SMARTPH NESMARTMARKETING

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TABLE OF CONTENTS

OverviewSmartphone LivingSmartphone MarketingSmartphone FuturesConclusions

OVERVIEW

In an increasingly mobile world, the Smartphone has become a lifestyle-changing device.

The Smartphone is the first device to provide instant access to the internet andonline information resources wherever consumers go. Time-starved consumerssay that Smartphones improve their quality of life by allowing them to multitaskon-the-move.

For marketers, this creates a new opportunity to maintain contact with consumersthroughout the day and influence purchase decisions in ways never before possible.

Universal McCann and AOL partnered with Questus, a leading interactive marketingand research firm, to conduct an extensive multi-phase research project examininghow Smartphones are influencing American lifestyles and media consumption. Thisresearch report analyzes the intersection between consumer media usage, lifestyleand purchase preferences.

SMARTPHONE

LIVING

5

63MM

19MM

THE STUDY: LIVING • MARKETING • FUTURES

270MMUS mobile subscribers

access mobile web

access mobile webon weekly basis

WHOM DID WE SPEAK WITH?

Approximately 1800 participants were selected for this study based upon their frequent use ofSmartphone devices, with nearly all participants indicating they access the mobile web at leastseveral times per week. The study also included a sample of “lead users,” who were asked to keepdaily usage diaries.

is not

,

12 6

hype.

1 OF EVERY 7MINUTES OF MEDIACONSUMPTIONTODAY IS THROUGH A

MOBILEDEVICE

14%

‘MobileIt’s a socialtransformation.

IT’S MORE THAN MOBILEThe Smartphone is considered a great convenience for many Americans, enabling them toaccess internet content, applications and services anywhere and anytime and to have a constantlink with their social circles. It’s more than a medium of transmission; it’s the preeminent tool forboth social communication and daily life management.

OF SMARTPHONE USERSREPORT SATISFACTIONUSING THE INTERNETON THEIR MOBILE

DEVICES

7The Smartphone is the biggest technology shift since broadband, representing a trulylifestyle-changing innovation. Consumers enjoy their Smartphones and how they improvetheir quality of life.

8

MOBILE IS PERCEIVED ASCUTTING-EDGE MEDIA& ASSOCIATED WITH BEING

ACTIVE, TIMELY& CURRENT

Cutting EdgeInnovative

Mobile

Boring

NewspaperOld- fashioned

Cool Active

Computer BrowserTimely Trustworthy Credible

Current Important

Exciting for me

VitalFun

Powerful

InformativeRelevant Radio

InfluentialMagazine Passive

TV

Entertaining

Relaxing

HOW THEY FEELWhen study respondents were asked to associate certain attributes with various channels, mobile washighly distinctive with a virtual monopoly of leading edge media concepts.

9

65%

USERS ARE CONSTANTLYCHECKING IN WITHMOBILE MEDIA.WHEN WILL THEY INTERACT

WITH YOUR BRAND?

95%Other downtime

82%At work

81%While shopping 80%

At home

Commuting to work

CONSTANT CONTACTSmartphones have enabled Americans to consume media throughout their daily routines, with 82% usingmobile devices at work and 81% using mobile devices while shopping. The mobile web has also become aritual with commuters, who use the mobile web as part of their workday commute.

This creates an unprecedented opportunity for marketers to transition with consumers as they move fromactivity to activity throughout the day.

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Consumers rely as atheir mobile devices get from one place towith their well as atofamily and shopping

BRIEF HITS OFCONNECTION& UTILITY ARE CURRENTLYTHE MOST POPULAR FORMS OF

CONSUMPTION Maps

Dir

55%

73%

Restau

rants

So

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N

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ork

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5%

44%

4%

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33%

TravelInfo

% use mobile to accesscorresponding media

Smartphones serveon consumer’s compass to share experiences another, as friends, guiderestaurants,colleagues.purchases, news and entertainment. At the same time, they provide an

important social outlet.

