Markets and business models
Ad-supported economics
Revenue ≈ DAU × impressions × CPM / 1000. Ads only work at huge scale, and only if users stay.
Ad businesses sell attention. Inventory quality, geography, format (banner vs rewarded video vs feed native) and seasonality move CPM hard. A rough order-of-magnitude band for many consumer surfaces (as of the mid-2020s) is a few dollars to tens of dollars CPM for decent inventory; premium or high-intent inventory can be higher. Exact rates rot fast — model with your own fill rates.
Concept
CPM is cost per thousand impressions — what advertisers pay you. DAU is daily active users. ARPU over all actives is what those impressions add up to. See consumer unit metrics.
Walking through the stack
Revenue ≈ impressions × (CPM / 1000)
≈ DAU × impressions_per_DAU × (CPM / 1000)Suppose 1M DAU, 20 ad impressions per DAU per day, $5 CPM:
Daily impressions = 1M × 20 = 20M
Daily revenue = 20M × ($5 / 1000) = $100,000
Annualized ≈ $36.5MCut to 100k DAU at the same rates → ~$3.65M/year. Ads only work at huge scale, and only if users stay long enough to see inventory. A viral spike of curious tourists generates impressions once. Habit generates them every day.
Ads also create product constraints: you need density of sessions, placements that do not destroy retention, and often a US/Western EU mix for higher CPMs. Many "free" apps are really ad businesses with a thin subscription overlay for power users who hate ads.
Trade-off
Ads vs subscriptions. Ads scale with attention and need massive DAU. Subscriptions scale with willingness to pay and can work at smaller scale if conversion and retention are strong. Hybrid (free+ads, paid ad-free) is common. Pick the primary engine first.
Common mistakes
- Planning an ads business at 100k DAU. The arithmetic is ~$3–4M/year at $5 CPM and 20 impressions — often not a venture-scale path.
- Placements that destroy retention. You sold today's impressions and lost tomorrow's.
- Ignoring geography. The same DAU in a low-CPM market is a different business.
Check yourself
1M DAU, 20 impressions/DAU, $5 CPM. Daily revenue?
$100,000. 20M impressions × $5 / 1000 = $100k.
Why does a viral spike fail as an ads plan?
Tourists generate impressions once. Ads need habit — DAU that returns tomorrow.
Key takeaways
- Ads revenue ≈ DAU × impressions × CPM / 1000.
- The model needs enormous, habitual scale.
- Placements that hurt retention steal tomorrow's inventory.
- Pick ads or subscriptions as the primary engine before adding a hybrid.
Further learning
Next, the other engine: consumer subscriptions.