eBay 2002 Annual Report Download - page 106

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eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (CONTINUED)
sales force of AOL Time Warner, or AOL. Reduction in third-party advertising, whether due to softening
of the demand for online advertising in general or particular problems facing parties with whom we have
contractual arrangements, would adversely aÅect our operating results. Unlike our auction transaction
revenues, third-party advertising revenues are derived from a highly concentrated customer base. During
the years ended December 31, 2000 and 2001, third-party advertising revenues were attributable to
approximately 20 customers each year. During the year ended December 31, 2002, third-party advertising
revenues were derived from approximately 30 customers. Additionally, our advertising sales representative
agreement with AOL has not been extended or renewed and is scheduled to terminate on March 31, 2003,
with AOL to continue its electronic delivery of our online advertisements for a speciÑed wind-down period.
After March 31, 2003, we will be dependent on the eÅorts of our existing internal sales staÅ.
Our end-to-end services revenues are derived principally from contractual arrangements with third
parties that provide transaction services to eBay users. To date, the duration of our end-to-end services
contracts has ranged from one to three years. End-to-end services revenues are recognized as the
contracted services are delivered to end users. To the extent that signiÑcant obligations remain at the end
of a period or collection of the resulting receivable is not considered probable, revenues are deferred until
the obligation is satisÑed or the uncertainty is resolved. End-to-end services revenues were 7%, 4% and 2%
of our consolidated net revenues for the years ended December 31, 2000, 2001 and 2002, respectively.
Similar to our third-party advertising revenues, our end-to-end services revenues may be aÅected by
the Ñnancial condition of the parties with whom we have these relationships and by the success of online
services and promotions in general. Additionally, end-to-end services revenues are also concentrated among
a small customer base. End-to-end services revenues were derived from approximately 10 customers in
2000 and from approximately 20 customers in each of 2001 and 2002.
OÉine revenue represents seller commissions, buyer premiums, bidder registration fees, and auction-
related services including appraisal and authentication derived from the traditional auction services
provided by ButterÑelds and Kruse International. ButterÑelds auction revenues are derived primarily from
auction commissions and fees from the sale of property through the auction process. Revenues from seller
commissions and buyer premiums are recognized at the date the related auction is concluded. Service
revenues are derived from Ñnancial, appraisal and other related services and are recognized as such
services are rendered. During 2002, we sold our ButterÑelds and Kruse subsidiaries.
Website development costs
We expense costs related to the planning and post implementation phases of our website development
eÅorts. Direct costs incurred in the development phase are capitalized and amortized over the product's
estimated useful life of one to three years as charges to cost of net revenues. Costs associated with minor
enhancements and maintenance for the website are included in cost of net revenues in the accompanying
consolidated statement of income.
Advertising expense
We expense the costs of producing advertisements at the time production occurs, and expense the cost
of communicating advertising in the period during which the advertising space or airtime is used. Internet
advertising expenses are recognized based on the terms of the individual agreements, which is generally
over the greater of the ratio of the number of impressions delivered over the total number of contracted
impressions, or on a straight-line basis over the term of the contract. Advertising expenses totaled
$85.4 million, $127.1 million, and $181.8 million during the years ended December 31, 2000, 2001, and
2002, respectively.
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