Zynga 2012 Annual Report Download - page 85

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Prior to the implementation of Facebook Credits in our games, players could purchase our virtual goods through
various widely accepted payment methods offered in the games and we recognized revenue based on the
transaction price paid by the player.
For revenue earned through certain mobile platforms, including Apple iOS and Google Android, we
recognize online game revenue based on the gross amount paid by the player because we are the primary obligor
and we have the contractual right to determine the price to be paid by the player.
Advertising
We have contractual relationships with agencies, advertising brokers and certain advertisers for
advertisements within our games. We recognize advertising revenue for branded virtual goods and sponsorships,
engagement advertisements and offers, mobile advertisements and other advertisements as advertisements are
delivered to customers as long as evidence of the arrangement exists (executed contract), the price is fixed or
determinable, and we have assessed collectability as reasonably assured. Certain branded in-game sponsorships
that involve virtual goods are deferred and recognized over the estimated life of the branded virtual good or as
consumed, similar to online game revenue. Price is determined to be fixed and determinable when there is a fixed
price in the applicable evidence of the arrangement, which may include a master contract, insertion order, or a
third party statement of activity. For branded virtual goods and sponsorships, we determine the delivery criteria
has been met based on delivery information from our internal systems. For engagement advertisements and
offers, mobile advertisements, and other advertisements, delivery occurs when the advertisement has been
displayed or the offer has been completed by the customer, as evidenced by third party verification reports
supporting the number of advertisements displayed or offers completed.
We report our advertising revenue net of amounts retained by advertising agencies and brokers because we
are not the primary obligor in our arrangements, we do not set the pricing, and we do not establish or maintain
the relationship with the advertiser.
Multiple-element Arrangements
We allocate arrangement consideration in multiple-deliverable revenue arrangements at the inception of an
arrangement to all deliverables based on the relative selling price method, generally based on our best estimate of
selling price. We offer certain promotions to customers from time to time that include the sale of in-game virtual
currency via the sale of a game card and also other deliverables such as a limited edition in-game virtual good.
Cost of Revenue
Amounts recorded as cost of revenue relate to direct expenses incurred in order to generate online game
revenue. Such costs are recorded as incurred. Our cost of revenue consists primarily of hosting and data center
costs related to operating our games, including depreciation; consulting costs primarily related to third-party
provisioning of customer support services; payment processing fees; and salaries, benefits and stock-based
expense for our customer support and infrastructure teams. Cost of revenue also includes amortization expense
related to purchased technology of $38.5 million, $28.4 million and $8.8 million for the years ended
December 31, 2012, 2011 and 2010, respectively.
Cash and Cash Equivalents
Cash equivalents consist of cash on hand, money market funds, commercial paper, corporate bonds,
municipal securities, and U.S. government-issued obligations with maturities of 90 days or less from the date of
purchase.
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