BBUS 4701: Business Policy and Strategy Yahoo 2012 Annual Report Assignment 4 By Yahoo! Yahoo!. (2012). Yahoo 2012 Annual Report. Retrieved from: http://investor.yahoo.net/annuals.cfm 2 01 2 A N N UA L R E PO R T 2012 Annual Report 1 Every day, millions of people around the globe choose to make Yahoo! a part of their daily digital routines. Yahoo! is relentlessly focused on making the world's daily habits inspiring and entertaining. We're well positioned to serve users' everyday passions and needs whether they're searching for information, emailing, sharing photos of their families or friends, or simply checking the weather, sports scores or stock quotes. We are committed to bringing users the best products and the most immersive digital experiences, personalized to their interests, across screens and platforms. This focus on product excellence is key to engaging even more users, delivering value for our partners and advertisers, and creating powerful momentum for a new cycle of innovation and growth at Yahoo!. We believe that our commitment to the people who work at Yahoo! will have long-lasting benefits for our users, advertisers, partners, and shareholders. To our shareholders It's been an exciting year at Yahoo!one of great change and great inspiration. We have significantly increased our pace of execution and focused on product excellence, user experience, and growth. Our financials have seen continued stability; in fact, 2012 was our first year of ex-TAC revenue growth in four years. Over the past 18 years, Yahoo! has become a daily habit for hundreds of millions of users worldwide and has grown into one of the Internet's most loved and iconic brands. Today, we remain dedicated to creating products that inspire and delight our users every day, and we are working to reach even more users across a broad array of platforms, including mobile. To that end, we are developing and reimagining the experiences that are at the center of people's everyday digital habits. These are the same products that have been at Yahoo!'s core throughout our historyincluding Mail, Search, News, Sports, Finance, Groups, and Answers. Last year, we made early progress in enhancing these products with a new design for Yahoo! Mail across four key platformsdesktop, iOS, Android, and Windows 8as well as the launch of our Flickr mobile application, lauded as best in class. However, this is just the beginning. In 2013, we will demonstrate a cadence of innovation in our principal product offerings. We are also increasing the value we bring to our advertisers and partners. When ads are personal, consumers respond. Yahoo! is one of the largest global platforms that combine personalized content at scale with highly relevant advertising to reach the right audience at the right time. We believe that ads are a core part of our offering, and we see an incredible Photo top left by simonlchung from the Flickr Collection number of opportunities where advertising can enhance the quality of our products and the user experience. While Yahoo! is committed to user, product, and revenue growth, we've also demonstrated discipline and a focus on profitability. Furthering our commitment to shareholders, we returned approximately $2.2 billion through share repurchases last year. Inside the company, we will continue to invest in talent. Companies are all about people, and the companies with the best talent win. This is why we have embarked on a number of initiatives to make Yahoo! the absolute best place to work greater transparency, clearer accountability, and benefits that increase employee efficiency and well-being. This commitment to our team will enable us to produce the most compelling and exciting user experiences anywhere, and it will have long-lasting benefits for our users, advertisers, partners, and shareholders. Our company's performance is a testimony to the hard work and capabilities of our employees, and we are incredibly excited about the future we will create. In that future, the Internet will continue to change the way people learn, share, and communicate, and Yahoo! will strive to be a central part of this evolution. We need to continue Yahoo!'s tradition of bold innovation, and ultimately inspire and delight users and advertisers globally. We see enormous opportunity in front of us. Thank you for your belief in our vision. Your support allows us to build exquisite products and experiences, which will make our users' daily habits inspiring and delightful for years to come. Marissa Mayer CEO, President and Director David Filo Founder and Chief Yahoo Serving millions, catering to one It all starts with our usersabout 700 million of them, in 60 countries around the world. We've doubled down on our commitment to Yahoo! users as we seek to delight them with products and content that are immersive, surprising, and beautiful. That means understanding the things they care about and their evolving needs. We enable users to access the information, entertainment, and connections they want mostanytime and anywherewith content that is personalized to their choices. That might mean up-to-the-minute scores and stats in Yahoo! Fantasy Sports, articles about the latest on immigration reform on their Yahoo! news stream, or local weather forecasts that integrate Flickr images of their favorite places around the world. We're creating products that get smarter about our users' interests and deliver more relevant content with every use. And as mobile continues to become a more integral part of our users' day-to-day activities, we're working to ensure a seamless, integrated experience, regardless of the device or platform they use. We enable users to access the information, entertainment, and connections they want most anytime and anywhere. \"The new Yahoo.com introduces a fresh, personalized experience. We focused on what's critical to our users, validating new design features with them every step of the way.\" -Jackie Goldberg Director of Design The new Yahoo.com puts our users' interests and preferences first and foremost. 2012 Annual Report 4 5 ONE Billion Clicks The news carousel at the top of Yahoo.com receives 1 billion clicks every month. 2012 Annual Report 6 7 150 Million Users Coverage of the London Games on Yahoo! Sports resulted in more than 3 billion pageviews and more than 150 million unique users globally. Photo by Nasos Zovoilis from the Flickr Collection Delivering product excellence Product excellence is vital to our future. We're building an organization with a continuous cycle of innovation and reinvention. In today's digital marketplace, user demands change rapidly. Leveraging our strong user connections, access to vast content, and deep technology expertise, we're accelerating the pace of product innovation and delivering world-class user experiences. We recently introduced a new, modern, and faster Yahoo.com. Optimized for Web, mobile, and tablets, the new Yahoo.com offers a personalized newsfeed with a virtually endless stream of news articles and deeper social integration. In line with our mobile focus, we launched a new version of our Mail product across four platforms: desktop, iOS, Android, and Windows 8. The new Yahoo! Mail is faster and easier to use. This is good news for the 105 million users who send, on average, 91 million emails and 23 million attachments every day. We also launched a new Flickr iOS app that has been hailed as one of the best mobile photo apps. The new app allows users to capture, share, and discover photos by email, with the Flickr Yahoo! plans to provide more media content and greater personalization across multiple platforms. community, and with their social network of choice. With a library of more than 8 billion photos, 346 million of which are geotagged, and more than 1.6 million interest-based photo groups, users can explore photography through one of the most active photo communities in the world. Yahoo! is one of the largest content publishers on the Web. Each day, nearly 95,000 stories are available on our properties. We're working to increase that significantly, by growing our premium and original content, curated content, and user-generated content. We've made great progress and will continue to pursue innovation across platforms that align with consumers' evolving needs and desires. \"We took our cues from users and made the new Mail design simple and clean, with improved speed and efficiency.