eBay 1999 Annual Report Download - page 28

1998, and from 1998 to 1999 resulted from the continued development and expansion of the Company’s
customer support and site operations departments, depreciation of the equipment required for the Company’s site
operations, software licensing fees and ISP connectivity charges. Cost of net revenues as a percentage of net
revenues is expected to remain at levels higher than those seen historically as the Company continues to invest
in its site infrastructure in advance of demand, depreciates recently purchased equipment, and continues to grow
its customer support function.
Sales and Marketing
The Company’s sales and marketing expenses for both the online sales and traditional auction businesses
are comprised primarily of compensation for the Company’s sales and marketing personnel, advertising,
tradeshow and other promotional costs, expenses for creative design of the Company’s website and shared
employee and facilities costs. Sales and marketing expenses increased in absolute dollars from $15.6 million or
37.8% of net revenues in 1997 to $36.0 million or 41.8% of net revenues in 1998, and further increased to
$96.0 million or 42.7% of net revenues in 1999. During the periods from 1997 to 1998, and from 1998 to 1999,
increases in marketing expenditures were primarily driven by the online business. The increase from 1997 to
1998 primarily resulted from substantial increases in advertising and promotional expenses, including costs
associated with national print, broadcast and online advertising campaigns and expenses associated with a
marketing agreement with AOL, each of which commenced in the second half of 1998, in addition to the
continued growth in the number of sales and marketing personnel. Increases from 1998 to 1999 were primarily
the result of increases in online advertising and distribution, including expenses associated with the marketing
agreement with AOL, labor related costs, costs associated with the use of outside services and consultants, and
miscellaneous user and promotional costs.
Online sales and marketing expenses are expected to increase in 2000, due to a full year of advertising
impressions delivered under the strategic alliance with AOL, new alliances including agreement with Go.com
and Autotrader.com, the expansion of international advertising and expenses associated with personnel additions
made during 1999. Sales and marketing expenses in the traditional auction businesses are expected to remain
comparable with historical levels.
Product Development
The Company’s product development expenses consist primarily of compensation for the Company’s
product development staff, payments to outside contractors, depreciation on equipment used for development and
shared employee and facilities costs. The Company’s product development expenses increased in absolute dollars
from $831,000 or 2.0% of net revenues in 1997 to $4.6 million or 5.4% of net revenues in 1998, and further
increased to $23.8 million or 10.6% of net revenues in 1999. The year over year changes, and all expenditures
discussed, were incurred by the online business. Neither B&B nor Kruse had any product development costs
through December 31, 1999. The increase in absolute dollars during the periods from 1997 to 1998, and from
1998 to 1999 resulted primarily from increases in salaries, benefits and other personnel related costs as the
Company significantly increased the size of its research and development staff, as well as expenses related to
contractors and consultants employed within product development departments. The 1999 increase also includes
Billpoint, which had no significant expenses in 1998. Product development expenses are expected to increase in
future periods primarily from personnel additions, the continued impact of Billpoint product development, and
additional depreciation costs as the Company continues to purchase equipment to improve and expand its
operations both domestically and internationally. These future expenditures will be capitalized or expensed as
appropriate. Hardware and software expenditures associated with the continuous revision of the site will be
capitalized and included in computer equipment and software. Expenditures that are incurred for maintenance
related costs or have been judged to have a useful life of less than one year will be expensed as incurred.
General and Administrative
The Company’s general and administrative expenses consist primarily of compensation for personnel and,
to a lesser extent, fees for external professional advisors, provisions for doubtful accounts and shared employee
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