Marketing & Sales Roundtable
Sizing and Validating the Opportunity in
Emerging Markets
July 2002
Agenda
11:30
– Introductions/Objectives
11:45
– Presentation and Discussion
1:15
– Summary and Wrap-up
©2002 Li z Arrington
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Contents
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Objective for and uses of market size information
Market-sizing project process
Market-sizing process tips
Total available market (TAM)
Served available market (SAM)
Share of market (SOM)
Reviewing implications of market information
Appendix
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Objective of Market-Sizing
To quantify and validate the business opportunity in order to
paint a compelling and defensible picture of that opportunity for
stakeholders
• Investors
• Company personnel
• Customers
• Partners
• Market analysts/press
What makes it difficult?
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Uses of Market Size Information
• Fundraising
• Business planning
• Validation of business and pricing model assumptions
• Competitive analysis
• Resource planning
• Prioritization of customer segments and associated product
development efforts
• Prioritization of account opportunities
• Identifying and characterizing major market swings
• Measuring progress against the market opportunity
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Market-Sizing Project Process
Define
business
strategy
assumptions
 Positioning strategy
- Market and
customer
segmentation
- Critical need
- Competitive
differentiation
 Business and pricing
models
 Partnership and
channel strategy
©2002 Li z Arrington
Set timeframe
and growth
metrics
 3-5 years
 1 year of actual
market segment
numbers
 Annual growth
rates
 3-5 year CAGRs
Identify
relevant
analogs
 Products
 Markets
 Industries
Select
best
information
sources
Model market
from 3
perspectives
 Financial analysts  Total Available Market
 Market analysts
(TAM)
 Trade
associations
 Served Available
 Public Co.
Market (SAM)
information
 Share of Market
 Trade journals
 Channel partners
(SOM)
Highlight
market trends,
discuss
key
implications





Marketing
Sales
Finance
Engineering
Operations
 Market penetration
rates
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Market-Sizing Process Tips
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Be conservative in establishing baseline assumptions
Recognize that exact numbers will not be available and get comfortable with making educated
assumptions
Be open to use of analogs that share relevant characteristics
List and research all sources of potential competition, direct and indirect
Use established, reputable, recent (3-6 months old) information sources and compare them against
one another for consistency
Financial analysts (Investex): Goldman Sachs, Merrill Lynch, Morgan Stanley, Salomon Smith Barney,
Robertson-Stephens…
• Market analysts: Forrester, Gartner-Dataquest, IDC, Meta, Probe, RHK, Yankee…
• Trade associations and trade journals
• Company (competitor, customer, etc.) information: annual reports, filings and investor presentations, press
releases…for public companies see Edgar, 10K Wizard
• Channel partners and personal networks
Design Excel model for flexibility, reflecting assumptions in editable variables that enable sensitivity analysis
(support from an Excel whiz is an absolute necessity!)
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Total Available Market (TAM)
Definition: Total units/$ available at all potential customer companies for relevant categories
of products/services and applications
Approach: Top-down analysis using market forecast data
If customer spending
numbers do not exist
Define potential customer
spending data to collect:
• geography
• market category
• product category
• applications
If product category is not
yet tracked by analysts
Extrapolate from higher-level
budget category data:
• Define categories (e.g. Capex,R&D)
• Develop percentages assumptions,
validating with analogs for which
market data is available
Research spending on current
(analyst-tracked) solutions for
potential applications*
Estimate total potential
product/service (or
application) spending
for 5 years (TAM),
including sanity
checks
* Note: If competition is in-house solution, estimate and validate costs (e.g Human Resource)
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Served Available Market (SAM)
Definition: 100% of the units/$ available from addressable customer companies
for addressable percentages of applications that company can serve.
Approach: Top-down analysis using market forecast data
Define percentage of
applications/customers that
product/service can address
• Technical capability of company
• Market adoption of technology
• Geographic reach
• Target customer segments
Apply addressable
percentages to TAM
numbers to estimate
relevant customer and
application spending (SAM)
for 5 years
Compare SAM to TAM
(SAM should be lower!)
Note: For markets with a clearly-defined universe of potential applications and customer
companies, a bottom-up analysis (using company sales and pricing assumptions) can be used
to validate pricing strategy
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Share of Market (SOM)
Definition: Projected company penetration of the SAM by year
Approach: Bottom-up analysis applying company pricing model to per
customer company and/or application sales assumptions
Define target market &
customer segments
• ‘Named’ customers
and applications in
priority segments
• Installed base and
growth assumptions
for partner
products/service
©2002 Li z Arrington
Develop penetration
(unit sales) assumptions
given planned company
and channel resources
• Which customers or
installed base
• What level of penetration
of an account over what
period of time
• Apply pricing model to unit
sales assumptions to
calculate SOM for 5 years
• Compare SOM to SAM to
TAM
- SOM should be lowest
number (<10% of TAM)
- SOM should exceed actual
revenue projections
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Reviewing Implications
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Re-evaluate all business assumptions in the context of identified market trends and market and
customer segment sizing findings
• Positioning strategy
• Market and customer segmentation
• Problem statement/critical need
• Competitive differentiation
• Business and pricing models
• Partnership/channel strategies (define need to understand TAM & different levels, e.g.