\" -Guilherme Chapiewski Sr. Engineering Manager, Mail and Search, Yahoo! Mobile The Yahoo! Mail tablet experience has been re-imagined. With full screen magazinestyle reading and new sort and delete tools, it's faster, more fun, and easier to manage. A culture of innovation Our employees and culture are fundamental to delivering product excellence. We believe that companies with the best talent win. That's why we're making Yahoo! the absolute best place to work. We're setting aggressive quarterly and annual goals, ensuring Yahoos have the right productivity tools, building a culture of increased transparency, and creating a work environment that fosters innovation and excellence. Across the company and around the globe, we're reigniting the inventive, collaborative, and entrepreneurial spirit that continues to make Yahoo! a digital pioneer. We have challenged ourselves to renew our laser focus on users, products, and teamwork. You can see the results \"We're accelerating mobile product development. Our total number of unique mobile users more than doubled in an 18-month period. We believe the potential is immense.\" -Guy Hepworth Sr. Global Product Manager, Yahoo! Mobile every day: in our products, our user engagement, and our collective belief that Yahoo!'s best days lie ahead of us. Yahoos are now working together with a sense of purpose: to deliver inspiring and entertaining products that fuel the world's daily habits. We have challenged ourselves to renew our laser focus on users, products, and teamwork. The new Flickr app lets users explore 8 billion photos from around the world. 2012 Annual Report 8 9 300M Mobile Users In February 2013, there were more than 300 million unique monthly mobile users on Yahoo!. 2012 Annual Report 12 11 50 Original Shows Yahoo! produces and distributes more than 50 original video shows, two of which were co-produced with partners and have successfully crossed from Web to TVBurning Love and Cybergeddon. Committed to strong partnerships Yahoo!'s partnerships enable us to enrich and expand user experiences, access key technologies, and build value-enhancing relationships. Yahoo! helps advertisers, publishers, and partners embrace the digital opportunity. We're an important choice in the market due to our global scale, fresh and unique thinking, ability to make emotional connections with the right audiences, and deep commitment to delivering best-in-class content and technologies. At the same time, we work hard to ensure that advertising on Yahoo! properties is both entertaining and contextually relevant to our users. Content partnerships create powerful user experiences. Every day, our users turn to the Yahoo!-ABC News Network to be informed and inspired. Our joint coverage of the U.S. Presidential Election was the most-watched live stream event in Yahoo! history and our five coproduced series were watched over 100 million times in 2012. Our partnership between Yahoo! Sports and NBC Sports combines NBC's Content partnerships create powerful user experiences. broadcast expertise with our reach and popular fantasy products, creating an unmatched experience for fans. We also launched omg! Insider, a multi-platform entertainment news series that combines the popularity of CBS Television's The Insider with the online reach of omg!. The original comedy series Burning Love, created in partnership with Ben Stiller's Red Hour Digital, had more than 10 million streams in its first season. Looking ahead, we plan to continue to build strategic partnerships that enhance our products, broaden our reach, and deepen our relationships with users around the world. \"Our partnerships have supercharged Yahoo!'s content offerings. We've created premium video franchises, and our sales teams are capturing the shift to digital dollars.\" -Robertson Barrett VP News and Finance Partnerships help enable Yahoo! to build powerful user experiences. The future is incredibly bright UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2012 OR ' TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 000-28018 Yahoo! Inc. (Exact name of Registrant as specified in its charter) Delaware 77-0398689 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 701 First Avenue Sunnyvale, California 94089 (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (408) 349-3300 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Common stock, $.001 par value The NASDAQ Stock Market LLC (NASDAQ Global Select Market) Securities registered pursuant to Section 12(g) of the Act: None (Title of Class) Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No ' Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ' No Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No ' Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No ' Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ' Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of \"large accelerated filer,\" \"accelerated filer,\" and \"smaller reporting company\" in Rule 12b-2 of the Exchange Act. Large accelerated filer Accelerated filer ' Non-accelerated filer ' (Do not check if a smaller reporting company) Smaller reporting company ' Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ' No As of June 29, 2012, the last business day of the Registrant's most recently completed second fiscal quarter, the aggregate market value of voting stock held by non-affiliates of the Registrant, based upon the closing sales price for the Registrant's common stock, as reported on the NASDAQ Global Select Market was $15,665,361,526. Shares of common stock held by each officer and director and by each person who owns 10 percent or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for any other purpose. The number of shares of the Registrant's common stock outstanding as of February 15, 2013 was 1,101,295,389. DOCUMENTS INCORPORATED BY REFERENCE The following documents (or parts thereof) are incorporated by reference into the following parts of this Form 10-K: Proxy Statement for the 2013 Annual Meeting of ShareholdersPart III Items 10, 11, 12, 13, and 14. YAHOO! INC. Form 10-K Fiscal Year Ended December 31, 2012 INDEX ITEM ITEM 1 ITEM 1A ITEM 1B ITEM 2 ITEM 3 ITEM 4 Page PART I Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITEM 6 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITEM 7 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITEM 7A Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . ITEM 8 Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITEM 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITEM 9A Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITEM 9B Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 12 27 27 28 28 ITEM 5 ITEM 10 ITEM 11 ITEM 12 ITEM 13 ITEM 14 ITEM 15 PART III Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART IV Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 31 33 60 63 115 115 115 116 116 116 116 116 117 118 The trademarks and/or registered trademarks of Yahoo! Inc. and its subsidiaries referred to herein include, but are not limited to, Yahoo!, Y!, IntoNow, interclick, Flickr, Right Media, omg!, Shine, Sportacular, Cocktails, Mojito, Genome, Stamped, Rivals, MarketDash, Yahoo! Search BOSS, Citizen Sports and their respective logos. Other names are trademarks and/or registered trademarks of their respective owners. 