Yahoo 2014 Annual Report Download - page 57

(2) Global operating costs include product development, marketing, real estate workplace, general
and administrative, and other corporate expenses that are managed on a global basis and that
are not directly attributable to any particular segment. Beginning in the fourth quarter of 2014,
marketing, media, costs associated with Yahoo Properties and other ad operation costs are
managed globally and included as global costs. Prior period amounts have been revised to
conform to the current presentation.
(3) The net cost reimbursements from Microsoft pursuant to the Search Agreement are primarily
included in global operating costs. Operating costs and expenses consist of cost of revenue—
TAC; cost of revenue—other; sales and marketing, product development; general and
administrative; amortization of intangible assets; and restructuring charges, net. Cost of
revenue—other consists of bandwidth costs and other expenses associated with the production
and usage of Yahoo Properties, including amortization of acquired intellectual property rights
and developed technology.
Revenue
We generate revenue principally from search and display advertising on Yahoo Properties and
Affiliate sites, with the majority of our revenue coming from advertising on Yahoo Properties. Our
margins on revenue from advertising on Yahoo Properties are higher than our margins on revenue
from advertising on Affiliate sites as we pay TAC to our Affiliates. Additionally, we generate revenue
from other sources including listings-based services, facilitating commercial transactions, royalties,
and consumer and business fee-based services.
Mobile Revenue
With the significant platform shift to mobile devices, including smartphones and tablets, we have
increased our strategic focus on mobile products and mobile ad formats. We have hired engineering
and technical talent to help us accelerate our efforts in mobile development, and introduced new
mobile apps and refreshed the user experience on mobile across a number of Yahoo Properties,
including News, Sports (including Fantasy Sports), Mail, Finance, Weather, and Screen. We are seeing
an increase in the number of our daily and monthly mobile users as a result of these product
improvements. During the year ended December 31, 2014, we reached more than 575 million monthly
mobile users (including Tumblr).
Mobile revenue is generated in connection with user activity on mobile devices, including
smartphones and tablets (a “device-based” approach), regardless of whether the device is accessing
a mobile-optimized service. Mobile revenue is primarily generated by search and display
advertising. Mobile search revenue is generated from clicks on text-based links to advertisers’
Websites that appear primarily on search results pages. Search revenue is recognized based on Paid
Clicks. A Paid Click occurs when an end-user clicks on a sponsored listing on Yahoo Properties or
Affiliate sites for which an advertiser pays on a per click basis. Mobile display revenue is generated
from the display of graphical and non-graphical advertisements on mobile. The Company recognizes
revenue from display advertising on Yahoo Properties and Affiliate sites as impressions of or clicks on
display advertisements are delivered. Impressions are delivered when a sold advertisement appears
in pages viewed by users. Clicks are delivered when a user clicks on a native advertisement.
Mobile revenue for the year ended December 31, 2014 was $768 million. Mobile revenue is included
within Search, Display, and Other revenue that we have reported. In the latter half of 2014, we saw a
significant increase in the contribution of mobile revenue to our total revenue. We expect this trend
to continue in 2015.
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