Yahoo 2011 Annual Report Download - page 73

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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.
From time-to-time, the Company may offer 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
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 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 the Company continues to be the primary obligor to the advertisers. The Company also
generates search revenue from a revenue sharing arrangement with Yahoo Japan for search technology and
services and records the related revenue as it is earned.
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, primarily for the use of Yahoo!’s brand, and premium
mail, as well as services for small businesses. The Company recognizes fees revenue when the services are
performed.
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