Yahoo 2004 Annual Report Download - page 19

If we are unable to provide search technologies and services which generate significant traffic to our Web sites, our business
could be harmed, causing our revenues to decline.
We have deployed our own Web search technology to provide Web search results on our network. We have limited
experience in operating our own search service. Web search is characterized by rapidly changing technology, significant
competition, evolving industry standards, and frequent product and service enhancements. We must continually invest in
improving our user’s experience, including search relevance, speed, and services responsive to their needs and preferences
to continue to attract, retain and expand our user base. If we are unable to provide search technologies and services
which generate significant traffic to our Web sites, our business could be harmed, causing our revenues to decline.
The majority of our revenues are derived from marketing services and the reduction in spending by or loss of current or potential
customers would cause our revenues to decline.
For the year ended December 31, 2004, approximately 88 percent of our total revenues came from marketing services.
Our ability to continue to retain and grow marketing services revenue depends upon:
• growing our user base;
• broadening our relationships with advertisers to small and medium size businesses;
• attracting advertisers to our user base;
• increasing demand for our marketing services by advertisers, users and businesses, including prices paid by
advertisers, the number of searches performed by users and the rate at which they click-through to commercial
search results;
• maintaining our affiliate program for our sponsored search offerings;
• deriving better demographic and other information from our users; and
• driving continued acceptance of the Web by advertisers as an advertising medium.
Our agreements with advertisers have terms of up to three years, and in the majority of cases, the terms are one year or
less, or, in the case of our sponsored search advertising services, may be terminated at any time by the advertiser. The
agreements often have payments contingent upon on usage or click-through levels. Accordingly, it is difficult to forecast
marketing services revenues accurately. However, our expense levels are based in part on expectations of future revenues,
include guaranteed minimum payments to our affiliates in connection with our sponsored search advertising services, and
are fixed over the short-term with respect to certain categories. Any reduction in spending by or loss of existing or
potential future customers would cause our revenues to decline. Further, we may be unable to adjust spending quickly
enough to compensate for any unexpected revenue shortfall.
In certain markets we depend on a limited number of sources to direct a significant percentage of users and businesses to our
service to conduct searches and a loss of these sources could harm our operating results.
A significant percentage of users and businesses that conduct searches using our sponsored search service, come from a
limited number of sources in certain markets. In addition to the Yahoo! Network, sources for users conducting searches
are members of our affiliate network, including portals, browsers, and other affiliates. Our agreements with affiliates vary
in duration, and depending on the agreement, provide varying levels of discretion to the affiliate in the implementation
of the sponsored search service, including the degree to which affiliates can modify the presentation of the search results
on their websites or integrate the sponsored search services with their own services. The agreements may be terminable
upon the occurrence of certain events, including failure to meet certain service levels, material breaches of agreement
terms, changes in control or in some instances, at will. We may not be successful in renewing our affiliate agreements, or
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