Mega-Leaders; Chinese (& Russian) Companies Continue to Step Up
Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Total
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Y/Y Trend Company Apple Google Amazon.com Facebook Baidu eBay Tencent Priceline.com Yahoo! Yahoo! Japan Salesforce.com Rakuten NHN Liberty Interactive Yandex Expedia LinkedIn Netflix Mail.ru Netease Alibaba.com Verisign Ctrip Sina.com Rackspace

Region USA USA USA USA China USA China USA USA Japan USA Japan Korea USA Russia USA USA USA Russia China China USA China China USA

2011 Market Value ($B) $373 177 108 77* 46 42 41 24 20 20 17 15 10 9 8 8 8 6 6 6 5 5 5 5 5 $969

2010 Revenue ($MM) $76,283 29,321 34,204 -1,216 9,156 2,967 3,085 6,325 2,995 1,657 4,286 1,062 8,932 447 3,348 243 2,162 324 836 854 681 424 403 781 $191,992
5

Note: 2011 data as of 10/12/2011; *Facebook market value per most recent trades (week of Sep 26) on SharesPost. Source: Google Finance.

81% of Users of Top Global Internet Properties = Outside USA

Top 10 Internet Properties by Global Monthly Unique Visitors, 8/11
Google Microsoft Facebook Yahoo! Wikipedia Amazon.com Apple Tencent VEVO Baidu 0
Source: comScore Global, 8/11.
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USA Users International Users

200

400

600

800

1,000

1,200

Monthly Unique Visitors (MM)

6

In 3 Years, China Added More Internet Users than Exist in USA China / India / Nigeria / Russia / Iran = Biggest Adders
07-10 Internet User Additions (MMs) 246 42 35 25 24 22 21 18 13 12 457 693

Rank 1 2 3 4 5 6 7 8 9 10

Country China India Nigeria Russia Iran USA Brazil Philippines Mexico Pakistan Top 10 World

2010 Internet Users (MMs) 459 88 45 60 37 244 79 23 35 29 1,099 2,054

Y/Y Growth 20% 43 2 0 31 2 4 292 24 43 16% 13%

Population Penetration 34% 8 28 42 49 79 41 25 31 17 29% 30%

7

Note: *Russia data as of 6/10; all other data as of 12/10. Source: United Nations / International Telecommunications Union.
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Social Networkers (October, 2011) Exceed Internet Users (December, 2006) & 70% of Them (800MM) Use Facebook
Hours Spent on Social Networking Sites per User per Month (8/11)

Israel Argentina Turkey Chile Russia Philippines Venezuela Colombia Canada Mexico Peru USA 0
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11.1 10.8 10.3 10.2 9.7 9.0 8.9 8.5 7.4 7.4 7.2 6.8 2 4 6 8 10 12
8

Source: Social Networking users & time spent data per comScore, Internet users data per ITU, Facebook data per Facebook.

If it Plays in PeoriaTake it to Broadway! Especially in Mobile / Social World

Test Market / Origin* UK

Company

Social Service Sound Recognition / Music Discovery Music Discovery & Streaming Driving Navigation Sound Discovery & Sharing

Users 100MM+

Sweden

15MM+

Israel Germany / UK / Sweden

7MM+

7MM+

Note: *Shazam first gained traction in UK, Spotify first gained traction in Sweden, Soundcloud first gained traction in Germany / UK / Sweden, Waze first achieved critical mass in Israel. All of these services have successfully expanded to other regions / countries, including USA.
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MOBILE EARLY INNINGS GROWTH, STILL

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Breakthrough Communications Technologies / Services Can Breakout Even During Breakdown Times
Technology Adoption (Measured by Population Penetration) in USA Radio vs. TV vs. Internet vs. Mobile Internet, 1920 2011E
100%

80%

Population Penetration (%)

60%

AM Radio TV Internet

40% Mobile Internet (Smartphone)

