Google 2012 Annual Report Download - page 58

52 GOOGLE INC. |Form10-K
PART II
ITEM8.Notes to Consolidated Financial Statements
and tablets. Most of our customers pay us on a cost-per-click basis, which means that an advertiser pays us only when a user
clicks on one of its ads. We also off er advertising on a cost-per-impression basis that enables advertisers to pay us based on the
number of times their ads display on our websites and our Google Network Members’ websites as specifi ed by the advertisers.
Google AdSense refers to the online programs through which we distribute our advertisers’ AdWords ads for display on our
Google Network Members’ websites.
We recognize as revenues the fees charged to advertisers each time a user clicks on one of the ads that appears next to the
search results or content on our websites or our Google Network Members’ websites. For those advertisers using our cost-per-
impression pricing, we recognize as revenues the fees charged to advertisers each time their ads are displayed on our websites
or our Google Network Members’ websites. We report our Google AdSense revenues on a gross basis principally because we are
the primary obligor to our advertisers.
We record deferred revenues upon invoicing or when cash payments are received in advance of our performance in the underlying
agreement on the accompanying Consolidated Balance Sheets.
Motorola
For hardware product sales, where we sell directly to end customers or through distribution channels, revenue recognition generally
occurs when products have been shipped, risk of loss has transferred to the customer, objective evidence exists that customer
acceptance provisions have been met, no signifi cant obligations remain and allowances for discounts, price protection, returns
and customer incentives can be reasonably and reliably estimated. Recorded revenues are reduced by these allowances. Where
these allowances cannot be reasonably and reliably estimated, we recognize revenue at the time the product sells through the
distribution channel to the end customer.
For arrangements that include multiple deliverables, primarily for products that contain software essential to the hardware
products’ functionality and services, we allocate revenue to each unit of accounting based on their relative selling prices. In such
circumstances, we use a hierarchy to determine the selling prices to be used for allocating revenue: (i)vendor-specifi c objective
evidence of fair value (VSOE), (ii)third-party evidence of selling price, and (iii)best estimate of the selling price (ESP). VSOE generally
exists only when we sell the deliverable separately and is the price actually charged by us for that deliverable. ESPs refl ect our
best estimates of what the selling prices of elements would be if they were sold regularly on a stand-alone basis.
Revenues from Home are included in net loss from discontinued operations.
Cost of Revenues
Google
Cost of revenues consists primarily of tra c acquisition costs. Tra c 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 otherwise direct search queries to our website
(collectively referred to as distribution arrangements). These amounts are primarily based on the revenue share and fi xed fee
arrangements with our Google Network Members and distribution partners.
Certain distribution arrangements require us to pay our partners based on a fee per access point delivered and not exclusively—
or at all—based on revenue share. These fees are non-refundable. Further, these arrangements are terminable at will, although
under the terms of certain contracts we or our distribution partners may be subject to penalties in the event of early termination.
We recognize fees under these arrangements over the estimated useful lives of the access points (approximately two years) to
the extent we can reasonably estimate those lives and they are longer than one year, or based on any contractual revenue share,
if greater. Otherwise, the fees are charged to expense as incurred. The estimated useful life of the access points is based on
the historical average period of time they generate tra c and revenues. Further, we review the access points for impairment by
distribution partner, type, and geography, and we have not made any impairment to date.
Cost of revenues also includes the expenses associated with the operation of our data centers, including depreciation, labor,
energy, and bandwidth costs, credit card and other transaction fees related to processing customer transactions, amortization
of acquired intangible assets, as well as content acquisition costs. We have entered into arrangements with certain content
providers under which we distribute or license their video and other content. In a number of these arrangements, we display ads
on the pages of our web sites from which the content is viewed and share most of the fees these ads generate with the content
providers. To the extent we are obligated to make guaranteed minimum revenue share payments to our content providers, we
recognize as content acquisition costs the contractual revenue share amount or the minimum guarantee on a straight-line basis,
whichever is greater, over the terms of the agreements.
Prepaid revenue share and distribution fees are included in prepaid revenue share, expenses, and other assets on the accompanying
Consolidated Balance Sheets.
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