

Ask HN: Estimating market sizes - hanskuder

When somebody mentions "X is a $Y million market", where are these numbers coming from? For example, in an article recently linked on HN:<p>http://www.xconomy.com/boston/2009/09/11/techstars-first-class-of-boston-startups-launched-at-microsoft-hosted-gala/<p>"Baby monitors are a $350 million market in the US"<p>Is this a wild-assed guess, or are these sorts of things tracked and tabulated somewhere? When looking to start a new business, where do hackers look to discover the size of their target markets?
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byoung2
You can buy reports at <http://www.marketresearch.com/> or you can cobble the
data together from free sources, such as the US gov't sites:

<http://www.census.gov/main/www/access.html>, <http://www.bls.gov/data/>,
<http://www.sec.gov/edgar.shtml>

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adamt
I'd be careful about believing any numbers, and just because some big market
research company once said it doesn't mean it's true. Certain things spring up
as being the truth after they are quoted enough, e.g. the Internet traffic
doubling 18 months (<http://www.lightreading.com/document.asp?doc_id=18702>).

In my experience the best way is to analyse a market in several different ways
and get bounds on the market size. E.g. for baby monitors in the US, the
market size must be less than the total revenue of all the companies that make
them, and the units sold per annum must be less than the number of babies born
per year in the US. You then may find one company that claims to have shipped
over a million baby monitors in a year (e.g. inside their SEC filings or even
marketing material), which is therefore a lower bound.

A combination of google, asking people (e.g. either industry experts or in
your local shop ask the shop assistant roughly how many of those do they sell
a day) and you should be able to get to an order of magnitude of an
established market place.

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replicatorblog
There are also usually trade organizations that will report information. They
have an obvious incentive to make the size seem bigger, but if they are big
enough organizations investors will also probably use them as a reference.

The other thing is to consider Total Addressable Market (TAM) vs (SAM) Served
Addressable Market. Basically, it is the difference between a complete market
and the portion you would be able to serve. This is helpful to keep in mind if
you are targeting a niche market. The SAM niche may be small, but if there is
applicability to the TAM it could be viewed more favorably.

Here is a good link describing SAM vs. TAM:

[http://windowmanager.blogspot.com/2005/05/wth-is-tam-sam-
som...](http://windowmanager.blogspot.com/2005/05/wth-is-tam-sam-som.html)

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patio11
_where do hackers look to discover the size of their target markets?_

Its a whole lot of voodoo and has little to do with anything that matters to
your business, since for a market of any size you're going to be limited by
how much of it is addressable anyhow.

I swear, the only reason people even bother checking is so they can present
the "if we got 1% of $350 million..." argument that everyone says they know is
useless.

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nostrademons
They're very often wild-assed guesses. The introduction of a revolutionary new
product often changes the market size significantly. For example, the market
for computers got a lot bigger when the Altair was introduced (a world market
for _6_ computers? Really IBM?), then bigger still when the IBM PC was
introduced, then bigger still Compaq and Dell and clones came about, then
bigger still when Win95 provided the first decent GUI for clones.

You can make some rough estimates by figuring out what substitutes your
product has, and then researching the combined revenues of all the products
you'll be replacing. This also degenerates nicely: if you can't think of any
substitutes, then it's fairly likely that you have a $0 market.

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skmurphy
How sensitive are the decisions you are trying to make to the actual market
size? A factor of two? A factor of ten?

Does the market exist? Does the need exist?

For startups, these last two questions are most useful in my experience:
trying to attack a large market because it is well established is not normally
a recipe for success unless you have some way to take advantage of a new trend
or a new technology.

I would also focus much more on what's required for you to reach break even
operation in a niche or segment since failure to do so will kill you more
quickly than many other things.

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jeromec
I think market research companies use existing sales data to estimate current
market size; figures can then be confirmed with light checking. The market
size estimate can be helpful to provide a reference on which to base rough
figures (which usually mean nothing) or hone an idea. Investors that may not
understand an industry do understand numbers, so that's why such figures are
popular. I'd keep in mind, though, that a market size can change up or down
for various reasons.

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ig1
If you have public competitors you can often find out from their annual
reports. For private companies published interviews with senior staff are
often useful. Generally for most markets you have some idea of who the major
players are and how the market share breaks down, so even if you can only get
data for a few of the companies you can form a decent estimate.

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eande
In this particular instance you could use semiconductor market statistics,
they often break the component usage down to market. They are usually for free
and give some kind of indication. But as mentioned before there is lots of
smoke around the market size subject and someone has to take these stated
numbers with a grain of salt.

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jdrock
If you're trying to put together a business plan, investors will want to hear
your "total addressable/available market", which means what's the most $ your
company, specifically, could make.

TAM is size of your company's market * price of 1 unit of your product.

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zaidf
To get a rough idea, sum up the rough revenues of the public companies in that
industry.

