Yahoo 2013 Annual Report Download - page 54

structures of the Affiliate agreements: fixed payments based on a guaranteed minimum amount of traffic
delivered, which often carry reciprocal performance guarantees from the Affiliate, or variable payments based on
a percentage of our revenue or based on a certain metric, such as number of searches or paid clicks. We expense
TAC under two different methods. Agreements with fixed payments are expensed ratably over the term the fixed
payment covers, and agreements based on a percentage of revenue, number of searches, or other metrics are
expensed based on the volume of the underlying activity or revenue multiplied by the agreed-upon price or rate.
TAC for the year ended December 31, 2013 decreased $264 million, or 51 percent, compared to 2012. The
decrease for the year ended December 31, 2013, compared to 2012, was primarily attributable to declines in the
Asia Pacific, EMEA and Americas regions of $170 million, $71 million and $23 million, respectively. The
decline was due to (i) the closure of our Korea business in the Asia Pacific region, (ii) the required change in
revenue presentation for additional transitioned markets from a gross (before TAC) to a net (after TAC) basis in
the EMEA region, and (iii) a decline in display revenue in the Americas region.
TAC for the year ended December 31, 2012 decreased $84 million, or 14 percent, compared to 2011. The
decrease for the year ended December 31, 2012, compared to 2011, was primarily attributable to the required
change in the presentation of revenue from a gross (before TAC) to a net (after TAC) basis in EMEA associated
with the transition of paid search in the EMEA region to Microsoft’s search platform. This decline was partially
offset by an increase in display TAC in the Americas region resulting from an acquisition we completed in the
fourth quarter of 2011.
TAC represented approximately 6 percent of GAAP revenue for the year ended December 31, 2013, compared to
10 percent and 12 percent in 2012 and 2011, respectively. The decrease in TAC as a percentage of GAAP
revenue in 2013, as compared to 2012, is due to the closure of our Korea business in the Asia Pacific region and
the transition of paid search to Microsoft.
Cost of Revenue—Other
Cost of revenue—other consists of bandwidth costs, and other expenses associated with the production and usage
of Yahoo Properties, including amortization of developed technology and patents. Cost of revenue—other also
includes costs for Yahoo’s technology platforms and infrastructure, including depreciation expense and other
operating costs, directly related to revenue generating activities.
Cost of revenue—other decreased $7 million, or 1 percent, for the year ended December 31, 2013, compared to
2012. The decrease for the year ended December 31, 2013, compared to 2012, was primarily due to a decline in
amortization of developed technology and patents of $18 million partially offset by an increase in content costs
of $11 million.
Cost of revenue—other increased $118 million, or 12 percent, for the year ended December 31, 2012, compared
to 2011. The increase for the year ended December 31, 2012, compared to 2011, was primarily attributable to
increases of $67 million in bandwidth costs, $38 million in content costs, and $10 million in incremental
depreciation of server equipment.
Cost of revenue—other represented approximately 23 percent of GAAP revenue for the year ended
December 31, 2013, compared to 22 percent and 20 percent in 2012 and 2011, respectively.
Sales and Marketing
Sales and marketing expenses consist primarily of advertising and other marketing-related expenses,
compensation-related expenses (including stock-based compensation expense), sales commissions, and travel
costs.
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