2 Part I Item 1. Business OVERVIEW Yahoo! Inc., together with its consolidated subsidiaries (\"Yahoo!,\" the \"Company,\" \"we,\" or \"us\"), is a global technology company focused on making the world's daily habits inspiring and entertaining. We provide a variety of products and services, many of them personalized, including search, content, and communications toolsall daily habits for hundreds of millions of users, on the Web and on mobile devices. The majority of our product offerings are available in more than 45 languages and in 60 countries, regions, and territories. We create value for advertisers and their brands by connecting them with targeted audiences of users through their daily habits. Advertisers can build their businesses through advertising to these targeted audiences on our online properties and services (\"Yahoo! Properties\"), or through our distribution network of third-party entities (\"Affiliates\") who integrate our advertising offerings into their Websites or other offerings (those Websites and other offerings, \"Affiliate sites\"). We generate revenue principally from display advertising on Yahoo! Properties and some Affiliate sites and from search advertising on Yahoo! Properties and Affiliate sites. Additionally, we generate revenue from other sources including listings-based services, facilitating commercial transactions, royalties, and consumer and business feebased services. Yahoo! has a storied history that has evolved with the Internet, beginning in 1994 when our founders, Jerry Yang and David Filo, then graduate students at Stanford University, created Jerry and Dave's Guide to the World Wide Web, a simple directory of websites to help people navigate the Internet. Yahoo! was incorporated in 1995 and is a Delaware corporation. We completed our initial public offering on April 12, 1996, and our stock is listed on the Nasdaq Global Select Market under the symbol \"YHOO.\" Yahoo! is headquartered in Sunnyvale, California, and is a global companywith offices in more than 30 countries, regions and territories. EXECUTIVE LEADERSHIP Since the beginning of 2012, we have made key changes to enhance our executive leadership team. Marissa Mayer became our Chief Executive Officer and President on July 17, 2012. Today, the management team reporting to the Chief Executive Officer is: Ron Bellbecame General Counsel and Secretary on August 13, 2012; Jackie Resesbecame Executive Vice President of People and Development on September 7, 2012; Kathy Savittbecame Chief Marketing Officer on September 14, 2012; Ken Goldmanbecame Chief Financial Officer on October 22, 2012; Adam Cahanbecame Senior Vice President of Mobile & Emerging Products on October 25, 2012; Henrique de Castrobecame Chief Operating Officer on November 12, 2012; Jay Rossiterbecame Senior Vice President of Cloud Platforms on November 13, 2012; David FiloCo-Founder and Chief Yahoo; David DibbleExecutive Vice President of Central Technology; Scott BurkeSenior Vice President, Display Advertising and Advertising Technology; and Laurence MannSenior Vice President, Search. 3 Since the beginning of 2012, we also made significant additions to our Board of Directors. Currently, our Board of Directors is composed of: Marissa Mayer, our CEO; Alfred Amoroso, our Chairman of the Board; John Hayes; Susan James; Max Levchin; Peter Liguori; Daniel Loeb; Thomas McInerney; Harry Wilson; Maynard Webb; and Michael Wolf. 2012 BUSINESS HIGHLIGHTS During 2012, we focused our attention on people and productslaying the foundation that we believe will make Yahoo! an incredible place to work, and a company known for product excellence. Selected highlights of 2012 are: Products. We launched a new and improved version of Yahoo! Mail, making it faster, easier to use and available across the Web and on Windows 8, iPhone/iPod touch and Android. We also redesigned the Flickr application for iPhone and iPod touch, making it easier to capture, share and discover photos. The new Flickr application allows users to share photos by e-mail, with the Flickr community and via your social network of choice, including Facebook, Twitter or Tumblr. Talent. We focused on hiring top talent, including a new talented and experienced management team. We also acquired two mobile application developers, Stamped and OnTheAir, accelerating our efforts to build an exceptional team of mobile engineers, product managers and designers. Our employees and culture are fundamental to our success, and attracting the best people to Yahoo! is critical. We are focused on a number of initiatives aimed at making Yahoo! the absolute best place to work. In 2012, we introduced rigorous hiring protocols; quarterly performance reviews for all employees; aggressive quarterly and annual goals for the company, for teams, and for individuals; a new product-readiness process for launches; internal feedback tools for new products; smartphones and higher performance laptops for all employees; free food worldwide; an employee-driven system for improving processes and efficiency; and weekly all-hands meetings to communicate transparently and accountably on the most important issues facing the company. These efforts have been executed quickly and we believe improved our culture and made Yahoo! a better place to work. Advertising Solutions. We launched Genome from Yahoo!, an online advertising solution that combines data from Yahoo! and other online sources to help marketers more directly target the audiences who matter most to their businesses. Content Partnerships. We signed a number of deals to bring our users the most compelling content on the Web, across categories and devices. We announced cross-platform content distribution and promotion agreements with Clear Channel, CNBC, NBC Sports, Spotify and Wenner Media. Yahoo! also launched omg! Insider, a multi-platform entertainment news series that combines the popularity of CBS Television's The Insider with the online reach of omg!. Yahoo!'s agreements with Facebook launched a new advertising partnership, extended and expanded distribution arrangements, and settled all pending patent claims between Yahoo! and Facebook. Compelling Original Content. We continued to innovate on Yahoo! Screen, introducing new programming such as Electric City (created by and starring Tom Hanks), comedy hit series Burning Love (produced by Ben Stiller's Red Hour Digital) and Cybergeddon (by Anthony Zuiker, creator of CSI). Shareholder Value. We closed the initial sale of our shares of Alibaba Group Holding Limited (\"Alibaba Group\"). At the closing, we received approximately $7.1 billion in total consideration for the 523 million ordinary shares we sold to Alibaba Group. Approximately $6.3 billion of our consideration was received in cash and $800 million was received in Alibaba Group preference shares. At the closing, we also received a payment of $550 million in satisfaction of certain future royalty payments under our existing Technology and Intellectual Property License Agreement with Alibaba Group. We previously announced plans to return to our shareholders $3.65 billion in after-tax proceeds, or approximately 85 percent of the net cash proceeds we received. We have returned $2.1 billion to our shareholders through share repurchases from May 20, 2012, the date we announced the share repurchase agreement, through December 31, 2012. 