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Marketing & Sales Roundtable Sizing and Validating the Opportunity in Emerging Markets July 2002

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Page 1: Sizing and Validating the Opportunity in Emerging Markets v2

Marketing & Sales Roundtable

Sizing and Validating the Opportunity in Emerging Markets

July 2002

Page 2: Sizing and Validating the Opportunity in Emerging Markets v2

©2002 Li z Arrington 2

11:30 – Introductions/Objectives

11:45 – Presentation and Discussion

1:15 – Summary and Wrap-up

Agenda

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©2002 Li z Arrington 3

• Objective for and uses of market size information• Market-sizing project process• Market-sizing process tips• Total available market (TAM)• Served available market (SAM)• Share of market (SOM)• Reviewing implications of market information• Appendix

Contents

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©2002 Li z Arrington 4

Objective of Market-Sizing

To quantify and validate the business opportunity in order to paint a compelling and defensible picture of that opportunity for stakeholders

• Investors• Company personnel• Customers• Partners• Market analysts/press

What makes it difficult?

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©2002 Li z Arrington 5

Uses of Market Size Information

• Fundraising • Business planning

• Validation of business and pricing model assumptions • Competitive analysis• Resource planning

• Prioritization of customer segments and associated product development efforts

• Prioritization of account opportunities• Identifying and characterizing major market swings• Measuring progress against the market opportunity

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Market-Sizing Project Process

Define business strategy assumptions

Set timeframe and growth metrics

Identify relevant analogs

Model market from 3 perspectives

Highlight market trends,discuss key implications

Positioning strategy- Market and

customer segmentation

- Critical need- Competitive

differentiation Business and pricing

models Partnership and

channel strategy

3-5 years 1 year of actual

market segment numbers

Annual growth rates

3-5 year CAGRs

Market penetration rates

Financial analysts Market analysts Trade

associations Public Co.

information Trade journals Channel partners

Total Available Market (TAM)

Served Available Market (SAM)

Share of Market (SOM)

Marketing Sales Finance Engineering Operations

Select bestinformation sources

Products Markets Industries

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Market-Sizing Process Tips

• Be conservative in establishing baseline assumptions • Recognize that exact numbers will not be available and get comfortable with making educated

assumptions• Be open to use of analogs that share relevant characteristics• List and research all sources of potential competition, direct and indirect• Use established, reputable, recent (3-6 months old) information sources and compare them against

one another for consistency• Financial analysts (Investex): Goldman Sachs, Merrill Lynch, Morgan Stanley, Salomon Smith Barney,

Robertson-Stephens…• Market analysts: Forrester, Gartner-Dataquest, IDC, Meta, Probe, RHK, Yankee…• Trade associations and trade journals• Company (competitor, customer, etc.) information: annual reports, filings and investor presentations, press

releases…for public companies see Edgar, 10K Wizard• Channel partners and personal networks

• Design Excel model for flexibility, reflecting assumptions in editable variables that enable sensitivity analysis (support from an Excel whiz is an absolute necessity!)

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Total Available Market (TAM)

Definition: Total units/$ available at all potential customer companies for relevant categories of products/services and applicationsApproach: Top-down analysis using market forecast data

Define potential customer spending data to collect:• geography• market category• product category• applications

Estimate total potential product/service (or application) spending for 5 years (TAM), including sanity checks

Research spending on current (analyst-tracked) solutions for potential applications*If product category is not

yet tracked by analysts

Extrapolate from higher-level budget category data:

• Define categories (e.g. Capex,R&D)• Develop percentages assumptions,

validating with analogs for which market data is available

If customer spending numbers do not exist

* Note: If competition is in-house solution, estimate and validate costs (e.g Human Resource)

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Served Available Market (SAM)Definition: 100% of the units/$ available from addressable customer companies for addressable percentages of applications that company can serve.

Approach: Top-down analysis using market forecast data

Define percentage of applications/customers that product/service can address• Technical capability of company• Market adoption of technology• Geographic reach• Target customer segments

Compare SAM to TAM(SAM should be lower!)

