President’s Report

“Digital Everywhere”

November 19, 2010

by Randall Rothenberg

After the challenges of the 2008-2009 “Great Recession,” I am pleased to report that IAB in 2010 is finishing its strongest year ever. Buoyed by a broad (if uneven) recovery in the advertising marketplace, significant growth in ad-supported digital media companies and divisions, a growing membership portfolio, an ongoing commitment to cost controls, a team dedicated to achieving objectives, and spectacular results from our events business, the Interactive Advertising Bureau is poised to report a surplus of nearly $900,000 over our projected revenues.

Our surplus puts us in a position to invest in the development of a reserve fund, a delayed but prudent measure for our non-profit trade association. It also has enabled us to begin a series of strategic investments that will bolster IAB’s utility to our members, and help us maintain the central position we have in assuring the marketing-media ecosystem’s ability to grow.

Without doubt, the most important contributing factor to IAB’s performance is the digital advertising economy. It is strong. For the first half of 2010, US Internet ad revenues totaled $12.1billion, the best first-half ever, according to the IAB Internet Advertising Revenue Report by IAB and PricewaterhouseCoopers (PwC). This represents an 11.3% (or $1.2 billion) increase from the admittedly challenged first half of 2009, but also represents the second highest quarterly revenue result ever for US interactive advertising. The IAB/PwC report also shows interactive advertising revenues growing 2-3 times faster than the overall advertising marketplace. Only the cable television industry grew at a greater rate. Further bolstering this trend, the IAB Internet Advertising Revenue Report estimates that in the third-quarter of 2010, U.S. online revenues reached $6.4 billion, an increase of 17% over the same period in 2009 and the highest quarterly results ever for the online advertising industry.

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2010 Midyear Results Compared With 2009

$ Billions

p 7Sources: IAB Internet Advertising Revenue Report, 2010 First Half and Second Quarter Report; The Nielsen Company, October, 2010; Kantar Press Release

The Nielsen Company estimates total media revenues increased 3.1% from 1H2009 to 1H2010; Kantar Media estimates a 5.7% increase.

$10.9$12.1

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

1H2009 1H2010

11.3%

IAB’s performance, as I indicated, reflected this strong industry growth. With tight administration by Executive Vice President and Chief Operating Officer Patrick Dolan and his team, we are projecting record revenues of $11.5 million, slightly exceeding the previous record year, 2008, by about $40K. It was the second best year for membership revenues and the best ever for events, with events revenues 29% above projections.

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11

Managing to Record Year, Jan - Sep 2010

Key indicators (‘000)

2010 2010 Var from Var fromActual Budget Budget $ Budget %

Dues Revenue $4,438 $4,369 $69 2%

Events Revenue $4,611 $3,580 $1,031 29%

Total Expenses $8,044 $7,918 $126 2%

Gain (Loss) $1,427 $244 $1,183 485%

Cash Balance $4,777 $2,684 $2,093 78%

After a series of investments in the 4th Quarter, we anticipate a surplus of about $880,000. Our plan, which has been approved by the Board Finance Committee and the Executive Committee and which we will detail for the full Board of Directors at today’s meeting, is to devote $500,000 to a reserve fund, with the remaining $380,000 allocated to several specific strategic investments and a general operating pool for 2011.

These investments will help fuel the strategic agenda for 2011we are presenting to the Board today, which we are labeling “Digital Everywhere.” This will succeed the 2010 strategy, “Shifting Share.”

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Member Services & Professional Development

The Member Services team, under Vice President Michael Theodore, has overseen the acquisition of 49 new members since the last President’s Report in June. Demand Media, Technorati Media, and SB Nation are among the better known digital media brands that have joined in the past several months, and trade publishing companies Hanley Wood and Ziff Davis Enterprise are among the major multi-platform brands new to the roster.

