predominately billed on a time-and-materials basis and we recognize revenues when the services are performed. For the three and nine months ended September 30, 2008, professional services revenues also include subscription revenues from our multivariable testing and Web optimization service, which we acquired through our acquisition of Optimost LLC ("Optimost") and revenues from our eDiscovery service, which we acquired through our acquisition of Discovery Mining, Inc. ("Discovery Mining") in August, 2008. Professional services revenues are influenced primarily by the number of professional services engagements sold in connection with software license sales and the customers' use of third party services providers. The growth in our professional services revenues, particularly subscription revenues, is also affected by the strength of general economic and business conditions, customer budgetary constraints and the competitive position of our software solutions.
Because our products are complex and involve a consultative sales model, our strategy is to market and sell our products and services primarily through a direct sales force. We look to augment those efforts through relationships with technology vendors, professional services firms, systems integrators and other strategic partners, which assist our direct sales force in obtaining customer leads and referrals. The percentage of our new customer license orders that are influenced by or co-sold with our strategic partners and resellers was 81% for the three months ended September 30, 2008. In general, these strategic partners and resellers perform the installation and integration, consulting and other services for the enterprises to which they resell our products, and we are not engaged by their customers for these services.
Our sales efforts are targeted to senior executives and personnel who are responsible for managing an enterprise's information technology initiatives. We generate demand for our products and services primarily through our direct sales force and strategic relationships. Our direct sales force is responsible for managing customer relationships and opportunities and is supported by product, marketing and service specialists.
In the rapidly changing and increasingly complex and competitive information technology environment, we believe product differentiation will be a key to market leadership. Thus, our strategy is to continually work to enhance and extend the features and functionality of our existing products and develop new and innovative solutions for our customers. We have in the past and expect to continue to devote substantial resources to our research and development activities. As a percentage of total revenues, research and development expenses were 16% and 17% in the quarters ended September 30, 2008 and 2007, respectively.
We recorded income from operations of $7.7 million and $3.5 million for the quarters ended September 30, 2008 and 2007, respectively. We are focused on improving our operating margins by increasing our revenues and actively managing our expenses through improved productivity and utilization of economies of scale. As a significant portion of our expenses are employee-related, we manage our headcount from period to period. We had 991 employees worldwide at September 30, 2008 versus 791 employees at September 30, 2007. The increase in headcount from 2007 to 2008 was due primarily to the employees we hired as part of the acquisitions of Optimost and Discovery Mining, staffing of our development operation in Bangalore, India and our efforts to reduce the degree to which we incur subcontractor expenses in our consulting services organization. As of September 30, 2008, we had 121 employees that were hired in connection with our acquisitions of Optimost and Discovery Mining, with 61 employees in cost of support and service, 17 employees in research and development, 35 employees in sales and marketing and 8 employees in general and administrative. We also look to improve our cost structure by hiring personnel in countries where advanced technical expertise is available at lower costs. Additionally, we pay close attention to other costs, including facilities and related expense, professional fees and promotional expenses, which are each significant components of our cost structure.
Our acquisition strategy is an important element of our overall business strategy. We seek to identify acquisition opportunities that will enhance the features and functionality of our existing products, provide new products and technologies to sell to our installed base of customers, acquire additional customers that we can sell our existing products to, or which facilitate entry into adjacent markets. In evaluating these opportunities, we consider, among other strategic objectives, both time to market of the technologies or products to be acquired and potential market share gains. We have completed a number of acquisitions in the past, and we may acquire other technologies, products and companies in the future. In recent years, we have acquired products and solutions with digital asset management, collaborative document management, records management, content publishing, multivariable testing and Website optimization services, eDiscovery services and capital markets vertical market capabilities. The results of operations of these business combinations have been included prospectively from the closing dates of these transactions. Accordingly, our financial results may not be directly comparable to those of the previous periods.