4 We strive to create great value for our users, advertisers and publishers, and developersthe three primary groups that we serve with our products and services. USER OFFERINGS Yahoo! is positioning its products and services to be at the center of the world's digital daily habitseveryday activities our users perform for all kinds of reasons: information, education, entertainment, amusement, discovery or even an improved quality of life. We are focused on building excellent products that not only enable these daily activities, but also make them more inspiring and entertaining. Our user offerings include: Yahoo.com Yahoo! is a starting point that brings together the most relevant content and functionality from across the Web, including original Yahoo! content. We offer a majority of these services free of charge to our users around the world. On our content properties, we generate revenue from display and search advertising, as well as fee-based services. Many of our properties are also available in mobile-optimized versions for display on mobile phones and tablet devices, or available as native applications for iOS, Android and Windows phones. Yahoo! Search is available free to our users and often serves as the starting point from which they navigate the Internet to find and discover information that matters to them. Yahoo! Search provides users with a free search capability, offering rich search results ranked and organized based on relevance to each user's search query. Sponsored search results are a subset of the overall search results and provide links to paying advertisers' Web pages. Under our Search and Advertising Services and Sales Agreement (\"Search Agreement\") with Microsoft Corporation (\"Microsoft\"), Microsoft is the exclusive algorithmic and paid search services provider on Yahoo! Properties and non-exclusive provider of such services on Affiliates sites. Yahoo! continues to develop and launch features around the results to enhance the search experience for our users. These features include Search Direct, rich results, contextual search results, site filters, related topic suggestions and more. Yahoo! Search is evolving to allow users to find the right information at the right time, whether by entering keywords in a search box or by discovering search-powered experiences wherever they are online. Yahoo! currently offers Yahoo! Search experiences and applications across connected devices, including PCs, tablets and mobile phones. Yahoo! News provides original, premium, partner, and syndicated news via text, photos, and video to engage users with wide-ranging, up-to-the-minute coverage and analysis into topical news events. In addition, we have a number of key content partnerships in place, including partnerships with ABC News, CNBC, and NBC Sports. Yahoo! Sports serves one of the largest audiences of digital sports enthusiasts in the world. Yahoo! Sports is anchored by Fantasy Sports, editorial reporting, real-time scores, statistics and breaking news, coverage of the biggest global sports events, and premium college sports coverage through our Rivals publisher network. With award-winning writers, a leading fantasy platform and live game tracking, Yahoo! Sports delivers experiences for every fan, every day. Our coverage of the 2012 London Games yielded more page views than we received for any of our prior coverage of the Olympic Games. During 2012 we also released several new products and innovations, including: A rebuilt Sportacular application for mobile, which brings fans scores, statistics and play-by-play for their favorite teams; and New mobile products for MLB, NFL and NBA Fantasy (as well as a new relationship with the NBA as the official Fantasy game of NBA.com). Yahoo! Finance provides a comprehensive set of financial data, information, and tools that helps users make informed financial decisions. Yahoo! Finance features a robust content offering that is a mix of original editorial 5 and syndicated news via relationships with several third-party providers. Yahoo! Finance offers mobile solutions, including our dedicated Yahoo! Finance iPhone and Android applications and MarketDash for iPad. Yahoo! Entertainment and Lifestyles is a collection of properties focused on emerging trends and information in popular culture, women's issues, and media. Yahoo! omg!, Movies, TV and Music are leading destinations for celebrity gossip, movie, music, and TV premieres, and awards coverage. Yahoo Shine! is targeted to women and provides tips, features and in-depth analysis in areas such as health, fashion, careers and parenting. Yahoo! Video provides original, premium and third-party news, finance, sports, entertainment, and lifestyle video content distributed in contextually relevant experiences across the Yahoo! network. Yahoo! Video includes Yahoo! Screen, a video destination site where videos from across the Yahoo! network are aggregated and watched. Yahoo! Toolbar is a Web browser add-on that conveniently enables users to access and preview Yahoo! Properties and third-party content via applications from anywhere on the Web. Communications In addition to bringing together personalized content and information consumed by hundreds of millions of users, we also provide communications tools to connect the world. These include: Yahoo! Mail provides users with e-mail, instant messaging, and mobile text messaging as well as integrated Contacts and Calendar functionality. In addition to our free e-mail service, for a subscription fee, we offer Yahoo! Mail Plus, a premium e-mail service that provides features such as an interface free of display advertising. Yahoo! Mail is available on PCs, mobile phones and tablets. Yahoo! Messenger is an instant messaging service that provides an interactive and personalized way for users to connect, communicate and share experiences on a real-time basis. Yahoo! also offers mobile applications for Yahoo! Messenger, including real-time video chat on mobile devices. User-Generated Content Our User-Generated Content products allow our users to create, share, and discover ideas, interests, and photography with the world. Yahoo! Groups allows users to join groups based on shared interests and to access information such as message archives, photo albums, event calendars, and polls. Yahoo! Answers is a service that enables users to discover and share opinions, experiences and knowledge around shared interests on both PCs and mobile devices. Flickr is an online photo management and sharing service that makes it easy for users to upload, store, organize, and share their photos. In addition to the basic service, Flickr offers a fee-based service that includes unlimited storage and an advertising-free browsing and sharing interface. Yahoo! offers mobile applications for Flickr on both iPhone and Android devices. Mobile & Emerging Products With the rapid platform shift to mobile devices including phones and tablets, Yahoo! is focused on product excellence on both PCs and mobile devices. Many of our products are available across the mobile Web and as native mobile applications for iPhone, Android, and Windows 8. These offerings enable users to engage in their daily habits across devices, wherever they are and whenever they