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Table of Contents
25
incremental revenue from businesses acquired in the fourth quarter of 2013 and a $24.6 million reduction in the impact of
purchase accounting. Total customers increased 1.1 million, or 9.7%, from 11.6 million as of December 31, 2013 to 12.7
million as of December 31, 2014.
Domains. Domains revenue increased $91.7 million, or 13.7%, from $671.6 million in 2013 to $763.3 million in 2014.
The increase primarily resulted from a $73.2 million increase in revenue from new and existing customers, $10.3 million of
incremental revenue from businesses acquired in the fourth quarter of 2013 and an $8.2 million reduction in the impact of
purchase accounting. Domains under management increased 2.0 million, or 3.5%, from 56.9 million as of December 31, 2013
to 58.9 million as of December 31, 2014.
Hosting and presence. Hosting and presence revenue increased $127.3 million, or 33.4%, from $380.6 million in 2013 to
$507.9 million in 2014. The increase primarily resulted from a $72.8 million increase in revenue from new and existing
customers, $41.1 million of incremental revenue from businesses acquired in the fourth quarter of 2013 and a $13.3 million
reduction in the impact of purchase accounting.
Business applications. Business applications revenue increased $37.5 million, or 47.7%, from $78.6 million in 2013 to
$116.1 million in 2014. The increase primarily resulted from a $33.4 million increase in revenue from new and existing
customers, a $3.1 million reduction in the impact of purchase accounting and $1.0 million of incremental revenue from
businesses acquired in the fourth quarter of 2013.
Costs and Operating Expenses
Cost of revenue
Costs of revenue are the direct costs we incur in connection with selling an incremental product to our customers.
Substantially all cost of revenue relates to domain registration fees paid to the various domain registries and to ICANN,
payment processing fees and third-party commissions. Similar to our billing practices, we pay domain costs at the time of
purchase for the life of each customer subscription, but recognize the costs of service ratably over the term of our customer
contracts. The terms of registry pricing are established by agreements between registries and registrars, and can vary
significantly depending on the TLD. We expect cost of revenue to increase in absolute dollars in future periods as we expand
our domains business and customer base. Cost of revenue may increase or decrease as a percentage of total revenue, depending
on the mix of products sold in a particular period and the sales and marketing channels used.
Year Ended December 31, 2015 to 2014 2014 to 2013
2015 2014 2013 $ change % change $ change % change
Cost of revenue $ 565.9 $ 518.4 $ 473.9 $ 47.5 9% $ 44.5 9%
2015 compared to 2014. Cost of revenue increased $47.5 million, or 9.2%, from $518.4 million in 2014 to $565.9 million
in 2015. This increase was primarily attributable to a $25.4 million increase in domain registration costs driven by the 4.6%
increase in domains under management as well as higher costs associated with new gTLD registrations, a $12.1 million
increase in software licensing fees primarily related to increased sales of our email and productivity solutions and a $5.1 million
increase in payment processing fees due to the overall bookings increase.
2014 compared to 2013. Cost of revenue increased $44.5 million, or 9.4%, from $473.9 million in 2013 to $518.4 million
in 2014. This increase was primarily attributable to a $32.5 million increase in domain registration costs as a result of a 3.5%
increase in domains under management, a $6.1 million increase in payment processing fees due to the overall bookings increase
and a $5.4 million increase in third-party commissions, primarily attributable to our Afternic business acquired in the fourth
quarter of 2013.
Technology and development
Technology and development expenses represent the costs associated with the creation, development and distribution of
our products and websites. These expenses primarily consist of personnel costs associated with the design, development,
deployment, testing, operation and enhancement of our products, as well as costs associated with the data centers and systems
infrastructure supporting those products, excluding depreciation expense. We expect technology and development expense to