Over three out of every four Smartphone users are sharing photos, articles and videos acrosstheir social networks. 10

%

send%

send%

MOBILE OFFERSANOTHER OUTLETTO CONNECT &

SHARE

74use mobile social

networking sitesand apps

50%prefer sending textmessages to calling

85 photos taken on

their Smartphones(Average: 16/mo.)

71 articles and

videos to others(Average: 13/mo.)

11Consumers rely heavily on their mobile devices to share experiences with their friends,family and colleagues.

The majority of all surveyed Smartphone users share photos, articles and videos with theirsocial contacts using their mobile devices.

Smartphones also enable consumers to stay off the phone, with half of all userspreferring text messages to telephone conversations.

SHARING CONTENTIS KEY TO THEATTRACTION

...when the kids come

I shared contentwith my friend

over lunch, as wewere checking

the market.

home, my husband willlaugh at us because we’ll

be huddled together on thecouch, each with his or herrespective iPhone, sharingapps,YouTubes, music, etc.

It bridges a social gap.

I view drug informationon my mobile in the

morning and discussit with my partner and

clinical professor atnursing school.

12 12

%

been driven

follow brands

from

media mesh

MOBILE IS NOT A STANDALONE MEDIA SOURCE.

77use TV and

mobile concurrently

56%have been driven

to mobile viaother media

“MEDIA MESHING”IS A POWERFULCOMPONENT OF THE

EXPERIENCE

55% across multiple

media

42% have mobile toother media

37% complimentarywithcontent

13BOUNDARYLESS MEDIASmartphones work powerfully with other media. For example, mobile drives consumers to othermedia, which also drive consumers back to mobile – generating a circuit of juxtaposed mediation.This effect is enhanced when users simultaneously consume multiple media in order to optimizeproductivity or enrich the content experience.

14

MEDIA MESHINGFILLS THE TIME WAITING FORSLOW-LOADING CONTENTWHILE FULFILLINGINSATIABLE USER HUNGER

FOR CONTENTI can’t get

enough sportsinformation. Yesterday, I

was looking at espn.comon my phone, readingthe sports section and

watching pro footballon TV at the

same time.

I have a slowconnection on thephone, so I watch

TV while pagesdownload.

I will flip througha magazine while

surfing on myphone, using it to

pass the time whilethe pages load.

12Consumers rely on their mobile devices to share experiences with their friends,family and colleagues.

Over three out of every four Smartphone users are sharing photos, articles and videos acrosstheir social networks.

iPHONE USERS HAVEHEAVIER CONSUMPTION

HABITSMobile Social Networking

55%iPhone

37%Others

% use once or more per day

M-Commerce

36%iPhone

19%Others

% have made apurchase via mobile

Concurrent TV Usage

50%iPhone

34%Others

% use once or more per day

15WHO’S USING THE MOBILE WEB?Mobile trends are led by two groups: younger users and iPhone owners.

High usage among iPhone owners may be due to the fact that these consumers are often earlyadopters and that the iPhone interface is among the most sophisticated in terms of offering a richand rewarding user experience.

AGE

YOUNGER DEMO HASHEAVIER CONSUMPTION

HABITSMobile Social Networking M-Commerce Concurrent TV Usage

13-17

18-24

25-34

35-44

45-64

29%

14%

45%

58%

67% 26%

30%

24%

21%

15%

28%

20%

55%

46%

42%

% use once or more per day % have made apurchase via mobile

% use once or more per day

Not surprisingly, users aged 13 to 24 – those raised on the web and mobile communications – areamong those with the heaviest consumption habits, using their Smartphones for social interactionand often in front of the television. 16

SMARTPHONEMARKETING

BRANDS HAVE A COMPELLINGOPPORTUNITY TO ENGAGEWITH USERS IN THEMOBILE ARENA

27%Using mobileweb & apps

6%Listening to radio

33%Using web on

computer

% completely focused

13%Watching television

17%Reading a magazine

19%Reading the newspaper

19GETTING THEIR ATTENTIONWhile the broader media environment is typically full of noise and distraction, consumers reportbeing surprisingly focused when using the mobile internet.