want. The monetization of these mobile 6 offerings is driven primarily by display and search advertisements that users engage with during their mobile activities, an area where we are committed to innovation. In addition, we have invested in other early-stage emerging products, including: IntoNow from Yahoo! makes watching TV more engaging, social, and fun with the touch of a button. IntoNow is a free, advertising-supported application available for iPhone, Android and iPad devices that identifies what users are watching (whether live or recorded) and enables commentary and discussions. Yahoo! Connected TV is a software platform that enhances television through engaging interactive experiences. Yahoo! Connected TV is accessible on certain televisions of major manufacturers including Samsung and VIZIO. We generate revenue from this offering through advertising and an application store. ADVERTISERS AND PUBLISHER OFFERINGS Yahoo! recognizes that advertisers are looking for immersive digital experiences that allow them to make emotional connections with users. Advertisers seek partners that can provide smart solutions that address their business objectives, from high-impact branding campaigns that generate awareness among consumers to tactical campaigns that drive specific audiences to action. We have aligned our resources to move to an approach that focuses more on creating solutions to solve the challenges of each vertical advertiser category and drive results. As one of the Web's largest publishers and the owner of leading properties across multiple content categories, Yahoo! provides a canvas of contextually-relevant content and experiences where advertisers can connect with users in a meaningful way. We combine the engagement of these environments with a suite of offerings, which include precision targeting solutions, high-impact display opportunities, video and interactive advertising units, and reach across screens. We also provide advertisers with valuable insights about their customer base, and tools that leverage those insights for optimized program performance. We pioneered digital ad formats such as the Yahoo! Mail Login Page, and have introduced new innovations this year with the launch of Smart Ads for Video, which dynamically tailor video ad content to users to optimize relevance and results. We also provide advertisers access to one of the largest concentrations of audiences and premium content on the Web. We do this by bringing quality publishers together through Yahoo! Network Plus (including AT&T, Verizon, Rogers, Monster, and Comcast) and the Right Media Exchange. The Right Media Exchange is Yahoo!'s ad platform for digital advertising companies, including differentiated ad networks, direct advertisers in our non-guaranteed marketplace, data providers, technology innovators, and global agencies. Our agreements with Microsoft and AOL allow ad networks operated by Yahoo!, Microsoft and AOL to offer each other's premium non-guaranteed online display inventory to their respective advertising customers. We work with high-quality publishers to attract new audiences and create engaging experiences across the Web. We monetize these experiences with a set of application programming interfaces (\"APIs\") and tools to grow partner businesses. With these offerings, publishers are able to participate in the Yahoo! Search and Bing Unified Search Marketplaces as well as the Right Media Exchange for display advertising. We generate revenue by providing marketing services to advertisers across a majority of Yahoo! Properties and Affiliate sites. Our marketing services include display advertising, search advertising, listing-based services, and commerce-based transactions. DEVELOPER OFFERINGS Powerful infrastructure and platforms help developers innovate and add new features rapidly and efficiently, delivering a fast and reliable experience across devices to our users around the world. 7 We provide many APIs that enable third-party developers, advertisers, agencies, publishers and designers to use Yahoo! products and services for their own software and application development. We believe that our open platforms enable developers and partners to build and incorporate new products and innovations that users want into their daily experiences. We are committed to providing the developer community with solutions that solve their problems, enhance the development experience, and help them build products that become a central part of people's daily digital habits. In doing so, we help position Yahoo! as a technical leader. To further support our developer community, Yahoo! hosts Hackdays and Hack U's (for universities), where technicians can learn from each other, share code, and build the future. Since Yahoo! pioneered these events in 2006, we have held more than 65 events across eight countries. Our product offerings for developers include: Yahoo! Developer Network (\"YDN\"). The mission of the YDN is to inspire developers and to accelerate their innovation. Over 600,000 developers, including independent software vendors, publishers, advertisers, agencies, and designers, have joined YDN. The YDN site allows the developer community to interact, build and learn by leveraging Yahoo!'s platforms, APIs, tools, documentation, support and resources. Cocktails (including Yahoo!'s Mojito), Yahoo!'s development platform for connected devices, is built on open industry standards (HTML5, CSS3, Node.JS, JavaScript). Its cross-platform programming environment enables a new class of multi-screen applications with native-like performance, built with minimal resource usage and maximum speed. Yahoo! Query Language (\"YQL\") is a simple but powerful language that enables developers to query, filter, and join data across different Web services. Traditionally, developers must locate the correct URLs and documentation for every Web service needed by an application, which is time consuming and complex. With YQL, developers can access and shape data across the Internet with one simple syntax, eliminating the need to learn how to access different APIs and making it possible for applications to run faster with fewer lines of code and a smaller network footprint. Yahoo! User Interface (\"YUI\") is a free, open source JavaScript and cascading style sheets (CSS) framework for building richly interactive Web applications. YUI is provided to users under a free license and is available on GitHub, which allows developers to maintain their own versions of the software as well as contribute to its further development. Search BOSS is an open search Web services platform that enables developers, startups, and large Internet companies to build Web-scale search products. We have recently added BOSS Geo, which allows developers to make their applications more location-aware. Yahoo! Flickr API provides programmatic access to the Flickr photo-sharing community. The Flickr API provides access to view, manipulate and search photo tags, display photos from a specific user or group and retrieve tags to construct URLs to particular photos or photo groups. Flickr also provides an Authentication API for applications that need to perform restricted actions. PRODUCT DEVELOPMENT Yahoo! continually launches, improves, and scales products and features to meet evolving user, advertiser, publisher, and developer needs. Most of our software products and features are developed internally by our employees. In some instances, however, we might purchase technology and license intellectual property rights if the opportunity is strategically