Yahoo 2010 Annual Report Download - page 68

Revenue is generated from several offerings including the display of graphical advertisements (“display
advertising”), the display of other text-based links to advertisers’ Websites (“search advertising”), and other
sources.
The Company recognizes revenue from display advertising on Yahoo! Properties and Affiliate sites as
“impressions” are delivered. Impressions are delivered when an advertisement appears in pages viewed by users.
Arrangements for these services generally have terms of up to one year and in some cases the terms may be up to
three years. For display advertising on Affiliate sites, the Company pays Affiliates for the revenue generated
from the display of these advertisements on the Affiliate sites. Traffic acquisition costs (“TAC”) are payments
made to third-party entities that have integrated the Company’s advertising offerings into their Websites or other
offerings and payments made to companies that direct consumer and business traffic to Yahoo! Properties. The
display revenue derived from these arrangements that involve traffic supplied by Affiliates is reported gross of
the TAC paid to Affiliates as the Company is the primary obligor to the advertisers who are the customers of the
display advertising service.
The Company began offering customized display advertising solutions to advertisers. These customized display
advertising solutions combine the Company’s standard display advertising with customized content, customer
insights, and campaign analysis. Due to the unique nature of these products, the Company may not be able to
establish selling prices based on historical stand-alone sales or third-party evidence; therefore, the Company may
use its best estimate to establish selling prices. The Company establishes best estimates within a range of selling
prices considering multiple factors including, but not limited to, class of advertiser, size of transaction,
seasonality, margin objectives, observed pricing trends, available online inventory, industry pricing strategies,
and market conditions. The Company believes the use of the best estimates of selling price allows revenue
recognition in a manner consistent with the underlying economics of the transaction.
The Company recognizes revenue from search advertising on Yahoo! Properties and Affiliate sites. Search
advertising revenue is recognized based on “click-throughs.” A “click-through” occurs when a user clicks on an
advertiser’s search result listing. The Company has entered into a Search and Advertising Services and Sales
Agreement (the “Search Agreement”) with Microsoft, which provides for Microsoft to be the exclusive
algorithmic and paid search services provider on Yahoo! Properties and non-exclusive provider of such services
on Affiliate sites. In the transitioned markets, the Company reports as revenue the 88 percent share of revenue
generated from Microsoft’s services on Yahoo! Properties and Affiliate sites, as the Company is not the primary
obligor in the arrangement with the advertisers. See Note 16—“Search Agreement with Microsoft Corporation”
for a description of the Search Agreement with Microsoft.
In the non-transitioned markets, the Company pays Affiliates for the revenue generated from the search
advertisements on the Affiliates’ Websites. The revenue derived from these arrangements is reported gross of the
payments to Affiliates, as the Company continues to be the primary obligor to the advertisers.
Other revenue includes listings-based services revenue, transaction revenue, and fees revenue. Listings-based
services revenue is generated from a variety of consumer and business listings-based services, including
classified advertising such as Yahoo! Autos and other services. The Company recognizes listings-based services
revenue when the services are performed. Transaction revenue is generated from facilitating commercial
transactions through Yahoo! Properties, principally from Yahoo! Small Business, 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
revenue generated from a variety of consumer and business fee-based services, including Internet broadband
services, royalties received from joint venture partners, and premium mail, as well as services for small
businesses. The Company recognizes fees revenue when the services are performed.
The Company accounts for cash consideration given to customers, for which it does not receive a separately
identifiable benefit or cannot reasonably estimate fair value, as a reduction of revenue rather than as an expense.
Cash consideration received in an arrangement with a provider may require consideration of classification of
amounts received as revenue or a reimbursement of costs incurred.
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