Go Daddy 2015 Annual Report Download - page 97

Table of Contents
GoDaddy Inc.
Notes to Consolidated Financial Statements
(In millions, except share amounts which are reflected in thousands and per share amounts)
Consideration is allocated to each deliverable at the inception of an arrangement based on relative selling prices. We determine the relative selling price for
each deliverable based on our vendor-specific objective evidence of selling price (VSOE) or our best estimate of selling price (BESP), if VSOE is not available.
We have determined third-party evidence of selling price (TPE) is not a practical alternative due primarily to the significant variability among available third-party
pricing information for similar products and differences in the features of our product offerings compared to other parties.
We establish VSOE for certain of our products when a consistent number of stand-alone sales of these products have been priced within a reasonably narrow
range. We are unable to establish VSOE when we lack pricing consistency, primarily related to our marketing strategies and variability in pricing due to
promotional activity.
For products where VSOE is not available, we determine BESP by considering our overall pricing objectives and market conditions. Significant factors taken
into consideration include historical and expected discounting practices, the size, volume and term length of transactions, customer demographics, the geographic
areas in which our products are sold and our overall go-to-market strategy.
We sell our products directly to customers and also through a network of resellers. In certain cases, we act as a reseller of products provided by others. The
determination of gross or net revenue recognition is reviewed on a product by product basis and is dependent on whether we act as principal or agent in the
transaction. Revenue associated with sales through our network of resellers is recorded on a gross basis as we have determined we are the primary obligor in the
contractual arrangements with end customers. The commission paid to resellers is expensed as a cost of revenue over the same period in which the associated
revenue is recognized.
Domains. Domains revenue primarily consists of domain registrations and renewals, domain privacy, domain application fees, domain back-orders,
aftermarket domain sales and fee surcharges paid to ICANN. Domain registrations provide a customer with the exclusive use of a domain during the applicable
contract term. After the contract term expires, unless renewed, the customer can no longer access the domain. Fees are recorded as deferred revenue at the time of
sale, and revenue, other than for aftermarket domain sales, is recognized as the product or service is delivered to the customer. Aftermarket domain revenue is
recognized when control of the domain is transferred to the buyer.
Hosting and presence. Hosting and presence revenue primarily consists of website hosting products, website building products, an online shopping cart,
search engine optimization and SSL certificates for encrypting data between the online browser and the certificate owner’s server. Fees are recorded as deferred
revenue at the time of sale, and revenue is recognized as the product or service is delivered to the customer.
Business applications. Business applications revenue primarily consists of email accounts, online calendar, online data storage, third-party productivity
applications, email marketing and enrollment fees paid by our resellers. Fees are recorded as deferred revenue at the time of sale, and revenue is recognized as the
product or service is delivered to the customer.
Operating Expenses
Cost of Revenue (excluding depreciation and amortization)
Substantially all cost of revenue relates to domain registration costs. Cost of revenue also includes payment processing fees, reseller commissions, software
licensing fees directly related to products sold, professional website development personnel costs and costs associated with sales from our domain portfolio.
Technology and Development
Technology and development 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, systems, storage and telecommunications infrastructure supporting those products
(excluding depreciation expense). Technology and development expenses also include third-party development costs, localization costs incurred to translate
products for international markets and technology licensing and support and maintenance costs.
Marketing and Advertising
Marketing and advertising expenses primarily consist of online traffic generation costs, television and radio advertising, spokesperson and event
sponsorships, personnel costs associated with our marketing and public relations functions and affiliate program commissions.
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