Sohu.com (SOHU)

Advertising Revenues

Advertising revenues include revenue from brand advertising and sponsored search services, after deducting agent rebates and applicable business tax. We do not enter into advertising-for-advertising barter transactions.

Brand advertising contracts establish the fixed price and advertising services to be provided. Pursuant to brand advertising contracts, we provide advertisement placements on various Website channels and in different formats, including but not limited to banners, links, logos, buttons, rich media and content integration. Revenue is recognized ratably over the period the advertising is provided, which is when we consider the services to have been delivered. We treat all elements of advertising contracts as a single unit of accounting for revenue recognition purposes. Based upon our credit assessments of our customers prior to entering into contracts, we determine if collection is reasonably assured. In situations where collection is not deemed to be reasonably assured, we recognize revenue upon receipt of cash from customers, only after services have been provided and all other criteria for revenue recognition have been met.

Sponsorship contracts may include services similar to those in our brand advertising contracts, are generally for larger dollar amounts and for a longer period of time, may allow advertisers to sponsor a particular area on our Websites, may include brand affiliation services and/or a larger volume of services, and may require some exclusivity or premiere placements. Sponsorship advertisement revenues are normally recognized on a straight-line basis over the contract period, provided we are meeting our obligations under the contract on this basis.

Pursuant to sponsored search contracts, which are normally for relatively small dollar amounts and are with small and medium-sized enterprises, sponsored search services mainly include priority placements in our search directory and pay-for-click services consisting of displaying the text-based links of our advertisers on our Websites and our Website Alliance network. We normally provide priority placements services for a fixed fee over the service period of the contracts. Revenues on priority placements are normally recognized on a straight-line basis over the contract period provided we are meeting our obligations under the contract on this basis. Pay-for-click services of displaying the text-based links to our advertisers’ Websites are charged on a cost per click basis, so that an advertiser pays us only when a user clicks on the displayed link. The priority of the display of text-based links is based on the bidding price of different advertisers. Revenues from the pay-for-click services are recognized as the users click on the links.

Material differences could result in the amount and timing of our advertising revenue for any period if management made different judgments or utilized different estimates.

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Advertising Revenues

Advertising revenues are derived from brand advertising and sponsored search.

Advertising revenues were $40.6 million and $34.8 million, or 35% and 41% of total revenues for the three months ended March 31, 2009 and 2008, respectively. For the three months ended March 31, 2009, advertising revenues consisted of revenues from brand advertising of $39.1 million, and revenues from sponsored search of $1.5 million. For the three months ended March 31, 2008, advertising revenues consisted of revenues from brand advertising of $33.2 million, and revenues from sponsored search of $1.6 million.

Brand advertising. Brand advertising revenues increased by $5.9 million to $39.1 million for the three months ended March 31, 2009 as compared to $33.2 million for the three months ended March 31, 2008. The increase of $5.9 million from 2008 to 2009 consisted of: (i) a $12.9 million increase from advertisers who advertised with us during the three months ended March 31, 2009 but did not advertise on our Website during the three months ended March 31, 2008; (ii) a $2.5 million increase in revenues from the advertisers who advertised with us in the three months ended March 31, 2008 and continued to do so in the three months ended March 31, 2009; and (iii) a $9.5 million decrease in revenues as some of the advertisers who advertised with us during the three months ended March 31, 2008 did not advertise on our Website channels during the three months ended March 31, 2009. As of March 31, 2009 and 2008, we had $3.5 million and $1.8 million of receipt in advance from advertisers, respectively. We do not enter into advertising-for-advertising barter transactions.

We expect brand advertising revenues to increase in the second quarter of 2009 as compared to the first quarter of 2009.

Sponsored search. Sponsored search revenues decreased by $0.1 million to $1.5 million for the three months ended March 31, 2009 as compared to $1.6 million for the three months ended March 31, 2008. Sponsored search services primarily include priority placements in our search directory and pay-for-click services of displaying the text-based links of our advertisers on our Websites and our Website Alliance network. Revenues from pay-for-click services accounted for approximately 60% of the total sponsored search revenues in the first quarter of 2009 as compared to 36% in the first quarter of 2008. The decrease in sponsored search revenues was mainly caused by an adjustment in our sales strategy, which we believe will benefit us in the long run.

Advertising Revenues

Advertising revenues include revenue from brand advertising and sponsored search services, after deducting agent rebates and applicable business tax. Revenue from barter transactions, other than advertising-for-advertising barter transactions, is recognized based on the fair value of the nonmonetary assets acquired and the assets surrendered to obtain it. No revenues from advertising-for-advertising barter transactions were recognized.

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Brand advertising contracts establish the fixed price and advertising services to be provided. Pursuant to brand advertising contracts, we provide advertisement placements on various Website channels and in different formats, including but not limited to banners, links, logos, buttons, rich media and content integration. Revenue is recognized ratably over the period the advertising is provided and, as such, we consider the services to have been delivered. We treat all elements of advertising contracts as a single unit of accounting for revenue recognition purposes. Based upon our credit assessments of our customers prior to entering into contracts, we determine if collectability is reasonably assured. In situations where collectability is not deemed to be reasonably assured, we recognize revenue upon receipt of cash from customers, only after services have been provided and all other criteria for revenue recognition have been met.

Sponsorship contracts may include services similar to those in our brand advertising contracts, are generally for larger dollar amounts and for a longer period of time, may allow advertisers to sponsor a particular area on our Websites, may include brand affiliation services and/or a larger volume of services, and may require some exclusivity or premiere placements. Sponsorship advertisement revenues are normally recognized on a straight-line basis over the contract period, provided we are meeting our obligations under the contract.

Pursuant to sponsored search contracts, which are normally for relatively small dollar amounts and are with small and medium sized enterprises, sponsored search services mainly include priority placements in our search directory and pay-for-click services consisting of displaying the text-based links of our advertisers on our Websites and our Website Alliance network. We normally provide priority placements services for a fixed fee over the service period of the contracts. Revenues on priority placements are normally recognized on a straight-line basis over the contract period provided we are meeting our obligation under the contract. Pay-for-click services of displaying the text-based links to our advertisers’ Websites are charged on a cost per click basis, so that an advertiser pays us only when a user clicks on the displayed link. The priority of the display of text-based links is based on the bidding price of different advertisers. Revenues from the pay-for-click services are recognized as the users click on the links.

Material differences could result in the amount and timing of our advertising revenues for any period if management made different judgments or utilized different estimates.

Advertising Revenues

Advertising revenues are derived from brand advertising and sponsored search.

Advertising revenues were $175.9 million and $119.2 million, or 41% and 63% of total revenues for the years ended December 31, 2008 and 2007, respectively. For the year ended December 31, 2008, advertising revenues consisted of revenues from brand advertising of $169.3 million, and revenues from sponsored search of $6.6 million. For the year ended December 31, 2007, advertising revenues consisted of revenues from brand advertising of $112.1 million, and revenues from sponsored search of $7.1 million.

