New Markets

Why addressable markets aren’t what they used to be

If you work in a startup and are meeting with investors, you are obligated to include a slide on your total addressable market, also lovingly referred to as the TAM. The TAM isn’t just reserved for startups of course. The notion of the size of the market is a key tenet for many investors. It makes sense. If you are putting your dollars into a company, there is a better chance the company will succeed if it’s operating in a big market rather than a niche one. 

In some markets, this is a key piece of information in the analysis. If you are selling lumber for instance, the boundaries of the market are well defined. The probability that lumber will be used in new and innovative ways is quite low.

In the technology sector the use of TAM just doesn’t make any sense anymore. The forces of technology tend to be deflationary in nature thus causing abundance. In other words, technology tends to make things cheaper and more accessible. This can cause a huge shift in demand.

There have been multiple examples of this in recent years. Let’s take ride sharing as an example. The taxi market was thought to be well defined, growing at a small percentage every year. When upstart ride sharing companies removed significant friction using GPS technology and mobile payments, demand exploded. 

Online advertising also massively increased the total size of the market. Small businesses now had world class targeting at their fingertips. Any small business can use a self-serve platform to reach new customers. This was simply better than the previous approach which massively increased the total pie of advertising. 

New use cases

It’s not just that things are cheaper and accessible but also new use cases can emerge. In the hospitality industry, AirBnb is seeing a rapid increase in long-term stays on its platform. This isn’t the usual 2-3 night stays that hotels go after. 

Food delivery is another interesting case of what else is possible with the same sort of technology that ride sharing employs. 

This is now occurring in almost every industry where software starts to creep in. Think connected devices in manufacturing. Energy efficiency is the first obvious use case but now we can offer flexible credit schemes to customers as a result. 

The lines of what makes a market have completely changed. We shouldn’t throw out the concept of market entirely out the window of course. We should be asking what new stuff can this technology unlock? What else is possible if this works? 

The way we look at markets in an excel sheet doesn’t take into account creativity people will unlock. 

The market is everywhere

In the late 1990s, half the world had never placed a single phone call in their entire lives. Today, more than 5 billion people own mobile phones which are connected. This is a radical shift on how we conceive of the nature of markets. The creator economy is a fascinating representation of this phenomenon. A single person can make a living online without the need for approval from anyone else.  I’m not a fan of most influencers but I’m definitely cool with people being able to make money on their own terms and doing what they want. 

For startups, this means that they don’t need to worry about the size of the market so much anymore. The impetus becomes creating a product that only a few people will adore. 

Implications

For strategists, the implications are two-fold. Markets could and should be expanded which implies being more aggressive both in terms of go to market but also product. Secondly, It implies new entrants and competitive threats from anywhere – all the time! 

As a consequence, a new type of organizational muscle needs to be developed, scanning and understanding the environment constantly. This won’t help you decide on the right strategy but it will bring clarity about your market and where it’s going.

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