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New Members: June 15 – Oct 15

Demand Media GeneralSmartBrief, Inc. GeneralRocket Fuel Inc GeneralHanley Wood, LLC GeneralHoover's, Inc. GeneralSynacor, Inc. GeneralZiff Davis Enterprise GeneralAdBrite, Inc. GeneralTriad Digital Media GeneralThe Goodway Group GeneralOneScreen Inc. GeneralOutbrain GeneralInMobi GeneralSB Nation GeneralTechnorati Media GeneralTidalTV GeneralOpen Book Video GeneralRapleaf GeneralBlue Calypso GeneralAristotle GeneralAll Media Agency AssociateLivePerson, Inc. AssociateXGRAPH, Inc AssociateMirror Image Internet AssociateKrux Digital AssociateThe Media Innovation Group AssociateHiro Media AssociateThe Center For Sales Strategy AssociateiCrossing AssociateKlaustech, Inc. AssociateBrightTag, Inc. AssociateWiT Media AssociateSzabo Associates, Inc AssociateThe Hacker Group AssociatethisMoment, Inc. AssociateINVISION Inc. AssociateMedicx Media Solutions Associate

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Cable Television Laboratories, Inc. AssociatePanther Panache LLC AssociateBazaarvoice, Inc. AssociateKantar Video AssociateBlueCava AssociateAd-Juster, Inc. AssociateAppNexus AssociatePhonevalley AssociateMixpo AssociateKimberly-Clark Corporation AssociateDraftFCB AssociateNexage Associate

The Long Tail Alliance, IAB’s body for small publishers with under $1 million in advertising revenues and fewer than five employees, continued to grow rapidly – gaining 175 members during this period – as a result of the on-going recruiting “scholarship” program spearheaded by ValueClick and Burst Media. The Long Tail Alliance now has nearly 300 members and provides webinars on issues relevant to small publishers, with many of the webinars led by IAB members.

The IAB’s Professional Development program saw two more “graduates” receive a Certificate in Interactive Advertising, each student having accumulated 40 hours of instruction. Director of Education and Outreach Jonathan Busky left the IAB during the summer, and a search is now underway for his replacement. The program continues in his absence.

As will be detailed below, the Member Services team recently became responsible for overseeing IAB’s Committees, and assuring their integration with our functional Councils. The Committees had a productive summer and fall with a number of initiatives moving forward on several fronts:

• The Audio Committee released its Digital Audio Overview Report at MIXX during Advertising Week

• The Digital Video Committee held its first-ever Agency Day. Led by IAB SVP Sherrill Mane and co-chairs Geoff Coco (Microsoft) and Joey Trotz (Turner Broadcasting), 92 agency executives and IAB members came together for a five hour working meeting. In addition to bringing together sellers and senior agency executives, many whom are with traditional agencies, the meeting provided a forum for lively discussions and the development of a joint agenda for the upcoming year for the Digital Video Committee and our agency partners. This working meeting

• assembled executives from Yahoo!, NBC Universal, Zenith Media, Google, Universal McCann, Break Media, Hulu, Tremor, Eyewonder, Freewheel, Brightcove, Nielsen, and Panache who

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discussed and debated issues of measurement and adoption before a group of publishers and agencies.

• The Games Committee updated its Games Overview Report at a MeetUp sponsored by Y&R• The Local Committee released the Local Targeting Guide at MIXX• The Mobile Committee in July released Prevailing Mobile In-App Ad Formats, the results

of IAB’s first survey of in-application ad formats member companies offer on the major US smartphone/media tablet platforms. This was the advertising industry’s first systematic look at the diverse array of ad formats being offered on iPhones, Android devices, BlackBerrys, iPads, and other mobile/portable media devices. The IAB, in a joint effort with the Mobile Marketing Association and Media Rating Council, released the industry’s first guidelines for measuring mobile web ad impressions, Mobile Ad Measurement Guidelines. Based on the IAB’s authoritative industry position on measurement standardization, the mobile web ad measurement guidelines will increase accountability and buyer comfort with mobile advertising.

• Under the auspices of the Networks & Exchanges Committee, 16 member companies have committed to comprehensive self-certification against the IAB Networks and Exchanges Quality Assurance Guidelines. As part of the self-certification, participants also attended three training sessions.

We also made great headway in taking our Mobile Committee up to a next level of activity. The Mobile Marketing Center of Excellence, approved by the Board of Directors at the June meeting, went through a rapid design phase into fund-raising. To date, approximately $620,000 of the $780,000 proposed first-year funding has been committed. Initial funders include Univision, Google, Cars.com, New York Times, Tremor, Disney, AT&T, NBC, CNN, Federated Media, CBS, IDG, Yahoo, Microsoft, 24/7 Real Media, Weather.com and HuffingtonPost. Recruiting for a Vice President of Mobile and Managing Director of the Center has begun, and we hope to conclude it before year-end.

