Enom 2011 Annual Report Download - page 88

For arrangements with multiple deliverables, the Company allocates revenue to each deliverable if the delivered item(s) has value to the customer
on a standalone basis and, if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered
item(s) is considered probable and substantially in the control of the Company. The fair value of the selling price for a deliverable is determined using a
hierarchy of (1) Company specific objective and reliable evidence, then (2) third-party evidence, then (3) best estimate of selling price. The Company
allocates any arrangement fee to each of the elements based on their relative selling prices.
The Company’s revenue is principally derived from the following services:
Content & Media
Advertising Revenue. Advertising revenue is generated by performance-based Internet advertising, such as cost-per-click, or CPC, in which an
advertiser pays only when a user clicks on its advertisement that is displayed on the Company’s owned and operated websites and customer websites; fees
generated by users viewing third-party website banners and text-link advertisements; fees generated by enabling customer leads or registrations for partners;
and fees from referring users to, or from users making purchases on, sponsors’ websites. In determining whether an arrangement exists, the Company ensures
that a binding arrangement is in place, such as a standard insertion order or a fully executed customer-specific agreement. Obligations pursuant to the
Company’s advertising revenue arrangements typically include a minimum number of impressions or the satisfaction of the other performance criteria.
Revenue from performance-based arrangements, including referral revenue, is recognized as the related performance criteria are met. The Company assesses
whether performance criteria have been met and whether the fees are fixed or determinable based on a reconciliation of the performance criteria and an
analysis of the payment terms associated with the transaction. The reconciliation of the performance criteria generally includes a comparison of third-party
performance data to the contractual performance obligation and to internal or customer performance data in circumstances where that data is available.
When the Company enters into advertising revenue sharing arrangements where it acts as the primary obligor, the Company recognizes the
underlying revenue on a gross basis. In determining whether to report revenue gross for the amount of fees received from the advertising networks, the
Company assesses whether it maintains the principal relationship with the advertising network, whether it bears the credit risk and whether it has latitude in
establishing prices. In circumstances where the customer acts as the primary obligor, the Company recognizes the underlying revenue on a net basis.
In certain cases, the Company records revenue based on available and preliminary information from third parties. Amounts collected on the related
receivables may vary from reported information based upon third-party refinement of estimated and reported amounts owing that occurs typically within
30 days of the period end. For the years ended December 31, 2009, 2010 and 2011, the difference between the amounts recognized based on preliminary
information and cash collected was not material.
Content Revenue. Content revenue is generated through the sale or license of media content. Revenue from the sale or perpetual license of content
is recognized when the content has been delivered and the contractual performance obligations has been fulfilled. Revenue from the license of content is
recognized over the period of the license as content is delivered or when other related performance criteria are fulfilled.
Subscription Services and Social Media Services. Subscription services revenue is generated through the sale of membership fees paid to access
content available on certain owned and operated websites. The majority of the memberships range from 6 to 12 month terms, and renew automatically at the
end of the membership term, if not previously canceled. Subscription services revenue is recognized on a straight-line basis over the membership term.
The Company configures, hosts, and maintains its platform social media services under private-labeled versions of software for commercial
customers. The Company earns revenue from its social media services through initial set-up fees, recurring management support fees, overage fees in excess
of standard usage terms, and outside consulting fees. Due to the fact that social media services customers have no contractual right to take possession of the
Company’s private labeled software, the Company accounts for its social media services revenue as service arrangements, whereby social media services
revenue is recognized when persuasive evidence of an arrangement exists, delivery of the service has occurred and no significant obligations remain, the
selling price is fixed or determinable, and collectability is reasonably assured.
Social media service arrangements may contain multiple deliverables, including, but not limited to, single arrangements containing set-up fees,
monthly support fees and overage billings, consulting services and advertising services. To the extent that consulting services have value on a standalone
basis, the Company allocates revenue to each element in the multiple deliverable arrangement based upon their relative fair values. Fair value is determined
based upon the best estimate of
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