Expedia 2010 Annual Report Download - page 55

Cost of Revenue
Year ended December 31, % Change
2010 2009 2008 2010 vs 2009 2009 vs 2008
($ in millions)
Customer operations ................. $326 $293 $295 11% (1%)
Credit card processing ................ 221 178 200 24% (11%)
Data center and other ................. 146 136 144 7% (5%)
Total cost of revenue ............... $693 $607 $639 14% (5%)
% of revenue ....................... 20.7% 20.5% 21.7%
Cost of revenue primarily consists of (1) customer operations, including our customer support and telesales
as well as fees to air ticket fulfillment vendors, (2) credit card processing, including merchant fees, charge backs
and fraud, and (3) other costs, primarily including data center costs to support our websites, certain promotions,
destination supply, and stock-based compensation.
In 2010, the primary drivers of the increase in cost of revenue expense were higher costs related to credit
card processing, customer service and telesales to support the growth in our transaction volumes.
In 2009, the primary drivers of the decrease in cost of revenue expense were a decrease in credit card
processing costs as a result of our technology investments, lower promotions expense and air fulfillment
efficiencies primarily resulting from bringing some of our air ticket fulfillment operations in-house.
Selling and Marketing
Year ended December 31, % Change
2010 2009 2008 2010 vs 2009 2009 vs 2008
($ in millions)
Direct costs ........................ $ 866 $ 747 $ 826 16% (10%)
Indirect costs ....................... 338 280 279 21% 0%
Total selling and marketing .......... $1,204 $1,027 $1,105 17% (7%)
% of revenue ....................... 36.0% 34.8% 37.6%
Selling and marketing expense primarily relates to direct costs, including traffic generation costs from
search engines and internet portals, television, radio and print spending, private label and affiliate program
commissions, public relations and other costs. The remainder of the expense relates to indirect costs, including
personnel and related overhead in our Partner Services Group, the TripAdvisor Media Network, Egencia and our
various Leisure brands and stock-based compensation costs.
Selling and marketing expenses increased $177 million in 2010 compared to 2009 due to an increase in
online and offline marketing expenses, including search engine marketing, brand advertising and affiliate
marketing expenses, and higher personnel costs, including those associated with opening a new global
headquarters for our lodging supply group, as well as higher professional service costs.
Selling and marketing expenses decreased $78 million in 2009 compared to 2008 due to lower offline brand
spending for our global websites, lower online spend as well as lower private label and affiliate expenses
associated with the lower overall travel demand environment. Offline and online advertising spend decreased
primarily as a result of a lower cost advertising environment, our investments in search engine optimization and
marketing, and costs for other customer value enhancements that stimulate demand but do not impact selling and
marketing expense such as fee reductions and loyalty programs. These decreases were partially offset by an
increase in direct costs for Venere.
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