Enom 2010 Annual Report Download - page 59

Table of Contents
Service Costs
Service costs consist of: fees paid to registries and ICANN associated with domain registrations; advertising revenue recognized by us and shared with
others as a result of our revenue-sharing arrangements, such as TAC and content creator revenue-sharing arrangements; Internet connection and co-location
charges and other platform operating expenses associated with our owned and operated websites and our network of customer websites, including
depreciation of the systems and hardware used to build and operate our Content & Media platform and Registrar; and personnel costs related to in-house
editorial, customer service and information technology. Our service costs are dependent on a number of factors, including the number of page views generated
across our platform and the volume of domain registrations and value-added services supported by our Registrar. In the near term and consistent with
historical trends, we expect that the growth in our Content & Media revenue will exceed the growth in our Registrar revenue. As a result, we expect that our
service costs as a percentage of our total revenue will decrease when compared to our historical results.
Sales and Marketing
Sales and marketing expenses consist primarily of sales and marketing personnel costs, sales support, public relations advertising and promotional
expenditures. Fluctuations in our sales and marketing expenses are generally the result of our efforts to support the growth in our Content & Media service,
including expenses required to support the expansion of our direct advertising sales force. We currently anticipate that our sales and marketing expenses will
continue to increase and will increase in the near term as a percent of revenue as we continue to build our sales and marketing organizations to support the
growth of our business.
Product Development
Product development expenses consist primarily of expenses incurred in our software engineering, product development and web design activities and
related personnel costs. Fluctuations in our product development expenses are generally the result of hiring personnel to support and develop our platform,
including the costs to further develop our content algorithms, our owned and operated websites and future product and service offerings of our Registrar. We
currently anticipate that our product development expenses will increase as we continue to hire more product development personnel and further develop our
products and offerings to support the growth of our business, but may decrease as a percentage of revenue.
General and Administrative
General and administrative expenses consist primarily of personnel costs from our executive, legal, finance, human resources and information technology
organizations and facilities related expenditures, as well as third party professional fees, insurance and bad debt expenses. Professional fees are largely
comprised of outside legal, audit and information technology consulting. During the years ended December 31, 2009 and 2010, our allowance for doubtful
accounts and bad debt expense were not significant and we expect that this trend will continue in the near term. However, as we grow our revenue from direct
advertising sales, which tend to have longer collection cycles, we expect that our allowance for doubtful accounts will increase, which may lead to increased
bad debt expense. In addition, we have historically operated as a private company. As we continue to expand our business and incur additional expenses
associated with being a publicly traded company, we anticipate general and administrative expenses will increase and will increase as a percentage of revenue
in the near term. Specifically, we expect that we will incur additional general and administrative expenses to provide insurance for our directors and officers
and to comply with the SEC's reporting requirements, exchange listing standards, the Dodd-Frank Wall Street Reform and Consumer Protection Act and the
Sarbanes-Oxley Act of 2002. We anticipate that these insurance and compliance costs will substantially increase
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