Digital River 2001 Annual Report Download - page 33

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31
Sales and Marketing.
Sales and marketing expense consists primarily of personnel and related expenses, advertising and
promotional expenses, credit card chargebacks and bad debt expense, and credit card transaction fees.
Sales and marketing expense increased to $27.5 million in 2001, from $25.7 million and $17.4 million
in 2000 and 1999, respectively, resulting from increased credit card transaction fees and bad debt
expense due to increased revenue as well as additional sales and marketing personnel and related
expenses.The increase in 2001 from 2000 resulted from an increase in credit card transaction fees of
$3.3 million.The increase in 2000 from 1999 resulted from an increase in wages, benefits and consulting
fees of $4.3 million and an increase in credit card chargebacks, bad debt expense and credit card
transaction fees of $2.7 million. As a percentage of revenue, sales and marketing expense decreased to
47.5% in 2001 from 82.4% in 2000 and 119.8% in 1999, primarily reflecting the Company’s increased
revenue. In 2001, the sales and marketing expense related to the Software and Digital Commerce
Services Division was $17.5 million, up from $14.7 million in 2000.The sales and marketing expense
related to the E-Business Services Division was $10.0 million in 2001, down from $11.0 million in
2000.The Company expects that sales and marketing expense will continue to increase in absolute
dollars as the Company continues to build its sales and marketing infrastructure and develops marketing
programs and volume-driven credit card expenses increase. As a percentage of revenue, these expenses
are expected to decrease as revenue increases.
Product Research and Development.
Product research and development expense consists primarily of personnel and related expenses and
consulting costs associated with developing and enhancing the Company’s CNS and related internal
systems. Product research and development expense was $11.2 million in 2001, compared to $13.1
million and $10.3 million in 2000 and 1999, respectively.The decrease in 2001 from 2000 resulted
from a decrease in consulting costs of $5.0 million, partially offset by an increase in wages and benefit
costs of $2.6 million.The increase in 2000 from 1999 resulted from an increase in wages, benefits and
temporary employee costs of $1.4 million and an increase in consulting costs of $1.1 million. As a
percentage of revenue, product research and development expense decreased to 19.4% in 2001 from
41.9% in 2000 and 70.7% in 1999, primarily reflecting the Company’s increased revenue. In 2001, the
product research and development expense related to the Software and Digital Commerce Services
Division was $4.8 million, down from $5.8 million in 2000. Product research and development expense
related to the E-Business Services Division was $6.4 million, down from $7.2 million in 2000.
The Company expects that product research and development expenses will continue to decrease
as a percentage of revenue as revenue increases.
Management’s Discussion and Analysis of Financial Condition and R esults of O perations
Digital River 2001 Annual Report