Mary Meeker's YouTube Math

From Silicon Valley Insider - Morgan Stanley's Internet analyst Mary Meeker was a good deal more optimistic than we were about the revenue impact of YouTube's new overlay ads. Specifically, Mary concluded that the overlays could immediately add $4.8 billion of gross revenue and $720 million of net revenue to Google's annual results. This compared to the tiny $12 million to $360 million of gross revenue that we projected.

Well, we were baffled at how Mary could be so amazingly bullish, so, on a tip from a reader, we checked her numbers. And it seems Mary may soon be revising her estimates. Why? Because, in advertising lingo, "CPM" means "Cost Per Thousand" not "Cost Per One." When Mary updates her model to divide by 1,000, her numbers will look a bit different.

What happens to Mary's estimates when you do the math right? Well, that $4.8 billion of gross revenue becomes $4.8 million, and the $720 million of net revenue becomes $720 thousand. So if, as Mary suggests, Google can float ads on top of 20 million streams a month, secure a $20 CPM, and keep 15% of the gross revenue, the overall impact will actually be, as we suggested yesterday, immaterial. | Read full article