Brand advertising. Brand advertising revenues increased by $57.2 million to $169.3 million for the year ended December 31, 2008 as compared to $112.1 million for the year ended December 31, 2007. The increase of revenues in 2008 was attributable to increased number of advertisers and increased price. The increase of $57.2 million from 2007 to 2008 consisted of: (i) a $32.6 million increase from advertisers who advertised with us during the year ended December 31, 2008 but did not advertise on our Websites during the year ended December 31, 2007; (ii) a $42.6 million increase in revenues from the advertisers who advertised with us in 2007 and continued to do so in 2008; and (iii) a $18.0 million decrease in revenues as some of the advertisers who advertised with us during the year ended December 31, 2007 did not advertise on our Websites during the year ended December 31, 2008. We had approximately 1,140 advertisers in 2008 as compared to 1,070 advertisers in 2007. Sales to our five largest advertisers comprised 15% and 14% of total brand advertising revenues for the years ended December 31, 2008 and 2007, respectively. No single advertiser accounted for more than 10% of total brand advertising revenues for the years ended December 31, 2008 and 2007. Our advertising customers consisted primarily of companies within automobiles, online games, real estate, fast moving consumer goods, information technology and financial services industries. The fastest growing sectors for brand advertising were online games, automobiles and fast moving consumer goods industries in 2008. As of December 31, 2008 and 2007, we had $5.2 million and $1.4 million of receipts in advance from advertisers, respectively. No revenues from advertising-for-advertising barter transactions were recognized.

For the years ended December 31, 2008 and 2007, we recorded brand advertising revenues of approximately $1.6 million and $962,000, respectively, from NetDragon Websoft Inc. (or NetDragon), which is also known as Fujian Tian Qing Digital Co., Ltd. (or Fujian Tian Qing) in connection with its advertisements on our 17173.com Website. Those advertising services are provided pursuant to a three-year advertising framework agreement which is to expire in November 2009. NetDragon was the owner of 17173.com Website prior to our acquisition of 17173.com from it.

Sponsored search. Sponsored search services revenue decreased by $0.5 million to $6.6 million for the year ended December 31, 2008 as compared to $7.1 million for the year ended December 31, 2007. Sponsored search services primarily include priority placements in our search directory and pay-for-click services of displaying the text-based links of our advertisers on our Websites and our Website Alliance network. Revenues from pay-for-click services accounted for approximately 47% of the total sponsored search revenues in 2008 as compared to 32% in 2007. The decrease in sponsored search revenues was mainly caused by an adjustment in our sales strategy during the year ended December 31, 2008, which we believe will benefit us in the long run.

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Advertising Revenues

FACE="Times New Roman" SIZE="2">Advertising revenues are derived from brand advertising and sponsored search.

Advertising revenues were $175.9 million and
$119.2 million, or 41% and 63% of total revenues for the years ended December 31, 2008 and 2007, respectively. For the year ended December 31, 2008, advertising revenues consisted of revenues from brand advertising of $169.3 million, and
revenues from sponsored search of $6.6 million. For the year ended December 31, 2007, advertising revenues consisted of revenues from brand advertising of $112.1 million, and revenues from sponsored search of $7.1 million.

Advertising Revenues

Advertising revenues are derived from brand advertising and sponsored search.

Advertising revenues were $119.2 million and $91.8 million, or 63% and 68% of total revenues for the years ended December 31, 2007 and 2006, respectively. For the year ended December 31, 2007, advertising revenues consisted of revenues from brand advertising of $112.1 million, and revenues from sponsored search of $7.1 million. For the year ended December 31, 2006, advertising revenues consisted of revenues from brand advertising of $79.0 million, and revenues from sponsored search of $12.8 million.

Brand advertising. Brand advertising revenues increased by $33.1 million to $112.1 million for the year ended December 31, 2007 as compared to $79.0 million for the year ended December 31, 2006. The increase of revenues in 2007 was attributable to increase of number of advertisers and increase of price. The increase of $33.1 million from 2006 to 2007 consisted of: (i) a $17.1 million increase from advertisers who advertised with us during the year ended December 31, 2007 but did not advertise on our Websites during the year ended December 31, 2006; (ii) a $37.5 million increase in revenues from the advertisers who advertised with us in 2006 and continued to do so in 2007; and (iii) a $21.5 million decrease in revenues as some of the advertisers who advertised with us during the year ended December 31, 2006 did not advertise on our Websites during the year ended December 31, 2007. We had approximately 1,070 advertisers in 2007 as compared to 850 advertisers in 2006. Sales to our five largest advertisers comprised both 14% of total

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brand advertising revenues for the years ended December 31, 2007 and 2006, respectively. No single advertiser accounted for more than 10% of total brand advertising revenues for the years ended December 31, 2007 and 2006. Our advertising customers consisted primarily of companies within automobile, real estate, online game, information technology, financial services and fast moving consumer goods industries. The fastest growing sectors for brand advertising were online game, fast moving consumer goods and financial services industries in 2007. As of December 31, 2007 and 2006, we had $1.4 million and $2.2 million of receipts in advance from advertisers, respectively. No revenues from advertising-for-advertising barter transactions were recognized.

For the years ended December 31, 2007 and 2006, we recorded brand advertising revenues of approximately $962,000 and $42,000, respectively, from Fujian Tian Qing Digital Co., Ltd. (or Fujian Tian Qing), which is also known as NetDragon Websoft Inc., in connection with its advertisements on our 17173.com Website. Those advertising services are provided pursuant to a three-year advertising framework agreement which is to expire in November 2009. Fujian Tian Qing was the owner of 17173.com Website prior to our acquisition of 17173.com from them.

Sponsored search. Sponsored search services revenue decreased by $5.7 million to $7.1 million for the year ended December 31, 2007 as compared to $12.8 million for the year ended December 31, 2006. Sponsored search services primarily include priority placements in our search directory and pay-for-click services of displaying the text-based links of our advertisers on our Websites and our Website Alliance network. Revenues from pay-for-click services accounted for approximately 32% of the total sponsored search revenues in 2007 as compared to 28% in 2006. The decrease in sponsored search revenues mainly resulted from our efforts to further strengthen our anti-fraudulent click-through mechanism starting from second half of 2006 which resulted in a decrease in average click-through rates. We believe the improved anti-fraudulent click-through mechanism will provide benefits to our sponsored search business in the long run.

Advertising Revenues

Advertising revenues are derived
from brand advertising and sponsored search.

Advertising revenues were $119.2 million and $91.8 million, or 63% and 68% of total revenues for the years
ended December 31, 2007 and 2006, respectively. For the year ended December 31, 2007, advertising revenues consisted of revenues from brand advertising of $112.1 million, and revenues from sponsored search of $7.1 million. For the year
ended December 31, 2006, advertising revenues consisted of revenues from brand advertising of $79.0 million, and revenues from sponsored search of $12.8 million.

FACE="Times New Roman" SIZE="2">Brand advertising. Brand advertising revenues increased by $33.1 million to $112.1 million for the year ended December 31, 2007 as compared to $79.0 million for the year ended December 31, 2006. The
increase of revenues in 2007 was attributable to increase of number of advertisers and increase of price. The increase of $33.1 million from 2006 to 2007 consisted of: (i) a $17.1 million increase from advertisers who advertised with us during
the year ended December 31, 2007 but did not advertise on our Websites during the year ended December 31, 2006; (ii) a $37.5 million increase in revenues from the advertisers who advertised with us in 2006 and continued to do so in
2007; and (iii) a $21.5 million decrease in revenues as some of the advertisers who advertised with us during the year ended December 31, 2006 did not advertise on our Websites during the year ended December 31, 2007. We had
approximately 1,070 advertisers in 2007 as compared to 850 advertisers in 2006. Sales to our five largest advertisers comprised both 14% of total

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brand advertising revenues for the years ended December 31, 2007 and 2006, respectively. No single advertiser accounted for more than 10% of total brand
advertising revenues for the years ended December 31, 2007 and 2006. Our advertising customers consisted primarily of companies within automobile, real estate, online game, information technology, financial services and fast moving consumer
goods industries. The fastest growing sectors for brand advertising were online game, fast moving consumer goods and financial services industries in 2007. As of December 31, 2007 and 2006, we had $1.4 million and $2.2 million of receipts in
advance from advertisers, respectively. No revenues from advertising-for-advertising barter transactions were recognized.

