Google 2010 Annual Report Download - page 67

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We recognize as revenues the fees charged advertisers each time a user clicks on one of the text-based ads
that are displayed next to the search results pages on our website or on the search results pages or content pages
of our Google Network members’ websites and, for those advertisers who use our cost-per impression pricing, the
fees charged advertisers each time an ad is displayed on our members’ websites. We report our Google AdSense
revenues on a gross basis principally because we are the primary obligor to our advertisers.
Google ads for televisions enable advertisers, operators, and programmers to buy, schedule, deliver, and
measure ads on television. We recognize as revenue the fees charged advertisers each time an ad is displayed on
television in accordance with the terms of the related agreements.
We also offer display advertising management services such as media planning, buying, implementation, and
measurement tools for advertisers and agencies, and forecasting and reporting tools for publishers. We recognize
the related fees as other revenues in the period advertising impressions are delivered.
Google Checkout is our online shopping payment processing system for both consumers and merchants. We
recognize as revenues any fees charged to merchants on transactions processed through Google Checkout.
Further, cash ultimately paid to merchants under Google Checkout promotions, including cash paid to merchants
as a result of discounts provided to consumers on certain transactions processed through Google Checkout, are
accounted for as an offset to revenues.
We generate fees from search services on a per-query basis. Our policy is to recognize revenues from
per-query search fees in the period we provide the search results.
We also generate fees from the sale and licensing of our Search Appliance products, which include hardware,
software, and post-contract support primarily for two years. Prior to 2010, as the deliverables were not sold
separately, sufficient vendor-specific objective evidence did not exist for the allocation of revenue. As a result, we
recognized the entire fee for the sale and license of these products ratably over the term of the post-contract
support arrangement. Beginning the first quarter of 2010, we adopted the new accounting guidance which
requires us to allocate the consideration of the arrangement to each of the deliverables based on our best estimate
of their standalone selling prices as there is no vendor-specific objective or third-party evidence of the selling
prices. As a result, we now recognize revenue allocated to the hardware and software at the time of sale and
revenue allocated to post-contract support ratably over the term of the service arrangement. The adoption of this
new accounting guidance did not have a material impact on our consolidated financial statements.
In addition, we generate fees through the licensing of our Google Apps products. We recognize as revenue the
fees we charge customers for hosting the related enterprise applications and services ratably over the term of the
service arrangement.
Revenues realized through display advertising management services, Google ads for televisions, Google
Checkout, search services, Search Appliance, and Google Apps were not material in any of the years presented.
We recognize revenues as described above because the services have been provided, the fees we charge are
fixed or determinable, we and our advertisers or other customers understand the specific nature and terms of the
agreed upon transactions and collectability is reasonably assured.
We record deferred revenue upon invoicing or when cash payments are received in advance of our
performance in the underlying agreement on the accompanying Consolidated Balance Sheets.
Cost of Revenues
Cost of revenues consists primarily of traffic acquisition costs. Traffic acquisition costs consist of amounts
ultimately paid to our Google Network members under AdSense arrangements and to certain other partners (our
distribution partners) who distribute our toolbar and other products (collectively referred to as access points) or
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