OEM)
Review and discuss findings and implications with:
• Executive management
• Board of Directors
• All functional areas: marketing, sales, finance, engineering, operations
Plan process and timeline for regular market updates
• Timing: quarterly and annual
• Coverage: market trends, current/potential/lost customers, competitors, partners
Maintain and use list of best (closest and most accurate coverage) analyst sources as inputs to
marketing communications strategy and analyst programs
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APPENDIX
- TAM Examples
- SAM Examples
- SOM Examples
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TAM Example – Dense IA-32 Servers
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Challenge: Need to use widely available and detailed macro data to break down very large
Intel Architecture (IA) server market into meaningful pieces
Approach:
• Defined geographic rollout plan
• US only for years 1-3
• International for years 4-5
• Determined most relevant server characteristics and adjusted total shipment numbers
accordingly
• Application = Internet server
• Form factor = Rack-dense (rack-optimized traditional and blade servers)
• Processor = 1 and 2-way processors
• Operating Systems supported = Linux for year 1, add Windows in year 2
• Sourced and applied projections for IA server OS penetration & growth rates (discounting
for upgrades and redeployments on existing HW)
• Estimated total available market for 5 years
Source: MarketFocus
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TAM Example – Dense IA-32 Servers
Rack Dense Internet Server – Total Available Market in $MM
(2000-2005)
$20,000
$18,668
$18,000
$17,013
$16,000
($MM)
$1,786
LINUX (US) – CAGR = 29.6%
NT (US) – CAGR = 15.9%
LINUX + NT (ROW) – Growth Rate (2004-2005) = 9.7%
$14,000
$1,960
$5,880
$5,359
$12,000
$10,000
$8,000
$5,971
$6,000
$3,348
$4,000
$536
$2,000
$2,812
$4,070
$712
$3,358
$4,732
$1,314
$9,868
$10,827
$946
$3,785
$4,657
$0
2000A (US)
2001E (US)
2002P (US)
2003P (US)
2004P (WW)
2005P (WW)
Sources: IDC (October – December 2001)
Source: MarketFocus
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SAM Example – Dense IA-32 Servers
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Challenge: Need to further refine segmentation assumptions for next generation product
planning
Approach:
• Identified functional applications (within Internet server market TAM) that are
addressable by Linux and NT server farms
• Internet infrastructure
• Collaborative applications
• Application development environments
• Scientific and technical
• Estimated percentage of each application that company’s solution could technically
address (by year)
• Applied forecast growth rates for:
• Relevant applications by OS
• Relevant server sales
Source: MarketFocus
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SAM Example – Dense IA-32 Servers
Worldwide Internet Server Spend by Application and OS
(2000)
12,000
10,000
Unix
NT
Linux
Other
($MM)
8,000
6,000
4,000
2,000
0
Web
Infrastructure
Business
Processing
Collaborative
Decision
Support
Application
Development
Technical
Compute Only
Other
Sources: IDC (October- December 2001)
Source: MarketFocus
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SAM Example – Dense IA-32 Servers
Total Available vs Served Market in $MM
(2001-2005)
20,000
$18,668
18,000
$17,013
16,000
Served Available Market – CAGR =105.9%
($MM)
14,000
Total Available Market – CAGR = 46.3%
$12,796
$11,661
12,000
10,000
8,000
$5,971
6,000
$4,732
$4,070
$4,534
4,000
2,000
$712
$946
0
2001
2002
2003
2004
2005
Sources: IDC/Gartner/Meta (2H 2001- 2002)
Source: MarketFocus
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SOM Example – Lab Automation SW
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Challenge: Need to calculate potential value of market that company plans to
penetrate
Approach:
• Identified potential target accounts that made up 80% of the SAM and built on
first-hand knowledge of selected companies to estimate the number of labs per
company for entire population
• Estimated the percentage of labs within a penetrated account that company will
be able to address per year
• Defined criteria for account selection (type of company/risk profile, projected
minimum budgets, spending on new services, geography)
• Projected the number of new accounts per year that company will have the
internal resources to address
• Incorporated assumptions regarding recruitment of SI partners and their ability
to develop new customers and expand business with existing customers
• Selected accounts for each year and applied company pricing formula to
estimate the SOM
Source: MarketFocus
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Presenters
• Liz Arrington,Consultant
Market Focus
650-329-0823
[email protected]
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