Classmates.com 2008 Annual Report Download - page 112

Table of Contents
UNITED ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, ACCOUNTING POLICIES, AND RECENT ACCOUNTING
PRONOUNCEMENTS (Continued)
Advertising revenues from our social networking services and Communications services consist primarily of amounts from Internet search
partners that are generated as a result of users utilizing partner Internet search services, amounts generated from the display of third-party
registration offers at the end of Classmates' pay account registration process, amounts generated from other display advertisements, and amounts
generated from referring members to third-party Web sites or services. The Company recognizes such advertising revenues in the period in
which the advertisement is displayed or, for performance-based arrangements, when the related performance criteria are met. In determining
whether an arrangement exists, the Company ensures that a written contract is in place, such as a standard insertion order or a customer-specific
agreement. The Company assesses whether performance criteria have been met and whether the fees are fixed or determinable based on a
reconciliation of the performance criteria and the payment terms associated with the transaction. The reconciliation of the performance criteria
generally includes a comparison of internally tracked performance data to the contractual performance obligation and, when available, to third-
party or customer-provided performance data.
Advertising revenues for the Company's loyalty marketing service consist primarily of fees generated when emails are transmitted to
members, when members respond to emails and when members complete online transactions. Each of these activities is a discrete, independent
activity, which generally is specified in the sales agreement for each advertising customer. As the earning activities take place, activity
measurement data (examples include the number of emails delivered and the number of responses received) is accumulated and the related
revenue is recorded.
Probability of collection is assessed based on a number of factors, including past transaction history with the customer and the
creditworthiness of the customer. If it is determined that collection is not reasonably assured, revenue is not recognized until collection becomes
reasonably assured, which is generally upon receipt of cash. Deferred revenue also represents invoiced services that have not yet been
performed.
Cost of Revenues —Cost of revenues includes product costs; shipping costs; costs associated with taking orders; printing and postage costs;
costs related to FTD's product quality guarantee; systems installation, training and support costs; costs of points earned by members of the
Company's loyalty marketing service; telecommunications and data center costs; personnel- and overhead-
related costs associated with operating
the Company's networks and data centers; depreciation of network computers and equipment; email support and license fees; costs related to
providing telephone support; customer billing and billing support for the Company's pay accounts and florist members; fees associated with the
storage and processing of customer credit cards and associated bank fees; and domain name registration fees.
Sales and Marketing —
Sales and marketing expenses include expenses associated with promoting the Company's products and services and
with generating advertising revenues. Expenses associated with promoting the Company's products and services include advertising and
promotion expenses; fees paid to distribution partners, third-party advertising networks and co-registration partners to acquire new pay and free
accounts; personnel, and overhead-
related expenses for marketing and sales personnel; and telemarketing costs incurred to acquire and retain pay
accounts and up-sell pay accounts to additional services. Expenses associated with generating advertising revenues include sales commissions
and personnel-related expenses. The Company has expended significant amounts on sales and marketing,
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