TripAdvisor 2014 Annual Report Download - page 62

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amortized on a straight-line basis over the estimated useful life of the related asset, generally estimated to be three years. Capitalized
costs include internal and external costs, if direct and incremental, and deemed by management to be significant. We expense costs
related to the planning and post-implementation phases of software and website development as these costs are incurred. Maintenance
and enhancement costs (including those costs in the post-implementation stages) are typically expensed as incurred, unless such costs
relate to substantial upgrades and enhancements to the website or software resulting in added functionality, in which case the costs are
capitalized. To the extent that we change the manner in which we develop and test new features and functionalities related to our
websites and internal use software, assess the ongoing value of capitalized assets or determine the estimated useful lives over which
the costs are amortized, the amount of website and internal use software development costs we capitalize and amortize could change
in future periods.
Refer to “Note 6— Fixed Assets” in the notes to our consolidated financial statements for further information on our
development of websites and internal use software.
Revenue Recognition
We recognize revenue from our services rendered when the following four revenue recognition criteria are met: persuasive
evidence of an arrangement exists, services have been rendered, the price is fixed or determinable, and collectability is reasonably
assured. Deferred revenue, which primarily relates to our subscription-based and commission based arrangements, is recorded when
payments are received in advance of our performance as required by the underlying agreements.
Click-based Advertising. Revenue is derived primarily from click-through fees charged to our travel partners for traveler leads
sent to the travel partners’ website. We record revenue from click-through fees after the traveler makes the click-through to the travel
partners’ websites.
Instant booking commission revenue is recorded at the time a traveler books a hotel transaction on our site where we do not
assume cancellation risk. In transactions in which we assume cancellation risk, we record revenue when we receive cash from our
travel partners, given the current uncertainty of the traveler’s stay. We have no post-booking service obligations for Instant Booking
transactions.
Display-based Advertising. We recognize display advertising revenue ratably over the advertising period or upon delivery of
advertising impressions, depending on the terms of the advertising contract. Subscription-based revenue is recognized ratably over the
related contractual period over which service is delivered.
Attractions. We receive cash from the consumer at the time of booking of the destination activity and record these amounts, net
of commissions, as deferred merchant payables on our consolidated balance sheet. Commission revenue is recorded as deferred
revenue at the time of booking and later recognized when the consumer has completed the destination activity or as the consumer’s
refund privileges lapse. We pay the destination activity operators after the travelers’ use.
Restaurants. We recognize reservation revenues (or per seated diner fees) on a transaction-by-transaction basis as diners are
seated by our restaurant customers. Subscription-based revenue is recognized ratably over the related contractual period over which
the service is delivered.
Vacation Rentals. We generate revenue from customers for online advertising listing services related to the listing of their
properties for rent on a subscription basis, over a fixed-term, or on a free-to-list option. Payments for term-based paid subscriptions
received in advance of services being rendered are recorded as deferred revenue and recognized ratably on a straight-line basis over
the listing period. We generate commission revenue from our free-to-list bookings option. We receive cash from travelers at the time
of booking, net of commissions, and record as deferred merchant payables on our consolidated balance sheet. Commission revenue is
recorded as deferred revenue at the time of booking and later recognized when the traveler has completed the stay or as the travelers’
refund privileges lapse. We pay the customer or property owner after the travelers’ stay.
New and Recently Adopted Accounting Pronouncements
For a discussion of new and recently adopted accounting pronouncements, see “Note 2— Significant Accounting Policies” in the
notes to our consolidated financial statements.