Public Policy

On October 4, IAB led a group of the nation's largest media and marketing trade associations, with support from the Council of Better Business Bureaus, in announcing the details of a self-regulatory program that will give consumers enhanced control over the collection and use of data regarding their web viewing for online behavioral advertising purposes. The program will enhance industry self-regulation in ways that will foster transparency, knowledge and choice for consumers—ultimately protecting this most vital segment of our economy.

Because of this unprecedented cross-industry initiative, which has been more than three years in the works, consumers will gain enhanced notice and control over the collection and use of web-viewing data for online behavioral advertising purposes. The program provides specific implementation practices in support of the Self-Regulatory Principles for Online Behavioral Advertising, which the industry released in July 2009. Together, the principles and program respond to the Federal Trade Commission’s

call for more robust and effective self-regulation of online behavioral advertising practices. The program

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includes several important components:

• Advertising Option Icon: The Program promotes the use of an icon and accompanying language, to be displayed in or near online advertisements or on web pages where data is collected and used for behavioral advertising. The Advertising Option Icon indicates that the advertising is covered by the self-regulatory program; by clicking on it consumers will be able to link to a clear disclosure statement regarding the data collection and use practices associated with the ad, as well as an easy-to-use opt-out mechanism.

• AboutAds.info: Companies collecting or using information for behavioral advertising are encouraged to visit www.AboutAds.info to acquire and begin displaying the Advertising Option Icon, signaling their utilization of behavioral advertising and adherence to the Principles. Interested companies engaged in behavioral advertising can also register to participate in the easy-to-use consumer opt-out mechanism on the www.AboutAds.info site.

• Consumer Choice Mechanism: As business registration and use of the Advertising Option Icon expand, consumers also are being encouraged to visit www.AboutAds.info for information about online behavioral advertising and to conveniently opt out of all or some participating companies’ online behavioral ads, if they choose.

• Accountability and Enforcement: Starting in 2011, the CBBB and the Direct Marketing Association (DMA) will be responsible for monitoring and enforcing compliance, as well as managing consumer complaint resolution. DMA and CBBB will employ monitoring technology to report on companies’ adherence to the transparency and control provisions of the Program.

• Educational Campaign: To build awareness of the program among the business community and consumers, the trade associations will conduct a broad-based educational campaign. To facilitate this initiative, we have planned a series of webinars for businesses on how to implement the Principles.

The IAB continues to take a prominent role in advocating for and against legislation and regulation that would influence our industry. On July 22nd, Mike Zaneis, Vice President of Public Policy, testified before the U.S. Congress to express the advertising industry’s serious reservations about two legislative proposals that jeopardize the Internet and the interactive advertising and the explosion of new information, communications and entertainment our industry has made possible. On July 19, Illinois Representative Bobby Rush, Chairman of the Subcommittee on Commerce Trade and Consumer Protection, introduced HR 5777, the Best Practices Act. It followed the release of a discussion draft of privacy legislation made last May by U.S. Representatives Rick Boucher, Chairman of the Subcommittee on Communications, Technology, and the Internet, and Cliff Stearns, Ranking Member of the Subcommittee. The hearing covered both proposals and IAB identified several provisions that industry supports, but also laid out a number of substantive concerns.

Specifically, the IAB supports Chairman Rush’s recognition of the value and importance of strong industry self-regulation. HR 5777 creates a safe harbor for companies participating in self-regulatory programs. The IAB stands ready to work with the Chairman and staff to ensure the hard work of the Federal Trade Commission (FTC) and the industry in this area is accurately incorporated into this

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provision. HR 5777 recognizes the need for flexibility in the way consumers receive notice about data collection practices. The IAB supports an approach that allows for innovation in this area to determine the most effective means of providing information to consumers.

At the same time, the IAB opposes HR 5777’s provisions that would interfere with the relationship between first-party publishers and their customers. First-party data practices should be exempt from opt-out requirements, similar to the approach the FTC has taken. We believe legislation should follow the FTC and self-regulatory framework and focus on third-party data transfers, and provide for an opt-out standard, not an unworkable opt-in approach. In addition, the scope of “sensitive data” as defined in these proposals is overly broad. This approach could constrain multicultural marketing and media. Certain websites that cater to these audiences would be unable to customize content or even advertise on behalf of the agencies that place ads on their sites. These types of services provide great benefits to their audiences and the proposed restrictions would actually harm the very group of people they seek to protect.

