Google 2010 Annual Report Download - page 40

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 require 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 websites and our Google Network members’
websites 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.
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 websites and our Google Network members’ websites 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 websites and our Google Network members’
websites.
• The number of visits to, and the content of, our Google Network members’ websites and certain of our
websites and the relevance and quality of the ads we display next to this content.
• The advertisers’ return on investment from advertising campaigns on our websites or our Google Network
members’ websites 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 revenues we generate.
• Our ability to increase searches on our websites and our Google Network members’ websites via new ad
formats on devices other than personal computers, including mobile devices.
Trends in Our Business
Advertising transactions continue to shift from offline to online as the digital economy evolves. This has
contributed to the rapid growth of our business 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 addition, we plan to continue to invest aggressively in our core areas of strategic
focus.
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 websites and our Google Network members’
websites. These steps include not displaying ads that generate low click-through rates or that send users to
irrelevant or otherwise low quality websites, and terminating our relationships with those Google Network
members whose websites 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.
27