eBay 2011 Annual Report Download - page 99

eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
We have evaluated all subsequent events through the date the financial statements were issued.
Revenue recognition
Our Marketplaces segment generates net transaction revenues primarily from listing and final value fees paid by sellers. Listing fee revenues
are recognized ratably over the estimated period of the listing, while revenues related to final value fees are recognized at the time that the
transaction is successfully concluded. An auction transaction is considered successfully concluded when at least one buyer has bid above the
seller's specified minimum price or reserve price, whichever is higher, at the end of the transaction term.
Our Payments segment earns net transaction revenues primarily from processing transactions for customers. Revenues resulting from a
payment processing transaction are recognized once the transaction is completed.
Our GSI segment generates net transaction revenues primarily from providing ecommerce technology, order processing, fulfillment and
customer care services to its clients. The revenues can be fixed or variable and are based on the activity performed and/or the value of
merchandise sold. Revenues are recognized as the underlying activity is performed or upon shipment of the underlying merchandise.
Our Communications segment net transaction revenues were generated primarily from fees charged to users to connect Skype's Internet
communications products to traditional telecommunication networks. These fees were recognized when the service was provided.
Our marketing services and other revenues, included in all of our segments, are derived principally from the sale of advertisements, revenue
sharing arrangements, classifieds fees and lead referral fees. Our advertising revenues are derived principally from the sale of online
advertisements. The duration of our advertising contracts has ranged from one week to five years, but is generally one week to one year.
Advertising revenues on contracts are recognized as “impressions” (i.e., the number of times that an advertisement appears in pages viewed by
users of our websites) are delivered, or as “clicks” (which are generated each time users on our websites click through our text-based
advertisements to an advertiser's designated website) are provided to advertisers. For contracts with minimum monthly or quarterly advertising
commitments where the fee and commitments are fixed throughout the term, we recognize revenue ratably over the term of the agreement. Some
of our advertising contracts consist of multiple elements which generally include a blend of various impressions and clicks as well as other
marketing deliverables. Where neither vendor-specific objective evidence nor third-party evidence of selling price exists, we use management's
best estimate of selling price (BESP) to allocate arrangement consideration on a relative basis to each element. BESP is generally based on the
selling prices of the various elements when they are sold to customers of a similar nature and geography on a stand-alone basis or estimated stand-
alone pricing when the element has not previously been sold stand-alone. These estimates are generally based on pricing strategies, market factors
and strategic objectives. Revenues related to revenue sharing arrangements are recognized based on revenue reports received from our partners,
provided that collectability is reasonably assured. Revenues related to fees for listing items on our classified websites are recognized over the
estimated period of the classified listing. Lead referral fee revenue is generated from lead referral fees based on the number of times a user clicks
through to a merchant's website from our websites. Lead referral fees are recognized in the period in which the user clicks through to the
merchant's website.
Our other revenues are derived principally from contractual arrangements with third parties that provide services to eBay and PayPal users,
interest earned from banks on certain PayPal customer account balances and interest and fees earned on the Bill Me Later portfolio of loan
receivables. Revenues from contractual arrangements with third parties are recognized as the contracted services are delivered to end users.
Interest income on certain PayPal customer balances is recognized when earned. Interest and fees earned on the Bill Me Later portfolio of loan
receivables are computed and recognized based on contractual interest and fee rates, and are net of any required reserves and amortization of
deferred origination costs.
To drive traffic to our websites, we provide incentives to our users in the form of coupons and buyer and seller rewards. These incentives are
treated as reductions in revenue.
Internal use software and website development costs
Direct costs incurred to develop software for internal use and website development costs are capitalized and amortized over an estimated
useful life of one to five years. During the years ended December 31, 2011, 2010 and 2009 , we capitalized costs, primarily related to labor and
stock-based compensation, of $211.5 million , $193.1 million and $160.4 million , respectively. Amortization of previously capitalized amounts
was $166.0 million , $146.7 million and $129.1 million for 2011, 2010, and 2009, respectively. Costs related to the design or maintenance of
internal use software and website development are expensed as incurred.
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