ServiceMagic 2009 Annual Report Download - page 34

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Table of Contents
relationships with certain partners that took place during 2008 in conjunction with the renewed Google agreement. The increase at Match was
driven by a 5% increase in worldwide subscribers and a 3% increase in average revenue per subscriber.
Cost of Revenue
Cost of revenue consists primarily of traffic acquisition costs, compensation and other employee-related costs (including stock-based
compensation) for personnel engaged in data center functions, the cost of products sold and shipping and handling costs. Traffic acquisition costs
consist of revenue share payments to partners that have distributed toolbars and/or integrated paid listings into their websites and similar
arrangements with third parties who direct traffic to our websites.
Cost of revenue in 2009 decreased $27.6 million from 2008 primarily due to decreases of $20.7 million from Match and $6.0 million from
Media & Other. The decrease in cost of revenue from Match was primarily due to a decrease of $20.0 million in traffic acquisition costs
resulting principally from the sale of Match Europe to Meetic and the impact of more favorable economic terms under agreements with certain
distribution partners. Cost of revenue from Media & Other decreased primarily due to the absence of ReserveAmerica in the current year period
following its sale on January 31, 2009, partially offset by continued investment in InstantAction.com and The Daily Beast, as well as an increase
of $3.0 million in the cost of products sold at Shoebuy due to increased sales.
Cost of revenue in 2008 decreased $44.4 million from 2007 primarily due to decreases of $51.3 million from Search and $14.6 million from
Match, partially offset by an increase of $21.6 million from Media & Other. The decrease in cost of revenue was primarily due to decreases of
$45.4 million and $16.1 million in traffic acquisition costs from Search and Match, respectively. Overall traffic acquisition costs from Search
during the year decreased as a direct result of a decrease in network revenue, partially offset by growth in distribution revenue included as a
component of proprietary revenue at IAC Search & Media. As a percentage of revenue, traffic acquisition costs associated with network revenue
generated from integrated paid listings are lower than traffic acquisition costs associated with distribution revenue generated from partners who
redirect traffic to the Ask.com landing page. The decrease in traffic acquisition costs from Match was due primarily to improved economics from
agreements with certain domestic distribution partners. Partially offsetting these decreases was an increase in cost of revenue from Media &
Other primarily due to an increase of $7.8 million in cost of products sold and $3.2 million in shipping and handling costs at Shoebuy due to
increased sales. Cost of revenue from Media & Other was also impacted by the write-off of capitalized software, including game development
costs, at InstantAction.com, increased costs at Gifts.com and costs incurred by various early stage businesses not in the year ago period.
Selling and marketing expense
29
Years Ended December 31,
2009
% Change
2008
% Change
2007
(Dollars in thousands)
Cost of revenue
$449,790
(6)%
$477,390
(9)%
$521,744
As a percentage of total revenue
33%
(34) bp
33%
(612) bp
39%
bp = basis points
Years Ended December 31,
2009
% Change
2008
% Change
2007
(Dollars in thousands)
Selling and marketing expense
$474,639
3%
$459,021
13%
$405,891
As a percentage of total revenue
34%
274 bp
32%
131 bp
30%