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Google Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Google Inc. and Summary of Significant Accounting Policies
Nature of Operations
We were incorporated in California in September 1998. We were re-incorporated in the State of Delaware in August
2003. We provide highly targeted advertising and global internet search solutions as well as intranet solutions via an
enterprise search appliance.
Basis of Consolidation
The consolidated financial statements include the accounts of Google and our wholly-owned subsidiaries. All
intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in
the United States requires us to make estimates and assumptions that affect the amounts reported and disclosed in the
financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an
ongoing basis, we evaluate our estimates, including those related to the accounts receivable and sales allowances, fair
values of marketable and non-marketable securities, fair values of prepaid revenue share, intangible assets and goodwill,
useful lives of intangible assets, property and equipment, fair values of options to purchase our common stock, and income
taxes, among others. We base our estimates on historical experience and on various other assumptions that are believed to
be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Revenue Recognition
The following table presents our revenues:
Year Ended December 31,
2005 2006 2007
(in thousands)
Advertising revenues:
Google web sites ............................................. $3,377,060 $ 6,332,797 $10,624,705
Google Network web sites ..................................... 2,687,942 4,159,831 5,787,938
Total advertising revenues ................................. 6,065,002 10,492,628 16,412,643
Licensing and other revenues ....................................... 73,558 112,289 181,343
Revenues ....................................................... $6,138,560 $10,604,917 $16,593,986
In the first quarter of 2000, we introduced our first advertising program through which we offered advertisers the
ability to place text-based ads on Google web sites targeted to users’ search queries. Advertisers paid us based on the
number of times their ads were displayed on users’ search results pages, and we recognized revenue at the time these ads
appeared. In the fourth quarter of 2000, we launched Google AdWords, an online self-service program that enables
advertisers to place text-based ads on Google web sites. Ad Words is also available through our direct sales force. AdWords
advertisers originally paid us based on the number of times their ads appeared on users’ search results pages. In the first
quarter of 2002, we began offering AdWords on a cost-per-click basis, so that an advertiser pays us only when a user clicks
on one of its ads. From January 1, 2004, until the end of the first quarter of 2005, the AdWords cost-per-click pricing
structure was the only structure available to our advertisers. However, during the second quarter of 2005, we launched an
AdWords program that enables advertisers to pay us based on the number of times their ads appear on Google Network
member sites specified by the advertiser.
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