ServiceMagic 2010 Annual Report Download - page 33

Table of Contents
Cost of Revenue
Cost of revenue consists primarily of traffic acquisition costs. Traffic acquisition costs consist of payments made to partners who distribute
our toolbars, integrate our paid listings into their websites or direct traffic to our websites. These payments include amounts based on revenue
share and other arrangements. Cost of revenue also includes the cost of products sold and shipping and handling costs, as well as expenses
associated with the operation of the Company's data centers, including compensation and other employee-related costs (including stock-based
compensation) for personnel engaged in data center functions, rent, energy and bandwidth costs, and content acquisition costs.
Cost of revenue in 2010 increased $164.0 million from 2009 primarily due to increases of $121.6 million from Search, $27.7 million from
Media & Other and $10.3 million from Match. The increase in cost of revenue from Search was primarily due to an increase of $108.5 million in
traffic acquisition costs related to an increase in revenue. As a percentage of revenue, traffic acquisition costs increased over the prior year due to
an increase in the proportion of revenue from distributed toolbars and other arrangements with third parties who direct traffic to our websites, as
well as a shift in partner mix to partners carrying higher traffic acquisition costs. Cost of revenue from Media & Other increased due to Notional,
which is not in the full prior year period, The Daily Beast and an increase of $6.0 million in the cost of products sold at Shoebuy due to increased
sales. The increase in cost of revenue from Match was primarily due to the acquisitions of People Media and Singlesnet and the formation of the
Latin America venture, partially offset by the sale of Match Europe to Meetic.
Cost of revenue in 2009 decreased $27.1 million from 2008 primarily due to decreases of $20.7 million from Match and $6.5 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 primarily from the sale of Match Europe 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 sale of ReserveAmerica on January 31, 2009, partially offset by
The Daily Beast, as well as an increase of $3.0 million in the cost of products sold at Shoebuy due to increased sales.
Selling and marketing expense
Selling and marketing expense consists primarily of advertising and promotional expenditures and compensation and other employee-
related costs (including stock-
based compensation) for personnel engaged in sales, sales support and customer service functions. Advertising and
promotional expenditures include online marketing, including fees paid to search engines and third parties that distribute our proprietary
toolbars, and offline marketing, including television and radio advertising.
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Years Ended December 31,
2010
% Change
2009
% Change
2008
(Dollars in thousands)
Cost of revenue
$593,816
38%
$429,849
(6)%
$456,950
As a percentage of total revenue
36%
436 bp
32%
(49) bp
32%
bp = basis points
Years Ended December 31,
2010
% Change
2009
% Change
2008
(Dollars in thousands)
Selling and marketing expense
$492,206
6%
$463,439
4%
$444,571
As a percentage of total revenue
30%
(434) bp
34%
288 bp
32%