Total Addressable Market: Part 1 (Uber, Classpass, Square)
Paul Graham, founder of Y-Combinator, describes the “TAM” as the following, “Founders think of startups as ideas, but investors think of them as markets. If there are x number of customers who’d pay an average of $y per year for what you’re making, then the total addressable market, or TAM, of your company is $xy. Investors don’t expect you to collect all that money, but it’s an upper bound on how big you can get.”
Uber
Bill Gurley, Series A investor and board member of Uber, did a huge blog post on Uber’s market size and how people can get it wrong. In the post we calls out an NYU professor, Damodaran, which is incorrectly measuring the market size. Gurley writes, “In choosing to use the historical size of the taxi and limousine market, Damodaran is making an implicit assumption that the future will look quite like the past. In other words, the arrival of a product or service like Uber will have zero impact on the overall market size of the car-for-hire transportation market. There are multiple reasons why this is a flawed assumption. When you materially improve an offering, and create new features, functions, experiences, price points, and even enable new use cases, you can materially expand the market in the process.”
It’s true, the initial addressable market are taxi and limousines, but as Uber has hinted, it is going after car rental, children transport, older folks transport, a supplement for mass transit, and lastly an alternative to car ownership. That’s just transporting people. There is a whole layer of building out an infrastructure on transporting goods.
Classpass
Since our culture continues to reward people which are fit with attention, we will only see a rise in gym attendance. The total addressable market is anyone that is currently a gym goer as well as anyone that is interested in only classes. Because there is a wide range of specialized classes that are offered, ClassPass is a real competitor to full service gyms.
Square
There are 2 markets: the consumer and the business. As far as consumers, the point is to displace credit cards, so it is everyone who uses a credit card to purchase goods. For businesses, it’s every small business. In 2010, there were 27.9 million small businesses according to the US Census Bureau.
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