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Mercator LabsHybrid Market Sizing: Tapping into both New and Existing Markets | Mercator Labs

Hybrid Market Sizing: Tapping into both New and Existing Markets

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Defining market opportunity is a common yet sometimes complicated exercise when a company is exploring a growth strategy. Larry Cheng, Managing Director at Volition Capital, covered the topic of examining market size when it comes to a prospective investment. Aside from a great perspective, the blog post ends by briefly exploring companies that are looking to gain market share in both existing and new types of markets. This post expands on that idea, with examples and thoughts on how entrepreneurs and even venture capitalists can examine both in an integrated way.

Before we get down too far into this market sizing rabbit hole, let’s quickly define what this hybrid market sizing efforts consists of. And for consistency’s sake, this post will reference Larry Cheng’s definitions:

Existing market: where companies target customers who already are spending money buying exact or similar products and services. Examples include Care.com, Chewy.com & Square.

New market: where companies target customers who are purchasing/ consuming an entirely new product or service. Examples include SpaceX and Twitter.

Hybrid market: where companies look to disrupt both existing markets and then leverage their momentum to enter adjacent markets that aren’t as clearly defined. Example includes global technology platform, Uber.

The hybrid market is the most interesting and complex to explore. Quantifying a new market, potential interest, adoption and qualifying metrics is almost as much of an art as it as a science. For example, let’s consider Snapchat.

The ephemeral photo sharing app isn’t the first of its kind (general photo sharing app) so it goes into the “existing market” category, right? The argument can be made that the company is taking an existing market size, smartphone owners that share photos, and segmenting into a particular demographic based on a one tiny but significant feature- it’s ephemeral.

Looking further into the Snapchat ecosystem, adjacent business model such as Snapchat Discover begin to tackle an evolving way to deliver two overlapping forms of content to a younger demographic: media & advertising. The Snapchat team can’t turn around to investors and simply slap an advertising bottom line that the company can tap into. Yes, it can be a baseline, but the story must be much more in-depth as it will be working with brands to pave a new line of communication with Snapchat users. A much more difficult and potentially highly rewarding task.

Again, these aren’t necessarily new markets to size up potential growth in but the delivery itself of the product is entirely different and needs to be appealing to an audience more detached to cable TV, banner ads and purchasing CDs (unless you’re a Swiftie).

Amazon and Google are other examples of companies that both pioneered the core businesses they operate in (online retail & search) but both have branched out to build/buy/invest in entirely new models, say self-driving cars and smart home technology.

On the other end of the spectrum, there are a myriad of new companies building facial recognition software, next-generation robotics, virtual reality and much more. Some will develop into multi-million dollar enterprises while others might end up under the legacy of a much bigger technology company. Either way, tackling the issue of hybrid market share is a growing challenge for new companies disrupting new spaces. And it’s not a simple linear equation.

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