LinkedIn 2014 Annual Report Download - page 74

The contractual commitment amounts in the table above are associated with agreements that are
enforceable and legally binding. Obligations under contracts that we can cancel without a significant
penalty are not included in the table above.
Contingent obligations arising from unrecognized tax benefits are not included in the contractual
obligations because it is expected that the unrecognized benefits would only result in an insignificant
amount of cash payments.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. The
preparation of these consolidated financial statements requires us to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We
evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical
experience and various other assumptions that we believe to be reasonable under the circumstances.
Our actual results could differ from these estimates.
We believe that the assumptions and estimates associated with revenue recognition, stock-based
compensation, the valuation of goodwill and intangible assets, website and internal-use software
development costs, leases, income taxes and legal contingencies have the greatest potential impact on
our consolidated financial statements. Therefore, we consider these to be our critical accounting
policies and estimates. For further information on all of our significant accounting policies, see Note 1,
Description of Business and Summary of Significant Accounting Policies, of the Notes to Consolidated
Financial Statements under Item 8.
Revenue Recognition
A majority of our arrangements for Talent Solutions and Marketing Solutions include multiple
deliverables. We allocate consideration at the inception of an arrangement to all deliverables based on
the relative selling price method in accordance with the selling price hierarchy. The objective of the
hierarchy is to determine the price at which we would transact a sale if the service was sold on a
stand-alone basis and requires the use of: (i) vendor-specific objective evidence (‘‘VSOE’’), if available;
(ii) third-party evidence (‘‘TPE’’), if VSOE is not available; and (iii) best estimate of selling price
(‘‘BESP’’), if neither VSOE nor TPE is available.
VSOE. We determine VSOE based on our historical pricing and discounting practices for the
specific solution when sold separately. In determining VSOE, we require that a substantial majority of
the selling prices for these services fall within a reasonably narrow pricing range. We have not
historically priced our Marketing Solutions within a narrow range to allow us to establish VSOE. We
have established VSOE for some of our Talent Solutions products and for such products, VSOE has
been used to allocate the selling price of deliverables.
TPE. When VSOE cannot be established for deliverables in multiple element arrangements, we
apply judgment with respect to whether we can establish selling price based on TPE. TPE is
determined based on competitor prices for similar deliverables when sold separately. Generally, our
go-to-market strategy differs from that of our peers and our offerings contain a significant level of
differentiation such that the comparable pricing of services with similar functionality cannot be obtained.
Furthermore, we are unable to reliably determine what similar competitor services’ selling prices are on
a stand-alone basis. As a result, we have not been able to establish selling price based on TPE.
BESP. When we are unable to establish selling price using VSOE or TPE, we use BESP in our
allocation of arrangement consideration. The process for determining our BESP for deliverables without
VSOE or TPE involves management’s judgment. Our process considers multiple factors that may vary
depending upon the unique facts and circumstances related to each deliverable. Key factors that we
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