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June 21, 2007
President's Report

"SECOND QUARTER SUCCESSES":
REPORT TO THE INTERACTIVE ADVERTISING BUREAU’S BOARD OF DIRECTORS

By Randall Rothenberg

As the second quarter of 2007 draws to a close, I am pleased to report that our industry is growing, and so is the Interactive Advertising Bureau. We are executing well against our strategic plan, and have confidence that this year will be a year of transformation and accomplishment for our trade organization.

Finance


Interactive advertising revenues in the United States reached nearly $17 billion in 2006, representing year-on-year growth of 35 percent, according to the IAB Internet Advertising Revenue Report conducted by Pricewaterhouse Coopers. First Quarter growth in 2007 reached nearly $5 billion, a 26 percent increase over the First Quarter of 2006. Interactive remains the fastest-growing advertising medium by far.

Q1 '07 Revenue Nears $5 Billion, Up Over 26%

The growth of our industry is reflected in the health of the IAB. Revenues for the first four months of 2007 are running slightly ahead of plan, thanks to dues collections and events performance that have exceeded projections. Expenses are up, in accord with our plan, but remain under control, with Senior Director of Finance Mark Goldman conducting monthly reviews of all functional budgets.

With both revenues and expenses tracking according to plan, I and the rest of management remain confident in our ability to execute our Board-endorsed strategic plan, which we have labeled "The CMO Growth Project". This plan aims to advance the growth of interactive advertising spend in total, and to enhance interactive media's share of total marketing spend, by focusing our organization's attention and resources on a set of 10 programs that drive three strategic platforms: Engagement, Accountability, and Operational Effectiveness.

To achieve this focus, we reorganized the IAB into six functional units. I will briefly review the achievements of each of these units.

Marketing, Communications & Thought Leadership


The Marketing, Communications & Thought Leadership team, under Senior Vice President David Doty, launched development work on the "CMO Road Show," an industry-education program we will take directly to marketers and agencies. CMO Stakeholder interviews have been conducted with senior executives at Johnson & Johnson, Colgate, Target, and other companies, and we have begun collecting case studies from members. We hope to have a preliminary launch this summer.

IAB's media mentions and Web site visits are up substantially. The primary driver is the attention focused on the association by our issuing of an open letter to the audience ratings services calling on them to submit to a third-party audit.

IAB.net Visitors
4/8/07 to 6/8/07

IAB.net Page Views
4/8/07 to 6/8/07

We also believe an interim redesign and simplification of IAB.net's home page has contributed to the increase in visits and page views. This redesign promotes IAB's dedication to industry thought leadership, and will aid access to research and services.

Interim Redesign Promotes Thought Leadership

During the next quarter, we will work on a more complete redesign of the site front-end and back-end. After competitive bidding, we selected a superb vendor, Raven Creative, whose clients have included Hearst Magazines, the Bronx Zoo, and Booz Allen Hamilton.

During the past quarter, we launched one major study and completed financing for a second. With the American Association of Advertising Agencies, the Association of National Advertisers, and Booz Allen Hamilton, we began work on "The Media-Marketing Ecosystem 2010," an unprecedented collaboration among our trade associations to benchmark leading practices across the entire value chain as marketing continues its evolution on interactive platforms. With participation by more than 50 marketers, agencies, and media companies, our aim is to develop a sense of "what we need to do tomorrow" to make marketing and media more engaging, effective, and valuable.

IAB also has completed funding for a Digital Video research project. Pending a review and approval of objectives and budget by the Research Council, we hope to commence the study this quarter.

Industry Services


The Industry Services team, under the leadership of Senior Vice President Sheryl Draizen, had a quarter of significant achievement. Following the advice of the Board, we launched an open letter to comScore and Nielsen//NetRatings, asking them to undergo audits of their processes and technologies by a third-party auditor, and to attend a Summit Meeting on Audience Measurement with the IAB and others. The letter had significant media exposure, and on May 16, less than a month after its issuance, the Summit took place. IAB was represented by executives from Conde Nast, Turner Broadcasting, Microsoft and Yahoo, as well as our staff. Also attending at our invitation were representatives from ANA, AAAA, OPA, MPA, and ARF. Both companies did agree to audits and accreditation by the Media Rating Council, and we agreed with the measurement companies to engage jointly in market education campaigns about audience measurement.

comScore & NetRatings Audit Agreement

IAB also has enhanced broadly our connection with the AAAA, including an unprecedented joint meeting between our senior teams in May, to foster relationships and share agendas. Working through our Ad Operations Council, led by IAB Director Jeremy Fain and Dan Murphy of Univision, we are engaging with the agencies on five major issues: ad-serving discrepancies, back-office operations, standardizing terms and conditions, billing process improvement, and late creative policy.

The Industry Services team runs the IAB's platform committees. Notable committee work during the past quarter includes the Email Committee's development of Campaign Performance Metrics Definition report to be released shortly; the Games Committee's development of Platform Status Report to be released shortly; the addition of two new standard ad sizes to the Ad Unit Guidelines by the Ad Sizes Working Group; and the launch of a User-Generated Content Committee.

Public Policy


Led by Vice President Mike Zaneis in Washington, the IAB's Public Policy team has had a busy quarter trying to avert ill-considered legislation that threatens to impair marketers' ability to deliver relevant information to consumers, and to hinder consumers' access to the wealth of information, entertainment, and services on the Internet.

