Enom 2012 Annual Report Download - page 52

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47
such as eHow en Español and eHow Brasil. As we expand our business internationally, we may incur additional expenses
associated with this growth initiative.
Basis of Presentation
Revenue
Our revenue is derived from our Content & Media and Registrar service offerings.
Content & Media Revenue
We currently generate substantially all of our Content & Media revenue through the sale of advertising, and to a lesser
extent through subscriptions to our social media applications and select content and service offerings. Articles and videos, each
of which we refer to as a content unit, generate revenue both directly and indirectly. Direct revenue is directly attributable to a
content unit, such as advertisements, including sponsored advertising links, display advertisements and in-text advertisements,
on the same webpage on which the content is displayed. Beginning in 2013, we also expect to generate direct revenue from
paid content subscription services. Indirect revenue is derived primarily by our content library, but is not directly attributable to
a specific content unit. Indirect revenue includes advertising revenue generated from our owned and operated websites’ home
pages (e.g., home page of eHow.com), topic category webpages (e.g., home and garden category page), user generated article
pages that feature content that was not acquired through our proprietary content acquisition process, and to a lesser extent,
certain subscription-based revenue. Our revenue generating advertising arrangements, for both our owned and operated
websites and our network of customer websites, include cost-per-click performance-based advertising; display advertisements
where revenue is dependent upon the number of page views; and lead generating advertisements where revenue is dependent
upon users registering for, or purchasing or demonstrating interest in, advertisers’ products and services. We generate revenue
from advertisements displayed alongside our content offered to consumers across a broad range of topics and categories on our
owned and operated websites and on certain customer websites. Our advertising revenue also includes revenue derived from
cost-per-click advertising links we place on undeveloped websites owned by us, which we acquire and sell on a regular basis,
and certain of our customers. To a lesser extent, we also generate revenue from our subscription-based offerings, which include
our social media applications deployed on our network of customer websites and subscriptions to premium content or services
offered on certain of our owned and operated websites.
Where we enter into revenue sharing arrangements with our customers, such as those relating to IndieClick and our
undeveloped customer websites, and when we are considered the primary obligor, we report the underlying revenue on a gross
basis in our consolidated statements of operations, and record these revenue-sharing payments to our customers as traffic
acquisition costs, or TAC, which are included in service costs. In circumstances where we distribute our content on third-party
websites and the customer acts as the primary obligor we recognize revenue on a net basis.
Registrar Revenue
Our Registrar revenue is principally comprised of registration fees charged to resellers and consumers in connection with
new, renewed and transferred domain name registrations. In addition, our Registrar also generates revenue from the sale of
other value-added services that are designed to help our customers easily build, enhance and protect their domains, including
security services, e-mail accounts and web-hosting. Finally, we generate revenue from fees related to auction services we
provide to facilitate the selling of third-party owned domains. Our Registrar revenue varies based upon the number of domains
registered, the rates we charge our customers and our ability to sell value-added services. We market our Registrar wholesale
services under our eNom brand, and our retail registration services under the eNomCentral and Name.com brands, among
others.
We expect to commence recognizing revenue from our gTLD initiative in the second half of 2013. The amount, as well as
the timing of revenue, is uncertain and is dependent upon whether our applications for gTLDs are approved by ICANN, the
outcome of negotiations or auctions to acquire the operating rights for gTLDs applications contested with other participants,
and the continued progress of the overall ICANN new gTLD initiative.
Operating Expenses
Operating expenses consist of service costs, sales and marketing, product development, general and administrative, and
amortization of intangible assets. Included in our operating expenses are stock-based compensation and depreciation expenses
associated with our capital expenditures.