aligned, operationally compatible, and economically advantageous. While it may be necessary in the future to seek or renew licenses relating to various aspects of our products, we believe based on past experience and industry practice that such licenses generally could be obtained on commercially8 reasonable terms. We believe our continuing innovation and product development are not materially dependent upon any single license or other agreement with a third party relating to the development of our products. Yahoo!'s Product Development organization includes a broad array of engineering talent that spans the breadth of our technology infrastructure. This includes deep expertise in scalable platforms, networking and communications technologies and presentation layer frameworks. The Platforms organization provides much of the core technology that powers Yahoo!'s experiences worldwide and supports customer-facing products and properties. This core technology includes Cloud Services, Hadoop, Personalization and Targeting, Mobile and Presentation platform technologies, Consumer Platforms, Membership and all supporting development tools. The goal of our Platforms technology is to enable Yahoo! to create long-term differentiation by true personalization and relevance, built on top of a scalable, agile cloud infrastructure that unlocks value for our consumers and advertisers through our ability to collect, process, analyze and algorithmically transform large amounts of data into business value. Yahoo!'s product teams include a broad array of engineering and product talent and support a large portion of the Yahoo! product portfolio and technology infrastructure. Our product teams have expertise in consumer applications (Web/Mobile), scalable software platforms, information retrieval, machine learning and science, editorial, networking/communications technologies, and presentation layer frameworks. Many of our teams use agile planning methodologies during the product development lifecycle and place a premium on product excellence and technology innovation. Our product teams also include the Mobile & Emerging Products group that is responsible for our portfolio of mobile applications and services delivered across the globe. The Mobile & Emerging Products group includes Yahoo! Mail, Flickr and our other more popular products. Our engineering and production teams are primarily located in our Sunnyvale, Calif. headquarters, Bangalore, India, and Beijing, China. Product development expenses for 2010, 2011, and 2012 totaled approximately $1 billion, $919 million, and $886 million, respectively, which included stock-based compensation expense of $107 million, $90 million, and $74 million, respectively. GLOBAL OPERATIONS We manage our business geographically. The primary areas of measurement and decision-making are Americas, EMEA (Europe, Middle East, and Africa), and Asia Pacific. Additional information required by this item is incorporated herein by reference to Note 17\"Segments\" of the Notes to the consolidated financial statements, which appears in Part II, Item 8 of this Annual Report on Form 10-K. We provide services in more than 45 languages and in 60 countries, regions, and territories, including localized versions of Yahoo! in Argentina, Australia, Austria, Brazil, Canada, Chile, China, Colombia, Egypt, France, Germany, Greece, Hong Kong, India, Indonesia, Ireland, Italy, Japan, Jordan, Kuwait, Malaysia, Mexico, the Netherlands, New Zealand, Peru, the Philippines, Russia, Saudi Arabia, Scandinavia (Denmark, Finland, Norway, and Sweden), Singapore, Spain, Switzerland, Taiwan, Thailand, Turkey, the United Arab Emirates, the United Kingdom, the United States, Venezuela, and Vietnam. Outside of native English speaking countries, we provide some of our most popular user services through Yahoo! Asia (our English language portal to Southeast Asia), Yahoo! Canada En Franais (French Canadian Website), and Yahoo! En Espanol (United States Hispanic Website). We own a majority or 100 percent of all of these international operations (except in Australia and New Zealand, China, and Japan where we have joint ventures and/or noncontrolling interests). We support these businesses through a network of offices worldwide. Revenue is primarily attributed to individual countries according to the international online property that generated the revenue. 9 Information regarding risks involving our international operations is included in Part I, Item 1A \"Risk Factors\" of this Annual Report on Form 10-K and is incorporated herein by reference. SALES We maintain three primary channels for selling our advertising services: field, mid-market, and reseller/small business. Our field advertising sales team sells display advertising in all markets and search advertising services in non-transitioned markets to leading advertisers and agencies. Under the Search Agreement with Microsoft, our field advertising team also sells search advertising to premium advertisers in transitioned markets. Our midmarket channel sells our services to medium-sized businesses, while our reseller/small business channel enables us to sell advertising services to additional regional and small business advertisers. In 2013, we reorganized our U.S. sales force to provide one, customer-centric solution to our customers. We believe that this will allow us to provide the best solutions across all of our products based on a deeper understanding of our customers' businesses. In the U.S., we employ sales professionals in multiple locations, including Atlanta, Boston, Chicago, Dallas, Detroit, Hillsboro, Los Angeles, Miami, New York, Omaha, San Francisco, and Sunnyvale. In international markets, we either have our own internal sales professionals or rely on our established sales agency relationships in more than 50 countries, regions, and territories. No individual customer represented more than 10 percent of our revenue in 2010, 2011, or 2012. Revenue under the Search Agreement represented more than 10 percent of our revenue during 2011 and 2012. Internet usage is subject to seasonal fluctuations, typically declining during customary summer vacation periods and increasing during the fourth quarter holiday period due to higher online retail activity. These seasonal patterns have affected, and we expect will continue to affect, our business and quarterly sequential revenue growth rates. MARKETING Yahoo! is one of the most recognized brands in the world. Our products, services, and content enable us to attract, retain, and engage users, advertisers, publishers, and developers. Our marketing teams engage in each step of the development, deployment, and management of products and services, and in content design. Our marketing team will help shape our offerings to better market them to our potential and existing users. COMPETITION We face significant competition from integrated online media companies, social networking sites, traditional print and broadcast media, search engines, and various e-commerce sites. Our competitors include Google, Facebook, Microsoft, and AOL. Several of our competitors offer an integrated variety of Internet products, advertising services, technologies, online services and/or content that may compete for the attention of our users, advertisers, developers, and publishers. We also compete with these companies to obtain agreements with third parties to promote or distribute our services. In addition, we compete with social media and networking sites which are attracting an increasing share of users, users' online time and online advertising dollars. We compete with advertising networks, exchanges, demand side platforms and other platforms, such as Google AdSense, DoubleClick Ad Exchange, AOL's Ad.com and Microsoft Media Network, as well as traditional media companies for a share of advertisers' marketing budgets and in the development of the tools and systems for managing and optimizing advertising campaigns. In a number of international markets, especially those in Asia, Europe, the Middle East and Latin America, we face substantial competition from local Internet service providers and other portals that offer search, communications, and other commercial services and often have a competitive advantage due to dominant market share in their territories, greater local brand recognition, focus on a single market, familiarity with local tastes and preferences, or greater regulatory and operational flexibility. 