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Operating Expenses
Sales and Marketing. Our sales and marketing costs consist primarily of Internet-based advertising, sales and marketing,
personnel costs and other business development-related expenses. Our Internet-based advertising relationships consist primarily of
fixed cost and performance-based (cost-per-impression, cost-per-click and cost-per-acquisition) advertising relationships with an array
of online service providers. We have a disciplined return-on-investment approach to our Internet-based advertising and marketing
spend, which causes sales and marketing costs as a percentage of total revenues to vary from period to period based upon available
opportunities. Sales and marketing expense was $41.3 million, or 17% of revenues, $38.8 million, or 18% of revenues, and $30.8
million, or 17% of revenues, for the years ended December 31, 2008, 2007, and 2006, respectively. While sales and marketing
expense as a percentage of revenues decreased from 2007 to 2008, the increase in absolute dollars over this period was due primarily
to increased international marketing, additional marketing in new brands and in our voice services. The percentage and dollar increase
from 2006 to 2007 was due primarily to increased spending in 2007 to promote new brands and new services, to promote our services
internationally and to test new advertising media.
Research, Development and Engineering. Our research, development and engineering costs consist primarily of personnel-
related expense. Research, development and engineering expense was $12.0 million, or 5% of revenues, $11.8 million, or 5% of
revenues, and $8.8 million, or 5% of revenues, for the years ended December 31, 2008, 2007 and 2006, respectively. The increase in
research, development and engineering costs over this three-year period was primarily due to an increase in personnel costs associated
with new personnel from businesses acquired in fiscal 2007 and 2008, and increased costs to maintain our existing services,
accommodate our service enhancements, develop and implement additional service features and functionality and continue to bolster
our infrastructure security.
General and Administrative. Our general and administrative costs consist primarily of personnel-related expenses, depreciation
and amortization, share-based compensation expense, bad debt expense and insurance costs. General and administrative expense was
$44.0 million, or 18% of revenues, $39.7 million, or 18% of revenues, and $38.8 million, or 21% of revenues, for the years ended
December 31, 2008, 2007 and 2006, respectively. The increase in general and administrative expense from 2007 to 2008 was
primarily attributable to bad debt expense, legal expense, share-based compensation expense and related payroll tax expense, and
depreciation and amortization. General and administrative expense as a percentage of revenues decreased from 2006 to 2007 primarily
due to costs incurred in 2006, but not in 2007, in connection with an independent investigation by a special committee of our Board of
Directors, partially offset by increases in personnel expense, legal expense and bad debt expense in 2007.
Share-Based Compensation
The following table represents the share-based compensation expense included in cost of revenues and operating expenses in
the accompanying consolidated statements of operations for the years ended December 31, 2008, 2007 and 2006 (in thousands):
2008 2007 2006
Cost of revenues 901$ 668$ 316$
Operating expenses:
Sales and marketing 1,268 1,187 1,038
Research, development and engineering 803 771 556
General and administrative 5,014 4,788 3,782
7,986$ 7,414$ 5,692$
Year Ended December 31,
Non-Operating Income and Expenses
Interest and Other Income. Our interest and other income is generated primarily from interest earned on cash, cash equivalents
and short and long-term investments. Interest and other income amounted to $4.8 million, $9.3 million and $7.3 million for the years
ended December 31, 2008, 2007 and 2006, respectively. The decrease in interest and other income from 2007 to 2008 was due to
falling interest rates and a decrease in investment balances as a result of repurchases of j2 Global shares and business acquisitions. The
increase in interest and other income from 2006 to 2007 was due to a combination of higher cash and investment balances and higher
interest rates.
Interest and Other Expense. Our interest and other expense amounted to $0.6 million, $0.2 million and $0.1 million for the
years ended December 31, 2008, 2007 and 2006, respectively. Interest and other expense was primarily related to realized losses from
foreign currency transactions from 2006 through 2008.