For the years ended
December 31, 2007 and 2006, we recorded brand advertising revenues of approximately $962,000 and $42,000, respectively, from Fujian Tian Qing Digital Co., Ltd. (or Fujian Tian Qing), which is also known as NetDragon Websoft Inc., in connection
with its advertisements on our 17173.com Website. Those advertising services are provided pursuant to a three-year advertising framework agreement which is to expire in November 2009. Fujian Tian Qing was the owner of 17173.com Website prior to our
acquisition of 17173.com from them.

Sponsored search. Sponsored search services revenue decreased by $5.7 million to $7.1 million for the year
ended December 31, 2007 as compared to $12.8 million for the year ended December 31, 2006. Sponsored search services primarily include priority placements in our search directory and pay-for-click services of displaying the text-based
links of our advertisers on our Websites and our Website Alliance network. Revenues from pay-for-click services accounted for approximately 32% of the total sponsored search revenues in 2007 as compared to 28% in 2006. The decrease in sponsored
search revenues mainly resulted from our efforts to further strengthen our anti-fraudulent click-through mechanism starting from second half of 2006 which resulted in a decrease in average click-through rates. We believe the improved anti-fraudulent
click-through mechanism will provide benefits to our sponsored search business in the long run.

i) Advertising revenues

Advertising revenues include revenues from brand advertising and sponsored search services, after deducting agent rebates and applicable business tax. Revenue from barter transactions, other than advertising-for-advertising barter transactions, is recognized based on the fair value of the nonmonetary assets acquired and the assets surrendered to obtain it. No revenues from advertising-for-advertising barter transactions were recognized.

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Brand advertising contracts establish the fixed price and advertising services to be provided. Pursuant to brand advertising contracts, the Company provides advertisement placements on various Website channels and in different formats, including but not limited to banners, links, logos, buttons, rich media and content integration. Revenue is recognized ratably over the period the advertising is provided and, as such, the Company considers the services to have been delivered. The Company treats all elements of advertising contracts as a single unit of accounting for revenue recognition purposes. Based upon the Company’s credit assessments of its customers prior to entering into contracts, the Company determines if collectability is reasonably assured. In situations where collectability is not deemed to be reasonably assured, the company recognizes revenue upon receipt of cash from customers, only after services have been provided and all other criteria for revenue recognition have been met.

Sponsorship contracts may include services similar to those in the brand advertising contracts, are generally for larger dollar amounts and for a longer period of time, may allow advertisers to sponsor a particular area on the Websites of the Company, may include brand affiliation services and/or a larger volume of services, and may require some exclusivity or premier placements. Sponsorship advertisement revenues are normally recognized on a straight-line basis over the contract period, provided the Company is meeting its obligations under the contract.

Pursuant to sponsored search contracts, which are normally for relatively small dollar amounts and are with small and medium-sized enterprises, sponsored search services mainly include priority placements in the Company’s search directory and pay-for-click services consisting of displaying the text-based links to the Websites of the Company’s advertisers and the Company’s Website Alliance network. The Company normally provides the priority placements services for a fixed fee over the service period of the contracts. Revenues of these services are normally recognized on a straight-line basis over the service period of the contracts. Pay-for- click services of displaying the text-based links to the Company’s advertisers’ Websites is charged on a cost per click basis, so that an advertiser pays the Company only when a user clicks on the displayed link. The priority of the display of text-based links is based on the bidding price of different advertisers. Revenues from the pay-for-click services are recognized as the users click on the links.

Advertising Revenues

Advertising revenues are derived principally from brand advertising and sponsored search.

Advertising revenues were $51.1 million and $129.3 million, or 42% of total revenues for both the three and nine months ended September 30, 2008, as compared with $31.5 million and $85.5 million, or 61% and 69% of total revenues for the three and nine months ended September 30, 2007. For the three and nine months ended September 30, 2008, advertising revenues consisted of revenues from brand advertising of $49.4 million and $124.2 million, and revenues from sponsored search of $1.7 million and $5.1 million. For the three and nine months ended September 30, 2007, advertising revenues consisted of revenues from brand advertising of $29.8 million and $79.9 million, and revenues from sponsored search of $1.7 million and $5.6 million.

Brand advertising. Brand advertising revenues increased by $19.6 million to $49.4 million for the three months ended September 30, 2008 and increased by $44.3 million to $124.2 million for the nine months ended September 30, 2008 as compared with the corresponding three and nine month periods in 2007. The increase of $19.6 million for the three months ended September 30, 2008 from the corresponding period in 2007 consisted of: (i) a $12.5 million increase from advertisers who advertised with us during the three months ended September 30, 2008 but did not advertise on our Website channels during the three months ended September 30, 2007; (ii) a $14.6 million increase in revenues from the advertisers who advertised with us in the three months ended September 30, 2007 and continued to do so in the three months ended September 30, 2008; and (iii) a $7.5 million decrease in revenues as some of the advertisers who advertised with us during the three months ended September 30, 2007 did not advertise on our Website channels during the three months ended September 30, 2008. The increase of $44.3 million for the nine months ended September 30, 2008 from the corresponding period in 2007 consisted of: (i) a $18.2 million increase from advertisers who advertised with us during the nine months ended September 30, 2008 but did not advertise on our Website channels during the nine months ended September 30, 2007; (ii) a $38.9 million increase in revenues from the advertisers who advertised with us in the nine months ended September 30, 2007 and continued to do so in the nine months ended September 30, 2008; and (iii) a $12.8 million decrease in revenues as some of the advertisers who advertised with us during the nine months ended September 30, 2007 did not advertise on our Website channels during the nine months ended September 30, 2008. No single customer accounted for more than 10% of total brand advertising revenues for each of the three and nine months ended September 30, 2008 and 2007. As of September 30, 2008 and 2007, we had $3.5 million and $1.2 million of receipts in advance from advertisers, respectively. We have not recorded any revenue from advertising-for-advertising barter transactions.

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For the three months and nine months ended September 30, 2008, we recorded brand advertising revenues of approximately $628,000 and $1.3 million, respectively, from NetDragon Websoft Inc. (or NetDragon) in connection with its advertisements on our 17173.com Website. Those advertising services are provided pursuant to a three-year advertising framework agreement that expired in November 2006 and has been extended to November 2009. NetDragon was the owner of 17173.com Website prior to our acquisition of 17173.com from them.

We expect brand advertising revenues to decrease in the fourth quarter of 2008 as compared with the third quarter of 2008, giving the strong advertising spending related to Beijing 2008 Olympic Games for the three months ended September 30, 2008.

Sponsored search. Sponsored search revenues were $1.7 million for the three months ended September 30, 2008, flat with the corresponding period of 2007. For the nine months ended September 30, 2008, sponsored search revenues decreased by $0.5 million to $5.1 million, as compared with the corresponding period in 2007. This was mainly caused by an adjustment in our sales strategy during the three months ended September 30, 2008 which will benefit us in the long run. Sponsored search services primarily include priority placements in our search directory and pay-for-click services of displaying the text-based links of our advertisers on our Websites and our Website Alliance network. Revenues from pay-for-click services accounted for approximately 51% and 44% of the total sponsored search revenues for the three and nine months ended September 30, 2008, as compared with approximately 30% in the corresponding periods in 2007.

Advertising Revenues

Advertising revenues are derived principally from brand advertising and sponsored search.

