One could almost hear the collective gasp yesterday when Google's SVP of product Jonathan Rosenberg announced that Google would make $1 billion in top-line mobile ad revenue on an annualized basis. Here's the relevant discussion from the earnings call transcript:
Mobile is on an annualized run rate of over $1 billion. This means the people who are accessing our products and services through their mobile phones are adding a $1 billion annually to our existing revenue streams. Clearly, this is the future of search in the Internet, more people in more countries coming online from these smartphones. Our mobile search queries have grown five times over the past couple of years. And of course, a lot more of those queries are now coming from Android phones.
Let's "unpack" this very impressive number.
My understanding is that it's a mix of AdMob display revenues, Google mobile search and mobile AdSense revenues and a sprinkling of Android market revenues.
I would imagine that the Android market revenues (30% of the sale of paid apps) are quite small. Google/Android has underperformed in the sale of paid apps. It's safe to assume that the contribution to the $1 billion figure is less than $75 million and maybe closer to $50 million.
Next is AdMob.
TechCrunch reported in November last year that AdMob board member Jim Goetz, a partner at Sequoia Capital, said the following: “[AdMob] built what is approaching a $100 million business in three years." AdMob's revenue split was 60/40 to publishers. In other words the company's revenues would have been $40 million at the end of 2009.
Mobile advertising accelerated in Q4 last year and continued to accelerate this year.
Let's assume, optimistically, that AdMob revenues are closer to $80 million as we sit here today (or if you want to count topline instead, perhaps closing in on $200 million). These figures are probably too large, if we assume the AdMob board member was reporting revenues accurately. But let's run with them anyway.
Putting these "optimistic" scenarios together would leave about $725 million for Google's "advertising" contribution to the $1 billion. How much of that is search and how much is display/mobile AdSense?
The Google Content Network represented about 30% of Google's revenues in Q3 2010. Let's assume that percentage holds for mobile as well (it might not). That would mean about $217.5 million of the $725 (based on the above) is attributable to Google's mobile AdSense. The rest, then, would be mobile search revenues, or $507 million. This number is consistent with an estimate that Citi's Mark Mahaney put out some time ago.
To summarize my revenue allocation:
Again, this is all loose math. But the $1 billion is real (and coming from somewhere). And it validates that mobile advertising has definitely arrived.