Yahoo 2011 Annual Report Download - page 40

We completed the transition of our algorithmic and paid search platforms to the Microsoft platform in the U.S.
and Canada in the fourth quarter of 2010. In 2011, we completed the transition of algorithmic search in all other
markets and the transition of paid search in India. The market-by-market transition of our paid search platform to
Microsoft’s platform and the migration of paid search advertisers and publishers to Microsoft’s platform are
expected to continue through the first half of 2013.
In the year ended December 31, 2010, $17 million was recorded for reimbursements for employee retention costs
incurred in 2010, and $5 million for employee retention costs incurred in 2009. These employee retention cost
reimbursements are separate from and in addition to the $150 million of transition cost reimbursement payments
and the search operating cost reimbursements.
We record receivables for the reimbursements as costs are incurred and apply them against the operating expense
categories in which the costs were incurred. Of the total amounts incurred during the year ended December 31,
2010, the total reimbursements not yet received from Microsoft of $64 million were classified as part of prepaid
expenses and other current assets on our consolidated balance sheets as of December 31, 2010. Of the total
amounts incurred during the year ended December 31, 2011, total reimbursements of $16 million not yet
received from Microsoft were classified as part of prepaid expenses and other current assets on our consolidated
balance sheets as of December 31, 2011. We received $6 million of the unpaid reimbursements during the first
quarter of 2012.
See Note 16—“Search Agreement with Microsoft Corporation” in the Notes to the consolidated financial
statements for additional information.
Revenue Sources
Display and Search Revenue. Display and search revenue is generated from several offerings including the
display of graphical advertisements (“display advertising”) and the display of text-based links to advertisers’
Websites (“search advertising”).
We recognize 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, we pay Affiliates for the revenue generated from the display of these
advertisements on the Affiliate sites or other offerings. Traffic acquisition costs (“TAC”) are payments made to
third-party entities that have integrated our 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 we are the primary obligor to the advertisers who are the customers of the display advertising
service.
We recognize revenue from search advertising on Yahoo! Properties and Affiliate sites. Search revenue is
recognized based on “click-throughs”. A “click-through” occurs when a user clicks on an advertiser’s search
result listing. Under the Search Agreement with Microsoft described above, in the transitioned markets, we report
as revenue the 88 percent revenue share as we are not the primary obligor in the arrangement with the
advertisers. See Note 16—“Search Agreement with Microsoft Corporation” in the Notes to the consolidated
financial statements for a description of our Search Agreement with Microsoft. In the non-transitioned markets,
we pay Affiliates TAC for the revenue generated from the search advertisements on the Affiliates’ Websites. The
revenue derived from these arrangements is reported gross of the TAC paid to Affiliates, as we continue to be the
primary obligor to the advertisers. We also generate search revenue from a revenue sharing arrangement with
Yahoo Japan for search technology and services.
Other Revenue. 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. We recognize listings-based services
38