Recessions

20%

0% 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: Radio penetration data per Broadcasting & Cable Yearbook 1996, Internet penetration data per World Bank / ITU, Mobile Internet (smartphone) data per Morgan Stanley Research; 3G data per Informa.
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11

35% Y/Y Global Mobile 3G Subscriber Growth to 936MM (17% of all Mobile Subscribers), Q2:11
Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Country USA Japan Korea China Italy UK Germany Spain Brazil Indonesia Poland France India Australia Russia Q2:11 3G 3G Subs Penetra(MM) tion 179 117 43 40 40 39 33 30 28 27 26 25 23 20 15 56% 97 82 4 47 51 32 53 13 12 54 39 3 71 7 3G Sub Y/Y Growth 26% 10 10 172 22 35 24 23 79 40 24 29 1,050 22 59 Rank 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Country Canada Taiwan Portugal Turkey Malaysia South Africa Sweden Mexico Philippines Saudi Arabia Netherlands Austria Vietnam Israel Argentina Q2:11 3G Subs (MM) 15 14 12 11 10 9 9 9 9 9 8 7 6 6 5 3G Penetration 58% 48 73 17 28 16 69 9 10 18 40 54 6 58 10 3G Sub Y/Y Growth 47% 28 21 104 22 34 35 85 87 18 41 29 103 16 102

Global 3G Stats:

Subscribers = 936MM

Penetration = 17%

Growth = 35%

Note: *3G includes CDMA 1x EV-DO and Rev. A/B, WCDMA, HSPA; One user may have multiple mobile subscriptions and may be counted as multiple subscriber. Source: Informa WCIS+.
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12

Smartphones Surpassed Feature Phone Shipments in W. Europe (Q2:10) / USA (Q1:11); ROW to Follow
Smartphone Shipments as % of Total Mobile Phone Shipments by Region, Q1:08 Q2:11
100%

% of Quarterly Mobile Phone Shipments

North America 80% Western Europe Rest of World (ex. Japan) 60%

Smartphone > Feature Phone Shipments

50%
40%

20%

0% Q1:08 Q3:08 Q1:09 Q3:09 Q1:10 Q3:10 Q1:11

Source: Data per Ehud Gelblum, Morgan Stanley Research. Note: In Japan, smartphone exceeded feature phone in Q4:08.
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13

Despite Tremendous Ramp So Far, Smartphone Usage Still Has Huge Upside
Global Smartphone vs. Mobile Phone Subscribers, 2011E
6,000

5.6B Mobile
Phone Subscribers

5,000

4,000

Global Users (MM)

3,000

2,000

835MM
Smartphone Subscribers

1,000

0 Smartphone Users Mobile Phone Users

Source: Smartphone subscriber estimates per Morgan Stanley Research; Mobile phone subscribers per Informa (as of Q2:11). Note: While there are 936MM global 3G subscribers as of Q2:11, not all of them were smartphone users. One user may have multiple mobile subscriptions, therefore actual user #s may be lower than subscriber #s.
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14

iPods Changed Media IndustryiPhones Ramped Even FasteriPad Growth Leaves Siblings in Dust
First 6 Quarters Cumulative Unit Shipments, iPod vs. iPhone vs. iPad
15,000 700 45,000
iPad iPad 40,000 13,000 600 iPhone iPhone iPhone iPod iPod iPod

Global Unit Shipments (000) Global Unit Shipments (000)

35,000 11,000 500 30,000

9,000 400 25,000 7,000 20,000 300 5,000 15,000 200

10,000 3,000 100 5,000 1,000

0 0 -1,000 00 0

1 1 1

2 22

3 33 Quarters After Launch Quarters After Launch After Launch

44

5 5 5

6 6

Source: Apple, as of Q2:11 (6 quarters post iPad launch).

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15

Android Phone Adoption Has Ramped Even Faster than iPhone

First 11 Quarters Cumulative Global Android & iPhone Unit Shipments
180 Android Global Units Shipped Android iPhone iPhone 160 140 120 100 80 60 40 20 0 0 1 2 3 4 5 6 7 Quarters After Launch 8 9 10 11

Source: Gartner, Morgan Stanley Research, as of Q2:11.