10 Yahoo!'s competitive advantage centers on the fact that we make people's daily digital habits more entertainingthis includes daily activities like communicating, searching, reading and sharing information. We believe our principal competitive strengths include the usefulness, accessibility, integration, and personalization of the online services that we offer; the quality, personalization, and presentation of our search results; and the overall user experience on our leading premium content properties and other Yahoo! Properties. Our principal competitive strengths relating to attracting advertisers and publishers are the reach, effectiveness, and efficiency of our marketing services as well as the creativity of the marketing solutions that we offer. \"Reach\" is the size of the audience and/or demographic that can be accessed through the Yahoo! network. \"Effectiveness\" for advertisers is the achievement of marketing objectives, which we support by developing campaigns, measuring the performance of these campaigns against their objectives, and optimizing their objectives across the Yahoo! network. \"Effectiveness\" for publishers is the monetization of their online audiences. \"Efficiency\" is the simplicity and ease of use of the services we offer advertisers and publishers. Additional information regarding competition is included in Part I, Item 1A \"Risk Factors\" of this Annual Report on Form 10-K and is incorporated herein by reference. INTELLECTUAL PROPERTY We create, own, and maintain a wide array of intellectual property assets that we believe are among our most valuable assets. Our intellectual property assets include patents and patent applications related to our innovations, products and services; trademarks related to our brands, products and services; copyrights in software and creative content; trade secrets; and other intellectual property rights and licenses of various kinds. We seek to protect our intellectual property assets through patents, copyrights, trade secrets, trademarks and laws of the U.S. and other countries, and through contractual provisions. We enter into confidentiality and invention assignment agreements with our employees and contractors, and utilize non-disclosure agreements with third parties with whom we conduct business in order to secure and protect our proprietary rights and to limit access to, and disclosure of, our proprietary information. We consider the Yahoo! trademark and our many related company brands to be among our most valuable assets, and we have registered these trademarks in the U.S. and other countries throughout the world and actively seek to protect them. We have licensed in the past, and expect that we may license in the future, certain of our technology and proprietary rights, such as trademark, patent, copyright, and trade secret rights, to third parties. Additional information regarding certain risks related to our intellectual property is included in Part I, Item 1A \"Risk Factors\" of this Annual Report on Form 10-K and is incorporated herein by reference. EMPLOYEES As of December 31, 2012, we had approximately 11,700 full-time employees. Our future success is substantially dependent on the performance of our senior management and key technical personnel, as well as our continuing ability to attract, maintain the caliber of, and retain highly qualified technical, executive, and managerial personnel. Additional information regarding certain risks related to our employees is included in Part I, Item 1A \"Risk Factors\" of this Annual Report on Form 10-K and is incorporated herein by reference. AVAILABLE INFORMATION Our Website is located at http://www.yahoo.com. Our investor relations Website is located at http://investor.yahoo.net. We make available free of charge on our investor relations Website under \"SEC Filings\" our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the U.S. Securities and Exchange Commission (\"SEC\"). The SEC maintains a Website that contains reports, proxy and information statements, and other information regarding our filings at http://www.sec.gov. 11 Item 1A. Risk Factors We face significant competition for users, advertisers, publishers, developers, and distributors. We face significant competition from integrated online media companies, social networking sites, traditional print and broadcast media, search engines, and various e-commerce sites. In a number of international markets, especially those in Asia, Europe, the Middle East and Latin America, we face substantial competition from local Internet service providers and other portals that offer search, communications, and other commercial services. Several of our competitors offer an integrated variety of Internet products, advertising services, technologies, online services and content in a manner similar to Yahoo!. We compete against these and other companies to attract and retain users, advertisers, developers, and third-party Website publishers as participants in our Affiliate network, and to obtain agreements with third parties to promote or distribute our services. We also compete with social media and networking sites which are attracting a substantial and increasing share of users, users' online time, and online advertising dollars. In addition, several competitors offer products and services that directly compete for users with our offerings, including e-mail, search, sports, news and finance. Similarly, the advertising networks operated by our competitors or by other participants in the display marketplace offer advertising exchanges, ad networks, demand side platforms, ad serving technologies, sponsored search offerings, and other services that directly compete for advertisers with our offerings. We also compete with traditional print and broadcast media companies to attract domestic and international advertising spending. Some of our existing competitors and possible entrants may have greater brand recognition for certain products and services, more expertise in particular market segments, and greater operational, strategic, technological, financial, personnel, or other resources than we do. Many of our competitors have access to considerable financial and technical resources with which to compete aggressively, including by funding future growth and expansion and investing in acquisitions, technologies, and research and development. Further, emerging start-ups may be able to innovate and provide new products and services faster than we can. In addition, competitors may consolidate or collaborate with each other, and new competitors may enter the market. Some of our competitors in international markets have a substantial competitive advantage over