Google 2013 Annual Report Download - page 35

29
PART II
ITEM7.Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations
Costs and Expenses
Cost of Revenues
Costofrevenuesconsistsprimarilyoftracacquisitioncosts.Tracacquisitioncostsconsistofamounts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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totheextentwecanreasonably
estimatethoselivesandtheyareoneyearorlonger,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.
Cost of revenues also includes the expenses associated with the operation of our data centers, including depreciation, labor, energy,
and bandwidth costs; hardware inventory costs; credit card and other transaction fees related to processing customer transactions;
amortizationofacquisition-relatedintangibleassets;and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 websites from which the content is viewed and share most of the fees these ads generate
withthecontentproviders.Wealsolicensecontentonthepagesofourwebsitesfromwhichthecontentissoldandsharemost
ofthefeesthesesalesgeneratewith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amountdeterminedonastraight-linebasis,whicheverisgreater,overthetermoftheagreements.
Inaddition,costofrevenuesincludesmanufacturingandinventory-relatedcostsprimarilyfromourMotorolaMobilesegment.
Thefollowingtablespresentourcostofrevenuesbyoperatingsegment,ourtracacquisitioncosts,andtracacquisitioncosts
as a percentage of advertising revenues in the Google segment, for the periods presented (dollars in millions):
Year Ended December31,
2011 2012 2013
Google $12,939 $16,816 $21,524
Motorola Mobile 0 3,294 3,773
Unallocated items 249 524 561
Total $13,188 $20,634 $25,858
Year Ended December31,
2011 2012 2013
TracacquisitioncostsrelatedtoAdSensearrangements $7,294 $ 8,791 $ 9,293
Tracacquisitioncostsrelatedtodistributionarrangements 1,517 2,165 2,965
Tracacquisitioncosts $8,811 $10,956 $12,258
TracacquisitioncostsasapercentageofGooglesegmentadvertisingrevenues 24.1% 25.1% 24.2%
 
CostofrevenuesfortheGooglesegmentincreased$4,708millionfrom2012to2013.Theincreasewasduetoincreasesintrac
acquisitioncostsof$1,302millionresultingfrommoredistributionfeespaid,morefeespaidforadditionaltracdirectedtoour
websites,aswellasmoreadvertiserfeesgeneratedthroughourAdSenseprogram.Theremainingincreasewasprimarilydriven
by an increase in data center costs, hardware inventory costs as a result of increased hardware sales, content acquisition costs
as a result of increased activities related to YouTube and digital content, and revenue share payments to mobile carriers and
originalequipmentmanufacturers(OEMs).Thedecreaseintracacquisitioncostsasapercentageofadvertisingrevenueswas
primarilyasaresultofashiftofmixbetweenGooglewebsiterevenueandGoogleNetworkMembers’websites.
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