Results of Operations
Revenues
   The following sets forth, for the periods indicated, our revenues (in
thousands, except percentages):

                                     Three Months Ended                               Nine Months Ended
                                        September 30,                                   September 30,
                             2008            2007          Change           2008             2007           Change
License                    $ 24,160        $ 21,225             14 %      $  69,510        $  61,856             12 %
Percentage of total
revenues                         37 %            38 %                            36 %             38 %
Support and service          41,705          34,228             22 %        120,974          100,927             20 %
Percentage of total
revenues                         63 %            62 %                            64 %             62 %

                           $ 65,865        $ 55,453             19 %      $ 190,484        $ 162,783             17 %

Total revenues increased 19% to $65.9 million for the three months ended September 30, 2008 from $55.5 million for the three months ended September 30, 2007. We believe that the increase in revenues was attributable to higher revenues from license, customer support and consulting services, including subscription revenues, in most of our geographic regions, particularly in the North America and Europe. Sales outside of the United States of America represented 42% and 37% of our total revenues for the three months ended September 30, 2008 and 2007, respectively. Total revenues increased 17% to $190.5 million for the nine months ended September 30, 2008 from $162.8 million for the nine months ended September 30, 2007. We believe that the increase in revenues in the nine months ended September 30, 2008 was attributable to higher revenues from all categories in all of our geographic regions.
License. License revenues increased 14% to $24.2 million for the three months ended September 30, 2008 from $21.2 million for the three months ended September 30, 2007. License revenues represented 37% and 38% of total revenues for the three months ended September 30, 2008 and 2007, respectively. We believe that the increase in license revenues for the three months ended September 30, 2008 over the same period in 2007 was primarily due to higher information technology spending for content management initiatives particularly from Europe. We had three license transactions exceeding $1.0 million in the three months ended September 30, 2008 and one license transaction greater than $1.0 million in the same period of 2007. Our average selling prices were $250,000 and $195,000 for the three months ended September 30, 2008 and 2007, respectively, for transactions in excess of $50,000 in aggregate license revenues. License revenues increased 12% to $69.5 million for the nine months ended September 30, 2008 from $61.9 million in the same period in 2007. We believe that the increase in license revenues for the nine months ended September 30, 2008 over the prior year was attributable to higher information technology spending for content management initiatives in most of our geographic regions, in particular the United States of America and Europe. License revenues represented 36% and 38% of total revenues for the nine months ended September 30, 2008 and 2007, respectively.
Support and Service. Support and service revenues increased 22% to $41.7 million for the three months ended September 30, 2008 from $34.2 million for the same period in 2007. The increase in support and service revenues was primarily the result of a $3.9 million increase in consulting revenues primarily due to subscription revenue from our multivariable testing and Website optimization services and eDiscovery services and a $3.7 million increase in customer support revenues from a larger installed base of licensed product, due to both an increase in customers and additional orders from our existing customers. Support and service revenues accounted for 63% and 62% of total revenues for the three months ended September 30, 2008 and 2007, respectively. Support and service revenues increased 20% to $121.0 million for the nine months ended September 30, 2008 from $100.9 million for the same period in 2007. The increase in support and service revenues was primarily the result of a $10.3 million increase in consulting revenues primarily due to subscription revenues from our multivariable testing and Website optimization services and eDiscovery services and a $9.9 million increase in customer support revenues from a larger installed base of licensed product, due to both an increase in customers and additional orders from our existing customers. Support and service revenues accounted for 64% and 62% of total revenues for the nine months ended September 30, 2008 and 2007, respectively. Our support renewal rates have not fluctuated significantly during these periods.
To the extent that our license revenues decline in the future, our support and service revenues may also decline. Specifically, a decline in license revenues may result in fewer consulting engagements. Additionally, since customer

support contracts are generally sold with each license transaction, a decline in license revenues may also result in a slowing of growth in customer support revenue. However, since customer support revenues are recognized over the duration of the support contract, the impact will not be experienced for up to several months after a decline in license revenues. In the future, customer support revenues may also be adversely impacted if customers fail to renew their support agreements or reduce the license software quantity under their support agreements. Our ability to increase subscription revenues from our multivariable testing and Website optimization services and our eDiscovery services depends on our success in attracting new customers, retaining our existing customers and cross-selling these services to customers that have purchased software licenses from us.
Cost of Revenues
The following sets forth, for the periods indicated, our cost of revenues (in thousands, except percentages):

