2021 goes to be another glorious year for e-commerce.
It’s that time of year when most of us look at “total addressable market” estimates to plan specific campaigns. Unlike us, if you got your 2021 kickoff in the third quarter, bless your soul. You are an enlightened being.
For the rest of you for whom e-commerce is a strategic market, I have a question: have you built your total addressable market (TAM) and serviceable addressable market (SAM) estimates for 2021 given how things are going in 2020?
It is important to understand the dynamics of the underlying business model of companies and to view TAM from these perspectives.
For most of us, searching is the repetitive, mind-boggling exercise of clicking links on Google until they all turn purple – at which point we begin to search for the simplest possible explanation. For e-commerce, addressable market estimates come in the form of headlines from platforms like Shopify. The company cites a number of merchants in its results calls and this becomes the basis for estimating the current APR of e-commerce businesses.
The other, rather simplistic, approach is to look at the number of users from multiple databases that publish user statistics at the technology platform level.
In reality, the simplest answer is not the correct answer.
Watch out for the gap
Consider the e-commerce shopping cart facilities. Shopify, Magento, WooCommerce, BigCommerce, and others publish install numbers that run into the millions.
Here is the dichotomy that should frame your TAM discussions.
E-commerce is heavy in the long run. Yes, there are millions of merchants, but e-commerce revenue is a lagging phenomenon – meaning that a disproportionate amount of e-commerce revenue comes from a few tens of thousands of businesses.
PipeCandy publishes bottom-up TAM estimates with detailed data cuts by technology, logistics and payment systems adoption by businesses across revenue levels in all major markets. One of the common misconceptions we see in the way companies misinterpret TAM estimates is that they equate revenue with spending potential.