IAB has successfully lobbied against these and other harmful proposals, including the creation of a so called “Do Not Track” list. We do not expect legislation to pass before the end of this Congress in December.

Industry Services

Under our reorganization, the Industry Services team will oversee IAB’s critical work in measurement and consumer and market research. The team has made significant progress in both arenas since the Board last met in June.

Its “Making Measurement Make Sense” initiative has generated strong momentum within the digital sector and across the media-marketing ecosystem. With input from the 4As and the ANA, IAB issued an RFP for a major consulting firm to lead a business process for standardizing the ways digital media are measured, and the governance processes for determining those standards. The fundamental premise of the process is that ecosystem-wide consensus on the metrics and measurement systems that are required to transact business is needed. The metrics that will be agreed upon must make transactions from planning to buying to post-buying and evaluating go smoothly and work for cross-platform measurement. Additionally, the initiative, the RFP and the resulting business process aim to establish a governing body, similar to the accounting industry’s Financial Accounting Standards Board that will oversee measurement standardization and quality in the future, so that the marketing and advertising industry will be able to use measurement to better understand consumers and how to best market to them.

Public advocacy for the project, including publication of a call to action in Advertising Age by SVP for Industry Services Sherrill Mane, have garnered positive responses and helped open the channel for ongoing advocacy and fundraising. (Our advocacy efforts are gaining larger audiences; the webinar IAB held on release of the first-half IAB Internet Advertising Revenue Report drew 191 attendees from the ranks of IAB membership and members of the trade and general press. Such webinars, and frequent blog postings on the IAB Blog, will become a more regular part of our communications arsenal.)

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The 4A’s and the ANA are officially full partners, a significant step in formal ecosystem wide coalition building. The Newspaper Association of America is interested in formalizing its partnership as well, and outreach to such other associations as the RAB, MPA, and TVB has begun.

The IAB has formed Measurement Initiative Advisory Board to serve as the leader of the process on behalf of our members. Randy Kilgore has agreed to chair the group.

Also in the measurement arena, IAB has partnered with the television-industry-led Committee for Innovative Media Measurement, the 4A’s and the ANA on Project TAXI, an acronym for “trackable asset cross platform identifier.” Project TAXI aims to study the feasibility of universal data codes that will permit identifying content and advertising across media platforms. If feasible, encoding/metadata could be a significant first step in providing an operational solution to some of today’s measurement problems. It could also be the beginning of widespread adoption of the ANA and 4A’s AdID, which will facilitate tracking advertising assets across media platforms. We are lending our name and brainpower to this project.

Sherrill and Director of Research Joe Laszlo last August oversaw the release of An Evaluation of Methods Used to Assess the Effectiveness of Advertising on the Internet, the industry’s first independent review of online site intercept studies used to research the impact of ad campaigns. In addition to widespread coverage in the trades, the paper set off debates and industry conversation about the utility and quality of the ad effectiveness studies that are both overused and create significant supply chain friction. The paper is in the process of minor edits to ready it for publication in The Journal of Advertising Research. In practical terms, the paper is the foundation for development of best practices that will be used to train the agency community in particular and the broader ecosystem in how to more correctly and more efficiently measure the impact of online advertising.

Another major research report, Interactive Advertising and the Optimal Marketing Mix, conducted by MarketShare Partners for the IAB, also was released over the summer. It examined three verticals to determine optimal marketing mix. Marketshare Partners used data and business cases from their database to model optimal marketing and media allocations for CPG, financial services and automotive. The long form of the study was presented to IAB members in a webinar and after discussion with the Sales Executive Council, an abbreviated, more sales friendly deck was provided to IAB members on our website.

Brand Advertising Initiative

Significant progress was made in the IAB’s “Reimagining Interactive Advertising” initiative, especially in the “Rising Stars” project designed to create better standards for brand advertising and creativity in interactive media, to fuel online creativity and move more brand marketing dollars to interactive. Led by Peter Minnium, who joined IAB as a senior consultant from Lowe Worldwide, where he oversaw the agency’s international business, Rising Stars is an unprecedented call for competitive submission of new, brand-hospitable formats to enhance the existing list of standard ad units. Submissions will be accepted until December and the selection process will span the remainder of 2010.

