Adobe 2015 Annual Report Download - page 45

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Table of Contents
45
Cost of Revenue (dollars in millions)
Fiscal
2015 Fiscal
2014 Fiscal
2013 % Change
2015-2014 % Change
2014-2013
Subscription $ 409.2 $ 335.5 $ 278.1 22 % 21 %
Percentage of total revenue 9% 8% 7%
Product 90.0 97.1 138.2 (7)% (30)%
Percentage of total revenue 2% 2% 3%
Services and support 245.1 189.5 170.3 29 % 11 %
Percentage of total revenue 5% 5% 4%
Total cost of revenue $ 744.3 $ 622.1 $ 586.6 20 % 6 %
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 amounts we pay to these third parties for rack space, power and similar items.
Cost of subscription revenue increased due to the following:
% Change
2015-2014 % Change
2014-2013
Data center cost 4% 10%
Compensation cost and related benefits associated with headcount 4 4
Depreciation expense 3 3
Royalty cost 4 3
Amortization of purchased intangibles 3 —
Various individually insignificant items 4 1
Total change 22% 21%
Cost of subscription revenue increased during fiscal 2015 as compared to fiscal 2014 primarily due to data center costs,
compensation and related benefits, royalty cost, depreciation expense, and purchased intangible amortization. Data center costs
increased primarily due to higher transaction volumes in our Adobe Marketing Cloud and Creative Cloud services. Depreciation
expense increased 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 subscription and hosted services business. Royalty cost increased primarily due
to increases in subscriptions and downloads of our SaaS offerings and increased royalties due to the introduction of our stock
photography offering from our acquisition of Fotolia in fiscal 2015. Amortization of purchased intangibles increased primarily
due to amortization of intangibles acquired from our acquisition of Fotolia in fiscal 2015.
Cost of subscription revenue increased during fiscal 2014 as compared to fiscal 2013 primarily due to data center costs,
compensation and related benefits, depreciation expense, and royalty cost. Data center costs increased primarily due to higher
transaction volumes in our Adobe Marketing Cloud and Creative Cloud services. Compensation cost and related benefits increased
primarily due to additional headcount in fiscal 2014, including from our acquisition of Neolane in the third quarter of fiscal 2013.
Depreciation expense increased primarily due to higher capital expenditures as we continued 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.
Product
Cost of product revenue includes product packaging, third-party royalties, excess and obsolete inventory, amortization
related to localization costs, purchased intangibles and acquired rights to use technology and the costs associated with the
manufacturing of our products.