Support.com 2008 Annual Report Download - page 39

Table of Contents
launched in the first quarter of 2007. Consumer revenue was $6.8 million for the year ended December 31, 2008 and $1.1 million for the year ended
December 31, 2007, respectively. Revenue from our Consumer offerings have been derived predominantly from technology support services that are paid for on
a per-incident basis. We also license certain of our Consumer software products to consumer partners on a per-use basis. In early 2007, we had just begun to offer
our Consumer solutions so revenues in 2007 were significantly smaller than revenues in 2008. The increase in Consumer revenue from 2007 to 2008 was due to
increased services demand from consumer partners, primarily from one channel partner that accounted for 11% of our total company revenue. It is difficult to
predict the timing of revenue from the Consumer segment because the timing of such revenue is dependent on the successful completion of pilot programs and
their conversion to full-scale programs. Such timing will vary from consumer partner to consumer partner. Accordingly, Consumer revenue will likely fluctuate
from period to period. Notwithstanding the foregoing, we expect Consumer revenue to grow in 2009 as a result of expansion of existing programs, developing
consumer partnerships with additional companies through which our offerings can reach end-consumers and growing our direct business.
Enterprise Segment
Revenue related to our Enterprise business was $42.1 million for the year ended December 31, 2008, $46.8 million for the year ended December 31, 2007
and $45.0 million in 2006. Our Enterprise revenue has been derived from our traditional Enterprise customers and has consisted of software license fees and fees
for maintenance, consulting, hosting and training services. Over the last three years, we have licensed our software to Enterprise customers predominately on a
perpetual basis in which we recognize the license revenue up front, assuming all criteria for revenue recognition under the applicable accounting rules have been
met. Maintenance fees related to perpetual software licenses result in ratable revenue over the period of the maintenance term, which is generally one year.
Multi-year maintenance agreements are divided into annual periods over which revenue is recognized ratably. Consulting and training revenues are recognized as
the services are performed or in accordance with predefined project milestones. Hosting fees are recognized ratably over the term of the hosting arrangement.
License revenue. License revenue is comprised of fees for perpetual and term licenses of our software. Revenue from perpetual licensing, which
represents a substantial majority of our license revenue, is recognized upon contract signing assuming all other criteria for revenue recognition have been met.
Revenue from license fees was $11.8 million for the year ended December 31, 2008, $15.8 million for the year ended December 31, 2007, and $16.4 million for
the year ended December 31, 2006. We have experienced a trend of decreasing annual license revenue over the last four years. License revenues have decreased
primarily due to closing fewer large licensing transactions with our Enterprise customers. In 2008, we had six customers that each accounted for more than
$500,000 of our aggregate license revenue. This compares to seven such customers in 2007 and 12 such customers in 2006. Additionally, the decrease in license
revenue in 2008 from 2007 was due in part to one customer whose aggregate purchases decreased to $2.2 million in 2008 from $4.8 million in 2007. Customers
in recent periods have often elected to license our software in smaller initial quantities and may elect to acquire additional licenses as their growth
requires. Moreover, the majority of our license revenue has been derived from existing customers who require fewer licenses in current periods since their initial
purchases have already been made. Historically, a relatively small number of customers have accounted for a substantial portion of our license revenue. Given
the current global macroeconomic environment and the completion of payment under a large customer contract that contributed substantially to revenue in 2008,
we expect license revenue to decline further in 2009.
Maintenance revenue. Maintenance revenue is comprised primarily of revenue from post-contract technical support services which includes software
product updates. Maintenance revenue is recognized ratably over the term of the maintenance period, which is generally one year. Maintenance revenue was
$15.9 million for the year ended December 31, 2008, $16.1 million for the year ended December 31, 2007 and $15.7 million for the year ended December 31,
2006. Maintenance revenue declined slightly in 2008 compared with 2007 as maintenance revenue from new licenses did not exceed the reduction in revenue
from maintenance renewals. We
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Source: SUPPORTSOFT INC, 10-K, March 11, 2009