Adobe 2014 Annual Report Download - page 47

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47
Subscription
Cost of subscription revenue consists of third-party royalties and expenses related to operating our network infrastructure,
including depreciation expenses and operating lease payments associated with computer equipment, data center costs, salaries and
related expenses of network operations, implementation, account management and technical support personnel, amortization of
intangible assets and allocated overhead. We enter into contracts with third-parties for the use of their data center facilities and
our data center costs largely consist of the amounts we pay to these third parties for rack space, power and similar items.
Cost of subscription revenue increased due to the following:
% Change
2014-2013 % Change
2013-2012
Data center cost....................................................................................................................... 10% 11%
Compensation cost and related benefits associated with headcount ...................................... 4 5
Depreciation expense.............................................................................................................. 3 3
Royalty cost ............................................................................................................................ 3 4
Amortization of purchased intangibles................................................................................... — 4
Various individually insignificant items................................................................................. 1 —
Total change......................................................................................................................... 21% 27%
Cost of subscription revenue increased during fiscal 2014 as compared to fiscal 2013 primarily due to data center costs,
compensation cost and related benefits, deprecation expense, and royalty cost. Data center costs increased as compared with the
year-ago period primarily due to higher transaction volumes in our Adobe Marketing Cloud and Creative Cloud services.
Compensation cost and related benefits increased as compared to the year-ago period primarily due to additional headcount in
fiscal 2014, including from our acquisition of Neolane in the third quarter of fiscal 2013. Depreciation expense increased as
compared to the year-ago period primarily due to higher capital expenditures in recent periods as we continue to invest in our
network and data center infrastructure to support the growth of our business. Royalty cost increased primarily due to increases in
subscriptions and downloads of our SaaS offerings.
Cost of subscription revenue increased during fiscal 2013 as compared to fiscal 2012 primarily due to increased hosted
server costs and amortization of purchased intangibles. Hosted server costs increased primarily due to increases in data center
costs related to higher transaction volumes in our Adobe Marketing Cloud and Creative Cloud services, depreciation expense from
higher capital expenditures in prior years and compensation and related benefits driven by additional headcount. Amortization
of purchased intangibles increased primarily due to increased amortization of intangible assets purchased associated with our
acquisitions of Behance and Neolane in fiscal 2013.
Services and Support
Cost of services and support revenue is primarily comprised of employee-related costs and associated costs incurred to
provide consulting services, training and product support.
Cost of services and support revenue increased during fiscal 2014 as compared to fiscal 2013 primarily due to increases in
compensation and related benefits driven by additional headcount and third-party fees related to training and consulting services
provided to our customers.
Cost of services and support revenue increased during fiscal 2013 as compared to fiscal 2012 primarily due to increases in
third-party fees related to training and consulting services provided to our customers and compensation and related benefits driven
by additional headcount, including headcount from our acquisition of Neolane in fiscal 2013.