2021 is going to be another glorious year for e-commerce.
It's that time of year when most of us look back at "total addressable market" estimates to plan specific campaigns. Unlike us, if you got your 2021 kickoff in Q3, 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 estimates of Total Addressable Market (TAM) and Serviceable Addressable Market (SAM) for 2021 considering how they have evolved things in 2020?
It is important to understand the dynamics of the underlying business model of companies and view the TAM from those perspectives.
For most of us, searching is a repetitive and upsetting exercise of clicking links on Google until they all turn purple, at which point we start looking for the simplest explanation possible. For ecommerce, addressable market estimates come in the form of headlines from platforms like Shopify. The company mentions a merchant count number in its earnings calls and this becomes the basis for estimating the current TAM of e-commerce companies.
The other, rather simplistic, approach is to look at the count of the user base from different databases that publish user statistics at the technology platform level.
In reality, the simplest answer is not the right answer.
Beware of the gap
Let's take the e-commerce shopping cart installations. Shopify, Magento, WooCommerce, BigCommerce, and others publish install numbers that run into the millions.
Here is the dichotomy that should frame your TAM discussions.
Ecommerce is long-tail heavy. Yes, there are millions of merchants, but e-commerce revenue is a fat tail phenomenon, which means 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 reductions for technology, logistics and payment systems adoption by companies of all revenue levels across all major markets. One of the common misconceptions we see in how companies misinterpret TAM estimates is that they equate revenue with spending potential.