ServiceMagic 2011 Annual Report Download - page 33

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Table of Contents
stock-based compensation) for personnel engaged in data center functions, rent, energy and bandwidth costs, and content acquisition costs.
Cost of revenue in 2011 increased from 2010 primarily due to increases of $129.4 million from Search, $23.3 million from Media & Other
and $9.8 million from Match. The increase from Search was primarily due to an increase of $115.3 million in traffic acquisition costs related to
the increase in revenue. As a percentage of revenue, traffic acquisition costs at Search increased over the prior year period due to an increase in
the proportion of revenue from customized browser-based applications and other arrangements with third parties who direct traffic to our
websites. Cost of revenue from Media & Other increased primarily due to an increase of $7.7 million in the cost of products sold at Shoebuy
resulting from increased sales. Also contributing to the increase from Media & Other are increases from Electus, Vimeo and Notional, partially
offset by a decrease from The Daily Beast, which has been accounted for as an equity method investment since January 31, 2011 as described
above. The increase from Match is primarily due to the acquisition of Meetic.
Cost of revenue in 2010 increased 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 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 customized browser-based applications 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
was 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 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.
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 Mindspark's
downloadable applications, and offline marketing, principally television and radio advertising.
Selling and marketing expense in 2011 increased from 2010 primarily due to increases of $63.7 million from Search, $49.6 million from
Match and $10.3 million from ServiceMagic. The increase from Search is due to an increase of $68.6 million in advertising and promotional
expenditures due to increased online marketing related to its destination websites and new product launches at Mindspark since the year ago
period, partially offset by a decrease in bad debt expense at CityGrid Media. Selling and marketing expense at Match increased primarily due to
the acquisition of Meetic and increases in offline and online marketing spend associated with the OurTime.com website and an advertising
agreement entered into during the second quarter of 2010 with Yahoo! Inc. ("Yahoo"). The increase from ServiceMagic is primarily due to an
increase of $10.8 million in advertising and promotional expenditures associated with online marketing.
30
Years Ended December 31,
2011
$ Change
% Change
2010
$ Change
% Change
2009
(Dollars in thousands)
Selling and marketing
expense
$614,174
$121,968
25%
$492,206
$28,767
6%
$463,439
As a percentage of
revenue
30%
(25) bp
30%
(434) bp
34%