us because they have dominant market share in their territories, are owned by local telecommunications providers, have greater local brand recognition, are focused on a single market, are more familiar with local tastes and preferences, or have greater regulatory and operational flexibility due to the fact that we may be subject to both U.S. and foreign regulatory requirements. If our competitors are more successful than we are in developing and deploying compelling products or in attracting and retaining users, advertisers, publishers, developers, or distributors, our revenue and growth rates could decline. We generate the majority of our revenue from display and search advertising, and the reduction in spending by or loss of current or potential advertisers would cause our revenue and operating results to decline. For the twelve months ended December 31, 2012, 81 percent of our total revenue came from display and search advertising. Our ability to retain and grow display and search revenue depends upon: maintaining and growing our user base and popularity as an Internet destination site; maintaining the popularity of our existing products and introducing engaging new products; maintaining and expanding our advertiser base on PCs and mobile devices; broadening our relationships with advertisers to small- and medium-sized businesses; successfully implementing changes and improvements to our advertising management platforms and obtaining the acceptance of our advertising management platforms by advertisers, Website publishers, and online advertising networks; successfully acquiring, investing in, and implementing new technologies and strategic partnerships; 12 successfully implementing changes in our sales force, sales development teams, and sales strategy; continuing to innovate and improve the monetization capabilities of our display advertising and mobile products; effectively monetizing mobile and other search queries; continuing to innovate and improve users' search experiences; maintaining and expanding our Affiliate program for search and display advertising services; and deriving better demographic and other information about our users to enable us to offer better experiences to both our users and advertisers. In most cases, our agreements with advertisers have a term of one year or less, and may be terminated at any time by the advertiser or by us. Search marketing agreements often have payments dependent upon usage or clickthrough levels. Accordingly, it is difficult to forecast display and search revenue accurately. In addition, our expense levels are based in part on expectations of future revenue, including occasional guaranteed minimum payments to our Affiliates in connection with search and/or display advertising, and are fixed over the short-term in some categories. The state of the global economy, growth rate of the online advertising market, and availability of capital has impacted and could further impact the advertising spending patterns of our existing and potential advertisers. Any reduction in spending by, or loss of, existing or potential advertisers would negatively impact our revenue and operating results. Further, we may be unable to adjust our expenses and capital expenditures quickly enough to compensate for any unexpected revenue shortfall. If we do not manage our operating expenses effectively, our profitability could decline. We plan to continue to manage costs to better and more efficiently manage our business. However, our operating expenses might increase from their reduced levels as we expand our operations in areas of desired growth, continue to develop and extend the Yahoo! brand, fund product development, build data centers or acquire real property, and acquire and integrate complementary businesses and technologies. Our operating costs might also increase if we do not effectively manage costs as we transition markets under the Search Agreement and reimbursements from Microsoft under the Search Agreement decline or cease. In addition, weak economic conditions or other factors could cause our business to contract, requiring us to implement cost cutting measures. If our expenses increase at a greater pace than our revenue, or if we fail to effectively manage costs, our profitability will decline. If we are unable to provide innovative search experiences and other products and services that generate significant traffic to our Websites, our business could be harmed, causing our revenue to decline. Internet search is characterized by rapidly changing technology, significant competition, evolving industry standards, and frequent product and service enhancements. We currently deploy our own technology to provide paid search results on our network, except in markets where we have transitioned those services to Microsoft's platform. Even after we complete the transition to Microsoft's platform in all markets, we will need to continue to invest and innovate to improve our users' search experience to continue to attract, retain, and expand our user base and paid search advertiser base. We also generate revenue through other online products and services, such as Yahoo! Mail, and continue to innovate the products and services that we offer. The research and development of new, technologically advanced products is a complex process that requires significant levels of innovation and investment, as well as accurate anticipation of technology, market and consumer trends. If we are unable to provide innovative products and services which generate significant traffic to our Websites, our business could be harmed, causing our revenue to decline. 13 Risks associated with our Search Agreement with Microsoft may adversely affect our business and operating results. Under our Search Agreement with Microsoft, Microsoft is the exclusive algorithmic and paid search services provider on Yahoo! Properties and non-exclusive provider of such services on Affiliate sites for the transitioned markets. Implementation of our Search Agreement with Microsoft commenced on February 23, 2010. We have completed the transition of our algorithmic search platform to the Microsoft platform in all markets, and have completed transition of paid search in several markets. We are continuing to work with Microsoft on transitioning paid search in the remaining markets. The market-by-market transition of our paid search platform to Microsoft's platform and the migration of paid search advertisers and publishers to Microsoft's platform are expected to continue through 2013, and possibly into 2014. The transition process is complex and requires the expenditure of significant time and resources by us. Delays, difficulties, disruptions or inconveniences resulting from the transition process could result in the loss of advertisers, publishers, Affiliates, and employees, as well as delays in recognizing or reductions in the anticipated benefits of the transaction, any of which could negatively impact our business and operating results. Under the Search Agreement, Microsoft generally guarantees Yahoo!'s revenue per search (\"RPS Guarantee\") on Yahoo! Properties for 18 months after the transition of paid search services to Microsoft's platform in a particular market. In the fourth quarter of 2011, Microsoft agreed to extend the RPS Guarantee in the U.S. and Canada through March 2013. The RPS Guarantee is calculated based on the difference in revenue per search between the pre-transition and post-transition periods and certain other factors. To date, there has been a gap in revenue per search between pre