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Global Cumulative Unit Shipments (MM)

16

Two Horse Races in Smartphones & Tablets, So Far

Smartphones Apple iPhone Cumulative Shipments as of Q2:10 Google Android

Tablets Apple iPad Amazon Kindle

129MM

152MM

29MM

16MMa

ASP**

$606

<$600

$650

<$200

Launch Date

Q2:07

Q4:08

Q2:10

Q4:07

Note: a) Kindle shipment estimates per Scott Devitt, Morgan Stanley Research. ** ASP is average selling price, data are estimates for Android and Kindle. Source: Apple, Morgan Stanley Research.
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17

Mobile Usage Big & Ramping Fast

% of Traffic From Mobile Devices, Pandora, Twitter & Facebook, 2008 2011 75%

% of Traffic from Mobile

60% 55% 50%

Pandora Twitter

33% 25%

Facebook

5% % 1% 2008
Source: Pandora S1, Twitter, Facebook.
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2009

2010

2011

18

Mobile Search Growing Rapidly

Google US Mobile Queries (Indexed), 2007 2011
120

100

4x Growth
in past years

80

60

40

20

2007
Source: Google.
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2008

2009

2010

2011
19
19

Mobile Advertising Ramping Quickly in all Geographies

InMobi # of Fortune 1000 Companies Launching Mobile Ad Campaigns & Quarterly Smartphone Ad Impressions, 10/09-9/11
25 Quarterly Smartphone Mobile Ad Impressions (B) Africa South America Middle East 20 Europe North America 15 Asia # of Global Fortune 1000 Advertisers 10 62 5 25 3 0 10/09
Source: InMobi.
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250

250 # of Global Fortune 1000 Advertisers

20

203 200 138

150

100

37 4 1/10 8

50

0 4/10 7/10 10/10 1/11 4/11 7/11 9/11

Global Mobile App + Advertising Revenue = $12B in 2011E Revenue, Up 17x in 3 Years
Global Mobile App + Advertising Revenue, 2008 vs. 2011E
$15 Mobile Ad + Apps Spending ($B) Mobile Apps Mobile Advertising $10

$12B

$5

$0.7B
$0 2008 2009 2010 2011E

Source: Gartner. CAGR is compound annual growth rate. Note: Apple has paid >$3B $s to developers as of 9/11, implying gross app market revenue of $4B in 3 years; Google indicated during CQ3 earnings call that it expects $2.5B mobile ad revenue in 2011E
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21

Hierarchy of Needs Revisited?

1943 Maslow 2011 ? ;)

SelfActualization

Internet / Mobile Phone Shelter

Esteem Belonging Safety Food / Water Physiological

Note: Created for discussion purposes and a bit of humor. Not intended to discredit Maslow's hierarchy, which we believe to be accurate. Originally presented in Morgan Stanleys The Age of Engagement presentation, dated April 2005
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22

USER INTERFACE TEXT GRAPHICAL TOUCH / SOUND / MOVE

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What Has One Insanely Great Designer / Entertainer / Leader / Businessman Wrought?

Before Steve Jobs computers were utilitarian tools for computation. After Steve computers became beautiful objects we could use in thousands of ways to aim to make life better. Steves design aesthetic was second to none.
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24

Natural User Interface Revolution Now in Touch / Sound / Move Era

1980s Text 1990s Graphical 2000s Touch / Sound / Move

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25

The Next Big Thing(s)? Those Two Big Things on the Sides of Your Head
High Quality / Compact Wireless Speakers Connected Car Audio

Noise Cancellation / Better Audio Quality Headsets

Sound Recognition + Understanding

4B+ Bluetooth Enabled Devices

Sound Creation + Sharing

ONLINE AUDIO
Source: Bluetooth enabled devices shipment per iSuppli and Instat, assumes a 2.5 year replacement cycle.
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26

Perhaps its Time to Hear About the Ear

Sound is going to be bigger than video Record is the new QWERTY.