                                      Three Months Ended                               Nine Months Ended
                                        September 30,                                    September 30,
                             2008            2007           Change            2008            2007          Change
License                    $  1,587        $  1,859             (15 )%      $  5,531        $  5,905             (6 )%
Percentage of total
revenues                          2 %             3 %                              3 %             4 %
Percentage of license
revenues                          7 %             9 %                              8 %            10 %
Support and service          16,743          13,915              20 %         48,255          40,548             19 %
Percentage of total
revenues                         25 %            25 %                             25 %            25 %
Percentage of support
and service revenues             40 %            41 %                             40 %            41 %

                           $ 18,330        $ 15,774              16 %       $ 53,786        $ 46,453             16 %

License. Cost of license revenues includes expenses incurred to manufacture, package and distribute our software products and documentation, as well as costs of licensing third-party software embedded in or sold with our software products and amortization of purchased technology associated with business combinations. Cost of license revenues represented 7% and 9% of license revenues for the three months ended September 30, 2008 and 2007, respectively. The decrease in cost of license revenues for the three months ended September 30, 2008 from the same period in 2007 was attributable primarily to a $358,000 decrease in amortization of purchased technology as certain purchased technology has become fully amortized offset by a $102,000 increase in costs of licensing third-party software. Cost of license revenues represented 8% and 10% of license revenues for the nine months ended September 30, 2008 and 2007, respectively. The decrease in cost of license revenues for the nine months ended September 30, 2008 from the same period in 2007 was primarily due to a $954,000 decrease in amortization of purchased technology as certain purchased technology has become fully amortized offset by a $649,000 increase in costs of licensing third-party software. The decrease in cost of license revenue as a percentage of license revenues and total revenue in the three and nine months of September 30, 2008 was primarily due to both the decreases in costs of license revenue noted above, as well as the increase in license revenue and total revenue.
Based solely on acquisitions completed through September 30, 2008 and assuming no impairments, we expect the amortization of purchased technology classified as a cost of license revenues to be 690,000 for the remaining three months of 2008, $3.9 million in 2009, $5.5 million in 2010, $4.5 million in 2011, $3.2 million in 2012 and $1.5 million for 2013. We expect cost of license revenues as a percentage of license revenues to vary from period to period depending on the mix of software products sold, the extent to which third-party software products are bundled with our products and the amount of overall license revenues, as many of the third-party software products embedded in our software are under fixed-fee arrangements.
Support and Service. Cost of support and service revenues consists of salary and personnel-related expenses for our consulting, training and customer support personnel, costs associated with furnishing product updates to customers under active support contracts, hosting costs related to subscription revenue, subcontractor expenses and depreciation of equipment used in our services, customer support operation and amortization of purchased technology associated with business combinations. Cost of support and service revenues increased 20% from $13.9 million to $16.7 million in the three months ended September 30, 2008 from the same period in 2007. The increase in cost of support and service revenues in the three months ended September 30, 2008 from the same period in 2007 was due primarily to a $2.3 million increase in personnel-related costs as a result of increased headcount and salary adjustments effected in July

