Yahoo 2008 Annual Report Download - page 41

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Yahoo! Japan for a service fee. This arrangement began on September 1, 2007 and, beginning on that date, we
commenced recording marketing services revenues from Yahoo! Japan for the provision of search marketing
services based on a percentage of advertising revenues earned by Yahoo! Japan for the delivery of sponsored
search results. The sale of Overture Japan to Yahoo! Japan negatively impacted Affiliate revenues during the
year ended December 31, 2008 by approximately $300 million, year-over-year.
We continue to employ network quality initiatives to improve return on investment for our advertisers. We
expect a continuing decline in marketing services revenues from Affiliate sites for the first quarter of 2009
compared to the first quarter of 2008 due primarily to these network quality initiatives and global economic
conditions. The current general economic conditions have caused some advertisers to spend less on online
advertising, which could negatively affect the growth rate of our revenues, particularly our display revenues as
advertisers spend less on brand advertising. In addition, strengthening of the U.S. Dollar against other currencies
could have a further negative impact on our international revenues.
The number of searches on Affiliate sites increased by approximately 23 percent for the year ended
December 31, 2008, as compared to 2007. The increase in the volume of searches is primarily attributable to an
increase in the number of searches per Affiliate. The number of searches on Affiliate sites increased by
approximately 1 percent for the year ended December 31, 2007, as compared to 2006. The increase in the volume
of searches is primarily attributable to a net increase in the number of Affiliates.
The average revenue per search on our Affiliate sites decreased by 26 percent for the year ended December 31,
2008, as compared to 2007, primarily as a result of a change in traffic mix and the impact of the sale of Overture
Japan to Yahoo! Japan. The average revenue per search on our Affiliate sites decreased by 5 percent for the year
ended December 31, 2007, as compared to 2006 primarily as a result of a decline in revenues from certain
Affiliate sites.
Fees Revenues. Our fees revenues include premium fee-based services such as Internet broadband services,
sports, music, photos, games, personals, premium e-mail offerings, and services for small businesses. Other
fee-based revenues include royalties, licenses, and mobile services.
For the year ended December 31, 2008, fees revenues increased approximately $11 million, or 1 percent, as
compared to 2007. This relatively flat year-over-year trend is due to the ongoing transition of and changes in
certain of our broadband access partnerships, from being fee-paying user based to an advertising revenue sharing
model. This has resulted in a reduction in fees revenues associated with these partnerships. The transition of and
changes in certain of our broadband access partnerships from being fee-paying user based to an advertising
revenue sharing model have also contributed to the increase in marketing services revenues from Owned and
Operated sites. As we have renewed contracts with broadband partners and our relationships have moved from
being fee-paying user based to an advertising revenue sharing model, our number of fee-paying users has
decreased. In addition to the transition of the broadband partnerships, we have transitioned out of the VOIP and
subscription music businesses. Due to these factors and global economic conditions, we expect fees revenues to
continue to decline for the first quarter of 2009, as compared to the first quarter of 2008. In addition,
strengthening of the U.S. Dollar against other currencies could have a further negative impact on our
international revenues.
As used in this discussion, “fee-paying users” is based on the total number of fee-based subscriptions aggregated
from each Yahoo! Property. To calculate the average revenue per fee-paying user, we divide the revenue
generated from the subscriptions by the average fee-paying users during the year.
The number of paying users for our fee-based services decreased to 9.7 million as of December 31, 2008
compared to 19.0 million as of December 31, 2007. This decrease of 49 percent was a result of the business
model changes described above. Adjusting the number of fee-paying users as of December 31, 2007 to remove
fee-paying users related to our renewed broadband relationships, our fee-paying users would have been
10.1 million as of December 31, 2007, compared to 9.7 million as of December 31, 2008, a decrease of 4 percent.
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