eBay 2005 Annual Report Download - page 60

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Sales and marketing expenses consist primarily of advertising, tradeshow and other promotional costs,
employee compensation for our category development and marketing staff and certain trust and safety
programs.
Sales and marketing expenses increased in 2005 and increased as a percentage of total net revenues due
to our continued investment in growing our global user base. Growth in advertising and marketing costs as well
as employee-related costs comprised the majority of the increases. Combined advertising and marketing costs
increased $228.8 million in 2005, compared to the prior year. This increase, both in dollars and as a percentage
of net revenues, was primarily the result of international expansion and industry-wide increases in Internet
marketing rates, partially offset by marketing efficiencies. Employee-related costs increased by $97.4 million
in 2005 as we continued to expand our domestic and international operations. Sales and marketing expenses
are expected to increase in total and as a percentage of net revenues during 2006 due to the recent acquisition
of Shopping.com which has higher sales and marketing expenses as a percentage of net revenues than our
other businesses. In addition, our online marketing expenses are expected to increase because of increases in
the volume of online advertising that we expect to purchase in order to attract new customers and increased
user activity on our websites, including growth initiatives in sales and marketing activities in our Marketplaces
segments.
Sales and marketing expenses increased in 2004, but remained consistent as a percentage of total net
revenues due to our continued investment in growing our user base and our development of new media
campaigns. Growth in advertising and marketing costs as well as employee-related costs comprised the
majority of the increases. Combined advertising and marketing costs increased $169.8 million in 2004,
compared to the prior year. This increase was primarily the result of our internet marketing, domestic and
international television, and radio advertising campaigns as well as several category-focused print campaigns.
Employee-related costs increased by $68.4 million in 2004 as we continued to expand our domestic and
international operations.
Product Development
Percent Percent
2003 Change 2004 Change 2005
(In thousands, except percentages)
Product development ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $159,315 51% $240,647 36% $328,191
As a percentage of net revenuesÏÏÏÏÏÏÏÏÏ 7.4% 7.4% 7.2%
Product development expenses consist primarily of employee compensation, consultant costs, facilities
costs and depreciation on equipment. Product development expenses are net of required capitalization of
major site and other product development efforts, including the development of our next generation platform
architecture, migration of certain platforms, global billing, seller tools and payment gateway projects. These
capitalized costs totaled $37.1 million in 2005, $41.3 million in 2004 and $38.5 million in 2003, and are
reflected as a cost of net revenues when amortized in future periods. We anticipate that we will continue to
devote significant resources to product development in the future as we add new features and functionality to
the Marketplaces, Payments and Communications businesses.
The increase in product development expenses in 2005, as compared to the prior year, was primarily the
result of increased headcount to support various platform development initiatives in our Marketplaces,
Payments and Communications segments, domestically and internationally. Employee related costs increased
by $63.9 million compared to the prior year. Our product development staff increased approximately 50% from
approximately 1,500 at December 31, 2004 to approximately 2,200 at December 31, 2005. Product
development expenses are expected to increase in total and may increase slightly as a percentage of net
revenues in 2006, as we develop new site features and functionality and continue to improve and expand
operations across all platforms.
The increase in product development expenses in 2004, as compared to the prior year, was primarily the
result of increased headcount and consultant costs. The headcount growth was focused on hiring new
employees for various platform development initiatives at eBay and PayPal in addition to our international
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