In Part I of this series, we framed Google’s incredible disruption of the advertising industry over 20 years ago and how it would have been near impossible to predict back in 1999. However of greater concern is that using the traditional top-down, Total Addressable Market (TAM) framework, an investor would have measured Google’s revenue opportunity (TAM) at each point-in-time over the last 20 years and concluded the business was un-investible as it had already saturated the online advertising market.
Today we will consider some techniques the team at Montaka Global use to help us identify when a disruption is potentially on the verge of a massive inflection or if in fact, there is no upside beyond what has already been achieved for a business.
While there is no “silver bullet” here, some of the perspectives the team explore in parallel with the traditional TAM framework to get a better sense of a market:
As can been seen, we can easily underestimate TAM, resulting in excessive conservatism and sustained missed opportunities and by the same token, it is all too easy to become overly optimistic and significantly overestimate opportunities with disastrous results.
Unfortunately striking the correct note is not easy, it involves a myriad of insights, perspectives and conclusions, none of which will be immediately obvious. Take for instance the prestigious business consultancy, McKinsey & Co. In 1980, McKinsey carried out a detailed market study that confidently concluded mobile phone penetration in the United States would be less than 1 million by 2000. In reality the number turned out to be around 110 million. A potential example of over-optimism may be found in Uber’s IPO prospectus. In it, Uber claims its TAM is approximately US$6 trillion for rides and around US$3 trillion for meal delivery. This would imply that every person, in every country Uber is in, forgoes all other means of transportation and just uses Uber, in addition to never eating in a restaurant again and instead, only ordering off Uber Eats, time will tell!
The team at Montaka Global thinks extremely deeply about the size of the markets companies we own serve and how those markets are moving. This helps us prioritise developments, understand customer segmentation and uncover non-obvious insights on both the long and short side, as we strive to deploy our collective capital in the most productive pursuits possible.