How much do Gmail users cost Google?

An Estimation Question for Product Management Interviews

The Question

Estimate how much Gmail costs Google per user per year?

Answer Structure

In estimation questions, interviewers are evaluating your problem-solving and quantitative skills. They are looking for a ballpark number, not an accurate number. What matters is whether you are logical, can explain all your assumptions clearly, are organized in your work, and good with numbers.

The book Cracking the PM Interview by Gayle Laakmann McDowell and Jackie Bavaro provides a good suggestion on how to structure an answer for this type of question. It can be summarized as:

  • Ask clarifying questions. This will eliminate any ambiguity of what should be included in your calculations.
  • Make an equation. Consider edge cases or alternate sources of data and write down any facts that you know will help with calculations.
  • Break down the equation into components. Write down any assumptions next to the components so you don’t forget to explain them clearly to the interviewer.
  • Do the math. Calculate the result of each component and compute the result.
  • Do a sanity check. Do your results make sense? If not, recheck your equation, assumptions and arithmetic.

Answer Example

INTERVIEWEE: Should I estimate cost per user for the US alone or the world?

INTERVIEWER: For the world.

INTERVIEWEE: And, would the estimation be for all Gmail accounts, or should it include consumers or business or both?

INTERVIEWER: All account types.

INTERVIEWEE: The main types of costs I see associated with Gmail are infrastructure costs, which would include servers, storage and data transfers; development costs to maintain features and updates; and marketing costs.
Here’s how I would use this information to estimate the cost per user:

Equation A:

[cost]=
[$ infrastructure cost] +
[$ development cost] +
[$ marketing cost]

[cost per user] =
[$ infrastructure cost / # Gmail users] +
[$ development cost / # Gmail users] +
[$ marketing cost / # Gmail users]

Another way to estimate the cost per user, would be to separate Gmail users between consumers and business people because business users are likely to consume more data and thus be more expensive. This equation is more accurate because it does not assume that all users consume the same amount of data, which is an oversimplification.

Equation B:

[cost] =
[$ consumer users data cost] +
[$ business users data cost] +
[$ development cost] +
[$ marketing cost]

[cost per user] =
[$ consumer user data cost / consumer user] +
[$ business users data cost / business user] +
[$ development cost / # Gmail users] +
[$ marketing cost / # Gmail users]

Where the first two components can be expanded to,

[$ consumer user data cost] =
[# GB used by a consumer user] X
[$ cost of storage + $ cost of data transfer for 1GB]
[$ business user data cost] =
[# GB used by a business user] X
[$ cost of storage + $ cost of data transfer for 1GB]

I will begin by using Equation A to estimate the cost per user, because it will be faster. If there is time left, I will redo the estimate using Equation B to compare it to A.

INTERVIEWER: Sounds good.

Review and state your assumptions
Review and state your assumptions

Let’s start with infrastructure. I know that AWS charges about $10 a month for running server, storage, and network bandwidth for 20 users. So for one user, that results in $0.5 a month, and for a year in [$0.5/month] X [12 months/year] = $6/user per year.

For development costs, my guess is about 200 employees work on Gmail. Each with an annual salary of about $200K, so the cost of development per year is 200 X $200K = $40,000K = $40M. I know that there are about 1B active users of Gmail based on a recent Techcrunch article I read, so dividing $40M by 1B users results in $40M / 1B users = $0.04/user per year.

For marketing costs, I will assume that about 10% of Google’s total revenue is assigned to marketing. And of that, 1% is spent in Gmail marketing. Most companies in the industry spend 10% of revenue on marketing, so I will use that as a reference. Google’s annual revenue is about $80B, so 10% of that is $8B, and 1% of that is $80M (1% = $8B divided by 10 = $800M divided by 10 = $80M). To calculate marketing cost per user, we divide by 1B users and we get $80M / 1B = $0.08/user per year.

Adding all these costs results in:

cost per user
= [$ infrastructure cost / # Gmail users]
+ [$ development cost / # Gmail users]
+ [$ marketing cost / # Gmail users]

= $6/user + $0.04/user + $0.08/user
= $6.12/user

Thus, my estimate is that Google spends about $6.12 per user a year in Gmail costs. Would you like me to redo the calculations using the second equation?

INTERVIEWER: No need. I think you did a good job and we are running out of time.