Google 2013 Annual Report Download - page 36

30 GOOGLE INC.
PART II
ITEM7.Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations
CostofrevenuesfortheGooglesegmentincreased$3,877millionfrom2011to2012.Theincreasewasprimarilyrelatedtoan
increaseintracacquisitioncostsof$2,145millionresultingfrommoreadvertiserfeesgeneratedthroughourAdSenseprogram,
moretracdirectedtoourwebsites,aswellasmoredistributionfeespaid.Theremainingincreasewasprimarilydrivenby
increasesindatacentercosts,hardwareinventorycostsandcontentacquisitioncosts.Theincreaseintracacquisitioncostsas
apercentageofadvertisingrevenueswasprimarilytheresultofagreaterincreaseintracacquisitioncostsrelatedtodistribution
arrangementscomparedtotheincreaseinadvertisingrevenuesgeneratedbyGooglewebsites.
  
Cost of revenues for the Motorola Mobile segment were not comparable between 2012 and 2013 because approximately seven
monthsofresultswereincludedin2012whiletwelvemonthsofresultswereincludedin2013.Additionally,weconductedvarious
restructuringactivitiestosimplifytheMotorolaMobileproductportfoliosubsequenttotheacquisitioninMay2012.
 
Unallocateditems,includingstock-basedcompensationexpense,aswellasrestructuringandrelatedcharges,arenotallocated
toeachsegmentbecausewedonotincludethisinformationinourmeasurementoftheperformanceofouroperatingsegments.
We expect cost of revenues will increase in dollar amount and may increase as a percentage of total revenues in 2014 and in future
periods,primarilyasaresultofincreasesintracacquisitioncosts,datacentercosts,hardwareandinventorycosts,manufacturing
andinventory-relatedcosts,contentacquisitioncosts,creditcardandothertransactionfees,andothercosts.Tracacquisition
costsasapercentageofadvertisingrevenuesmayuctuateinthefuturebasedonanumberoffactors,includingthefollowing:
TherelativegrowthratesofrevenuesfromourwebsitesandfromourGoogleNetworkMembers’websites.
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Whether we are able to enter into more AdSense arrangements that provide for lower revenue share obligations or whether
increased competition for arrangements with existing and potential Google Network Members results in less favorable
revenuesharearrangements.
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WhetherweareabletocontinuetoimprovethemonetizationoftraconourwebsitesandourGoogleNetworkMembers’
websites.
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The relative growth rates of expenses associated with distribution arrangements and the related revenues generated,
including whether we share with certain existing and new distribution partners proportionately more of the aggregate
advertisingfeesthatweearnfrompaidclicksderivedfromsearchqueriesthesepartnersdirecttoourwebsites.
Research and Development
The following table presents our research and development expenses by operating segment for the periods presented
(dollarsinmillions):
Year Ended December31,
2011 2012 2013
Google $4,101 $4,809 $5,496
Motorola Mobile [phone]
Unallocated items 1,061 1,510 1,754
Total $5,162 $6,793 $7,952
Research and development expenses consist primarily of compensation and related costs for personnel responsible for the
researchanddevelopmentactivitiesrelatingtonewandexistingproductsandservices,aswellasdepreciationandequipment-
relatedcosts.Weexpenseresearchanddevelopmentcostsasincurred.
 
Research and development expenses for the Google segment increased $687 million from 2012 to 2013 and as a percentage of
Googlesegmentrevenuesremainedrelativelyatfrom2012to2013.Theincreaseinexpenseswasprimarilyduetoanincrease
inlaborandfacilities-relatedcostsof$596million,largelyasaresultofan18%increaseinresearchanddevelopmentheadcount.
Research and development expenses for the Google segment increased $708 million from 2011 to 2012 and as a percentage of
Googlesegmentrevenuesremainedrelativelyatfrom2011to2012.Theincreaseinexpenseswasprimarilyduetoanincrease
inlaborandfacilities-relatedcostsof$359million,largelyasaresultofa15%increaseinresearchanddevelopmentheadcount,
anincreaseindepreciationandequipment-relatedexpensesof$147million,andanincreaseinprofessionalservicesexpense
of$66million.
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