Alexander Ljung, Founder & CEO, SoundCloud

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27

COMMERCE FAST / EASY / FUN / SAVINGS = MORE IMPORTANT THAN EVER

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eCommerce = Four Quarters of Accelerating Growth

USA Retail Sales & eCommerce Y/Y Growth Rates, Q1:03 Q2:11
30%

USA Retail Sales & eCommerce Y/Y Growth Rates

20%

10%

0% Q1:03 Q1:04 Q1:05 Q1:06 Q1:07 Q1:08 Q1:09 Q1:10 Q1:11

U.S. Retail E-Commerce Sales -10% U.S. Total Retail Sales

Note: eCommerce sales excludes travel, auto and auctions. Source: U.S. Census Bureau, comScore.
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29

eCommerce Continues to Gain Share from Offline at 8% Share of USA Commerce with Lots of Headroom
USA eCommerce % Share(1) of Total Retail Sales, Q1:04 Q4:13E
12% eCommerce as % of Total Retail Sales 10% 8% 6% 4% 2% 0% Q1:04 eCommerce Penetration 8% in Q2:11

Q1:05

Q1:06

Q1:07

Q1:08

Q1:09

Q1:10

Q1:11

Q1:12

eCommerce Penetration

Linear Trendline (y=0.1443x + 4.0428, R^2=0.8512)

Note: (1) : e-Commerce share is shown as a percent of DOCs Total Retail Sales excluding Food Service & Drinking, Food & Bev. Stores, Motor Vehicles & Parts, Gasoline Stations and Health & Personal Care Stores Source: US Dept. of Commerce, comScore.
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30

Mobile Commerce = We Have Lift Off!

Mobile Sales or Payment Volume eBay / PayPal / Amazon.com / Target / Square, 2009-2011E
$5 Gross Mobile Sales or Payment Volume ($B)

$4

eBay PayPal Target

$3

$2

Amazon.com Square

$1

$0 2009 2010 2011

Note: Amazon.com disclosed 2010 mobile gross sale, 2009 / 2011 data are KPCB estimates. Source: eBay, Amazon.com, Target, Square.
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31

Old Magazine Paradigm Finally Comes Alive = Its a Bird, Its a Plane? Its Click & Buy (on Mobile Device)

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32

In a Mobile-ized / Transparent World = Pricing Matters A LOT!

Reasons for In-Store Purchase Abandonment Among USA Smartphone Users, 7/11

Found it online for a better price Found it at another store for a better price Saw a negative review about the item I bought a similar item instead It was not available in-store No longer needed the item None of the above

52% 51% 34% 21% 17% 7% 1%

% of Respondents

Source: comScore US smartphone user survey, 7/11. Note: the same survey also indicated that 50% of USA smartphone users have used their smartphones to find a nearby store. So while mobile Internet is helping drive foot traffic to local stores, it is also helping make pricing info more transparent for the consumers.
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33

Local Commerce = Rejuvenated by Mobile

Coupons + Demand Generation 20MM+ Users* Payments + Inventory Management 2MM+ Users* Reviews + Business Information / Leads 40MM+ Users* Check Ins + Driving Foot Traffic 15MM+ Users*

Note: *Users are comScore USAs aggregate monthly unique visitor data for companies listed under each category. Total USA local advertising for 2011E is $68B, per Morgan Stanley Research.
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LOCAL COMMERCE
34

ADVERTISING LOOKIN GOOD

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Media Time Spent vs. Ad Spend Still Out of Whack

Internet / Mobile (upside) vs. Print (downside)

% of Time Spent in Media vs. % of Advertising Spending, USA 2010

Time Spent % of Total Media Consumption Time or Advertising Spending 50% 40% 30% 27% 20% 16% 10% 8% 0% Print Radio TV Internet 11% 8% 0.5% Mobile 25% 19% 43% 43% Ad Spend