Apply addressable percentages to TAM numbers to estimate relevant customer and application spending (SAM) for 5 years

Note: For markets with a clearly-defined universe of potential applications and customer companies, a bottom-up analysis (using company sales and pricing assumptions) can be used to validate pricing strategy

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Share of Market (SOM)

Definition: Projected company penetration of the SAM by year

Approach: Bottom-up analysis applying company pricing model to per customer company and/or application sales assumptions

Define target market & customer segments

• ‘Named’ customers and applications in priority segments

• Installed base and growth assumptions for partner products/service

Develop penetration (unit sales) assumptions given planned company and channel resources

• Which customers or installed base

• What level of penetration of an account over what period of time

• Apply pricing model to unit sales assumptions to calculate SOM for 5 years

• Compare SOM to SAM to TAM

- SOM should be lowest number (<10% of TAM)

- SOM should exceed actual revenue projections

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Reviewing Implications

• Re-evaluate all business assumptions in the context of identified market trends and market and customer segment sizing findings

• Positioning strategy• Market and customer segmentation • Problem statement/critical need• Competitive differentiation

• Business and pricing models• Partnership/channel strategies (define need to understand TAM & different levels, e.g.

OEM)• Review and discuss findings and implications with:

• Executive management • Board of Directors• All functional areas: marketing, sales, finance, engineering, operations

• Plan process and timeline for regular market updates• Timing: quarterly and annual• Coverage: market trends, current/potential/lost customers, competitors, partners

• Maintain and use list of best (closest and most accurate coverage) analyst sources as inputs to marketing communications strategy and analyst programs

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APPENDIX- TAM Examples- SAM Examples- SOM Examples

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TAM Example – Dense IA-32 Servers• Challenge: Need to use widely available and detailed macro data to break down very large

Intel Architecture (IA) server market into meaningful pieces• Approach:

• Defined geographic rollout plan• US only for years 1-3• International for years 4-5

• Determined most relevant server characteristics and adjusted total shipment numbers accordingly

• Application = Internet server• Form factor = Rack-dense (rack-optimized traditional and blade servers)• Processor = 1 and 2-way processors• Operating Systems supported = Linux for year 1, add Windows in year 2

• Sourced and applied projections for IA server OS penetration & growth rates (discounting for upgrades and redeployments on existing HW)

• Estimated total available market for 5 years

Source: MarketFocus

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Source: MarketFocus

TAM Example – Dense IA-32 Servers

Rack Dense Internet Server – Total Available Market in $MM (2000-2005)

$9,868$10,827

$2,812$4,657

$5,359

$5,880

$1,786

$1,960

$3,785$3,358

$1,314

$946$712

$536

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

$20,000

2000A (US) 2001E (US) 2002P (US) 2003P (US) 2004P (WW) 2005P (WW)

($M

M)

LINUX (US) – CAGR = 29.6%NT (US) – CAGR = 15.9%LINUX + NT (ROW) – Growth Rate (2004-2005) = 9.7%

Sources: IDC (October – December 2001)

$3,348$4,070

$4,732

$5,971

$17,013

$18,668

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SAM Example – Dense IA-32 Servers

• Challenge: Need to further refine segmentation assumptions for next generation product planning

• Approach: • Identified functional applications (within Internet server market TAM) that are

addressable by Linux and NT server farms• Internet infrastructure• Collaborative applications• Application development environments• Scientific and technical

• Estimated percentage of each application that company’s solution could technically address (by year)

• Applied forecast growth rates for:• Relevant applications by OS• Relevant server sales

Source: MarketFocus

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Source: MarketFocus

Worldwide Internet Server Spend by Application and OS(2000)

0

2,000

4,000

6,000

8,000

10,000

12,000

WebInfrastructure

BusinessProcessing

Collaborative DecisionSupport

ApplicationDevelopment

TechnicalCompute Only

Other

($M

M)

UnixNTLinuxOther

Sources: IDC (October- December 2001)

SAM Example – Dense IA-32 Servers

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Source: MarketFocus

SAM Example – Dense IA-32 Servers

Total Available vs Served Market in $MM (2001-2005)

$712 $946

$12,796

$4,070

$17,013

$18,668

$4,534

$11,661

$4,732

$5,971

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2001 2002 2003 2004 2005

($M

M)

Served Available Market – CAGR =105.9%

Total Available Market – CAGR = 46.3%

Sources: IDC/Gartner/Meta (2H 2001- 2002)

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SOM Example – Lab Automation SW

• Challenge: Need to calculate potential value of market that company plans to penetrate• Approach:

• Identified potential target accounts that made up 80% of the SAM and built on first-hand knowledge of selected companies to estimate the number of labs per company for entire population

• Estimated the percentage of labs within a penetrated account that company will be able to address per year

• Defined criteria for account selection (type of company/risk profile, projected minimum budgets, spending on new services, geography)

• Projected the number of new accounts per year that company will have the internal resources to address

• Incorporated assumptions regarding recruitment of SI partners and their ability to develop new customers and expand business with existing customers

• Selected accounts for each year and applied company pricing formula to estimate the SOM

Source: MarketFocus

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Presenters

• Liz Arrington,ConsultantMarket [email protected]