Yahoo 2004 Annual Report Download - page 41

Sales and marketing expenses for the year ended December 31, 2004, increased approximately $247 million, or 47 per-
cent, as compared to the prior year. Sales and marketing expenses increased by approximately $136 million due to
incremental costs related to acquisitions. The remainder of the increase was primarily due to increases of $25 million in
advertising spending and $77 million in compensation and outside services expenses as we expanded our sales coverage
model and increased our advertiser base and presence in certain territories. Sales and marketing expenses for the year
ended December 31, 2003, increased approximately $101 million, or 23 percent, as compared to the prior year.
Acquisitions provided approximately $37 million of this increase, $43 million was attributable to increased compensation
and outside services expenses and $21 million to increased advertising spending.
Sales and marketing expenses in 2004, 2003 and 2002 as a percentage of revenues were 22 percent, 33 percent and
45 percent, respectively, and decreased as a result of the overall increase in revenues, and savings as a result of our overall
effort to manage discretionary costs.
We currently believe that sales and marketing expenses will increase in absolute dollars in 2005 compared to 2004, as we
continue to grow and expand our reach to advertisers and users and as we incur a full year of costs in 2005 related to
acquisitions completed in 2004.
Product Development. Product development expenses consist primarily of compensation related expenses incurred for
enhancements to and maintenance of the Yahoo! Network, classification and organization of listings within Yahoo!
properties and research and development as well as depreciation expense and other operating costs.
Product development expenses for the year ended December 31, 2004, increased approximately $161 million, or 78 per-
cent, as compared to the prior year. Product development expenses increased by approximately $104 million due to
incremental costs related to acquisitions. The remainder of the increase was due to increases of $34 million of compensa-
tion related expenses and $14 million of depreciation expense. Product development expenses for the year ended Decem-
ber 31, 2003, increased approximately $66 million, or 46 percent, as compared to the prior year of which $35 million
was due to acquisitions and the remainder to increased compensation expense. The year over year increases in compensa-
tion expense reflect our continued investment in the number of talented engineers who develop and build new properties
and services in the Yahoo! Network, and enhance our existing properties and services. The increase in depreciation
expense reflects our growing base of property and equipment.
Product development expenses in 2004, 2003 and 2002 as a percentage of revenues were 11 percent, 13 percent and
15 percent, respectively, and decreased as a result of the overall increase in revenues and savings as a result of our overall
effort to manage discretionary costs.
We currently believe that product development expenses will increase in absolute dollars in 2005 compared to 2004, as
we believe that continued investments in product development are required to remain competitive, and as we incur a full
year of costs in 2005 related to acquisitions completed in 2004.
General and Administrative. General and administrative expenses consist primarily of compensation related expenses and fees
for professional services.
General and administrative expenses for the year ended December 31, 2004, increased approximately $106 million, or
67 percent, as compared to the prior year. General and administrative expenses increased by approximately $66 million
due to incremental costs related to acquisitions. The remainder of the increase was primarily due to an increase of
$24 million of professional services expenses and $16 million in compensation related expenses. The year over year
increase in compensation related expense reflects expansion of our team in line with and to support increased compliance
and infrastructure needs. General and administrative expenses for the year ended December 31, 2003, increased approxi-
mately $56 million, or 56 percent, as compared to the prior year. The increase was attributable to approximately
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