TAM is overrated
While this data point can provide helpful context, what ultimately matters is the company’s ability to execute. The best leaders create enough value to expand their TAM, while many executives today mis-categorize their TAM to appease investors
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While this data point can provide helpful context, what ultimately matters is the company’s ability to execute. The best leaders create enough value to expand their TAM, while many executives today mis-categorize their TAM to appease investors
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Incremental market value is created by customers willing to pay a premium for, or increasing utilization of, a product/service. Companies with a compelling product and strong value-proposition are most likely to expand their TAMs
Some examples:
Some examples:
When Jobs intro'd the iPhone in ‘07, the top players combined for $91B in cell phone rev. The market was growing, but Apple created so much incremental value by re-defining how we communicate
Today $AAPL alone has phone-related sales of $260B ($192B iPhone + $68B Services)
Today $AAPL alone has phone-related sales of $260B ($192B iPhone + $68B Services)
Facebook stated its TAM as the purchasing power of college students ($85B). If FB never expanded its reach, this would’ve over-stated its potential
But Mark and $FB created an entirely new category with compelling products for advertisers & users, now with LTM revenue of $112B+
But Mark and $FB created an entirely new category with compelling products for advertisers & users, now with LTM revenue of $112B+
Uber showed a TAM of just $4.2B. Uber transformed this market by making taxi-like services accessible in many additional cities
$UBER LTM bookings now $82B & rev is $15B (mostly in the US). Stock has underwhelmed but early investors saw life-changing returns from a "small" TAM
$UBER LTM bookings now $82B & rev is $15B (mostly in the US). Stock has underwhelmed but early investors saw life-changing returns from a "small" TAM
Amazon famously started by selling books & many were skeptical of its ability to broaden its scope. Today $AMZN retail rev alone is >$400B (GMV even higher)
Then there’s AWS, maybe the greatest adjacent market value-creator, now at ~$70B RR rev & generates most of $AMZN profits
Then there’s AWS, maybe the greatest adjacent market value-creator, now at ~$70B RR rev & generates most of $AMZN profits
These founder-led examples exceeded early TAM estimates w/ just their company, not even including revenue from competitors
Today, many companies are over-stating / mis-categorizing their TAM to turn investor focus towards an optimistic, best-case scenario
Today, many companies are over-stating / mis-categorizing their TAM to turn investor focus towards an optimistic, best-case scenario
Here are recent examples where stated/implied TAMs don't accurately represent a realistic & serviceable market size aligned w/ the company’s product roadmap
None of these companies have proven an ability gain initial customer traction or execute on long-term forecasts
None of these companies have proven an ability gain initial customer traction or execute on long-term forecasts
In summary: leadership/culture and compelling products/services are significantly more important than the size of the TAM
A massive TAM is largely irrelevant if a company can’t take share and monetize with favorable unit economics
A massive TAM is largely irrelevant if a company can’t take share and monetize with favorable unit economics
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