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Modeling Mobile Ad Networks

mm_logoI read recently that Millenial Media and Admob both see around 6-7b impressions per month.

ad_mob_logo_headerPretty good.  Obviously, a reasonable next question is what does that business look like?

First, we need to speculate on what kind of CPMs they achieve.  We have absolutely no idea, so let’s make up a number.  A reasonable starting point might be “regular ad network CPMs”.  So here is Pubmatics numbers:


OK, so $0.27 is a real network value.  But that is the publisher payout.  So if we inflate that 40%, to get the network revenue:  ~$0.50.  In the interests of being conservative, let’s make the mobile network CPMs $0.25.  That also makes our math easy.

So a 6.0b impression/month network yields a $1.5m/month business with ~$600k gross margins.  That means they could probably support 30 employees with that business.  From this, one could imply that Admob, with ~150 employees was losing a lot of money and Millenial Media, with ~50 employees (and ~1b more impressions, yielding an extra ~$100k in gross margins), actually close to breakeven.

Are these margins realistic?  I have no idea.  Maybe they have to rev share with the carriers.  Maybe a lot of these are international impressions and hence worthless.  (Although the Millenial team, at the least, is smart enough not to buy those impressions.)

Seems like a great business.  Obviously, Millenial is sending a message with their raise, as did Google with their acquisition, that the market is a lot bigger than these two companies current implied run rate implies (implications imply!), but these numbers actually seem to make a lot of random anecdotal sense to me.  I had heard that Admob was doing around $10m in revenue annually , so this kind of lines up, given their ramp.

The obvious question is “was my imaginary CPM correct?”  Anecdotal information is that CPM prices are high and CPC prices are low in the industry.  When I try to unwind all of the math from the blog post, it sounds like $0.25 is about right.

I would be shocked if this back of the envelope calculation was too far off.

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