Can Companies Scale Revenue Without Selling Eyeballs?
Meesho's CFO reported that the majority of ₹3,000 crore revenue in FY 22 came from ad Sales. Can any company scale its revenue without ultimately selling eyeballs on its platform? Let's look at Uber, and explore other possibilities.
Rahul Mathur
Now: Building @Insurance_Dekho Earlier: Founder @VerakInsurance (YC W21; acquired) Hiring for Eng, Marketing, Sales & Ops roles
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In March, Meesho's CFO reported that the majority of ₹3,000 crore revenue in FY 22 came from ad Sales (yes, you read that right)
— Rahul Mathur (@Rahul_J_Mathur) June 26, 2023
This raises a question - can any company scale its revenue without ultimately selling eyeballs on its platform? Let's look at some other cos: -
(1) Uber 🚖
— Rahul Mathur (@Rahul_J_Mathur) June 26, 2023
- Uber lets you advertise everywhere: in cab, on cab, in app, during drive, at food delivery etc
- Uber did $500M in ads Sales for CY 22; Ads is ~ 60% Gross Margin = $300M in GM (Gross Margin) from Ads for Uber -
- This was x5 CY 21 & Uber's CEO mentioned their goal is to x2 to $1bn in Ad Sales for CY 23
— Rahul Mathur (@Rahul_J_Mathur) June 26, 2023
Uber did ~ $30bn in booking at 20% GM; which means that Ads might account for ~5% of their overall margins (i.e. $300M out of $6bn).
Astounding for a ~3 year old business within Uber -
(2) Instacart 🥦
— Rahul Mathur (@Rahul_J_Mathur) June 26, 2023
- $740M in Ad Sales which was ~30% of total Sales for CY 22
- Ad Sales more than x2'ed and were only 20% of Sales in CY 21 -
(3) Amazon 🛍
— Rahul Mathur (@Rahul_J_Mathur) June 26, 2023
- Amazon did $11.6bn in Ad Sales in ONE quarter Q4 CY 22 which is ~7% of of their Sales
- However, Amazon's Gross Margin from e-commerce is ~ 20%; therefore, Ads most likely contributes ~20% towards Amazon's total margin. -
💡 You're probably seeing a pattern here
— Rahul Mathur (@Rahul_J_Mathur) June 26, 2023
Once a platform has eyeballs, the contribution % of Ads towards the company's overall margin continues to increase over time (5% for Uber; 20% for Amazon) -
💸 The beauty of an ads business lies not in the GM- but in the Net Margin (NM) because teams running the ads biz are lean.
— Rahul Mathur (@Rahul_J_Mathur) June 26, 2023
There's a TON of money for Indian growth stage businesses like CRED, PhonePe, Paytm etc to build their ads businesses (and they are already doing so) -
Over the next few years, you'll see Retail Media Networks & alternate channels continue to capture audiences (hehe, Google & Meta).
— Rahul Mathur (@Rahul_J_Mathur) June 26, 2023
Perhaps, an ad free world is a founder's utopia & a CFO's biggest nightmare. Ads are most likely here to stay given its revenue potential!