Advertising revenues were $43.4 million and $78.1 million, or 43% and 42% of total revenues for the three and six months ended June 30, 2008, as compared to $28.4 million and $54.0 million, or 73% and 75% of total revenues for both the corresponding periods in 2007. For the three and six months ended June 30, 2008, advertising revenues consisted of revenues from brand advertising of $41.7 million and $74.8 million, and revenues from sponsored search of $1.7 million and $3.3 million. For the three and six months ended June 30, 2007, advertising revenues consisted of revenues from brand advertising of $26.6 million and $50.2 million, and revenues from sponsored search of $1.8 million and $3.8 million.

Brand advertising. Brand advertising revenues increased by $15.1 million to $41.7 million for the three months ended June 30, 2008 and increased by $24.6 million to $74.8 million for the six months ended June 30, 2008 as compared to the corresponding three and six month periods in 2007. The increase of $15.1 million for the three months ended June 30, 2008 from the corresponding period in 2007 consisted of: (i) a $10.3 million increase from advertisers who advertised with us during the three months ended June 30, 2008 but did not advertise on our Website during the three months ended June 30, 2007; (ii) a $13.2 million increase in revenues from the advertisers who advertised with us in the three months ended June 30, 2007 and continued to do so in the three months ended June 30, 2008; and (iii) a $8.4 million decrease in revenues as some of the advertisers who advertised with us during the three months ended June 30, 2007 did not advertise on our Website channels during the three months ended June 30, 2008. The increase of $24.6 million for the six months ended June 30, 2008 from the corresponding period in 2007 consisted of: (i) a $17.4 million increase from advertisers who advertised with us during the six months ended June 30, 2008 but did not advertise on our Website during the six months ended June 30, 2007; (ii) a $20.0 million increase in revenues from the advertisers who advertised with us in the six months ended June 30, 2007 and continued to do so in the six months ended June 30, 2008; and (iii) a $12.8 million decrease in revenues as some of the advertisers who advertised with us during the six months ended June 30, 2007 did not advertise on our Website channels during the six months ended June 30, 2008. No single customer accounted for more than 10% of total brand advertising revenues for each of the three and six months ended June 30, 2008 and 2007. As of June 30, 2008 and 2007, we had $2.1 million and $1.3 million of receipts in advance from advertisers, respectively. We have not recorded any revenue from advertising-for-advertising barter transactions.

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For the three months and six months ended June 30, 2008, we recorded brand advertising revenues of approximately $210,000 and $653,000, respectively, from NetDragon Websoft Inc.(or NetDragon) in connection with its advertisements on our 17173.com Website. Those advertising services are provided pursuant to a three-year advertising framework agreement that expired in November 2006 and has been extended to November 2009. NetDragon was the owner of 17173.com Website prior to our acquisition of 17173.com from them.

We expect brand advertising revenues to increase in the third quarter of 2008 as compared to the second quarter of 2008.

Sponsored search. Sponsored search services revenues decreased by $54,000 to $1.7 million for the three months ended June 30, 2008 and decreased by $0.5 million to $3.3 million for the six months ended June 30, 2008, as compared to the corresponding three and six month periods in 2007. Sponsored search services primarily include priority placements in our search directory and pay-for-click services of displaying the text-based links of our advertisers on our Websites and our Website Alliance network. Revenues from pay-for-click services accounted for approximately 45% and 41% of the total sponsored search revenues for the three and six month periods ended June 30, 2008, as compared to 32% and 30% in the corresponding periods in 2007.

Advertising Revenues

Advertising revenues are derived principally from brand advertising and sponsored search.

Advertising revenues were $34.8 million and $25.6 million, or 41% and 77% of total revenues for the three months ended March 31, 2008 and 2007, respectively. For the three months ended March 31, 2008, advertising revenues consisted of revenues from brand advertising of $33.2 million, and revenues from sponsored search of $1.6 million. For the three months ended March 31, 2007, advertising revenues consisted of revenues from brand advertising of $23.5 million, and revenues from sponsored search of $2.1 million.

Brand advertising. Brand advertising revenues increased by $9.7 million to $33.2 million for the three months ended March 31, 2008 as compared to $23.5 million for the three months ended March 31, 2007. The increase of $9.7 million from 2007 to 2008 consisted of: (i) a $12.3 million increase from advertisers who advertised with us during the three months ended March 31, 2008 but did not advertise on our Website during the three months ended March 31, 2007; (ii) a $4.8 million increase in revenues from the advertisers who advertised with us in the three months ended March 31, 2007 and continued to do so in the three months ended March 31, 2008; and (iii) a $7.4 million decrease in revenues as some of the advertisers who advertised with us during the three months ended March 31, 2007 did not advertise on our Website channels during the three months ended March 31, 2008. No single customer accounted for more than 10% of total brand advertising revenues for each of the three months ended March 31, 2008 and 2007. As of March 31, 2008 and 2007, we had $1.8 million and $1.9 million of receipt in advance from advertisers, respectively. We have not recorded any revenue from advertising-for-advertising barter transactions.

For the three months ended March 31, 2008 and 2007, we recorded brand advertising revenues of approximately $443,000 and $267,000, respectively, from Fujian Tian Qing Digital Co., Ltd. (or Fujian Tian Qing), formerly known as NetDragon Websoft Inc., in connection with its advertisements on our 17173.com Website. Those advertising services are provided pursuant to a three-year advertising framework agreement expiring in November 2006 and has been extended to November 2009. Fujian Tian Qing was the owner of 17173.com Website prior to our acquisition of 17173.com from them.

We expect brand advertising revenues to increase in the second quarter of 2008 as compared to the first quarter of 2008.

Sponsored search. Sponsored search revenues decreased by $0.5 million to $1.6 million for the three months ended March 31, 2008 as compared to $2.1 million for the three months ended March 31, 2007. Sponsored search services primarily include priority placements in our search directory and pay-for-click services of displaying the text-based links of our advertisers on our Websites and our Website Alliance network. Revenues from pay-for-click services accounted for approximately 36% of the total sponsored search revenues in the first quarter of 2008 as compared to 28% in the first quarter of 2007. The decrease in sponsored search revenues mainly resulted from our continued efforts to strengthen our anti-fraudulent click-through mechanism which resulted in a decrease in average click-through rates.

i) Advertising revenues

Advertising revenues include revenue from brand advertising and sponsored search services, after deducting agent rebates and applicable business tax. No revenues from advertising-for-advertising barter transactions were recognized.

Brand advertising contracts establish the fixed price and advertising services to be provided. Pursuant to brand advertising contracts, the Company provides advertisement placements on various Website channels and in different formats, including but not limited to banners, links, logos, buttons, rich media and content integration. Revenue is recognized ratably over the period the advertising is provided and, as such, the Company considers the services to have been delivered. The Company treats all elements of advertising contracts as a single unit of accounting for revenue recognition purposes. Based upon the Company’s credit assessments of its customers prior to entering into contracts, the Company determines if collectibility is reasonably assured. In situations where collectibility is not deemed to be reasonably assured, the Company recognizes revenue upon receipt of cash from customers.

Sponsorship contracts may include services similar to those in the brand advertising contracts, are generally for larger dollar amounts and for a longer period of time, may allow advertisers to sponsor a particular area on the Websites of the Company, may include brand affiliation services and/or a larger volume of services, and may require some exclusivity or premier placements. Sponsorship advertisement revenues are normally recognized on a straight-line basis over the contract period, provided the Company is meeting its obligations under the contract.