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In 2011, a set of “rising star” ad units will be selected and subsequently evaluated in-market based upon consumer and business adoption, with new IAB standard ad units named by the end of the year. This “wisdom of the crowd approach,” involving creatives, technologists, publishers, sales executives, and marketers, represents the first time in the organization’s history that we has asked representatives of the entire value chain to work together to innovate new ad formats specifically for brand marketers. The selection process, for the first time, is led by a cross-disciplinary group that includes agency creative directors, media executives and ad operations specialists, who will judge the ad formats for their potential to drive brand equity at scale.

The new formats will enhance the already existing list of IAB standard ad units, seven of which comprise approximately 80% of all online ads served in the U.S.

Ad Operations & Supply Chain

Controversy over the rising use and misuse of ad verification services by agencies has been one of the signal issues of 2010. As a follow-up to the one-day Ad Verification Summit hosted by IAB last spring, the Ad Ops Council, under the guidance of our new Vice President for Supply Chain and Revenue Solutions Steve Sullivan, orchestrated a true summit meeting between top media company members, agencies and verification services vendors. The result was a two-level agreement:

• Short term, the media companies and the agencies will work together to develop mutually agreeable language that would allow for the use of verification services in an informational capacity only. Media company participants agreed to come to the table for this discussion with the understanding that no make-goods would result from any findings during this period.

• Long term, it was agreed by all parties present that the industry is in need of verification services guidelines that can be used as audit criteria for any organization wishing to engage in verification activity. It was further agreed that the organization most suited to lead this effort was the Media Rating Council, using a model similar to that used for the creation of the IAB Impressions and Click Guidelines.

One follow-up meeting was held with the summit attendees and the staff of the MRC to address questions around process and timing, after which the process of creating verification services guidelines was put into motion. It was the position of the MRC staff that the advance work done by the verification services summit would greatly reduce the overall time required to complete the guidelines. Current projections are that we have a draft available early in the calendar year, with final guidelines by February 2011.

Marketing & Events

Since June, the Marketing team, under the leadership of Senior Vice President & CMO David Doty and Director Marla Aaron, refashioned itself to focus on the evolving organizational priorities

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outlined in our strategic review, placing greater attention on IAB Committees and Councils and engaging in more active dialogue with our members. Marketing formed alliances with new partners for public relations and more, placed renewed focus on social channels, designed strategic plans to address members’ needs upstream and reinforced the power of interactive advertising for brand building.

For public relations, Marketing engaged Horn Group as a partner to drive IAB’s capacity for addressing our expanded strategic intent. Results came immediately, with strong growth in our already robust press coverage. September set a record for most press stories mentioning IAB in a month, with over 2000 stories, due in significant measure to IAB’s MIXX Conference. Across the course of the year, press coverage is up 46%, and we now see frequent articles in top-tier outlets such as The New York Times, Wall Street Journal, Advertising Age, Adweek and Politico. Our news coverage is comprised mostly of public policy and privacy issues, supply chain and the IAB as the industry’s de facto standard-setting body for interactive advertising. Working with Horn Group, we launched in September a new effort to the press that focused on the groundbreaking work of the Committees and their impact on the industry. We will be promoting this message throughout the course of the year, with special emphasis on showcasing our Chairs and Co-Chairs as thought leaders.

Since June, the marketing team also aligned membership communications to our strategic review, disseminating 10 new newsletters that helped members take greater advantage of their affiliation with the IAB. We placed a renewed focus on pushing out editorial content, rather than “promoting IAB,” increasing our dialogue with IAB members while placing them center stage. Marketing has developed an action plan for 2011 that, among other items, calls for helping our members find platforms for communicating the IAB messages, and themselves, at key non-IAB industry events. Horn Group is actively pitching Chairs and Co-Chairs to the press and reaching out to local markets on the privacy issue.

Our work in social media, both on the IAB site and off, has generated impressive results. Since June, www.iab.net has averaged 84,500 monthly unique visitors, up 29 percent from the same period in 2009. For the year, IAB.net has averaged more than 101,000 unique monthly visitors—an all-time high and up 56% from the same period in 2009. Back in 2007 when we undertook our first site redesign, we averaged 45,000 monthly unique visitors.

