eBay 2004 Annual Report Download - page 28

$80.0 million during 2003, compared to the prior year, and resulted primarily from an increase in headcount
and related employee costs of approximately $26.5 million. In addition, aggregate depreciation of site
equipment and amortization of capitalized software development costs increased $21.5 million as compared to
2002.
Operating Expenses
Sales and Marketing
Percent Percent
2002 Change 2003 Change 2004
(In thousands, except percentages)
Sales and marketingÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $349,650 62% $567,565 51% $857,874
As a percentage of net revenuesÏÏÏÏÏÏÏÏÏ 28.8% 26.2% 26.2%
Sales and marketing expenses consist primarily of advertising, tradeshow and other promotional costs,
employee compensation for our category development and marketing staÅ and certain trust and safety
programs.
Sales and marketing expenses increased in 2004, but remained consistent as a percentage of total net
revenues due to our continued investment in growing our user base and our development of new media
campaigns. Growth in advertising and marketing costs as well as employee-related costs comprised the
majority of the increases. Combined advertising and marketing costs increased $169.8 million in 2004,
compared to the prior year. This increase was primarily the result of our internet marketing and domestic and
international television and radio advertising campaigns as well as several category-focused print campaigns.
Employee-related costs increased by $68.4 million in 2004 as we continued to expand our domestic and
international operations. Sales and marketing expenses are expected to increase in total and as a percentage of
net revenues during 2005. In addition, our 2005 online marketing expenses will likely increase both in total and
slightly as a percentage of revenues because of increases in the volume of online advertising that we expect to
purchase in order to attract new customers and increase the activity on our websites including growth
initiatives in sales and marketing activities in our U.S. and International Marketplaces, including China.
Sales and marketing expenses increased in 2003, but decreased as a percentage of total net revenues due
to cost eÇciencies in our business and the acquisition of PayPal, which has a signiÑcantly lower sales and
marketing requirement as PayPal beneÑts from eBay customer acquisitions. Growth in advertising and
marketing costs as well as employee-related costs comprised the majority of the dollar increases. Combined
advertising and marketing costs increased $155.2 million in 2003, as compared to the prior year. This increase
was primarily the result of our marketing programs directed towards our internet marketing and national
television advertising campaigns as well as several category-focused print campaigns. Employee-related costs
increased by $34.0 million in 2003 as we continued to expand our international operations.
Product Development
Percent Percent
2002 Change 2003 Change 2004
(In thousands, except percentages)
Product development ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $104,636 52% $159,315 51% $240,647
As a percentage of net revenuesÏÏÏÏÏÏÏÏÏ 8.6% 7.4% 7.4%
Product development expenses consist primarily of employee compensation, consultant costs, facilities
costs and depreciation on equipment used for development. Product development expenses are net of required
capitalization of major site and other product development eÅorts, including the development of our ""V3''
platform architecture, migration of certain platforms, global billing, seller tools and payment gateway projects.
These capitalized costs totaled $41.3 million in 2004, $38.5 million in 2003 and $15.5 million in 2002, and are
reÖected as a cost of net revenues when amortized in future periods. We anticipate that we will continue to
devote signiÑcant resources to product development in the future as we add new features and functionality to
the eBay and PayPal platforms.
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