Yahoo 2006 Annual Report Download - page 27

• the successful implementation, and acceptance by advertisers and affiliates, of our systems improvements to
increase monetization of our search marketing;
• the successful development and deployment of technology improvements to our marketing system;
• maintaining our affiliate program for our search marketing;
• deriving better demographic and other information from our users; and
• driving acceptance of the web in general and of Yahoo! in particular by advertisers as an advertising medium.
In many cases, our agreements with advertisers have terms of one year or less, or, in the case of search marketing,
may be terminated at any time by the advertiser. Search marketing agreements often have payments dependent
upon 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, including occasional guaranteed
minimum payments to our affiliates in connection with search and/or display advertising, and are fixed over the
short-term with respect to certain categories. Any reduction in spending by or loss of existing or potential future
advertisers 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 any of these sources could harm our operat-
ing results.
A significant percentage of users and businesses that conduct searches and access our search marketing listings
comes from a limited number of sources in certain markets. In addition to the Yahoo! Properties, sources for users
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 search marketing, including the degree to which affiliates can modify the presentation of the
search marketing listings on their websites or integrate search marketing 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 on as favorable terms or at all. The loss of affiliates providing significant users or
businesses or an adverse change in implementation of search marketing by any of these affiliates could harm our
ability to generate revenue, our operating results and cash flows from operations.
We may not be able to generate substantial revenues from our alliances with Internet access providers.
Through alliances with Internet access providers, we offer access services that combine customized content and
services from Yahoo! (including browser and other communications services) and Internet access from third party
access providers. We may not be able to retain the alliances with our existing Internet access providers or to obtain
new alliances with Internet access providers on terms that are reasonable. In addition, these Internet access services
compete with many large companies such as AOL, Microsoft, Comcast Corporation and other established Internet
access providers. In certain of these cases, our competition has substantially greater market presence (including an
existing user base) and greater financial, technical, marketing or other resources. As a result of these and other
competitive factors, the Internet access providers with which we have formed alliances may not be able to attract,
grow or retain their customer bases, which would negatively impact our ability to sell customized content and
services through this channel and, in turn, reduce our anticipated revenues from our alliances.
Some of our shared revenue arrangements may not generate anticipated revenues.
We typically receive co-branded revenue through revenue sharing arrangements or a portion of transactions
revenue. In some cases, our revenue arrangements require that minimum levels of user impressions be provided by
us. These arrangements expose us to potentially significant financial risks in the event our usage levels decrease,
including the following:
• the revenue we are entitled to receive may be adjusted downwards;
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