2008, a $604,000 increase in amortization of purchased technology and hosting costs related to subscription revenue, a $320,000 increase in travel expenses, and a $185,000 increase in stock-based compensation expense offset by a $697,000 decrease in subcontractor fees due to reduced consulting services engagements from customers in the global capital markets industry. Cost of support and service revenues represented 40% and 41% of support and service revenues for the three months ended September 30, 2008 and 2007, respectively. Cost of support and service revenues increased 19% to $48.3 million for the nine months ended September 30, 2008 from $40.5 million for the same period in 2007. The increase in cost of support and service revenues in the nine months ended September 30, 2008 from the same period in 2007 was due primarily to a $6.1 million increase in personnel-related costs as a result of increased headcount over the period and salary adjustments effected in July 2008, a $1.6 million increase in amortization of purchased technology and hosting costs related to subscription revenue, a $667,000 increase in travel costs, a $489,000 increase in stock-based compensation expense offset by a $1.4 million decrease in subcontractor fees due to reduced consulting services engagements from customers in the global capital markets industry. Cost of support and service revenues represented 40% and 41% of support and service revenues in the nine months ended September 30, 2008 and 2007, respectively. The consistency in cost of support and service revenues as a percentage of its related revenues reflects our efforts to manage costs as our support and service revenues have grown. Support and service headcount was 310 and 225 at September 30, 2008 and 2007, respectively.
We realize lower gross profits on support and service revenues than on license revenues. In addition, we may contract with outside consultants and system integrators to supplement the services we provide to customers and use third parties to host our subscription services, which increases our costs and further reduces gross profits. Further, the acquisitions of Optimost and Discovery Mining increased the amortization of purchased technology recorded as cost of support and service. As a result, if support and service revenues increase as a percentage of total revenues or if we increase our use of third parties to provide such services, our gross profits will be lower and our operating results may be adversely affected. Operating Expenses
Sales and Marketing
The following sets forth, for the periods indicated, our sales and marketing expense (in thousands, except percentages):

                                        Three Months Ended                   Nine Months Ended
                                          September 30,                        September 30,
                                   2008         2007       Change       2008         2007       Change
 Sales and marketing            $ 22,311     $ 19,000         17 %   $ 67,018     $ 59,008         14 %

Sales and marketing expenses consist of salaries, commissions, benefits and related costs for sales and marketing personnel, travel and marketing programs, including customer conferences, promotional materials, trade shows and advertising. Sales and marketing expenses increased 17% to $22.3 million for the three months ended September 30, 2008 from $19.0 million for the three months ended September 30, 2007. The increase in sales and marketing expenses in the three months ended September 30, 2008 from the same period in 2007 was due primarily to a $2.5 million increase in personnel-related cost primarily due to higher sales commissions as a result of higher total revenues and increased headcount, a $663,000 increase in travel expenses, a $353,000 increase in stock-based compensation expense offset by a $307,000 decrease in facilities allocated cost due to sales and marketing personnel headcount representing a lower proportion of total headcount over the lower facilities cost in the third quarter of 2008 than it did in the third quarter of 2007. Sales and marketing expenses increased 14% to $67.0 million for the nine months ended September 30, 2008 from $59.0 million for the same period in 2007. The increase in sales and marketing expenses in the nine months ended September 30, 2008 from the same period in 2007 was due primarily to a $6.2 million increase in personnel-related cost primarily due to higher sales commissions as a result of higher total revenues and increased headcount, a $1.2 million increase in travel expenses and a $1.1 million increase in stock-based compensation offset by a $928,000 decrease in facilities allocated cost due to sales and marketing personnel headcount representing a lower proportion of total headcount over the lower facilities cost in the first three quarters of 2008 than it did in the same period in 2007. Sales and marketing expenses represented 34% as a percentage of total revenues in the three months ended September 30, 2008 and 2007 and represented 35% and 36% as a percentage of total revenues in the nine months ended September 30, 2008 and 2007, respectively. The decrease in sales and marketing expenses as a percentage of

total revenues is due to higher total revenues in 2008 as compared to 2007, offset by higher personnel-related cost due to increased headcount. Sales and marketing headcount was 283 and 234 at September 30, 2008 and 2007, respectively.
We expect that the percentage of total revenues represented by sales and marketing expenses will fluctuate from period to period due to the timing of hiring of new sales and marketing personnel, our spending on marketing programs and the level of revenues, in particular license revenues, in each period.
Research and Development
The following sets forth, for the periods indicated, our research and development expense (in thousands, except percentages):

                                       Three Months Ended                   Nine Months Ended
. . .