The marketing team made social media and multimedia and prominent features on IAB.net—showcasing our communities as well as thought leadership across a number of dimensions. We took on new social functionality through a partnership with IAB member, Gigya. This new feature allows users to sign into IAB.net through their existing social communities and interact with those communities directly via IAB.net, in essence serving as an expanded distribution method. Our intent is to leverage this new technology to disseminate IAB content through social channels, with a special focus on our video content.

Launched in June, our web site’s new video module now contains more than 300 videos, including highlights from our stage and thought leadership interviews with leading marketers, agency creatives, publishing thought leaders and industry commentators. We have used our videos to serve as a central content messaging source for Twitter and Facebook. This content distribution strategy was a

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significant contributor to the 49,000 video views so far on the IABtv YouTube channel. In addition, in the June-October period, IAB Twitter followers are up 25% from 7,232 to 9,050, and our Facebook fans increased 12% from 7,602 to 8,538.

At the same time, we’ve activated the IAB Blog as a standard meeting ground and reference point for the IAB point of view. Leveraging the knowledge of IAB staff, the blog now serves as an outlet for commentary on measurement, public policy and more. In the last two months, we’ve had a number of important posts on the key subject of metrics that sparked dialogue across the ecosystem. We have also identified the IAB Blog as place where our Chairs and Co Chairs, and other senior industry voices, will have a strong presence on our editorial calendar.

In June, the Marketing, Public Policy, and Member Services teams executed the second annual IAB Long Tail Alliance Washington Fly-In when 46 small publishers—a 64% increase over 2009—traveled to Washington, D.C., to tell their elected representatives about the important role played by the advertising-supported Internet in empowering small business growth in America. The Long Tail web publishers, who came from 14 states, spent a day on Capitol Hill meeting with the offices of 35 members of the House of Representatives and 12 Senators. This year's Fly-In also included a full day of training sessions, strategic planning panels and roundtable discussions created specifically to address the business interests of small publishers. Long Tail members and executives from ad networks and advertising agencies shared actionable insights on how the community of small publishers can improve their businesses. The two-day event also served as a unique networking opportunity for small publishers, who, for the most part, work from their homes and have limited opportunities to meet other small business owners like themselves.

Marketing used the opportunity to capture the messages in a short film that tells the story of the Fly-In and will be leveraged in the coming months as a key feature of our press outreach and other communications in our continued fight against adverse legislation and regulation.

The marketing team has focused on raising the profile of interactive advertising as a powerful tool for building brands. We’ve begun constructing the blueprint for an online creative gallery, which will serve as a central place for brands and creatives to see and gain inspiration from interactive’s greatest campaigns. CMO David Doty also took the message of creativity in digital on the road with presentations and meetings with industry leaders at MediaLink, Bellwether Connective Learning, the Cannes Lions advertising festival and elsewhere. He also recently hosted four panels at French Affairs, sponsored by the Ministry of French tourism, in which that government and its business affiliates such as Air France-KLM and other travel companies explored how to build the travel industry in the age of digital.

Marketers are a key focal point of the “Building Brands Online” message. We are remodeling our bootcamp to turn it into a sustainable product renamed “Bought/Owned/Earned: Using Digital Media to Build Brands and Sell Products.” This customized program will help marketers understand how digital media has transformed the consumer experience—and how marketing spend needs to change in tandem. We expect to leverage our relationships with IAB Agency Advisory Board, as well as our own

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expert members, to take the message to marketers. It is also IAB’s intention to take the learnings from the IAB/Bain Building Brands Online Study and help train our members’ sales teams to develop the recommended “triple play” capabilities.

The Marketing team worked together with the Events team to extend the “Building Brands Online” message through the MIXX Awards, showcasing the powerful combination of brand creativity and digital advertising. This year, the panel of judges comprised a stellar roster of senior agency, marketer and publisher voices and included more leading, and more senior, creatives and a larger number of brands than ever before. Steve Wax, founder of Campfire, Agency Advisory Board Member and MIXX Judge, summed up his experience with the MIXX Awards on his blog:

How do you balance creative against effectiveness? Should the campaign budget be revealed? Do look and feel matter any longer? Many of these same questions map across the challenges agencies and marketing executives face on a daily basis. The IAB gave us the best context in which to explore them – over case studies, real work, with our peers – so we took home some real lessons of our own. … The criteria laid out by [by IAB] was to give equal weight to strategy, creative, results, and use of media — to ask what was the most innovative and most inspiring. Then there was the question of “innovation” – what if someone else had done similar work previously, but the new piece was far stronger… And, further, is ad innovation about technology or is it about new ideas? Instead of worrying about hardware, platforms and channels, shouldn’t we be evaluating ideas designed to attract an audience?

