If you've ever done Total Addressable Market (TAM) calcs for your startup, then you've labored for hours, if not weeks and months, to try to come up with a set of bulletproof numbers for investors. I've been there. Time and again. It’s a hard and exhausting process.
On occasion, a magical stat lands in your lap. The kind of stat you wish you had months or years earlier.
Such a stat just showed up and punched me in the face, courtesy Gartner (thank you!).
That stat is 21%.
Because it was always going to be fuzzy to derive a persuasive TAM from high level market research (which is mostly commonly done), we chose to go down the route of “counting noses” i.e. we made an estimation of the total number of independent consultants and consultancies across the globe and we pegged a gross income against each to net out a Total Addressable Market, out of which we’re taking a growing bite.
I love the “counting noses” approach.
Counting noses also requires lot of work and a lot of data collection, but the end result feels a lot more accurate. It’s the product of hands-on analysis.
Some investors appreciate this approach, too, but I’ve found most don’t, or they prefer to see big brand sources like Gartner, Forrester, IDC and the like. Thankfully our investors, all private backers from Google, Oracle, WPP and most of the other big six marketing services groups, have given our TAM a green light.
Now, back to that magical Gartner stat: 21%
According to Gartner’s CMO Spend Survey 2018 – 2019, 21% of CMO’s budgets in the UK and US are deployed for “External services to develop, implement and integrate marketing applications.”
That’s a very specific number for a very specific set of services (the very services that brands and agencies turn to MeasureMatch for). And that number helps to to derive a more accurate TAM. Versions of this stat have shown up in earlier Gartner reports, and in eMarketer’s aggregations and in other places, but not in this specific way. Or not that I've seen anyway.
Now, using this stat, I've done a few new calcs to better frame up the Total Addressable Market that we're eyeing.
On a "counting noses" basis, we had made a pretty solid estimation of the number of qualified independent tech & data professional services pairs of hands out there (that number is 500,000) and we mapped in an estimated annual gross income that each should realize (that number is USD $50,000), in mature markets, in which we’re primarily operating.
The math nets out a cool $25 billion TAM.
This might seem like a big number, but I've always thought it was conservative. Potentially very, very conservative.
Especially when you take into account IDC's digital transformation spend forecasts, which reach into $2+ trillion in 2021.
In fact, IDC calls out one fifth of global technology spend, right around $1 trillion, will be dedicated to services.
It's hard to know which % of IDC's spend forecasts are relevant for our own TAM calcs, but given our current focus on solving for marketing,commerce and customer experience business needs, Gartner’s 21% is useful.
And, it reaffirms my gut feeling that the TAM it yields for us is very conservative indeed.
If 21% is indeed about right, then we're easily looking at a TAM that's closer to $60 billion, which is roughly 20% of UK and US CMO budgets in 2018.
And, no doubt, part of the IDC digital transformation spend forecasts are for MeasureMatch to take as well.
So, what is our Total Addressable Market? Today, I'm confident it's much closer to a solid $100 billion. That's a number I can live with.
Food for thought. Your thoughts? Tell me with a note to firstname.lastname@example.org.
Rock 'n Roll,
Investors regularly ask “scale” questions. They annoy me. Yes, the questions and, often, the investors.
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