Is this how these things are usually calculated?
Does a watch manufacturer say that there are approximately 255 million left arms which we can reach by post, and since our watches sell for $1000 that's a $255B opportunity?
Does a watch manufacturer say that there are approximately 255 million left arms which we can reach by post, and since our watches sell for $1000 that's a $255B opportunity?
Yes, it’s a run-of-the-mill back-of-the-envelope TAM [1] estimate. The point of this number isn’t to value the company. It’s to identify obvious limits to scaling.
[1] https://en.m.wikipedia.org/wiki/Total_addressable_market
In my experience, it's more likely in order to show an enormous number as a way of telling investors, the executives you need to approve your product/project, etc. that your thing has just incredible potential.
It has some value. If the TAM isn't very big and you'd have to achieve 50% of it to ever turn a profit, that may be a red flag. But TAMs that lead to business projections like: "We only need to put our watch on 10% of the left arms in the world to make a huge pile of cash!" are pretty bogus.
I suspect if you added up all the TAM estimates for all the industries on Earth you'd get a number somewhere north of 10x the actual total value of the markets on Earth. I feel I'm being conservative; I really wanted to say 50x, but chickened out at the last minute before posting.
But isn't making a claim that it's plausible that every square inch of office space in every modern city will be managed by WeWork actually doing the opposite of identifying some of the obvious limits to scaling?
I suppose some of this is addressed elsewhere under other sections, and the fact that it's called the Total Addressable Market explains a lot, but it does seem remarkably arbitrary and to be of very little value.
They are just doing simple back of the envelope math using their current metrics, but in word form.
No one is suggesting that those numbers will actually be achieved.
Since their actual market is more niche (in practice it seems to be satellite offices, startups and remote workers) than general commercial office space, I'd still propose that it's significantly overstated, but thanks for the correction regardless.