TeleNav 2010 Annual Report Download - page 52

Subscription fees from our MRM services represented less than 10% of our revenue in each of fiscal 2009 and
2010. In absolute dollars, revenue from our non-GPS Navigator services, which include MRM services,
increased in fiscal 2010. GPS Navigator is our flagship voice guided real time, turn by turn, mobile navigation
service. Our MRM solutions allow enterprises to monitor and manage mobile workforces and assets by using our
LBS platform to track job status and the location of workers, field assets and equipment. We are developing other
LBS solutions with new business models and distribution channels in our current LBS market and adjacent
markets. These solutions include in-dash navigation services, location based mobile advertising, and commerce
and social networking services. While we have already introduced certain components or initial versions of
several of these LBS solutions, the scope and timing of broader and more commercially viable offerings is
uncertain. The ultimate scope and timing of any future releases are dependent on many factors including
adoption by wireless carrier partners and automotive suppliers of the LBS solutions; end user adoption and
preferences; the quality, features and timing of our product offerings; the impact of competition; and market
acceptance of mobile advertising and social networking. See the section entitled “Business—Our services and
products” for additional information relating to our GPS Navigator and MRM services and other LBS solutions.
We do not expect to derive material amounts of revenue from these service offerings in fiscal 2011. We believe
our cash and cash equivalents and anticipated cash flows from operations will be sufficient to cover the costs of
these development efforts.
In fiscal 2010, we generated 97% of our revenue in the United States. In absolute dollars, revenue from our
international operations increased in fiscal 2010. We are pursuing expansion opportunities with wireless carriers
in other countries and therefore expect international revenue to increase in absolute dollars over the longer term.
Cost of revenue
Our cost of revenue consists primarily of the cost of the third party content, such as map, POI, traffic, gas
price and weather data and voice recognition technology that we use in providing our LBS. Our cost of revenue
also includes expenses associated with data center operations, customer support, the amortization of capitalized
software and stock-based compensation. The largest component of our cost of revenue is the fees we pay to
providers of map and POI data, Tele Atlas and NAVTEQ. We have long term agreements with Tele Atlas and
NAVTEQ pursuant to which we pay royalties according to a variety of different fee schedules, including on a per
use basis, on a per end user per month basis and commencing in fiscal 2011, on a fixed fee basis for certain
navigation offerings.
We primarily provide customer support through a third party provider to whom we provide training and
assistance with problem resolution. We use three outsourced, hosted data centers to provide our services and
industry standard hardware to provide our LBS. We generally offer to our wireless carrier partners and generally
maintain at least 99.9% uptime every month, excluding designated periods of maintenance. Our internal targets
for service uptime are even higher. We have in the past, and may in the future, not achieve our targets for service
availability and may incur penalties for failure to meet contractual service availability requirements, including
loss of a portion of subscriber fees for the month or termination of our wireless carrier partner agreement. We
expect that our cost of revenue will increase in both absolute dollars and as a percentage of revenue as the
number of our end users increases, including those through bundled offerings, average use of our services by end
users increases and from additional operating costs and depreciation associated with our planned additional data
center capacity increases, as well as increased amortization of capitalized software development costs.
Operating expenses
We classify our operating expenses into three categories: research and development, sales and marketing
and general and administrative. Our operating expenses consist primarily of personnel costs, which include
salaries, bonuses, payroll taxes, employee benefit costs and stock-based compensation expense. Other expenses
include marketing program costs, facilities, legal, audit and tax consulting and other professional service fees.
We allocate stock-based compensation expense resulting from the amortization of the fair value of options
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