Google 2009 Annual Report Download - page 57

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We have entered into arrangements with certain content providers under which we distribute or license their
video and other content. Our agreements with content providers are typically standard agreements with no stated
term and are terminable at will. Agreements with our larger members are individually negotiated. Both the standard
agreements and the negotiated agreements contain provisions requiring us to pay the content providers for the
content we license. In a number of these arrangements, we display ads on the pages of our web sites and our
Google Network members’ web sites from which the content is viewed and share most of the fees these ads
generate with the content providers and Google Network members. We recognize these advertiser fees as revenue.
We recognize the portion of the advertiser fees we pay to our content providers as content acquisition costs under
cost of revenues and the portion we pay to our Google Network members as traffic acquisition costs. In some
cases, we guarantee our content providers minimum revenue share or other payments.
We believe the factors that influence the success of our advertising programs include the following:
• The relevance, objectivity, and quality of our search results and the relevance and quality of ads displayed
with each search results page.
• The number of searches initiated at our web sites and our Google Network members’ web sites and the
underlying purpose of these searches (for instance, whether they are for academic research, to find a
news article, or to find a product or service).
• The number and prominence of ads displayed on our web sites and our Google Network members’ web
sites.
• The number of visits to, and the content of, our Google Network members’ web sites and certain of our
web sites and the relevance and quality of the ads we display next to this content.
• The advertisers’ return on investment from advertising campaigns on our web sites or our Google
Network members’ web sites compared to other forms of advertising.
• The total advertising spending budgets of each advertiser.
• The number of advertisers and the breadth of items advertised.
• The amount we ultimately pay our Google Network members, distribution partners, and our content
providers for traffic, access points, and content compared to the amount of revenue we generate.
Trends in Our Business
Our business has grown rapidly since inception, resulting in substantially increased revenues, and we expect
that our business will continue to grow. However, our revenue growth rate has generally declined over time, and we
expect it will continue to do so as a result of a number of factors including increasing competition, the difficulty of
maintaining growth rates as our revenues increase to higher levels and increasing maturity of the online
advertising market in certain countries. In addition, weak economic conditions have generally adversely impacted
our revenue growth rate and may result in fewer commercial queries by our users and may cause advertisers to
reduce the amount they spend on online advertising, including the amount they are willing to pay for each click or
impression, which could negatively affect the growth rate of our revenues. Further, a slow or uneven pace of
economic recovery could also negatively affect the growth rate of our revenues.
The main focus of our advertising programs is to provide relevant and useful advertising to our users,
reflecting our commitment to constantly improve their overall web experience. As a result, we expect to continue
to take steps to improve the relevance of the ads displayed on our web sites and our Google Network members’
web sites. These steps include not displaying ads that generate low click-through rates or that send users to
irrelevant or otherwise low quality sites and terminating our relationships with those Google Network members
whose web sites do not meet our quality requirements. We may also continue to take steps to reduce the number
of accidental clicks by our users. These steps could negatively affect the growth rate of our revenues.
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