TeleSoft Partners EcoSystem Meeting

Paul ChamberlainManaging Director, Head of West Coast Technology BankingOctober 28, 2005

Google and Beyond:

Consumer Internet Trends

3

The New Group Therapy

“Hi. My name is Barry, and I Google two to three hundred times a day.”

4

Jail Cell Confessions

“I should have used Skype instead of email.”

5

Agenda

Tech Market Snapshot

Morphing of the Internet

What’s Behind the Internet Scramble

What’s Ahead

6

Tech Market Snapshot

Virtually all public tech companies (ex-Internet) are “growth-

challenged”— not capital-constrained

Overall tech growth rates are expected to improve but still trail

Internet considerably

Internet valuations are consistent with high growth leaders

in other tech sectors

Financial sponsor activity at an all-time high but only limited

investment to date in Internet

7

Internet Growth is Pulling-Up the Averages

Technology Sector Year-over-Year Revenue Growth

%

14

11

14

34

12

16

28

67

1 1

5

8

20

7 7

3

11

68

19

0

5

10

15

20

25

30

35

40

Overall Tech Hardware TelecomEquip.

Semi-conductors

IT Services EnterpriseSoftware

Internet &ConsumerSoftware2004 2005E 2006E

8

Internet Valuations Are Not Out of Line

0.0

0.5

1.0

1.5

2.0

2.5

Q1 2004 Q2 2004 Q3 2004 Q4 2004 Q1 2005 Q2 2005 Q3 2005 Q4 2005

Internet and Consumer Software Enterprise SoftwareHardware IT ServicesSemiconductors Telecom Equipment

P/E to Growth

Internet and Consumer

Software

9

A New Force To Be Reckoned With?

$26

$6

$2$1$1

$1.5

$0

$5

$10

$15

$20

$25

$30

2001 2002 2003 2004 2005 YTD

# of Deals: 12 11 16 17 23

Financial Buyer Activity in TechnologyBn

10

Morphing of the Internet

Catalyst

Service Differentiation

IT Objective

Disruption

Winners

Internet 1.0 Internet 2.0

Information access

Online vs. offline

Put big iron on Net

Any-to-any

Information relevancy

Speed, relevancy, cost

Low cost scale out

Speed, intelligence

11

Big Changes Keep Coming

eCommerce

Speed / Relevancy /

Cost

Wireline Voice

Low Cost / VoIP

Video

Personalized /On-Demand

Scalability / Reliability

Enterprise Data Center

Wireless Data

Data / Entertain

Speed / Cost

Consumer Broadband

$Bn

$3,000

$300

$100

Siz

e o

f M

ark

et

12

My, How Communications Have Changed!2005

Mobile

VoIP

IM

Email

Blogs

Web

Up to 1995

13

Consumer Internet Data Points

Search

• 8Bn global searches per month at Google

Broadband

• 180MM global subs

– 60MM in Asia– 50MM in U.S.

Music

• 700MM iTunes downloads

• 7MM iPods sold in Q3

Personalization

• 40MM+ MyYahoo! users

Video

• 1Bn streaming video sessions at Yahoo!

Mobile

• Ringtones now a $3Bn revenue business

14

Internet Deal Mania?

Date Event Value What’s Behind It?

9/14/05 Google Follow-on $4Bn Cost of entry for new markets?

8/10/05 Yahoo!/Alibaba $4Bn “Outsource” strategy for Japan worked well – why not China?

9/12/05 eBay/Skype $4Bn Beefing-up its “viral network” credentials

8/5/05 Baidu IPO $4Bn “Investors” who missed Google from $85-$340

15

And It Doesn’t Stop There

craigslist

16

What’s Behind the Internet Scramble

Internet (Narrowband) Internet (Broadband)

Search 1.0 Search 2.0

PC-centric Mobile-centric

International North America

Free email Free calling

Browsing Communications

Massive shifts in spending in existing markets and new market growth

17

Self-Reinforcing Internet Momentum

Search

Broadband

CommerceCommun-

ication

Content

“Holy Trinity”

18

Mobile Broadband in Early Stages

Global 2.5G/3G Penetration

0

200

400

600

800

1000

1200

1400

1600

2005E 2006E 2007E 2008E 2009E0%

10%

20%

30%

40%

50%

60%

2.5G Subscribers 3G Subscribers %2.5G Penetration %3G Penetration

Su

bs

cri

be

rs (

MM

)

% o

f T

ota

l W

ire

les

s S

ub

sc

rib

ers

19

International Markets Are Leading the Way

ROW12%

Europe24%

Asia Pacific36%

North America23%

South America5%

Internet Users – 1 Billion

ROW18%

Europe19%

Asia Pacific41%

North America11%

South America11%

Mobile Users – 2 Billion

20

Skype – Fastest Growing App Ever?

Registered Users

Asia27%

Other12%

US13%

Europe48%

Revenue Split

0

10

20

30

40

50

60

1 3 5 7 9 11 13 15 17 19 21 23 25

MM

Months Since Inception

54MM as of Sept. 2005

21

Internet As a Communications Hub

% of Time Spent on Internet

3%

10%

43%

4%

19%21%

0%

10%

20%

30%

40%

50%

60%

Email IM Voice Browsing Chat Search

Communications

44%

22

What’s Ahead

Search keeps getting better for users and advertisers

23

In Q3 Yahoo! generated

$1.3Bn in gross ad revenue

and PAID OUT $400 MM to

partners like MSN, ESPN,

WSJ, etc.

“Incontrovertible leadership”

“Defied convention”

“Widening the gap

competitively”

The Power of Internet Ecosystems

“Powerful momentum”

“Strong trajectory”

“Hitting on all cylinders”

In Q3 Google generated

$1.6Bn in gross ad revenue

and PAID OUT $530 MM to

partners like AOL, AskJeeves,

etc.

24

What’s Ahead

Search keeps getting better for users and advertisers

Ad-supported desktops?

Any content, anywhere

Moore’s law coming to networking?

25

A Gift to the Server and Networking Industries?

$2,305

$1,773

$947

$705

0

500

1,000

1,500

2,000

2,500

2003A 2004A 2005E 2006E

CapEx Spending by Major Internet Players

$MM

+ 34%

+ 87%

+ 30%

26

What Does It Mean for You?

“Can you hang on a sec? I think I just took another picture of my ear.”

27

If It Can Work for Arjun…

QUESTIONS?

Paul ChamberlainManaging DirectorTechnology Investment Banking650-234-5603paul.chamberlain@morganstanley.com