This finding is significant to marketers seeking to compete with external distractions and engageconsumers in a meaningful way.

20

I feel gratefulwhen I’m using the

mobile web. Ratherthan wasting time,I can take care of

my family.

It’s pretty amazinghow focused I am

when I use my iPhone.The screen is tiny but Ican completely ignorethe world around me

when I’m using myfavorite apps.

The word Iuse to describe

my state of mindwhen using themobile web is

CURIOUS.

USERS ARE IN A PRIMEDEMOTIONAL STATE.SIMPLY USING THEIR DEVICE

CREATES FEELINGSOF APPRECIATION &

CURIOSITY.

Consumers rely on their mobile devices to share experiences with their friends,family and colleagues.

Over three out of every four Smartphone users are sharing photos, articles and videos acrosstheir social networks.

MORE THAN A THIRD (38%)OF CONSUMERS HAVETAKEN ACTION FROM A

MOBILE ADOf those who have taken action...

53%Click on the ad

35%Opt-in for emailwith more info/coupons

34%Make purchasesvia computer orin-store

32%Opt-in for textmessage with moreinfo/coupons 24%

Made purchasesvia mobile

7%Other

21ADS AND ACTIONMobile offers brands the opportunity to reach consumers in new places and new ways, and mobileusers report acceptance and even appreciation of mobile advertising. In fact, over one-third ofSmartphone consumers report having taken action from a mobile ad.

Smartphone users are clicking on advertisements (53%), requesting more information or a coupon (35%),and making purchases via their Smartphones (24%).

MOBILE ADVERTISING IS

BEGINNING TODRIVE CONSUMER

BEHAVIORMore than 1 in 5 have had a mobile ad...

29%Lead them to share info

22%Influence a purchase

21%Create product awareness

Mobile advertising provides multiple routes to brand building, both viral and direct.

Smartphones serve as both the engine and the vehicle for sharing product information.Users also report that mobile advertising is capable of influencing their purchase behaviorand brand awareness. 22

WHILE MOST USERSPURCHASE ITEMSFOR THEIR DEVICE,

COMFORTIS GROWING FOR OTHER

PURCHASES

44%Purchases for mymobile (e.g., apps)

24%Other purchases

% have done via mobile...

23Significantly, nearly one of every four Smartphone users has made a purchase of non device-related products or services from their phones – indicating growing comfort with the mediumas a shopping tool.

%

%

Use their

Use their

MOBILE MEDIA LETS YOUINFLUENCE CONSUMERS

AS THEY SHOPI LOVE being able to

look up recipes whilegrocery shopping.

81 phones to

research productsthey are considering

As an avid shopper,having the ability

to compare prices ofproducts while out

shopping is awesome.

81 phones

while shopping

Smartphones offer marketers unique opportunities to influence consumers at the verymoment they are considering purchase decisions and comparing prices.

24

OPPORTUNITYTO INCENTIVIZEAND REWARDA BRAND’S USER BASE

Unlike traditional coupons,males and younger users havethe highest degree of interest.

71%

73 %

74 %

76 %

75 %

62% 75 %

79 %

% of sample who would consider redeeming coupons via mobile

25MOBILE MOTIVATIONMobile also provides a new and perhaps the ideal platform for distributing online coupons, anotion that appeals to nearly 3/4 of all Smartphone users.

Surprisingly, the study showed that males are the most open to this mode of couponing. Alsounexpected was the high percentage of young consumers open to this activity – with 25 to 34year-olds representing the age group most interested in mobile coupons.

USERS KNOW ASEISMIC SHIFTIN ADVERTISING

IS COMING &THEY ARE EXCITED

ABOUT ITI have a Bank of

America app. Every timeI use my phone, I see the

icon. When I need accountinformation, it’s just a clickaway. I don’t know if that is

advertising, per se, but itmakes me feel better

about my bank.

It’s not just aboutscreaming a message

at me anymore. It’s aboutproviding value and that, tome, is so much better than

trying to influence meby interrupting myfavorite TV shows.

