ServiceMagic 2012 Annual Report Download - page 25

Table of Contents
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
MANAGEMENT OVERVIEW
IAC is a leading media and internet company comprised of more than 150 brands and products, including Ask.com, About.com,
Match.com, HomeAdvisor.com and Vimeo.com. Focused in the areas of search, applications, online dating, local and media, IAC's family of
websites is one of largest in the world, with more than a billion monthly visits across more than 30 countries.
Sources of Revenue
Substantially all of the revenue from our Search & Applications segment is derived from online advertising. This revenue is primarily
attributable to our services agreement with Google Inc. ("Google"). The revenue earned from our Match segment is derived primarily from
subscription fees for its subscription-based online personals services; Match also derives revenue from online advertising. Our Local segment
consists of HomeAdvisor (formerly ServiceMagic) and CityGrid Media. HomeAdvisor's revenue is derived from fees paid by members of its
network of home services professionals for consumer leads as well as from one-time fees charged upon enrollment and activation of new home
services professionals in its network. CityGrid Media revenue is derived from online advertising. The revenue earned by our Media segment is
derived from advertising, media production and subscription fees. The revenue earned by our Other segment is derived principally from
merchandise sales.
Strategic Partnerships, Advertiser Relationships and Online Advertising Spend
A significant component of the Company's revenue is attributable to a services agreement with Google, which expires on March 31, 2016.
For the years ended December 31, 2012, 2011 and 2010, revenue earned from Google was $ 1.4 billion , $ 970.4 million and $ 727.9 million ,
respectively. This revenue was earned by the businesses comprising the Search & Applications segment.
We market and offer our products and services directly to consumers through branded websites and subscriptions, allowing consumers to
transact directly with us in a convenient manner. We have made, and expect to continue to make, substantial investments in online and offline
advertising to build our brands and drive traffic to our websites and consumers and advertisers to our businesses.
We pay traffic acquisition costs, which consist of payments to partners who distribute our B2B customized browser-based applications,
integrate our paid listings into their websites or direct traffic to our websites. We also pay to market and distribute our services on third party
distribution channels, such as internet portals and search engines. In addition, some of our businesses manage affiliate programs, pursuant to
which we pay commissions and fees to third parties based on revenue earned. These distribution channels might also offer their own products
and services, as well as those of other third parties, which compete with those we offer.
The cost of acquiring new consumers through online and offline third party distribution channels has increased, particularly in the case of
online channels as internet commerce continues to grow and competition in the markets in which IAC's businesses operate increases.
Results of Operations for the Years Ended December 31, 2012, 2011 and 2010
Revenue
For the year ended December 31, 2012 compared to the year ended December 31, 2011
Search & Applications revenue increased 41% to $1.5 billion , reflecting strong growth from both Applications (which includes our direct
to consumer downloadable applications business (B2C) and our partnership operations (B2B), as well as our
22
Years Ended December 31,
2012
$ Change % Change 2011 $ Change % Change 2010
(Dollars in thousands)
Search & Applications
$
1,465,795
$
425,288
41
%
$
1,040,507
$
235,223
29
%
$
805,284
Match
713,449
195,422
38
%
518,027
117,304
29
%
400,723
Local
322,627
19,209
6
%
303,418
39,669
15
%
263,749
Media
164,824
94,660
135
%
70,164
20,472
41
%
49,692
Other
134,555
6,490
5
%
128,065
9,316
8
%
118,749
Inter-segment elimination
(317
)
420
57
%
(737
)
645
47
%
(1,382
)
Total
$
2,800,933
$
741,489
36
%
$
2,059,444
$
422,629
26
%
$
1,636,815