Overall, IAB Events hit new records on every measurable dimension, contributing significant profits to the organization. Since June, the events team, under the leadership of SVP David Doty and Senior Director Lisa Milgram and Directors Virginia Rollet Moore and Phil Ardizzone, executed the Mobile Marketplace MIXX Conference & MIXX Awards, Ad Ops Summit and one more Case Study Road Shows, this time focused on Games advertising. As with previous events through the year, these conferences continued to outperform against plan.

Across the course of the year, the Events portfolio achieved gross revenues of $4,881,000, more than 33% ahead of plan, resulting in an additional $1,232,000 in gross revenues. These numbers reflect broken records in both sponsorship sales and registration revenues. Buy-side attendees made up close to 40% percent of the MIXX audience, a higher percentage than ever before. In addition, IAB Events are attracting more senior leaders. For example, 28% of attendees at our Mobile Marketplace were at VP level or above.

Our biggest event of the year, the MIXX Conference & Expo again confirmed its stature as the primary venue where the world’s leading brand marketers, advertising agencies and publishers gather to celebrate and explore the rapidly evolving digital marketing and advertising industry. Leveraging this major platform, such IAB members as Microsoft, AOL, Yahoo!, Facebook, Twitter, Pandora and Google took center stage, releasing major news, performing cutting-edge product demos and more. The MIXX Awards, referenced above, confirmed their status as the most sought-after honor in interactive

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advertising and marketing. IAB partnered for the first time with the International Academy of Digital Arts & Sciences (the organization responsible for the Webby Awards) to learn best practices and leverage its massive database. Entries were up 41% from 2009 and the program generated a modest profit this year as compared to a loss in the previous year. More important, there was greater buzz about and awareness of the MIXX Awards than ever in both the press and social space, providing a showcase for best-in-class brand advertising online.

Directly after MIXX the IAB hosted the 2010 IAB Global Summit. IAB leaders from around the world participated in the largest Global Summit to date. For the first time an extra day was added to the meeting to accommodate the ambitious agenda covering global industry trends, joint efforts on public policy, and the coordination of global supply change initiatives., . Yahoo hosted this annual event and provided a great space for the 25 member countries to share knowledge, coordinate initiatives and better leverage the growing IAB international network.

The IAB also helped establish the first annual Latin Media and Entertainment Week. As a commissioner on the New York City’s Latin Media and Entertainment Commission (LMEC), Patrick Dolan worked with the city to create the week in order to highlight the important contributions that the Latin Community has contributed to New York’s media and entertainment industries. As part of the week the IAB participated in the Latin Vision/LMEC/IAB CEO summit as well as hosted a reception for Joe Kutcher, author of “Latino Link: Building Brands Online with Hispanic Communities and Content” at the IAB offices.

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Reorganization

As noted several times in this report, IAB has undertaken a reorganization of our staff and a refocusing of its priorities, pursuant to the conclusions from the IAB Five-Year Plan Report, undertaken for our Board of Directors by Accenture earlier this year.

The Reorg Will Position Us to Undertake Accenture’s Recommendations

Initiative Goal

Cross -Platform • Help publishers develop cross-platform offerings and capabilities

Ad Effectiveness • ID and ratify new standards for ad effectiveness measurement

New Technology • Proactively identify and set standards for newly emerging media platforms

Exchange Marketplace Innovation

• Develop guidance for industry on exchange-based advertising solutions

Audience Development (Content)

• Develop expertise in audience development to help members monetize content beyond advertising

Data Services • Operate a data-service out of IAB (ABC, PIB, Publisher Metrics) with Data Governance

Code Share • Establish partnerships to increase efficiency / effectiveness

Long-term IAB Initiatives

“Line Extensions”

