Yahoo 2010 Annual Report Download - page 16

• the successful implementation of changes and improvements to our advertising management platforms and
acceptance of our advertising management platforms by advertisers, Website publishers, and online
advertising networks;
• continuing to innovate and improve users’ search experiences;
• maintaining and expanding our Affiliate program for search and display advertising services; and
• deriving better demographic and other information about our users to enable us to offer better experiences to
both our users and advertisers.
In most cases, our agreements with advertisers have a term of one year or less, and may be terminated at any time
by the advertiser or by us. Search marketing agreements often have payments dependent upon usage or click-
through levels. Accordingly, it is difficult to forecast display and search revenue accurately. In addition, our
expense levels are based in part on expectations of future revenue, including occasional guaranteed minimum
payments to our Affiliates in connection with search and/or display advertising, and are fixed over the short-term
in some categories. The state of the global economy and availability of capital has impacted and could further
impact the advertising spending patterns of existing and potential advertisers. Any reduction in spending by, or
loss of, existing or potential advertisers would negatively impact our revenue and operating results. Further, we
may be unable to adjust our expenses and capital expenditures quickly enough to compensate for any unexpected
revenue shortfall.
Adverse general economic conditions have caused and could cause decreases or delays in display and search
services spending by our advertisers and could harm our ability to generate display and search revenue and
our results of operations.
Display and search expenditures tend to be cyclical, reflecting overall economic conditions and budgeting and
buying patterns. Since we derive most of our revenue from display and search, adverse economic conditions have
caused, and a continuation of adverse economic conditions could cause, additional decreases in or delays in
advertising spending, a reduction in our display and search revenue and a negative impact on our short-term
ability to grow our revenue. Further, any decreased collectability of accounts receivable or early termination of
agreements, whether resulting from customer bankruptcies or otherwise due to the current economic conditions,
could negatively impact our results of operations.
If we do not manage our operating expenses effectively, our profitability could decline.
We have implemented cost reduction initiatives to better align our operating expenses with our revenue,
including reducing our headcount, outsourcing some administrative functions, consolidating space and
terminating leases or entering into subleases. We plan to continue to manage costs to better and more efficiently
manage our business. However, our operating expenses might also increase, from their reduced levels, as we
expand our operations in areas of desired growth, continue to develop and extend the Yahoo! brand, fund product
development, and acquire and integrate complementary businesses and technologies. In addition, weak economic
conditions or other factors could cause our business to contract, requiring us to implement additional cost cutting
measures. If our expenses increase at a greater pace than our revenue, or if we fail to implement additional cost
cutting if required in a timely manner, our profitability will decline.
Transition, implementation and execution risks associated with our Search Agreement with Microsoft may
adversely affect our business and operating results.
Under our Search Agreement with Microsoft, Microsoft is the exclusive algorithmic and paid search services
provider on Yahoo! Properties and non-exclusive provider of such services on Affiliate sites for the transitioned
markets. The parties commenced implementation of the Search Agreement on February 23, 2010. The global
transition of our algorithmic and paid search platforms to Microsoft and the migration of our paid search
advertisers and publishers to Microsoft’s platform are being done on a market by market basis and are expected
to continue through early 2012. The transition process is complex and requires the expenditure of significant time
and resources by us. Algorithmic and paid search transitioned to the Microsoft platform in the U.S. and Canada
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