~$20B
Opportunity in USA

Note: Print includes newspaper and magazine. $20B opportunity calculated assuming Internet and Mobile ad spend share equal their respective time spent share. Source: eMarketer, 3/11.
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36

Advertising $s Follow Eyeballs Ad Revenue per User = $49 in 2011E vs. $0 in 1994E

1995E

2011E

Global Internet Ad Revenue

$55MM

$73B $49 1.5B

Ad Revenue per User

$9

Global Internet Users

6MM

Source: Global online ad revenue per Jupiter Communications (1995), ZenithOptimedia (2011). Internet users per Morgan Stanley estimate (1995) and comScore (2011). We note that comScore reports a lower global Internet user # than International Telecommunications Union.
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37

Google Paid Clicks & Cost-Per-Click Continue to Grow Rapidly; Mobile Helping

Q2:10 Gross Advertising Revenue ($MM) Y/Y Growth $6,562 23%

Q3:10 $7,032 22%

Q4:10 $8,167 26%

Q1:11 $8,306 28%

Q2:11 $8,716 33%

Q3:11 $9,335 33%

Aggregate Paid Clicks (MM) Y/Y Growth

12,651 15%

13,157 16%

14,669 18%

15,245 17%

15,004 18%

16,876 28%

Cost per Click (CPC - $) Y/Y Growth

$0.52 7%

$0.53 6%

$0.56 7%

$0.54 10%

$0.58 12%

$0.55 4%

Source: Google, Morgan Stanley Research.

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38

Time Spent on Social Networking Sites Surpassed Portals, June 2011, USA
USA Monthly Time Spent, Portals vs. Social Networking Sites, 6/08 7/11
120 Portals 100 Social Networking

Monthly Time Spent (Bs of Minutes)

June 2011 Time Spent Social Networking > Portals

80

60

40

20

0 6/08 9/08 12/08 3/09 6/09 9/09 12/09 3/10 6/10 9/10 12/10 3/11 6/11

Source: comScore Media Metrix USA panel-only data.

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39

Social Networking CPMs = Have Begun to Punch Closer to Their Weight

Share of Total USA Online Display Ad Units (as of 8/11) + CPM (as of Q3:11), by Top Publisher Categories
Business / Finance Directories Online Gaming Sports Email News / Information Entertainment Portals Social Networking 0% 10% 20% 2% 2% 3% 5% 10% 11% 14% 21% 30% 30% 40% $0 $2.45 $3.80 $5 CPM ($) $10 $15 $0.89 $5.30 $4.25 $2.70 $6.00 $9.90

Share of Total US Online Display Ad Units

Source: comScore, Display ad unit share as of 8/11, CPM data per Vivaki, as of Q3:11.
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40

CONTENT CREATION CHANGED FOREVER

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Content Commoditization Value Shift from Creators to Aggregators

Newspapers, once the bastions of content creation / curation, are experiencing 5th straight year of declining revenue.
Quarterly Revenue ($B)

USA Total Newspaper Print + Online Revenue vs. Google USA Revenue, Q1:06 Q2:11
$16

With undifferentiated products, price is competed down to marginal cost. And the marginal cost for digital content is $0. How does one create differentiated content in an economically viable manner, when few want to pay for it? For insights, check out Joanne Bradfords Web 2.0 presentation.

$12

$8

$4

$0 Q1:06 Q4:06 Q3:07 Q2:08 Q1:09 Q4:09 Q3:10 Q2:11 USA Total Newspaper Print + Online Revenue Google USA Revenue

Source: Demand Media. Note that Search = ~50% of USA Online Ad Revenue ($15B based on Q2 run rate) in 2011 vs. <5% in 2001; Display = 23% of Online Ad Revenue ($7B) in 2011 vs. 62% in 2001
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42

TECHNOLOGY / MOBILE LEADERSHIP AMERICANS SHOULD BE PROUD

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We are Living Through a Once Every 10-20 Years Technology Evolution The Mobile Computing Cycle

Smartphones + tablets outshipped PCs (notebooks + desktops) in Q4:10. Windows operating system fell to installation on <50% of Internet-enabled devices in Q2:10.

