Yahoo 2004 Annual Report Download - page 63

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Issues Task Force (‘‘EITF’’) Issue No. 00-21, ‘‘Revenue Arrangements with Multiple Deliverables.’’ In all cases, revenue is
recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is
performed, and collectibility of the resulting receivable is reasonably assured. In accordance with EITF No. 01-9,
‘‘Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor’s Product,’’ the Company
accounts for cash consideration given to customers, who do not receive a separately identifiable benefit or can not
reasonably estimate fair value, as a reduction of revenue rather than as an expense.
Marketing Services revenue is generated from several offerings including: the display of textual, rich media and graphical
advertisements, display of text based links to advertiser’s listings, listing based services, and commerce based transactions.
The Company recognizes revenue related to the display of advertisements on the Yahoo! Network as ‘‘impressions’’ are
delivered. ‘‘Impressions’’ are the number of times that an advertisement appears in pages viewed by users. Arrangements
for these services generally have terms of up to three years, and in the majority of cases, the terms are less than one year
or may be terminated at any time by the advertiser. Some of these advertising agreements involve multiple element
arrangements (arrangements with more than one deliverable) that may include placement on specific properties, and
content integration.
The Company generates revenue from the display of text based links to the websites of its advertisers which are placed
on the Yahoo! Network as well as on the websites of third party entities (which the Company refers to as ‘‘affiliates’’)
who have integrated the Company’s sponsored search offerings into their websites. The Company recognizes revenue from
these arrangements as ‘‘click-throughs’’ occur. ‘‘Click-throughs’’ are defined as the number of times a user clicks on an
advertiser’s listing. The Company pays affiliates based on click-throughs on the advertiser’s listings that are displayed on
the websites of these affiliates. These payments are called traffic acquisition costs. In accordance with EITF Issue
No. 99-19, ‘‘Reporting Revenue Gross as a Principal Versus Net as an Agent,’’ the revenue derived from these arrange-
ments that involve traffic supplied by affiliates is reported gross of the payment to affiliates. This revenue is reported
gross due to the fact that the Company is the primary obligor to the advertisers who are the customers of the advertising
service.
Listing revenue is generated from a variety of consumer and business listings-based services, including access to the
HotJobs database and classifieds such as Yahoo! Autos, Yahoo! Real Estate and other search services. The Company
recognizes listings revenue when the services are performed.
Transaction revenue is generated from facilitating commerce-based transactions through the Yahoo! Network, principally
from Yahoo!’s commerce properties including Yahoo! Travel and Yahoo! Shopping. The Company recognizes transaction
revenue when there is evidence that qualifying transactions have occurred, for example, when travel arrangements are
booked through Yahoo! Travel.
Fees revenue consists of revenues generated from a variety of consumer and business fee-based services, including internet
broadband and dial-up services, premium mail, music and personals offerings as well as services for small businesses. The
Company recognizes fees revenue when the services are performed.
Short-term deferred revenue primarily comprises contractual billings in excess of recognized revenue and payments
received in advance of revenue recognition. Long-term deferred revenue arose on the settlement of a litigation dispute.
See Note 14 – ‘‘Litigation Settlement’’ for additional information.
Traffic Acquisition Costs. Traffic acquisition costs consist of payments made to affiliates that have integrated the Company’s
sponsored search offerings into their websites and payments made to companies that direct consumer and business traffic
to the Yahoo! website. The Company enters into agreements of varying duration that involve these traffic acquisition
costs. There are generally three economic structures of the affiliate agreements: fixed payments based on a guaranteed
minimum amount of traffic delivered, which often carry reciprocal performance guarantees from the affiliate; variable
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