It's Rishi

My friend Rob Poitras pointed out to me that YouSendIt, one of the most popular free file hosting services, serves up a whopping 44TB of data every single day. He mentioned that as far as he knows, they are not profitable either. So, I was curious about how sound their business model is. I have to think that it is because just in the past year, there has been many other essentially identical services that have launched.

Unfortunately, I couldn’t dig up any hard numbers so we’ll have to base this analysis off of fairly rough details. The facts from YouSendIt.com claim 44TB of data daily and “over 8 million unique visitors” monthly.

Costs
It doesn’t take a genius to realize that by far the primary cost of doing business for a file hosting service is servers and bandwidth. I’m guessing the latter far outweighs the former. Not only are they serving an insane amount of data, but also for a file hosting service to compete, it needs to offer fast download speeds to users.

44TB of data flows daily and there is 86,400 secs in a day. At any given time, there is an average of 0.5GB/sec (which is 500MB/sec or 4000Mb/sec) being transferred. I really wish I had a good number of how much it costs to serve data on like a per GB basis. I can imagine some ways I could go about calculating it but without accurate starting data, it’s probably not worth the time. I saw some numbers like 1U rack space + 100Mbps unmetered for $2500/month. Let’s just say that you bought 40 of these. Each 1U file server maxes out its 100Mbps connection. Let’s say each file server is leased and runs about $500/month. So total cost for all this is 40 x ($2500+$500) = $120k/month. Obviously this is a very crudely made number and I’m sure that the scale that YouSendIt is doing things, it should be cheaper. However, there is a significant operational cost to keep such a large service like this running and there is some development cost for various software and tools and such. Let’s say total for everything costs $175k/month. (I still did not include general personnel and administrative costs for YouSendIt)

(Advertising) Revenue
YouSendIt makes money via advertising. However, because this advertising space is not very targeted (really the only way to target is the name of the file which is not necessarily meaningful at all), I just can’t see it having as high a CTR (click-thru-ratio) as a contextual systems like AdSense or keyword systems like AdWords. YouSendIt has two types of ads on their site, image/banner ads and text ads. My *guess* is that the image/banner ads are sold on an impression basis not CPC. I think that is typically the case with image ads because they are so imposing on a page, that it’s hard for the user not to notice it. The question is how expensive? Since it’s just not that targeted and users don’t really spend that much time viewing the page (just click download link and leave), I could see it going for $5 CPM (cost-per-thousand-impressions) which is $0.005/impression. For text ads (looks similar to AdSense text ads but it’s managed by a company called BidClix), depending on the type of business the advertiser is, YouSendIt charges a minimum of either $0.25 or $0.50 for each click. Looking at the current bid amounts which are a few pennies above the minimums, let’s assume an average of $0.40/click.

So to calculate monthly ad revenue, let’’s refer to the 8 million unique visitors per month. Let’s say that results in 10 million file-download-page views (the pages that show ads) per month (average of 1.25 page views per unique user per month). Each page view includes 2 of the banner/image ads so that’s 20 million impressions. At our figure of $0.005/impression, that’s $100k. For the text ads, since again they are not very targeted, a CTR of say 1% seems reasonable. 3 text ads are displayed at a time. So total clicks on average per page is 0.01 x 3 = 0.03. Multiplied by 10 million page views that’s 300k clicks per month. At an average of $0.40 per click, that’s a total revenue of $120k for click revenue. Total ad revenue estimate is $100k + $120k = $220k.

Final Analysis
So my estimate cost of operating this service is $175k and estimate of ad revenue is $220k on a monthly basis. So we got a profit right?! Well, as I mentioned earlier, I didn’t include administrative costs. Let’s just assume that’s a paltry $25k/month which is mainly salary for the key administrative individuals. Luckily the service sort of markets itself virally so I’m guessing marketing costs are very low. Anyways, so *total* montly cost is $200k and revenue is $220k. $20k/month profit..we’re in the black!

Again, this is an extremely rough conclusion. I am curious how far off I am though. What does interest me is that I think some of these file sharing sites received venture investment. I assume this means that these sites plan to leverage their traffic or content (somehow) into a more profitable business. The content seems like a tough play since it’s private and also a lot of it is probably (illegal) copyrighted material. Without such a long-term vision though, sites like these seem to me like a commodity. Even if I were to double my estimate for CPM to $10, the company still is making about a $1MM profit annually. The problem is growing that. Maybe a better operating margin can be squeezed out by improving efficiency or somehow offering more targeted advertising, but still it doesn’t seem like it would offer the growth potential that venture investors would want to see.

Anyways, I’d love to hear some comments on this analysis. If any YouSendIt guys read this, wanna tell me if my analysis is even remotely accurate? =)