Source: Morgan Stanley Research, Gartner.

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44

Made in USA Smartphone Operating Systems = 64% Share from 5% Five Years Ago
Smartphone Operating System Market Share, 2005 vs. 2011E
100%

Market Share of Smartphone OS

80% Other OS 60% iOS Android Windows Mobile 40% BlackBerry OS Linux Nokia Symbian 20%

0% 2005
Source: Morgan Stanley Research, Gartner.
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2011E

45

Still Early-Innings Era of Smart-Phones to Smarter-Phones

Pace of innovation in Silicon Valley may be unprecedented. Intensity / focus / leadership of USA-based companies (Apple / Google / Amazon.com / Facebook) may be unprecedented. Combination of technology improvements and elegant design may be unprecedented.

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46

MEGA-TREND OF 21ST CENTURY =

EMPOWERMENT OF PEOPLE VIA CONNECTED MOBILE DEVICES

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Global Information Flow Real-Time + Fast + Broad

16 Minutes Before / After Japan Earthquake on 3/11/11 Snapshots of @replies From & To Twitter Users in Japan 2:30pm Japan Time Before Earthquake / Tsunami 2:46pm Japan Time After Earthquake / Tsunami

In 140-character bites, the story unfolded: the shock and terror; the sense of human frailty mixed with lifesaving information; the messages of those seeking comfort and those seeing some kind of divine retribution, all mixing at hyper-speed. LATimes, 3/11/11
Note: Yellow lines indicate tweets coming out of Japan; Pink lines indicate tweets coming into Japan. Source: Twitter.
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48

Global Information Flow Remote Locations Getting Connected

85% of worlds population covered by commercial wireless signals, providing greater reach vs. electrical grid (80%).* 200MM+ farmers in India receiving government payments / subsidies via mobile devices.**

Source: *GSM Association, United Nations. **There are 90MM Kisan credit card users and 118MM job card users, both of which do not require bank accounts but utilize mobile phones as identity verification / payment confirmation, per Ministry of Rural Development, Government of India.
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49

Global Economies / People = Increasingly Connected / Co-Dependent

World Trade as % of World GDP, 1960 - 2010
30%

25%

World Trade as % of GDP

20%

15%

2010 World Trade = 24% of World GDP

10%

5%

0% 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Note: World trade calculated as the sum of all countries imports (or exports). The biggest trading partners of USA includes EU nations, Canada, China, Mexico, Japan and South Korea. Source: Trade data per World Trade Organization (WTO), GDP data per United Nations (UN).
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50

AUTHENTIC IDENTITY THE GOOD / BAD / UGLY. BUT MOSTLY GOOD?

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Authentic Identity The Good / Bad / Ugly. But Mostly Good?

With 800MM global active Facebook users50% that log on in any given daywith an average of 130 friendsand an average of 80 community pages / groups / eventsand more than 250MM photos uploaded per day and 350MM active mobile users* And 835MM smartphone users (likely ramping to 1.4B within two years) Its hard to hide. The truth is often just a photo/clicksend away. Clean, well-lighted place to do business? People are basically good? In a world with tremendous uncertainty owing to the rapid ramp in always-on, connected citizens of the world, perhaps, the world is on the cusp of being safer than ever? There are lots of sacrifices. This is new terrain. Only time will tell how all this plays out
Source: Facebook, 10/11.
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52

ECONOMY LOTS OF UNCERTAINTY

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Stock Market Volatility = 2x Historical Average, Illustrating Uncertainty

100%

Chicago Board Options Exchange (CBOE) Volatility Index (VIX), 1990 2011 YTD

80%

VIX Index Value (%)

60%

Current (10/11) Level = 40%

40%

1990-2011 Average = 20%

20%

0% 1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Note: Data as of 10/11. VIX is a measure of implied volatility of S&P 500 index options. Source: CBOE, Morgan Stanley Research.
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54