Pursuant to sponsored search contracts, which are normally for relatively small dollar amounts and are with small and medium size enterprises, sponsored search services mainly include priority placements in the Company’s search directory and pay-for-click services consisting of displaying the text-based links to the Websites of the Company’s advertisers and the Company’s Website Alliance network. The Company normally provides the priority placements services for a fixed fee over the service period of the contracts. Revenues of these services are normally recognized on a straight-line basis over the service period of the contracts. Pay-for-click services of displaying the text-based links to the Company’s advertisers’ Websites is charged on a cost per click basis, so that an advertiser pays the Company only when a user clicks on the displayed link. The priority of the display of text-based links is based on the bidding price of different advertisers. Revenues from the pay-for-click services are recognized as the users click on the links.

i) Advertising revenues

FACE="Times New Roman" SIZE="2">Advertising revenues include revenue from brand advertising and sponsored search services, after deducting agent rebates and applicable business tax. No revenues from advertising-for-advertising barter transactions
were recognized.

Brand advertising contracts establish the fixed price and advertising services to be provided. Pursuant to brand advertising contracts,
the Company provides advertisement placements on various Website channels and in different formats, including but not limited to banners, links, logos, buttons, rich media and content integration. Revenue is recognized ratably over the period the
advertising is provided and, as such, the Company considers the services to have been delivered. The Company treats all elements of advertising contracts as a single unit of accounting for revenue recognition purposes. Based upon the Company’s
credit assessments of its customers prior to entering into contracts, the Company determines if collectibility is reasonably assured. In situations where collectibility is not deemed to be reasonably assured, the Company recognizes revenue upon
receipt of cash from customers.

Sponsorship contracts may include services similar to those in the brand advertising contracts, are generally for larger
dollar amounts and for a longer period of time, may allow advertisers to sponsor a particular area on the Websites of the Company, may include brand affiliation services and/or a larger volume of services, and may require some exclusivity or premier
placements. Sponsorship advertisement revenues are normally recognized on a straight-line basis over the contract period, provided the Company is meeting its obligations under the contract.

Advertising Revenues

Advertising revenues are derived principally from brand advertising and sponsored search.

Advertising revenues were $31.5 million and $85.5 million, or 61% and 69% of total revenues, for the three and nine months ended September 30, 2007, as compared to $23.9 million and $66.8 million, or 67% of total revenues for both the corresponding periods in 2006. For the three and nine months ended September 30, 2007, advertising revenues consisted of revenues from brand advertising of $29.8 million and $79.9 million, and revenues from sponsored search of $1.7 million and $5.6 million. For the three and nine months ended September 30, 2006, advertising revenues consisted of revenues from brand advertising of $21.0 million and $57.0 million, and revenues from sponsored search of $2.9 million and $9.8 million.

Brand advertising. Brand advertising revenues increased by $8.8 million to $29.8 million for the three months ended September 30, 2007 and increased by $22.9 million to $79.9 million for the nine months ended September 30, 2007 as compared to the corresponding three and nine month periods in 2006. The increase of $8.8 million for the three months ended September 30, 2007 from the corresponding period in 2006 consisted of: (i) a $9.7 million increase from advertisers who advertised with us during the three months ended September 30, 2007 but did not advertise on our Website during the three months ended September 30, 2006; (ii) a $5.5 million increase in revenues from advertisers who advertised with us in the three months ended September 30, 2006 and continued to do so in the three months ended September 30, 2007; and (iii) a $6.4 million decrease in revenues as some of the advertisers who advertised with us during the three months ended September 30, 2006 did not advertise on our Website during the three months ended September 30, 2007. The increase of $22.9 million for the nine months ended September 30, 2007 from the corresponding period in 2006 consisted of: (i) a $17.7 million increase from advertisers who advertised with us during the nine months ended September 30, 2007 but did not advertise on our Website during the nine months ended September 30, 2006; (ii) a $14.5 million increase in revenues from advertisers who advertised with us in the nine months ended September 30, 2006 and continued to do so in the nine months ended September 30, 2007; and (iii) a $9.3 million decrease in revenues as some of the advertisers who advertised with us during the nine months ended September 30, 2006 did not advertise on our Website during the nine months ended September 30, 2007. No single customer accounted for more than 10% of total brand advertising revenues for each of the three and nine months ended September 30, 2007 and 2006. As of September 30, 2007 and 2006, we had $1.2 million and $1.0 million of receipt in advance from advertisers, respectively. We have not recorded any revenue from advertising-for-advertising barter transactions.

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For the three and nine months ended September 30, 2007, we recorded brand advertising revenues of approximately $455,000 and $962,000, respectively, from Fujian Tian Qing Digital Co., Ltd. (or Fujian Tian Qing), formerly known as NetDragon Websoft Inc., in connection with its advertisements on our 17173.com Website. For the three and nine months ended September 30, 2006, we recorded brand advertising revenues of $0 and approximately $40,000, respectively, from Fujian Tian Qing. Those advertising services are provided pursuant to a three-year advertising framework agreement that expired in November 2006 and was extended to November 2009. Fujian Tian Qing was the previous owner of the 17173.com Website prior to our acquisition of 17173.com.

We expect brand advertising revenues to be flat or increase slightly in the fourth quarter of 2007 as compared to the third quarter of 2007.

Sponsored search. Sponsored search services revenues decreased by $1.1 million to $1.7 million for the three months ended September 30, 2007 and decreased by $4.2 million to $5.6 million for the nine months ended September 30, 2007, as compared to the corresponding three and nine month periods in 2006. Sponsored search services primarily include priority placements in our search directory and pay-for-click services of displaying the text-based links of our advertisers on our Websites and our Website Alliance network. Revenues from pay-for-click services accounted for approximately 30% of the total sponsored search revenues for both the three and nine month periods ended September 30, 2007 and for the corresponding periods in 2006. The decrease in sponsored search revenues was mainly resulted from our efforts to further strengthen our anti-fraudulent click-through mechanism starting from second half of 2006 which resulted in a decrease in average click-through rates. We believe the improved anti-fraudulent click-through mechanism will provide benefits to our sponsored search business in the long run.

We expect sponsored search revenues to be flat in the fourth quarter of 2007 as compared to third quarter of 2007.

Advertising Revenues

Advertising revenues are derived principally from brand advertising and sponsored search.

Advertising revenues were $28.4 million and $54.0 million, or 73% and 75% of total revenues for the three and six months ended June 30, 2007, as compared to $22.8 million and $43.0 million, or 67% of total revenues for both the corresponding periods in 2006. For the three and six months ended June 30, 2007, advertising revenues consisted of revenues from brand advertising of $26.6 million and $50.2 million, and revenues from sponsored search of $1.8 million and $3.8 million. For the three and six months ended June 30, 2006, advertising revenues consisted of revenues from brand advertising of $19.3 million and $36.0 million, and revenues from sponsored search of $3.5 million and $7.0 million.

Brand advertising. Brand advertising revenues increased by $7.3 million to $26.6 million for the three months ended June 30, 2007 and increased by $14.2 million to $50.2 million for the six months ended June 30, 2007 as compared to the corresponding three and six month periods in 2006. The increase of $7.3 million for the three months ended June 30, 2007 from the corresponding period in 2006 consisted of: (i) a $9.5 million increase from advertisers who advertised with us during the three months ended June 30, 2007

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but did not advertise on our Website during the three months ended June 30, 2006; (ii) a $2.5 million increase in revenues from the advertisers who advertised with us in the three months ended June 30, 2006 and continued to do so in the three months ended June 30, 2007; and (iii) a $4.7 million decrease in revenues as some of the advertisers who advertised with us during the three months ended June 30, 2006 did not advertise on our Website during the three months ended June 30, 2007. The increase of $14.2 million for the six months ended June 30, 2007 from the corresponding period in 2006 consisted of: (i) a $14.2 million increase from advertisers who advertised with us during the six months ended June 30, 2007 but did not advertise on our Website during the six months ended June 30, 2006; (ii) a $9.0 million increase in revenues from the advertisers who advertised with us in the six months ended June 30, 2006 and continued to do so in the six months ended June 30, 2007; and (iii) a $9.0 million decrease in revenues as some of the advertisers who advertised with us during the six months ended June 30, 2006 did not advertise on our Website during the six months ended June 30, 2007. No single customer accounted for more than 10% of total brand advertising revenues for each of the three and six months ended June 30, 2007 and 2006. As of June 30, 2007 and 2006, we had $1.3 million and $1.2 million of receipts in advance from advertisers, respectively. We have not recorded any revenue from advertising-for-advertising barter transactions.

