Enom 2012 Annual Report Download - page 50

45
Opportunities, Challenges and Risks
To date, we have derived the majority of our revenue through the sale of advertising in connection with our Content &
Media service offering and through domain name registration subscriptions in our Registrar service offering. Our advertising
revenue is primarily generated by advertising networks, which include both performance-based Internet advertising, such as
cost-per-click where an advertiser pays only when a user clicks on its advertisement, and display Internet advertising, where an
advertiser pays when the advertising is displayed. For the year ended December 31, 2012, the majority of our advertising
revenue was generated by our relationship with Google. We deliver online advertisements provided by Google on our owned
and operated websites as well as on certain of our customer websites where we share a portion of the advertising revenue.
Additionally, we recognized significant revenue from our YouTube multi-channel premium video initiative during 2012. We do
not expect to generate significant revenue under this agreement in 2013. For the years ended December 31, 2011 and 2012,
approximately 33% and 38%, respectively, of our total consolidated revenue was derived from our advertising and content
arrangements with Google. Google maintains the direct relationships with the advertisers and provides us with cost-per-click
and display advertising services.
Growth in Content & Media revenue is principally dependent upon growth in page views and RPMs. Our recent growth in
page views has been primarily due to an increase in the number of visitors to our library of content published in 2011 and
earlier, the increase in the amount of our content distributed to our network of content partners, and traffic growth from mobile
devices. We believe that there are opportunities to grow our page views by creating and publishing more content in a greater
variety of formats on our owned and operated sites as well as expanding our network of customer websites. Our RPMs are
subject to changes in the online advertising marketplace, where we expect ad unit price volatility, which could include lower
rates received for certain ad units. Currently, our Content & Media revenue is primarily advertising-based; however, we
believe there is an opportunity to diversify our revenue by expanding our paid content services, including offering paid
subscriptions to access certain of our media content.
Google, the largest provider of search engine referrals to the majority of the Company's websites, regularly deploys
changes to its search engine algorithms, some of which have led the Company to experience fluctuations in the total number of
Google search referrals to its owned and operated and network of customer websites. Other search engines may deploy similar
changes. In 2011, the overall impact of these changes on the Company's owned and operated websites was negative primarily
due to a decline in traffic to eHow.com, the Company's largest website. In 2012, Google continued to make changes to its
search engine algorithms; however, we do not believe that these changes in the aggregate had an overall negative impact on our
traffic. In response to the changes in search engine algorithms in 2011, the Company performed an evaluation of its existing
content library to identify potential improvements in its content creation and distribution platform. As a result of this
evaluation, the Company elected to remove certain content assets from service, resulting in approximately $5.9 million and
$2.1 million of accelerated amortization expense in the years ended December 31, 2011 and 2012, respectively.
We intend to evolve and continuously improve our content creation and distribution platform. During 2011 and 2012, we
made certain improvements to this platform including establishment of more stringent criteria for the admission of content
creators, an increase in our investment in video, long-form content and images, publication of content directed at international
markets and in languages other than English, addition of content production algorithms targeted toward ensuring that each
additional unit of content published is unique in relation to existing content units, as well as an expansion of the distribution of
our content to our network of customer websites. As we made these improvements to our content creation and distribution
platform, we reduced the level of our overall investment in media content in 2012 when compared to 2011. Based on our
assessment of the results of these improvements, we increased our investment in media content over the course of 2012. We
expect this trend to continue and anticipate increased media content expenditures in 2013 compared to 2012, including
additional investment in short-form articles on our owned and operated sites including eHow.com, growth in content published
on our network of customer websites and creation of new content formats, including paid content, designed to further diversify
our content offering.
There can be no assurance that these or any future changes that may be implemented by the Company, by search engines to
their algorithms and search methodologies, or by consumers in their web usage habits will not adversely impact the carrying
value, estimated useful life or intended use of our long-lived assets. The Company will continue to monitor these changes as
well as any future changes and emerging trends in search engine algorithms and methodologies, including the resulting impact
that these changes may have on future operating results, the economic performance of the Company's long-lived assets and in
its assessment as to whether significant changes in circumstances might provide an indication of potential impairment of the
carrying value of its long-lived assets, including its media content and goodwill arising from acquisitions.