eBay 2005 Annual Report Download - page 91

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eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Our U.S. and International Marketplaces segments earn listing and feature fee revenues which are
recognized ratably over the estimated period of the auction while revenues related to final value fees are
recognized at the time that the transaction is successfully concluded. A transaction is considered successfully
concluded when at least one buyer has bid above the seller's specified minimum price or reserve price,
whichever is higher, at the end of the transaction term. For services offered on Shopping.com, our comparison
shopping site, revenue is generated from lead referral fees based on the number of times a user clicks through
to a merchant's website from our Shopping.com website. Lead referral fees are recognized in the period in
which the user clicks through to the merchant's website.
Our Payments segment earns transaction fees from processing transactions for certain customers.
Revenue resulting from a payment processing transaction is recognized once the transaction is complete.
Our Communications segment revenue is recognized when the related offering is provided. The majority
of Communications segment revenues are prepaid. We record deferred revenue for prepaid amounts in excess
of revenue recognized.
Our advertising revenue is derived principally from the sale of online banner and sponsorship advertise-
ments. To date, the duration of our banner and sponsorship advertising contracts has ranged from one week to
five years, but is generally one week to one year. Advertising revenues on both banner and sponsorship
contracts are recognized as ""impressions'' (i.e., the number of times that an advertisement appears in pages
viewed by users of our websites) are delivered or ratably over the term of the agreement where such
agreements provide for minimum monthly or quarterly advertising commitments or where such commitments
are fixed throughout the term. Barter transactions are valued on amounts realized in similar cash transactions
occurring within six months prior to the date of the barter transaction. To the extent that significant delivery
obligations remain at the end of a period or collection of the resulting account receivable is not considered
probable, revenues are deferred until the obligation is satisfied or the uncertainty is resolved. These amounts
are included in deferred revenue in our consolidated balance sheet. Revenue from barter arrangements totaled
$10.1 million, $13.3 million and $6.7 million for the years ended December 31, 2003, 2004 and 2005,
respectively, with the reciprocal arrangements being recognized as an operating expense. In general, the
services are received in the same period in which the reciprocal services are provided. In certain circum-
stances, we are required to record against revenue payments to a party who is also a customer. These payments
primarily consist of certain promotional activities which result in payments to our users.
Our end-to-end services revenues are derived principally from contractual arrangements with third parties
that provide transaction services to eBay and PayPal 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 significant 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
satisfied or the uncertainty is resolved.
Provisions for doubtful accounts, transaction losses and authorized credits are made at the time of
revenue recognition based upon our historical experience. The provision for doubtful accounts and transaction
losses are recorded as charges to operating expense, while the provision for authorized credits is recognized as
a reduction of net revenues.
Product development costs
Costs related to the planning and post implementation phases of our website development efforts are
recorded as an operating expense. 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.
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