Rosetta Stone 2009 Annual Report Download - page 61

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Table of Contents
Consumer
Consumer revenue was $167.7 million for the year ended December 31, 2008, an increase of $60.6 million, or 57%, from the year ended December 31,
2007. The increase in consumer revenue was attributable to a 22% increase in unit sales, which resulted in a $23.7 million increase in revenue, combined with
a 28% increase in the average selling price of each unit, which accounted for a $36.9 million increase in revenue. Unit growth was driven by the expansion of
our direct advertising campaign as well as growth in our retail distribution network. Direct advertising expenses increased 38% to $33.9 million during the
year ended December 31, 2008, while the number of kiosks increased from 86 to 150 from December 31, 2007 to December 31, 2008. We also received a
$2.6 million initial stocking order from Barnes & Noble in June 2008 to support their expansion of our product line to over 650 of their stores nationally.
In August 2007, we released our Version 3 solution for ten of our best selling languages. All Version 3 solutions include three course levels, while our
Version 2 solutions only include one or two course levels. Upon the release of a language in Version 3, we discontinue selling that language in Version 2 and,
as a result, sales of Version 3 products replace sales of Version 2 products for that language. Our solutions are often purchased in sets including all available
course levels for a language. The additional levels included in Version 3 enabled us to offer additional languages with three course levels, resulting in a
greater number of available products at our highest price point for a complete set. In March 2008, we released Version 3 in four additional languages and, in
June 2008, we released seven additional Version 3 languages. Also in June 2008, we released our Audio Companion practice tool product for all 14 then-
available Version 3 languages. In September 2008, we released Version 3 and our Audio Companion in seven additional languages. This expansion of our
product portfolio with higher price point options has resulted in the 28% increase in average selling price per unit for the year ended December 31, 2008.
Product revenue represented 94% of total consumer revenue for the year ended December 31, 2008, with the balance attributable to subscription and
service revenue.
Institutional
Institutional revenue was $41.7 million for the year ended December 31, 2008, an increase of $11.5 million, or 38%, compared to the year ended
December 31, 2007. The increase in institutional revenue was primarily due to the expansion of our direct sales force. As a result, we had a $9.4 million
increase in education and home school revenue and a $1.6 million increase in corporate revenue.
Product revenue represented 65% of total institutional revenue for the year ended December 31, 2008, and subscription and service revenue represented
35% for the same period.
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