The Policy Council has become a critical underpinning of the IAB. Companies with significant participation include Disney, Time Warner, Google, CNET, Yahoo, Microsoft, Q Interactive, Valueclick, Washington Post, Weather.com, Tacoda, and IAC. We welcome more participation as regulator and legislator interest in our industry grows.

Member Services


Our Member Services team under Vice President Andrew Kraft initiated several new programs during the second quarter, all of them aimed to create networking opportunities among our growing body of member companies.

IAB launched a Sales Council to bring together senior sales executives from interactive media companies. More than 100 companies have joined, and the first meeting assembled dozens of sales leaders from around the country to discuss the development of a sales training program and other programs for interactive sales personnel. Brian Quinn of Dow Jones and Michael Rosen of Weatherbug were elected co-chairs of the council.

The team also inaugurated the "Social MIXXER" series – a monthly event that serves no purpose other than to bring staff from member companies together for an evening of innocent enjoyment and geek-speak. The first MIXXER drew more than 80 people to a bar across the street from the IAB offices, which proved to us that (a) the concept is viable; and (b) the price point can be higher. We will continue the series, and intend to (c) bring it to other cities; and (d) raise the price to $30 per person.

As part of our service to members, I continue to maintain a robust schedule of appearances at member and customer events. I am holding to the twice-monthly schedule I projected at our last board meeting.

Events


The redevelopment of the IAB Events business has continued at a fast pace under the leadership of Vice President Jonathan Moore.

The team inaugurated two new "Leadership Forums" during the quarter: Digital Video and User-Generated Content. Each drew more than 400 registrants, including representatives of Fortune 500 marketers and major agencies.

New Events Inaugurated

IAB also initiated a new, more intimate event – the "Leadership Luncheon" series. These inexpensive forums in the IAB boardroom bring industry innovators together with members, marketers, and agencies to explore business-leading opportunities. Our first event, with Bill Katz of Visible World, filled the room. We will continue these monthly.

Another success was the launch of IAB's Professional Development Program. Working with Doug Weaver, founder of the Upstream Group, we have developed two sales training modules: a beginners' "101" course and a more advanced "401" course. Our New York event sold out, with more than 100 participants, while Chicago reached projections, with about 50. The next two courses are next month, in San Francisco and New York. Management has little doubt that Professional Development is a major opportunity for IAB, and we will continue to build out this program.

We are very excited about the prospects for our MIXX Conference, Expo, and Awards Show in New York in September. As discussed at our last board meeting, we intend to turn MIXX into the definitive conference about innovation in advertising and marketing. Our theme is that value derives from the "MIXX" of strategy+content+channel, and the collaborative "MIXX" of marketers+agencies+media. During the quarter, we secured American Express CMO John Hayes as a keynote speaker, and management guru Seth Godin will be interviewed by Charlie Rose. Major presentations on "the new strategy" will bring together agency leaders such as Rishad Tobaccowalla from DeNuo, Carla Hendra from Ogilvy, and others. We also have agreement from Altas' Karl Siebrecht, Doubleclick's David Rosenblatt, David Moore of 24/7 Realmedia, and Michael Walrath of Right Media to share the stage and provide their vision of "the new landscape." Several brand-name journalists will serve as moderators, including Steve Levy of Newsweek, Melanie Wells of Forbes, and David Kirkpatrick of Fortune.

The MIXX awards may be on the verge of a breakthrough; we already have assembled a list of blue-chip judges from some of the top agencies and marketers in the U.S. This year, we will add leading creatives to the panel as well.

Finally, attention should be called to IAB's plans to launch a conference on measurement and accountability in November. Our open letter to comScore and Nielsen//Netratings revealed a deep well of interest among marketers, agencies and media to learn more about alternative measurement technologies and providers, and about the evolution of cross-platform metrics. In a meeting this week, leaders of our Research Council vigorously approved the concept, so we will pursue planning during the next several months.

Our Organization


As we projected in our strategic plan, the IAB is growing as an organization. We added five new people to our staff this past quarter: Michael Theodore, the senior director of Member Services; Member Services Manager Corie Blumstein; Interactive Creative Services Manager Greg Van Ullen; Marketing Manager Chris Glushko; and Office Manager Shawna Cooper. Already, they have contributed to improving our operations.

Strategic Hires

As anticipated, Vice President for Industry Services Leo Scullin left the IAB this month. His role has been more than ably filled by Sheryl Draizen. We are actively recruiting for this position, as well as for a Director of Research, and exploring various scenarios for the management of the Industry Services portfolio.

We also made a change in the IAB's General Counsel, selecting Reed Smith, represented here today by partner Joe Rosenbaum and his team. IAB has worked very well with Reed Smith in the past. We also have had excellent interaction with them, through partner Doug Wood's representation of the ANA. The firm's expertise in media, marketing, and trade association representation will, we believe, advantage the IAB in such critical areas as T's & C's negotiations, media and agency consolidation, vendor contracting, control policies, and the like. With Venable handling our policy and lobbying in Washington and Reed Smith working with us on supply chain and association issues, we believe we have the best legal representation available to a media association.

Quarter of Accomplishment


In summary, I am happy with the progress IAB is making against our strategic objectives. A review of the 10 Priorities management laid out for the Board at the last meeting shows that we have made significant progress against eight, with a 9th due to launch imminently.

IAB’s Highest-Priority Activities in 2007…

None of this would be possible without a superb staff – a team of skilled and energetic men and women who are as eager as our members to grow the interactive advertising industry. And none would be possible without the support of the Board. On behalf of IAB's management and staff, I thank you again for your guidance and your confidence.