26

SMARTPHONE

FUTURES

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29CONTINUAL GROWTHSix of every 10 Smartphone users surveyed expect their mobile internet usage to increase significantly overthe next two years and to become an even more integral part of their lifestyles. This growing reliance onmobile internet is a signal to smart marketers that they need to have a presence on mobile touchpoints.

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MOBILE TRANSACTIONSWILL CONTINUE TOBECOME COMMON

PRACTICE ASSECURITY CONCERNS ARE

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• Utilitarian tasks

% have done or would consider doing via mobile

As usage expands, so will consumer confidence in the security of the mobile web for privacy-sensitivetasks such as banking.

This is clearly an area where merchants have an opportunity to reassure and woo customers withappropriate messaging and protective features. 30

PERFORMANCE

SPEED AND COMPATIBILTY

ARE THE RICHESTAREAS FOR RAPIDIMPROVEMENT

Timeliness

Organization of sites

Quality of video

Ease of use

Quality of content

Appearance of sites

Speed of downloading text

Quality of brands

Amount of video

Cost of access

Number of ads

Speed of video

Size of ads

Speed of downloading images

Number of mobile formated sites

DERIVED IMPORTANCE

31Smartphone users are reaching for their devices to help answer unmet needs and will increasinglydo so as speed and compatibility issues are resolved. Services that don’t have dedicated mobileformats are going to miss out on this significant shift in consumption.

CONCOMITANT MARKETING:The Smartphone represents the first marketingchannel for marketers to move with and messageconsumers everywhere they go. Mobile is lessabout “wireless online” and increasingly a highlypersonal and customized medium.

INFLUENCER VEHICLE:Mobile is perceived as cool, activeand timely – the attributes of a vibrantbrand that is positioned for growth and viraladoption. Mobile advertising provides an opportunityto reach trendsetters and make a lasting impressionon the influencers who are a key audience to anybrand’s success.

MESHING:Smartphones are the

ultimate media meshingtool, with consumers

simultaneously consumingmedia on multiple screens

and utilizing their Smart-phones to enhance theirTV viewing experience.

ACCEPTANCE:The Smartphone is improving

consumers’ quality of life.They appreciate marketers who

sponsor their mobile experiences. Theywant advertising that is appropriate for their

frame of mind and passions. They understandthe role that advertising plays in providing free

content and prefer advertising that deliversmore relevant messages to them.

32

INITIATIVE COMMISSIONED BYAOL AND UNIVERSAL McCANN

ABOUT UMUM is a global media communications agency that represents the world’s leading marketers and strategic thinkers includingCoca-Cola, ExxonMobil, Johnson & Johnson, MasterCard, Microsoft, Sony, Bacardi, L’Oreal and UPS. Part of the Interpublic Groupof Companies (IPG), UM has roughly 169 offices in 130 countries and more than 3,600 employees with headquarters in New York.UM provides a full spectrum of media services including media and communications planning, digital strategy consultation,analytics and economic modeling, research and consumer insight. The company’s mission is to deliver Curious Minds forSurprising Results.

ABOUT AOLAOL is a global Web services company that operates some of the most popular Web destinations, offers a comprehensive suiteof free software and services, runs one of the largest internet access businesses in the U.S., and provides a full set of advertisingsolutions. A majority-owned subsidiary of Time Warner Inc., AOL LLC and its subsidiaries have operations in the U.S., Europe,Canada and Asia. Learn more at AOL.com.

THE TEAMGraeme Hutton, Karen Ring, Maggie Fosdick and Ali Ponce De Leon, Universal McCannStu Rodnick and Maria Pousa, AOL

Special thanks to the 360 Creative Team at AOL forproducing this booklet, Agatha Chang from Universal McCannand Scott Kelliher & Stacey Comito from AOL for theirmobile marketing expertise.

RESEARCH INQUIRIES CAN BE DIRECTED TO:

Graeme HuttonDirector of Consumer Insights, UMTel: 646.865.3437Email: Graeme.Hutton@umww.com

Stu RodnickSenior Director Strategic Insights, AOLTel: 917.534.5069Email: stu.rodnick@corp.aol.com