Yahoo 2008 Annual Report Download - page 15

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products, advertising services, technologies, online services and content in a manner similar to Yahoo!. We
compete with these and other companies, including social networking sites, such as Facebook, Inc. and
MySpace.com, for users, advertisers, publishers, and developers. We also compete with these companies to
obtain agreements with software publishers, Internet access providers, mobile carriers, device manufacturers and
others to promote or distribute our services to their users. We compete with advertising networks, such as Google
AdSense, America Online’s Ad.com, as well as traditional media companies for a share of advertiser’s marketing
budgets.
The principal competitive factors relating to attracting and retaining users include the usefulness, accessibility,
integration, and personalization of the online services that we offer, the quality and relevance of our search
results, and the overall user experience on Yahoo! Properties. The principal competitive factors relating to
attracting advertisers and publishers are the reach, effectiveness, and efficiency of our marketing services as well
as the creativity of the marketing solutions that we offer. “Reach” is the audience and/or demographic that can be
accessed through the Yahoo! network. “Effectiveness” for advertisers is delivering against advertisers’ targets,
measuring those achievements against those targets and optimizing for these across the Yahoo! network.
“Effectiveness” for publishers is our advertising technology platforms and the monetization we are able to offer
through our marketing services. “Efficiency” is simplifying the buying and reporting process across our entire
network of Yahoo! Properties and Affiliate sites for our advertisers and publishers.
In international markets, we also compete with local portals that are predominantly supported by local
telecommunication providers or local providers of specific locally designed and marketed Internet services, some
of which may have a potential competitive advantage due to an existing direct billing relationship with their
users.
Additional information regarding competition is included in Part I, Item 1A. “Risk Factors” of this Annual
Report on Form 10-K.
PRODUCT DEVELOPMENT
Yahoo! continually enhances, expands, and launches products and features to meet evolving user, advertiser, and
publisher needs for technological innovation and a deeper, more integrated experience.
Most of our software products and features are developed internally. However, we purchase technology and
license intellectual property rights when the opportunity is strategically aligned, operationally compatible, and
economically advantageous. We believe that Yahoo! is not materially dependent upon licenses and other
agreements with third parties relating to product development.
In 2008, we also formed Yahoo! Labs, an umbrella organization that includes our industry-leading Yahoo!
Research group, a new Applied Sciences group and its Academic Relations team, which has spearheaded key
relationships with some of the world’s most influential universities and institutions. Yahoo! Labs is designed to
foster the long-term scientific competitiveness of Yahoo! as a world leader on the Internet through cutting-edge,
multi-disciplinary research in a variety of fields, including economic theory, computer science, artificial
intelligence, and various social sciences.
Our engineering and production teams are primarily located in our Sunnyvale, California headquarters and in
Bangalore, India and Burbank, California. Product development expenses for 2006, 2007, and 2008 totaled
approximately $833 million, $1,084 million, and $1,222 million, respectively, which included stock-based
compensation expense of $145 million, $218 million, and $178 million, respectively.
INTELLECTUAL PROPERTY
We create, own, and maintain a wide array of intellectual property assets that we believe are among our most
valuable assets. Our intellectual property assets include patents and patent applications related to our innovations,
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