eBay 2002 Annual Report Download - page 131

eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (CONTINUED)
minimum of $16.0 million to a third-party vendor during a 30-month period ending in December 2004.
Minimum purchases under the commitment total $7.2 million during 2002, $4.5 million in 2003, and
$4.3 million in 2004. During the year ended December 31, 2002, we purchased $8.6 million under this
contract.
In December 2002, we entered into an agreement to purchase computer equipment, software and
related services to further expand our data warehousing capabilities. Under the agreement, we are
obligated to pay a minimum of $20.0 million to a third-party vendor during 2003. The commitment may
be comprised of a maximum of $5.4 million in services purchases and the remainder must consist of
equipment and software purchases. The agreement automatically renews for additional one-year periods
through 2005, if we do not cancel the agreement at the conclusion of each year. In addition, this vendor
amended an existing promotions agreement and has agreed to pay us $5.0 million in quarterly payments
for promotion of their auctions on eBay.com in 2003 and to spend an additional $666,000 in joint
promotions during the year. The promotions agreement, as amended, can be renewed with the mutual
agreement of both parties for additional one-year terms through 2005. Equipment, software and services
purchases will be expensed or capitalized in accordance with our capitalization policy. Promotions will be
recognized as transaction revenue over the period of delivery.
Advertising
AOL interactive marketing agreement
In April 2002, we amended our Interactive Marketing Agreement with AOL Time Warner, Inc., or
AOL. AOL attained certain performance goals in the contract year ending March 23, 2003, and extended
the amended agreement for an additional year, through March 23, 2004. Under the terms of the amended
agreement, we will pay AOL for its advertising services on a new user performance basis, up to a
maximum of $15 million. We are recognizing these fees as sales and marketing expense as such services
are provided. From time to time, we have also entered into incremental, discretionary purchases of
advertising from AOL. Discretionary purchases totaled $1.4 million during 2000, $8.5 million during 2001,
and $7.6 million during 2002.
In the event that AOL's advertising services during the year achieve certain speciÑed performance
goals, AOL has the right to extend the term of the amended agreement through March 23, 2005. Our
Ñnancial obligation for this renewal year, if any, will also be determined on a new user performance basis
and will amount to a maximum of $10.0 million.
Disney marketing agreement
In February 2000, we entered a four-year marketing agreement with The Walt Disney Company, or
Disney, to provide us with online and oÉine advertising and promotions and develop a co-branded version
of our online service. Subject to certain Disney performance obligations, we were obligated to pay a
minimum of $30 million to Disney over the four-year term of the agreement. In August 2001, we
amended the terms of the initial agreement and agreed to purchase a minimum of $23.0 million in online
and oÉine promotions through September 2004. We also committed to provide Disney with online
advertising on the eBay.com website valued at $3.5 million. Through December 31, 2002, we have
recognized $16.9 million in sales and marketing expense associated with the amended agreement.
Microsoft marketing and services agreements
During 2001, we entered into a series of marketing and services agreements with Microsoft that
obligate us to purchase online advertising promotions, software and related services through September
2003, totaling $8 million. In addition, Microsoft has agreed to purchase online advertising and other
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