Yahoo 2013 Annual Report Download - page 17

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accurate anticipation of technology, market and consumer trends. If we are unable to provide innovative products
and services which generate significant traffic to our Websites, our business could be harmed, causing our
revenue to decline.
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. Approximately 31 percent, 25 percent, and 20 percent of our revenue for 2013, 2012 and 2011,
respectively, were attributable to the Search Agreement. Our business and operating results would be adversely
affected by a significant decline in or loss of this revenue.
Implementation of our Search Agreement with Microsoft commenced on February 23, 2010. We have completed
the transition of our algorithmic search platform to the Microsoft platform and have substantially completed
transition of paid search.
In September 2013, the Company advised Microsoft that we were delaying the transition of paid search in
Taiwan and Hong Kong. Microsoft disagreed with the delay and the parties engaged in litigation regarding the
transition of these markets. The transition of paid search in Taiwan and Hong Kong was completed in December
2013; however, Microsoft could seek recovery of its costs and damages.
Under the Search Agreement, Microsoft initially agreed to guarantee Yahoo’s revenue per search (“RPS
Guarantee”) on Yahoo Properties for 18 months after the transition of paid search services to Microsoft’s
platform in each market based on the difference in revenue per search between the pre-transition and post-
transition periods and certain other factors. Paid search services in the U.S. and Canada transitioned to
Microsoft’s platform in the fourth quarter of 2010, other markets followed as described above. To date, there has
been a gap in revenue per search between pre-transition and post-transition periods in most markets and the
payments under the RPS Guarantee were intended to compensate for the difference. In the fourth quarter of 2011,
Microsoft agreed to extend the RPS Guarantee in the U.S. and Canada through March 2013, and in the second
quarter of 2013 Microsoft extended the RPS Guarantee in the U.S. through March 2014. In June 2013, Microsoft
and Yahoo agreed upon the RPS Guarantee payment amounts to be paid to us for the quarters ended
December 31, 2012, March 31, 2013 and June 30, 2013. We also agreed to fixed quarterly payments in lieu of the
RPS Guarantee in the U.S. for the quarters ending September 30, 2013, December 31, 2013 and March 31, 2014.
In addition, we agreed to waive our right to receive any future RPS Guarantee payments in all markets except
Taiwan and Hong Kong.
To the extent the fixed quarterly payments and any RPS Guarantee payments we receive from Microsoft do not
fully offset any shortfall relating to revenue per search in the transitioned markets or any shortfall continues after
the expiration of the fixed quarterly payments and RPS Guarantee payments, our search revenue and profitability
would decline. Notwithstanding the fixed quarterly payments or any RPS Guarantee payments we may receive
from Microsoft, our competitors may continue to increase revenue, profitability, and market share at a higher rate
than we do.
As mobile advertising continues to evolve and people increasingly access our products via mobile devices
rather than PCs, our financial results may be adversely impacted if our mobile offerings are not widely
adopted by users, advertisers and device manufacturers or if we do not generate adequate revenue from our
mobile offerings.
The number of people who access the Internet through mobile devices rather than a PC, including mobile
telephones, smartphones and tablets, is increasing and will likely continue to increase dramatically.
Approximately half of our monthly users are now joining us on mobile. In addition, search queries are
increasingly being undertaken through mobile devices. We expect our ability to grow advertising revenue will
become increasingly dependent on our ability to generate revenue from ads displayed on mobile devices.
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