Market Modeling
Most high technology companies do not find themselves able to quantify the size of their market because it is either not defined or not tracked in the detail they need to assess opportunities and where they sit in the market. Market modeling can address this problem and provide management and investors with an assessment of the opportunities in their space.
Approaches will vary widely, but there are ways to be sure that the estimated market size is not larger than the Gross Domestic Product of the United States, does not double count the opportunity and rationally makes sense. It might be the overall population of a category (consumers or businesses), or the population of things (aircraft, homes, cars, etc.) or the part of a consumer or business budget that might be re-allocated, but it cannot exceed them.
If you expect consumers to pay $200 one-time or monthly in your market space, do they do that already (so you are trying to get them to switch … like from Satellite to Cable) or are you trying to pioneer a new category (like tablets) where you are trying to get them to purchase something different than today (PCs). Rest assured they cannot magically increase family budgets. They need to re-allocate them or defer other purchases to buy your product or service.
The same is true of businesses. They are already spending as much as they can afford. If you can prove performance and are willing to be compensated only if you deliver results that can be quantified as cost savings or incremental revenue generation, you might have a compelling proposition for them to allocate funds.
Before you pay for information about market sizes that seem to be appropriate to your company, be sure to question the vendor in detail about how they develop their estimates. If they don’t do considerable primary research themselves, it is merely a very rough estimate and unless you need to have a brand name you can cite for the estimate, you are better off developing your own, or having someone who knows what they are doing develop one for you.
