Taking a relook at “Total Addressable Market”

SoftBank has reported a USD4.7 billion dollar loss from their investment in WeWork, the embattled office-sharing space company.

As the co-working space company undergoes a 90-day massive rescue plan, The Information reports about the distinction investors need to make about TAM or Total Addressable Market versus SAM, serviceable addressable market.

According to the news website, it is essentially the difference between the maximum possible market and what your business can practically reach.

Jessica Lessin, founder of The Information shared that tech companies and their investors have based massive valuations on only the TAM measurement, and referred to Bill Gurley’s blog post from 2014, as one case study.

Bill Gurley, a Uber investor had argued that the TAM for the ride-sharing company was USD1.3 trillion which takes into account the car ownership alternative market, and not just the car-service and taxi market which was merely USD100 billion.

In summary, he had argued that Uber could reasonably be valued at USD148 billion. Fast forward to today and the company is learning that the ride-hailing market, nor its share of it, is growing as fast as investors planned for.

Public investor value Uber at around USD46 billion now. (Ed note: EITN had mistakenly reported that figure to be USD146 billion. The correct figure is USD46 billion).

WeWork is learning this the hard way, with a co-founder CEO who has exited, an anticipated IPO put on hold for an undetermined period, and a loss of nearly USD2 billion last year.

WeWork had wanted to help change the way people work, live as well as help them ‘live life with purpose.’

The numbers don’t add up

Jessica foresees another market poised for a TAM/SAM reckoning – the global streaming video service.  She wrote, “If Disney, Netflix, WarnerMedia, and Apple all reached projections, there would be 577 million streaming customers globally by the mid-2020s. There are only 110 million broadband households in the U.S.

Even if you consider global customers, the numbers don’t add up because many of these services aren’t allowed in China, the world’s biggest broadband market.”

When the numbers don’t add up, the “Go Big or Go Home” quote, most definitely does not apply.