For the three and six months ended June 30, 2007, we recorded brand advertising revenues of approximately $240,000 and $507,000, respectively, from Fujian Tian Qing Digital Co., Ltd. (or Fujian Tian Qing), formerly known as NetDragon Websoft Inc., in connection with its advertisements on our 17173.com Website. For the three and six months ended June 30, 2006, we recorded brand advertising revenues of approximately $0 and $40,000, respectively, from Fujian Tian Qing. Those advertising services are provided pursuant to a three-year advertising framework agreement that expired in November 2006 and was extended to November 2009. Fujian Tian Qing was the previous owner of the 17173.com Website prior to our acquisition of 17173.com.

We expect brand advertising revenues to increase modestly in the third quarter of 2007 as compared to second quarter of 2007.

Sponsored search. Sponsored search services revenues decreased by $1.7 million to $1.8 million for the three months ended June 30, 2007 and decreased by $3.2 million to $3.8 million for the six months ended June 30, 2007, as compared to the corresponding three and six month periods in 2006. Sponsored search services primarily include priority placements in our search directory and pay-for-click services of displaying the text-based links of our advertisers on our Websites and our Website Alliance network. We normally provide priority placement services for a fixed fee over a period. Pay-for-click services displaying the text-based links to our advertiser’s Websites are charged on a cost-per-click basis, so that an advertiser pays us only when a user clicks on the displayed link on our Websites or on our Website Alliance network. The priority of the display of text-based links is based on the bidding price of different advertisers. For the three and six months ended June 30, 2007, revenues from priority placement services amounted to $1.2 million and $2.7 million, a 52% decrease from the corresponding three month period in 2006 and a 46% decrease over the corresponding six month period in 2006, respectively. The decrease in revenues from priority placement services was mainly due to the gradual market migration from preference for fixed fee listings to pay-for-click listings. For the three and six months ended June 30, 2007, revenues from pay-for-click services amounted to $0.6 million and $1.1 million, respectively, representing a 40% and 45% decrease from the corresponding periods of 2006. Revenues from pay-for-click services accounted for approximately 30% of the total sponsored search revenues for both the three and six month periods ended June 30, 2007, and were flat from the corresponding periods in 2006. The decrease in revenues from pay-for-click services mainly resulted from our efforts to further strengthen our anti-fraudulent click-through mechanism starting from second half of 2006 which resulted in a decrease in average click-through rates. We believe the improved anti-fraudulent click-through mechanism will provide benefits to our sponsored search business in the long run.

We expect sponsored search revenues to be flat in the third quarter of 2007 as compared to second quarter of 2007.

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Advertising Revenues

Advertising revenues are derived principally from brand advertising and sponsored search.

Advertising revenues were $25.6 million and $20.1 million, or 77% and 66% of total revenues for the three months ended March 31, 2007 and 2006, respectively. For the three months ended March 31, 2007, advertising revenues consisted of revenues from brand advertising of $23.5 million, and revenues from sponsored search of $2.1 million. For the three months ended March 31, 2006, advertising revenues consisted of revenues from brand advertising of $16.7 million, and revenues from sponsored search of $3.4 million.

Brand advertising. Brand advertising revenues increased by $6.8 million to $23.5 million for the three months ended March 31, 2007 as compared to $16.7 million for the three months ended March 31, 2006. The increase of $6.8 million from 2006 to 2007 consisted of: (i) a $6.9 million increase from advertisers who advertised with us during the three months ended March 31, 2007 but did not advertise on our Website channels during the three months ended March 31, 2006; (ii) a $4.8 million increase in revenues from the advertisers who advertised with us in the three months ended March 31, 2006 and continued to do so in the three months ended March 31, 2007; and (iii) a $4.9 million decrease in revenues as some of the advertisers who advertised with us during the three months ended March 31, 2006 did not advertise on our Website channels during the three months ended March 31, 2007. No single customer accounted for more than 10% of total brand advertising revenues for each of the three months ended March 31, 2007 and 2006. As of March 31, 2007 and 2006, we had $1.9 million and $1.1 million of receipt in advance from advertisers, respectively. We have not recorded any revenue from advertising-for-advertising barter transactions.

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For the three months ended March 31, 2007 and 2006, we recorded brand advertising revenues of approximately $267,000 and $40,000, respectively, from Fujian Tian Qing Digital Co., Ltd. (or Fujian Tian Qing), formerly known as NetDragon Websoft Inc., in connection with its advertisements on our 17173.com Website. Those advertising services are provided pursuant to a three-year advertising framework agreement expiring in November 2006. In December 2006, the advertising framework agreement had been extended to November 2009. Fujian Tian Qing was the previous owner of 17173.com Website prior to our acquisition of 17173.com.

We expect brand advertising revenues to increase in the second quarter of 2007 as compared to the first quarter of 2007.

Sponsored search. Sponsored search revenues decreased by $1.3 million to $2.1 million for the three months ended March 31, 2007 as compared to $3.4 million for the three months ended March 31, 2006. Sponsored search services primarily include priority placements in our search directory and listing in our classified advertisement section, in addition to pay-for-click services of displaying the text-based links of our advertisers on our Websites and our Website Alliance network. We normally provide priority placement services and listings in our classified advertisement section for a fixed fee over a period. Pay-for-click services displaying the text-based links to our advertiser’s Websites charged on a cost-per-click basis, so that an advertiser pays us only when a user clicks on the displayed link on our Websites or on our Website Alliance network. The priority of the display of text-based links is based on the bidding price of different advertisers. For the three months ended March 31, 2007, revenues from priority placement services and our classified advertisement section amounted to $1.5 million, a 38% decrease from the three months ended March 31, 2006. The decrease in revenue from priority placement services was mainly due to the gradual market migration from preference for fixed fee listings to pay-for-click listings. For the three months ended March 31, 2007, revenues from pay-for-click services amounted to $0.6 million, a 43% decrease from the three months ended March 31, 2006. Revenues from pay-for-click services accounted for approximately 28% of the total sponsored search revenues in the first quarter of 2007 as compared to 30% in the first quarter of 2006. The decrease in revenues from pay-for-click services mainly resulted from our efforts to further strengthen our anti-fraudulent click-through technology in the second half of 2006 which resulted in a decrease in average click-through rates. We believe the improved anti-fraudulent click-through technology will provide benefits to our sponsored search business in the long run. In addition, the late 2007 Chinese New Year further reduced advertising spending by small and medium-sized enterprises as compared with 2006.

i) Advertising revenues

Advertising revenues include revenue from brand advertising and sponsored search services, after deducting agent rebates and applicable business tax. No revenues from advertising-for-advertising barter transactions were recognized.