New Areas of Focus

Internal Efficiency

The Accenture report highlighted several areas in which IAB can and should be helping its members prepare for their future opportunities and challenges. A subsequent internal study, however, found obstacles to achieving these objectives in the way we are organized. Fundamentally, we discovered that we weren’t as knowledgeable about our member companies, their teams, and their businesses as IAB needs to be, and this distance was hindering our ability to execute our strategy. We discovered that while we were good at many things, such as developing actionable thought leadership, we weren’t as good as we should be in assuring implementation. The organizational study led us to articulate seven operating principles:

• We must put our members at the center of everything IAB does.• Our goal is changing industry behaviors to foster growth, not producing “stuff.”• Senior execs need to manage less, and face the market more.

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• Junior staff needs more opportunities to grow, work with member companies, and learn in their jobs.

• We must “un-silo” our organization and collaborate more.• We must become more consultative, and that means we have to develop more industry expertise

in our team.• We should measure ourselves by the successful implementation of major “change” programs and

projects.

The major organizational change was rationalizing the work of three of our teams. Responsibility for Committees oversight moved to Member Services from Industry Services; and oversight of Supply Chain and Ad Operations initiatives was separated into its own unit. This has freed Industry Services to focus on measurement and research priorities. Member Services will now be responsible for assuring that IAB’s industry segments, such as digital video, social media, and networks, receive the input and thought leadership they require from our functional experts in marketing, public policy, ad ops, research, and other functions. This restructuring also aims to provide all IAB personnel more opportunity to “go deeper” inside our member companies, and to enable IAB to provide seamless support to member companies, from initial engagement through committee participation and the development of innovation new program and networking events. To provide Member Services more time to support the Committees, its operational duties, including oversight of member-related IT, was moved into a new Business Operations Department.

The New Org Structure Will Improve How We Operate…

• IAB’s agenda will derive from the collective agenda developed by staff with Committees and Councils

• Committee & Council co-chairs will constitute a new IAB advisory body, a “Leadership Council” that will help us triage Committee & Council wish lists into a manageable, industry-changing annual strategy

• Many projects will remain segment- or function-specific, but major initiatives – from “Reimagining Interactive Advertising” to “Data Ownership & Control, Phase II” – can be designed from the start to be cross-functional and cross-segment

• Senior Team meetings will focus on our progress against the Committee, Council, and cross-functional initiatives

• The new structure will allow us to grow, as Committees seek financing to become more fully-staffed “Centers of Excellence”

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Several promotions and title changes came about as part of our reorganization:

• Mike Zaneis is being promoted to Senior Vice President and General Counsel of IAB. This promotion recognizes his accomplishments in shepherding our self-regulatory initiative and creating a presence for us in Washington, and also acknowledges the need for more formal coordination of our legal and lobbying resources.

• David Doty will take on the new role of Chief Marketing Officer, effective immediately, in recognition of the importance of market outreach to IAB’s goals. He will reduce his day-to-day leadership of Events.

• Patrick Dolan’s title is changing to Chief Operating Officer from Chief Administrative Officer, to clarify the position he has been holding at IAB.

• Lisa Milgram is being promoted to Senior Director of Events, and will lead the Events team that has produced such terrific results for IAB.

• Gina Kim is being promoted to Senior Director of Industry Initiatives, in which capacity she will help oversee the work of the Committees.

• Julie Hamilton is being promoted to Director of Business Operations, with responsibility for IT systems as well as office management.

Another critical component of getting closer to our members will be an expansion of our office space. With approval from our Finance and Executive Committees, IAB will commence leasing half of the 8th floor at 116 E. 27th St., representing a 50% expansion of IAB’s core office space in the building. We will turn the majority of this space into an IAB “Community Center,” in which we will be able to hold small conferences, informal networking events, cross-industry “meet-ups,” training sessions, and other activities that aim to make us a central gathering spot for our industry and our partners. Our hope is that we will be able to consolidate space we are currently subleasing in the building, and that this – combined with the opportunity to save money on events-space rentals and with other revenue opportunities – will render this expansion revenue neutral or better within two years.

It has been an eventful time since our last Board meeting, as you can see. We could not have accomplished what we have without the support of our Board and our broader membership. On behalf of the entire IAB team, I thank you for that.

Respectfully submitted,

Randall RothenbergPresident & CEO

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