Yahoo 2013 Annual Report Download - page 89

selling price for each arrangement deliverable can be established based on vendor specific objective evidence
(“VSOE”) or third-party evidence (“TPE”) if VSOE is not available. An estimate of selling price (“ESP”) is used
if neither VSOE nor TPE is available.
The Company recognizes revenue from display advertising on Yahoo Properties and Affiliate sites as
impressions are delivered. Impressions are delivered when a sold 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 Paid Clicks. A Paid Click occurs when an end-user clicks on a sponsored listing
on Yahoo Properties and Affiliate sites for which an advertiser pays on a per click basis. The Company’s Search
Agreement with Microsoft 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 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 19—“Search Agreement with Microsoft Corporation” for a description of the Search
Agreement with Microsoft.
In non-transitioned markets, the Company paid Affiliates TAC for the revenue generated from the search
advertisements on the Affiliates’ Websites. The revenue derived from these arrangements was reported on a
gross basis (before deducting the TAC paid to Affiliates), as the Company continued 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, royalties, 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. We also receive royalties from joint venture partners that are recognized when earned. Fees revenue
consists of revenue generated from a variety of consumer and business fee-based services as well as services for
small businesses. The Company recognizes fees revenue when the services are performed.
87