ServiceMagic 2009 Annual Report Download - page 16

Table of Contents
employees in the future. Mr. Diller does not have an employment agreement with IAC, though he owns approximately 4.3 million shares of IAC
common stock, and holds unvested options to purchase approximately 1.8 million shares of IAC common stock, all of which vest in June 2010
and expire in June 2015.
We depend upon arrangements with Google and any adverse changes in this relationship could adversely affect our business, financial
condition and results of operations.
A substantial portion of our consolidated revenue is attributable to a paid listing supply agreement with Google that expires on
December 31, 2012. Pursuant to this agreement, Google sells paid listings directly to advertisers, which we in turn display and syndicate in
response to user search queries that contain keywords selected and purchased by advertisers through Google. In exchange for making our search
traffic available to Google, we receive a share of the revenue generated by the paid listings supplied to us. The amount of revenue we receive
from Google depends upon a number of factors outside of our control, including the amount Google charges for advertisements and the
efficiency of Google's system in attracting advertisers and serving up relevant paid listings in response to queries. In addition, our revenue will
be impacted by the effectiveness (in terms of ultimately generating revenue for Google's advertisers) of clicks from users of our search services.
If Google's performance were to deteriorate for any reason or if our traffic fails to generate revenue for Google's advertisers, revenues we receive
from Google pursuant to the paid listing supply agreement would decrease, which would have an adverse effect on our business, financial
condition and results of operations.
Our paid listing supply agreement requires that we establish guidelines to govern certain activities of certain third parties to whom we
syndicate paid listings, specifically, the manner in which these parties drive search traffic to their websites and display Google paid listings
within search results. Noncompliance with these requirements could, if not cured, result in the imposition of additional restrictions on our ability
to syndicate paid listings and would give Google the right to terminate the paid listing supply agreement. The termination of the paid listing
supply agreement by Google or the failure of Google to perform its obligations under the agreement would have a material adverse effect on our
business, financial condition and results of operations. If this were to occur, we may not be able to find another suitable alternate paid listings
provider (or if so, the terms of the agreements and the quality of paid listings may be inferior relative to our arrangements with, and the paid
listings supplied by, Google) or otherwise replace the lost revenues.
General economic events or trends that reduce advertising spending could harm our business, financial condition and results of operations.
A substantial portion of our consolidated revenue is attributable to advertising. Accordingly, we are particularly sensitive to events and
trends that result in decreased advertising expenditures. Advertising expenditures have historically been cyclical in nature, reflecting overall
economic conditions and budgeting and buying patterns, as well as levels of consumer confidence and discretionary spending.
Small and local businesses with which we do business are particularly sensitive to these events and trends, given that they are not as well
situated to weather the current economic environment as their larger competitors, which are generally better capitalized and have greater access
to credit. The continuing adverse economic conditions generally have caused, and we expect that they may continue to cause, decreases and/or
delays in both advertising and consumer expenditures, as well as related decreases in queries likely to generate revenue, any of which would
reduce our revenues and adversely affect our business, financial condition and results of operations.
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