Consumer Confidence = Well Below Historical Average, Illustrating Uncertainty

The Conference Board Consumer Confidence Index, 1978 2011 YTD
160

140 Consumer Confidence Index (1985=100)

120

30 Year Average CCI = 92.7

10/11 CCI = 45.4

100

80

60

40

2/09 Trough CCI = 25.3

20

0 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Note: Index started in 1967 / benchmarked to 1985=100. The Index is calculated each month on the basis of a household survey of consumers' opinions on current conditions and future expectations of the economy. Source: The Conference Board, 10/11.
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55

USA Corporate Capital Spending Budgets = Being Revised Down, Illustrating Uncertainty
Survey Results of Corporate Capital Spending Budget Revisions, 1/08 7/11 Think about your companys overall capital budget for the current quarter, have there been any adjustments made over the past 90 days?
50% Revised Lower Revised Higher 40%

% of Respondents

23% of Respondents Have Revised Capital Budgets Lower in CQ3:11

30%

20%

10%

0% 1/08 4/08 7/08 10/08 1/09 4/09 7/09 10/09 1/10 4/10 7/10 10/10 1/11 4/11 7/11

Source: ChangeWave Research.

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56

GDP Growth Forecasts = Being Revised Down, Illustrating Uncertainty

Difference from 6/11 IMF Forecasts IMF Forecasts, 9/11 Country / Region USA Euro Zone UK Japan China India Russia Brazil Developed Markets Emerging Markets World
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2009 -3.5% -4.3 -4.9 -6.3 9.2 6.8 -7.8 -0.6 -3.7 2.8 -0.7

2010 3.0% 1.8 1.4 4.0 10.3 10.1 4.0 7.5 3.1 7.3 5.1

2011E 1.5% 1.6 1.1 -0.5 9.5 7.8 4.3 3.8 1.6 6.4 4.0

2012E 1.8% 1.1 1.6 2.3 9.0 7.5 4.1 3.6 1.9 6.1 4.0

2011E -1.0% -0.4 -0.4 0.2 -0.1 -0.4 -0.5 -0.3 -0.6 -0.2 -0.3

2012E -0.9% -0.6 -0.7 -0.6 -0.5 -0.3 -0.4 0.0 -0.7 -0.3 -0.5

Note: Data is annual GDP percent change. Source: IMF World Economic Outlook, 9/11.

57

Stock Markets = Often Leading Indicators of Economic Activity

Russia -33% from 52-Week High; Oil (-24%) / China (-23%) / Europe (-23%) / S&P500 (-12%) / Nasdaq (-9%)
180%

Stock / Commodity Markets Performance (% Change From 1/10), 1/10 10/11

160%

Index Value (1/1/2010 = 100%)

140%

120%

100%

80%

New 2-Week Trendline?

60% 1/10 3/10 5/10 7/10 9/10 11/10 1/11 3/11 5/11 7/11 9/11

S&P500

NASDAQ

China Shanghai Composite

MSCI Europe

Russia RTS

Oil

Gold

Note: All values are indexed to 1 (100%) on Jan 1, 2010. Data as of 10/17/11. Source: Morgan Stanley Research, Yahoo! Finance.
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58

USA INC. PAY ATTENTION!

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Americas Revenue & Expenses as % of GDP Over 110 Years; Current State = Revenue Problem? Spending Problem?
USA Inc. Revenue & Expenses as % of GDP, 1901 2011E
50% Revenue as % of GDP (Left Axis) Revenue & Expenses as % of GDP 40% Expenses as % of GDP (Left Axis) Real GDP (Right Axis) 30% $10 $8 20% $6 $4 10% $2 0% 1901 $0 2011E $16 $14 $12 Real GDP (in Trillions of 2005 Dollars)
60

Biggest Peace Time Gap Between Revenue & Expenses in USA History

1911

1921

1931

1941

1951

1961

1971

1981

1991

2001

Source: 1910 1930 per Census Bureau, 1940-2010 per White House OMB. Real GDP adjusted for inflation, in 2005 dollars.
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Americas Income Statement -60% Net Margin in F2010