Brand advertising contracts establish the fixed price and advertising services to be provided. Pursuant to brand advertising contracts, the Company provides advertisement placements on various Website channels and in different formats, including but not limited to

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banners, links, logos, buttons, rich media and content integration. Revenue is recognized ratably over the period the advertising is provided and, as such, the Company considers the services to have been delivered. The Company treats all elements of advertising contracts as a single unit of accounting for revenue recognition purposes. Based upon the Company’s credit assessments of its customers prior to entering into contracts, the Company determines if collectibility is reasonably assured. In situations where collectibility is not deemed to be reasonably assured, the Company recognizes revenue upon receipt of cash from customers.

Sponsorship contracts may include services similar to those in the brand advertising contracts, are generally for larger dollar amounts and for a longer period of time, may allow advertisers to sponsor a particular area on the Websites of the Company, may include brand affiliation services and/or a larger volume of services, and may require some exclusivity or premier placements. Sponsorship advertisement revenues are normally recognized on a straight-line basis over the contract period, provided the Company is meeting its obligations under the contract.

Pursuant to sponsored search contracts, which are normally for relatively small dollar amounts and are with small and medium size enterprises, sponsored search services mainly include priority placements in the Company’s search directory, listing in the classified advertisements section and pay-for-click services consisting of displaying the text-based links to the Websites of the Company’s advertisers and the Company’s Website Alliance network. The Company normally provides the priority placements services and listing in its classified advertisements section for a fixed fee over a period of the contracts. Revenues of these services are normally recognized on a straight line basis over the service period of the contracts. Pay-for-click services of displaying the text-based links to the Company’s advertisers’ Websites is charged on a cost per click basis, so that an advertiser pays the Company only when a user clicks on the displayed link. The priority of the display of text-based links is based on the bidding price of different advertisers. Revenues of the pay-for-click services are recognized as the users click on the links.

Advertising Revenues

Advertising revenues are derived principally from brand advertising and sponsored search.

Advertising revenues were $23.9 million and $66.8 million, or 67% of total revenues for both the three and nine months ended September 30, 2006, as compared to $18.8 million and $50.6 million, or 69% and 68% of total revenues for the corresponding periods in 2005. For the three and nine months ended September 30, 2006, advertising revenues consisted of revenues from brand advertising of $21.0 million and $57.0 million, and revenues from sponsored search of $2.9 million and $9.8 million. For the three and nine months ended September 30, 2005, advertising revenues consisted of revenues from brand advertising of $15.6 million and $41.6 million, and revenues from sponsored search of $3.2 million and $9.0 million.

Brand advertising. Brand advertising revenues increased by $5.4 million to $21.0 million for the three months ended September 30, 2006 and increased by $15.4 million to $57.0 million for the nine months ended September 30, 2006 as compared to the corresponding three and nine month periods in 2005. The increase of $5.4 million for the three months ended September 30, 2006 from the corresponding period in 2005 consisted of: (i) a $7.9 million increase from advertisers who advertised with us during the three months ended September 30, 2006 but did not advertise on our Website channels during the three months ended September 30, 2005; (ii) a $3.0 million increase in revenues from the advertisers who advertised with us in the three months ended September 30, 2005 and continued to do so in the three months ended September 30, 2006; and were offset by (iii) a $5.5 million decrease in revenues as some of the advertisers who advertised with us during the three months ended September 30, 2005 did not advertise on our Website during the three months ended September 30, 2006. The increase of $15.4 million for the nine months ended September 30, 2006 from the corresponding period in 2005 consisted of: (i) a $13.8 million increase from advertisers who advertised with us during the nine months ended September 30, 2006 but did not advertise on our Website during the nine months ended September 30, 2005; (ii) a $13.7 million increase in revenues from the advertisers who advertised with us in the nine months ended September 30, 2005 and continued to do so in the nine months ended September 30, 2006; and were offset by (iii) a $12.1 million decrease in revenues as some of the advertisers who advertised with us during the nine months ended September 30, 2005 did not advertise on our Website during the nine months ended September 30, 2006. No single customer accounted for more than 10% of total brand advertising revenues for each of the three and nine months ended September 30, 2006 and 2005. As of September 30, 2006 and 2005, we had $1.0 million and $0.8 million of receipt in advance from advertisers, respectively. We have not recorded any revenue from advertising-for-advertising barter transactions.

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For the three and nine months ended September 30, 2006, we recorded brand advertising revenues of $0 and approximately $40,000, respectively, from Fujian Tian Qing Digital Co., Ltd. (or Fujian Tian Qing), formerly known as NetDragon Websoft Inc., in connection with its advertisements on our 17173.com Website. For the three and nine months ended September 30, 2005, we recorded brand advertising revenues of approximately $145,000 and $541,000, respectively. Those advertising services are provided pursuant to a three-year advertising framework agreement expiring in November 2006. Fujian Tian Qing was the previous owner of 17173.com Website prior to our acquisition of 17173.com.

We expect brand advertising revenues to be flattish in the fourth quarter of 2006 as compared to the third quarter of 2006.

Sponsored search. Sponsored search services revenues decreased by $0.3 million to $2.9 million for the three months ended September 30, 2006 and increased by $0.8 million to $9.8 million for the nine months ended September 30, 2006, as compared to the corresponding three and nine month periods in 2005. Sponsored search services primarily include priority placements in our search directory and listing in our classified advertisement section, in addition to pay-for-click services of displaying the text-based links of our advertisers on our Websites and our Website Alliance network. We normally provide priority placement services and listings in our classified advertisement section for a fixed fee over a period. Pay-for-click services displaying the text-based links to our advertiser’s Websites charged on a cost-per-click basis, so that an advertiser pays us only when a user clicks on the displayed link on our Websites or on our Website Alliance network. The priority of the display of text-based links is based on the bidding price of different advertisers. For the three and nine months ended September 30, 2006, revenues from priority placement services and our classified advertisement section amounted to $2.1 million and $7.1 million, representing a 15% decrease over the corresponding three month period in 2005 and a 2% increase over the corresponding nine month period in 2005, respectively. Decrease of revenues from priority placement services and classified advertisement section was mainly because of the decrease on traffic on the Sohu Search (old search engine). For the three and nine months ended September 30, 2006, revenues from pay-for-click services amounted to $0.8 million and $2.7 million, respectively, representing a 8% and 33% increase from the corresponding periods of 2005. Revenues from pay-for-click services accounted for approximately 30% of the total sponsored search revenues for both the three and nine month periods ended September 30, 2006 as compared to 23% for the corresponding periods in 2005. The increase in revenues from pay-for-click services mainly resulted from an increase in the number of sponsored links, and an increase in the clicks of the sponsored links due to increased traffic and expansion of Website Alliance network.

We expect sponsored search revenues to be flattish in the fourth quarter of 2006 as compared to the third quarter of 2006.

Advertising Revenues

Advertising revenues are derived principally from brand advertising and sponsored search.

Advertising revenues were $22.8 million and $43.0 million, or 67% of total revenues for both the three and six months ended June 30, 2006, as compared to $17.0 million and $31.8 million, or 68% and 67% of total revenues for the corresponding periods in 2005. For the three and six months ended June 30, 2006, advertising revenues consisted of revenues from brand advertising of $19.3 million and $36.0 million, and revenues from sponsored search of $3.5 million and $7.0 million. For the three and six months ended June 30, 2005, advertising revenues consisted of revenues from brand advertising of $13.9 million and $26.0 million, and revenues from sponsored search of $3.1 million and $5.8 million.

