It’s difficult to predict the market size for a market that doesn’t already exist yet, as Andreessen Horowitz analyst Benedict Evans explains in a blog post about the problem with accurately forecasting sales of the Apple Watch.
When trying to work out the market potential for something new you have to solve two linked problems, he writes:
1) You have to look past what is now and see how much better and cheaper it might become.
2) You need to think about who would buy it now, and who else would buy it once it is better and cheaper and how it might be used.
Evans said the problem also applied to mobile phones in the 1990s:
You could do a bottom-up analysis that counted business travellers, taxi-drivers, fleet dispatch and so on, and get to maybe 10-15% of the population. Lots of people did that in the 1990s. They were all wrong. For phones, as for PCs, you had to make an imaginative leap into the unknown. You had to say ‘I believe’ that this experience will be transformative, and everyone on earth who has the money will get one. Moore’s Law takes care of ‘having the money’ meaning 4-5bn people, but it’s the imagination that gets you to teenage girls living in text messages. You could predict that phones might get really cheap, but not what that might mean.
These two lines of thinking were demonstrated two early adverts in the early years for the mobile phone industry in the UK.
Here’s an ad for BT Cellnet, which Evans says took on that rational 10-15% argument. It seemed logical at the time, but it was completely wrong.
Orange, two years earlier, took the other route: That the mobile phone was universal. Everyone would have one.
Evans points out that the CEO at the time Hans Snook went went around saying the UK would get to 150% mobile phone penetration — “and most people thought he was mad.”
But Snook’s vision was spot on. In the UK, 93% of the population owns a mobile phone, according to the Mobile Operators Association, and many of those own more than own device. That number is only likely to grow further as the older population dies out and the younger, giving way for a more tech-savvy generation.
Another interesting nugget: BT spun off its mobile business in 2002. BT is now looking to buy EE (owned by Orange and Deutsche Telekom) for £12.5 billion. It is, perhaps, paying the price for not being ambitious enough about the potential for mobile in those early days.
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