1.3k views

Based on information given in the question:

• Calculations restricted to the US region.
• Annual revenue required.
• Calculation is strictly limited to the Gmail product.

Assuming this is revenue based on advertisements displayed at the very top of the inbox when the user is in their gmail account.

• US population = ~300 million
• Number of people who have access to the internet = 80% of the population = 0.8 * 300 million = 240 millon
• Assuming 50% of the email market is cornered by Gmail = 0.5 * 240 million = 120 million users
• Number of emails per user per month = 30 emails
• Number of adverts shown per user in a year = 2 * 30 * 12 = 720 ads
• Number of ad clicks = Number of ads shows * User pop * CTR = 700 ads (rounding)  * 120 million * 0.20 =16.8 billion
• Assuming cost per click  = 10 cents
• Revenue from advertising on Gmail = 16.8 billion * 10 cents = \$1.68 billion

Potential source of errors:

• Underestimating the user population
• Underestimating ads shown per email
• Underestimating number of emails accessed per user/permonth

Feedback welcome.

+1 vote

Revenue = # click in US per year * revenue per click

# Click in US per year= Number of users * # clicks per users per year

Number of users = Number of gmail users = US population* % internet users * % internet users using gmail

= 300 million * 80% of population has internet * 50% uses gmail = 120 million

# clicker per users per year = Number emails received per users * number of ads per email * Clicks per ad

= 60 per month * 12 months * 2 ads per email * 2% ctr

= 720*.04 = 30 clicks per user per year

Revenue = 120 mn users * 30 clicks per user * \$0.1 revenue per click

= \$360mn per year

Having an equation help interviewer to understand what are you calculating and why are you calculating

1. Gmail Ad Revenue = Revenue/email that generates revenue * total number of emails that generate revenue in a year

2. Let us estimate the total number of emails that generate revenue in a year.

a) US Population = 300 Mn,

* Age group that uses internet and hence any email 14 to 75 (Assumption) = 61 * 4 = 244 Mn (Based upon earlier calculations, 4 Mn / age band)

* Market data points to Gmail being second largest mail provider after Apple ios. Assuming a market share of about 35-40% for gmail. Here for simplicity, going with 40% ==> 244 *.4 = 97.6 Mn ( approximate ot 100 Mn)

* Users of gmail can be classified into 4 categories with usage patterns as below:

1) Rare user - Sends 1 email in a day, comprises about 30% of gmail users = 1* .30 = .30, 100 days in a year

2) Casual User - sends 5 emails in a day, comprises about 25% of gmail users = 5 * .25 = 1.25, 200 days in a year

3) Professional User/ Power users - sends 10 emails in a day, comprises about 15% of gmail users = 10 * .15 = 1.5, 350 days in a year

4) Business users - sends 50 emails in a day and comprises about 30% of gmail users = 50 * .30*  200 days

Gmails sent in a year by 100 Mn users  = 100 Mn * (3 + 250+ 575+3000) = 380 Bn gmails sent in a year.

Assuming a 10% CTR that emails are opened = Approx 40 Bn emails are opened.

Assuming a revenue of .01 cents / gmail =  \$4Bn

Given that Google revenue / year crossed \$100Bn , and assuming 70% of the revenue came from Ad's = 70Bn is Ad Revenue for Google, and 10% coming from Gmail seems like a probable assumption.
Context

Gmail is a product people use to exchange information. The product is free as far as I know. However, ads are shown in Gmail. When the user is using Gmail, they are signed in and they are ads invarious parts of the experience. These ads I assume are personalized when google has information about preferences and interests about the user, contextual based on the email content. The types of ads that are shown can be broken up into following varieties; untargeted, targeted based on demographics, based on interests, content based. The type of ad content is usually text assumption.

Ad revenue = price x volume, where volume is the average number of times an ad unit was sold.

Volume = number of times a Gmail experience was shown to a user x average rev earned

Number of times and content shown (let's calculate daily) = function of number of users x average ad content views per session

Number of users visiting Gmail every day = not sure of exact number but let us start from MAU, Gmail is dominant afaik except perhaps China. Let's say dominance is around 70% penetration for North America, Europe, India - North America roughly 500m population, let us assume that 80 percent are eligible adults, let's assume Europe is 250m people, again assume 80 percent eligible, in India assume 400 m people have access and 60 percent are eligible.

So, users in developed countries around 600m with Gmail accounts, India and rest of the world - another 600m.

Consider that habits are same, people check email daily - almost all of the monthly users. Let's say 80 percent uses check daily.

So roughly 480m users or round to 500m check daily from each bucket

Consider, mobile is dominant say 80 percent of visits and 20 percent on desktop on developed countries.

Consider 5 visits a day per user, with 3 ad content experience on mobile, 1 on desktop.

So if ads are sold based on cost per impression, then there are roughly

500x5x3,=7.5 billion impressions a day

1.5 billion impressions a day on desktop

Let us assume, that we have 50 cents per 1000 impressions = 3.75 b / 1000 = 3.75 m dollars per day, assume higher rate for desktop but less audience so 20 percent audience but 30 percent higher rate. So, 3.75m + 1m = 5m dollars per day.

So, 150m dollars / month, so 150x12= 1.8 billion dollars a year. Assume ad rates are lower in not developed countries, say 50 percent, then 0.9 billion or roughly 3 billion dollars.

We have possibly considered a much lower baseline rate appropriate for non targeted ads, higher quality targeting mix will push this higher 2-5 times. So revenue could be that much higher.

Other factors, users opt out in Europe and audience could be smaller.

Gmail ads are is charged by click, each click has an average CPC. The equations needed would be:

Gmail revenue in a year=Monthly clicks * Avg. CPC*12

Monthly clicks= Monthly Impressions * avg CTR

Monthly impressions= Avg. Impressions per session * Monthly sessions in the US

Monthly sessions in the US= Avg. daily sessions*30 * #active users in the US

#active users in the USA= US population * Internet Penetration in the US * Gmail e-mail market share

Secondly, I enlist my assumptions:

Assumptions:

Avg. global cpc=\$0.1 USD

Avg. CTR (impressions that ended up in a click) =10%

Avg. Impressions per session = 2

Avg. daily sessions per account= We can split into 2 main buckets, heavy users (business accounts, internet proffessionals, etc) and light users (personal accounts).

• Heavy Users (40% of total) = 20 daily sessions
• Light users (60% of total) = 5 daily sessions
US population = 300M
US Internet penetration = 80%
Gmail Market Share = 50%

Substitute numbers:
#Gmail active users in the us= 300M*.8*.5=120M
Monthly sessions in the US = 120M*(.4*20+.6*5)*12=15,840 M
Avg. Monthly Impressions = 2*15,840M = 31,680M
Avg. Monthly clicks = 3,168M
Yearly revenue = 3.2B (rounded) * 12* \$0.1= \$3.84 Billion

Sanity check, possible mistakes:
• Gmail has over 1.2B active users. I assume that more than 10% of them are based in the US, perhaps that number is understimated.
• There might be even lighter users who check their mail once a day or every two days, avg. daily sessions could also be overestimated.
• Googles yearly revenue is around 1.3 Billion. Around 80% comes from ads, so that leaves a business of \$100B yearly. Perhaps only 4% coming in from Gmail Ads might suggest an understimated final answer