USA Inc. Profit & Loss Statement, F1995 / F2000 / F2005 / F2010 Comments F1995 F2000 F2005 F2010
Revenue ($B) Y/Y Growth Individual Income Taxes* % of Revenue Social Insurance Taxes % of Revenue Corporate Income Taxes* % of Revenue Other % of Revenue Expense ($B) Y/Y Growth Entitlement / Mandatory % of Expense Non-Defense Discretionary % of Expense "One-Time" Items % of Expense Defense % of Expense Net Interest on Public Debt % of Expense Surplus / Deficit ($B) Net Margin (%) $1,352 -$590 44% $484 36% $157 12% $120 9% $1,516 -$788 52% $223 15% --$272 18% $232 15% -$164 -12% $2,026 11% $1,005 50% $653 32% $207 10% $161 8% $1,789 5% $937 52% $335 19% --$294 16% $223 12% $237 12% $2,154 15% $927 43% $794 37% $278 13% $154 7% $2,472 8% $1,295 52% $497 20% --$495 20% $184 7% -$318 -15% $2,163 3% $899 42% $865 40% $191 9% $208 10% $3,456 -2% $1,984 57% $431 12% $152 4% $694 20% $196 6% -$1,293 -60%

On average, revenue grew 3% Y/Y over past 15 years Largest driver of revenue Payroll tax on Social Security + Medicare Fluctuates significantly with economic conditions Includes estate & gift taxes / duties & fees; relatively stable On average, expense grew 6% Y/Y over past 15 years Significant increase owing to aging population + rising healthcare cost Includes education / law enforcement / transportation Includes discretionary spending on TARP, GSEs, and economic stimulus Significant increase owing to ongoing War on Terror Decreased owing to historic low interest rates USA Inc. median net margin between 1995 & 2010 = -8%

Note: USA federal fiscal year ends in September; *individual & corporate income taxes include capital gains taxes. Non-defense discretionary includes federal spending on education, infrastructure, law enforcement, judiciary functions Source: White House Office of Management and Budget.
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Americas Debt Level Relative to Other Countries You Do the Math

2010 Gross Government Debt ($B) $12,009 19 436 53 97 2,445 452 214 196 13,707 213 12 2,759 1,324 2,110 2010 Gross Government Debt ($B) $105 168 1,699 161 272 47 1,397 18 15 1,046 497 14 848 23 100

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Country Japan Jamaica Greece Lebanon Iraq Italy Belgium Singapore Ireland USA Portugal Iceland Germany Canada France

% of GDP 220% 143 143 134 120 119 97 96 95 94 93 92 84 84 82

Rank 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Country Hungary Israel UK Egypt Austria Sudan Brazil Jordan Cte d'Ivoire India Netherlands Cyprus Spain Uruguay Pakistan

% of GDP 80% 77 76 74 72 72 67 67 67 64 64 61 60 57 57

Note: Ranking excludes countries with gross government debt less than $10B in 2010. Gross government debt includes intragovernment obligations (such as Treasuries held by the Social Security Trust Fund in US case). Source: The International Monetary Fund (IMF).
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USA Inc. @ kpcb.com / youtube.com / amazon.com

90K+ Total Views 14K+ YouTube Views 7K+ Facebook Likes 2K+ Retweets

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CLOSING THOUGHTS

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Economy Often darkest before dawn. At least we know what the problems are. Now we need the resolve to fix them. Across-the-board sacrifice needed. Tech Industry Wow! Unprecedented times! If you can keep your head when all about you are losing theirs*
*Rudyard Kipling - If

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Disclosure

The information offered in this presentation speaks to industry trends in general, and should not be construed as providing any particular recommendations or analysis for any specific company that is mentioned in this presentation. KPCB is a venture capital firm that owns significant equity positions in certain of the companies referenced in this presentation.

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