under management. Overall, revenue tied to asset-based fees accounted for about 12% of our consolidated revenue in 2010. 

## Deferred Revenue 

We frequently invoice our clients and collect cash in advance of providing services or fulfilling subscriptions for our customers. As a result, we use some of this cash to fund our operations and invest in new product development. The businesses we acquired over the past several years have similar business models, and as a result, we acquired their deferred revenue. Deferred revenue is the largest liability on our Consolidated Balance Sheets and totaled $146.3 million as of December 31, 2010 and $127.1 million as of December 31, 2009. We expect to recognize this deferred revenue in future periods as we fulfill the service obligations under our subscription, license, and service agreements. 

## Significant Operating Leverage 

Our business requires significant investments to create and maintain proprietary databases and content. We strive to leverage these costs by selling a wide variety of products and services to multiple investor segments, through multiple media, and in many geograph- ical markets. In general, our businesses have high fixed costs, and we expect our revenue to increase or decrease more quickly than our expenses. We believe that while the fixed costs of the invest- ments in our business are relatively high, the variable cost of add- ing customers is considerably lower, particularly as a significant portion of our products and services focus on Internet-based plat- forms and assets under management. At times, we will make invest- ments in building our databases and content that will hurt our short-term operating results. During other periods, our profitability will improve because we’re able to increase revenue without increas- ing our cost base at the same rate. When revenue decreases, how- ever, the significant operating leverage in our business may reduce our profitability. 

## Operating Expense 

We classify our operating expense into separate categories for cost of goods sold, development, sales and marketing, general and administrative, and depreciation and amortization, as described below. We include stock-based compensation expense, as appropri- ate, in each of these categories. 

U Cost of goods sold.  This category includes compensation expense for employees who produce the products and services we deliver to our customers. For example, this category covers production teams and analysts who write investment research reports. Cost of goods sold also includes other expense such as postage, print- ing, and CD-ROM replication, as well as shareholder servicing fees for Morningstar Managed Portfolios. 

U Development.  This category includes compensation expense for programmers, designers, and other employees who develop new products and enhance existing products. In some cases, we capitalize the compensation costs associated with certain devel- opment projects. This reduces the expense that we would oth- erwise report in this category. We amortize these capitalized costs over the estimated economic life of the software, which is generally three years, and include this expense in depreciation and amortization. 

U Sales and marketing.  This category includes compensation expense for our sales teams, product managers, and other mar- keting professionals. We also include the cost of advertising, direct mail campaigns, and other marketing programs to promote our products. 

U General and administrative.  This category consists mainly of compensation expense for each segment’s management team, as well as human resources, finance, and support employees for each segment. The category also includes compensation expense for senior management and other corporate costs, including corporate systems, finance and accounting, legal, and facilities expense. 

U Depreciation and amortization.  Our capital expenditures consist of computers, leasehold improvements, and capitalized product development costs related to certain software development proj- ects. We depreciate property and equipment primarily using the straight-line method based on the useful life of the asset, which ranges from three to seven years. We amortize leasehold improve- ments over the lease term or their useful lives, whichever is shorter. We amortize capitalized product development costs over their estimated economic life, which is generally three years. We also include amortization related to intangible assets, which is mainly driven by acquisitions, in this category. We amortize intan- gible assets using the straight-line method over their estimated economic useful lives, which range from one to 25 years. 