Brand advertising. Brand advertising revenues increased by $5.4 million to $19.3 million for the three months ended June 30, 2006 and increased by $10.0 million to $36.0 million for the six months ended June 30, 2006 as compared to the corresponding three and six month periods in 2005. The increase of $5.4 million for the three months ended June 30, 2006 from the corresponding period in 2005 consisted of: (i) a $6.9 million increase from advertisers who advertised with us during the three months ended June 30, 2006 but did not advertise on our Website during the three months ended June 30, 2005; (ii) a $4.7 million increase in revenues from the advertisers who advertised with us in the three months ended June 30, 2005 and continued to do so in the three months ended June 30, 2006; and were offset by (iii) a $6.2 million decrease in revenues as some of the advertisers who advertised with us during the three months ended June 30, 2005 did not advertise on our Website during the three months ended June 30, 2006. The increase of $10.0 million for the six months ended June 30, 2006 from the corresponding period in 2005 consisted of: (i) a $11.0 million increase from advertisers who advertised with us during the six months ended June 30, 2006 but did not advertise on our Website during the six

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months ended June 30, 2005; (ii) a $8.3 million increase in revenues from the advertisers who advertised with us in the six months ended June 30, 2005 and continued to do so in the six months ended June 30, 2006; and were offset by (iii) a $9.3 million decrease in revenues as some of the advertisers who advertised with us during the six months ended June 30, 2005 did not advertise on our Website during the six months ended June 30, 2006. No single customer accounted for more than 10% of total brand advertising revenues for each of the three and six months ended June 30, 2006 and 2005. As of June 30, 2006 and 2005, we had $1.2 million and $0.9 million of receipt in advance from advertisers, respectively. We have not recorded any revenue from advertising-for-advertising barter transactions.

For the three and six months ended June 30, 2006, we recorded brand advertising revenues of approximately $0 and $40,000, respectively, from Fujian Tian Qing Digital Co., Ltd. (or Fujian Tian Qing), formerly known as NetDragon Websoft Inc., in connection with its advertisements on our 17173.com Website. For the three and six months ended June 30, 2005, we recorded brand advertising revenues of approximately $204,000 and $396,000, respectively. Those advertising services are provided pursuant to a three-year advertising framework agreement expiring in November 2006. Fujian Tian Qing was the previous owner of 17173.com Website prior to our acquisition of 17173.com.

We expect brand advertising revenues to increase in the third quarter of 2006 as compared to the second quarter of 2006.

Sponsored search. Sponsored search services revenues increased by $0.4 million to $3.5 million for the three months ended June 30, 2006 and increased by $1.2 million to $7.0 million for the six months ended June 30, 2006, as compared to the corresponding three and six month periods in 2005. Sponsored search services primarily include priority placements in our search directory and listing in our classified advertisement section, in addition to pay-for-click services of displaying the text-based links of our advertisers on our Websites and our Website Alliance network. We normally provide priority placement services and listings in our classified advertisement section for a fixed fee over a period. Pay-for-click services displaying the text-based links to our advertiser’s Websites charged on a cost-per-click basis, so that an advertiser pays us only when a user clicks on the displayed link on our Websites or on our Website Alliance network. The priority of the display of text-based links is based on the bidding price of different advertisers. For the three and six months ended June 30, 2006, revenues from priority placement services and our classified advertisement section amounted to $2.5 million and $5.0 million, being flat from the corresponding three month period in 2005 and a 11% increase over the corresponding six month period in 2005, respectively. For the three and six months ended June 30, 2006, revenues from pay-for-click services amounted to $1.0 million and $2.0 million, respectively, representing a 43% and 54% increase from the corresponding periods of 2005. Revenues from pay-for-click services accounted for approximately 30% of the total sponsored search revenues for both the three and six month periods ended June 30, 2006 as compared to 23% for the corresponding periods in 2005. The increase in revenues from pay-for-click services mainly resulted from an increase in the number of sponsored links, a higher average price per click-through, and an increase in the clicks of the sponsored links due to increased traffic and expansion of Website Alliance network.

We expect sponsored search revenues to be flat or up slightly in the third quarter of 2006 as compared to the second quarter of 2006.

Advertising Revenues

Advertising revenues are derived principally from brand advertising and sponsored search.

Advertising revenues were $20.1 million and $14.8 million, or 64% and 63% of total revenues for the three months ended March 31, 2006 and 2005, respectively. For the three months ended March 31, 2006, advertising revenues consisted of revenues from brand advertising of $16.7 million, and revenues from sponsored search of $3.4 million. For the three months ended March 31, 2005, advertising revenues consisted of revenues from brand advertising of $12.1 million, and revenues from sponsored search of $2.7 million.

Brand advertising. Brand advertising revenues increased by $4.6 million to $16.7 million for the three months ended March 31, 2006 as compared to $12.1 million for the three months ended March 31, 2005. The increase of $4.6 million from 2005 to 2006 consisted of: (i) a $6.2 million from advertisers who advertised with us during the three months ended March 31, 2006 did not advertise on our Website during the three months ended March 31, 2005; (ii) a $2.4 million increase in revenues from the advertisers who advertised with us in the three months ended March 31, 2005 and who continued to do so in the three months ended March 31, 2006; and were offset by (iii) a $4.0 million decrease in revenues as some of the advertisers who advertised with us during the three months ended March 31, 2005 did not advertise on our Website during the three months ended March 31, 2006. No single customer accounted for more than 10% of total brand advertising revenues for each of the three months ended March 31, 2006 and 2005. As of March 31, 2006 and 2005, we had $1.1 million and $0.8 million of receipt in advance from advertisers, respectively. We have not recorded any revenue from advertising barter transactions.

For the three months ended March 31, 2006 and 2005, we recorded brand advertising revenues of approximately $40,000 and $192,000, respectively, from Fujian Tian Qing Digital Co., Ltd. (or Fujian Tian Qing), formerly known as NetDragon Websoft Inc., in connection with its advertisements on our 17173.com Website. Those advertising services are provided pursuant to a three-year advertising framework agreement expiring in November 2006. Fujian Tian Qing was the previous owner of 17173.com Website prior to our acquisition of 17173.com.

We expect brand advertising revenues to increase in the second quarter of 2006 as compared to the first quarter of 2006.

Sponsored search. Sponsored search services revenues increased by $0.7 million to $3.4 million for the three months ended March 31, 2006 as compared to $2.7 million for the three months ended March 31, 2005. Sponsored search services primarily include priority placements in our search directory and listing in our classified advertisement section, in addition to pay-for-click services of displaying the text-based links of our advertisers on our Websites and our Website Alliance network. We normally provide priority placement services and listings in our classified advertisement section for a fixed fee over a period. Pay-for-click services displaying the text-based links to our advertiser’s Websites are charged on a cost-per-click basis, so that an advertiser pays us only when a user clicks on the displayed link on our Websites or on our Website Alliance network. The priority of the display of text-based links is based on the bidding price of different advertisers. For the three months ended March 31, 2006, revenues from priority placement services and our classified advertisement section amounted to $2.4 million, a 16% increase from the three months ended March 31, 2005. The increase in revenues from priority placement services was mainly due to an increase of average spending per customer. For the three months ended March 31, 2006, revenues from pay-for-click services amounted to $1.0 million, a 61% increase from the three months ended March 31, 2005. Revenues from pay-for-click services accounted for 30% of the total sponsored search revenues in the first quarter of 2006 as compared to 24% in the first quarter of 2005. The increase in revenues from pay-for-click services mainly resulted from an increase in the number of sponsored links, a higher average price per click-through, and an increase in the clicks of the sponsored links due to increased traffic and expansion of Website Alliance network.

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We expect sponsored search revenues to increase in the second quarter of 2006 as compared to the first quarter of 2006.