Any Point Sizing Uber’s Market?

dT4o7gXGcSeveral people have attempted a reasonable analysis of Uber’s target addressable market (TAM).  Analysis by FiveThirtyEight blog gave Uber a generous TAM of $100 billion growing to $184 by 2024. I gave a conservative estimate of $22 billion growing to $28 by 2018.

Seeing analyses like these based on current market and growth assumptions, most point out, that for disruptive services like Uber the approach ignores market expanding beyond known sources because a new easy to use product is now available. That is, ease of use, affordability and convenience of Uber will accelerate the market growth 2X, 3X or 5X and not the programmed in 5% growth for Taxicab market. As supporting evidence we hear the disconnect between Taxicab market in San Francisco, $100 million vs. Uber revenue of $300 million from San Francisco.

Let us reset. Let us go the other direction. Let us not size based on Taxicab market but as a share of passenger miles travelled worldwide. What we are saying is Uber will take a share of total passenger miles travelled – which means displacing cars, buses etc. Let us make it huge and make a case for even higher valuations.

Here is total Car+Bus passenger miles travelled in four major geographies in 2014. Note that this is in Km and only for 4 Geos.


This is 9210 billion miles and if we give 150% multiplier for the rest of the world we get 14000 billion miles. This is all car and bus passenger miles.

Let us say 50% of this is simply not possible to reach for Uber  due to long distance travel, roads, etc. That leaves 7000 billion miles a year.

Cars ownership is not going away 100% but Uber is going to eat into it. Let us take  a number favoring Uber and say owned car miles will be just 50%. That leaves 3500 billion miles for Uber.

Uber makes $0.2 per mile on average, let us use that as basis. That is a $700 billion a year market.

That is a measly .28% market share for Uber.

Uber is growing 300% year over year. That is hard to keep up for next five years. So let us say it merely doubles every year for the next five years. It will reach $64 billion by 2020 and its market share will still be less than 10% of the $700 billion passenger miles market.

That is even after 5 years Uber will have lot more room to grow.

So here you go. Bring on the $1000 billion valuation next?


How do you find the weight of a circus?

How do you find market size for a product?

The same way we find the weight of a circus.

Let us start with a fun question. The following is neither a trick question nor a test of trivia knowledge. Do not google, do not wait for me to answer your follow-up question. Use only the information you already know and answer it.

In this multiple choice question, which option are you most confident about?

The total weight of a circus tent (with no people), animals and props is

  1. Exactly 457 tons
  2. Exactly 5240 tons
  3. Exactly 24,635 lbs
  4. Between  4000 and 7000 ton
  5. Between 100lbs and 100,000 ton

What did you pick?

I will give you another chance to change your answer. Note that I did not ask you what is the correct answer but the option you are most confident about. Think of it another way. If you were to bet 10 dollars on one option, which one will it be?

If you answered (4) or (5).  You are on the right path.

Any answer that states a single number is precise but comes with considerable uncertainty. We are not looking for a precise answer here. We are looking for certainty. That leaves out (1) (2) and (3).

Option (4) is not bad but its range is too narrow to give us high confidence.

That leaves us option (5) as the only option we can pick with most confidence.   This is a wide range and is not precise, yet we can be certain that the true weight lies somewhere between the two numbers.
The lack of precision is an issue. So how do we fix it? You do not try to look at the circus as single entity but look at it as sum of its parts (which it is). Then try to make estimates about the numbers and weights. For example,
  1. A circus has one main tent that has 30 to 50 poles weighing 10 to 40 lbs each
  2. It has 2 to 3 secondary tents with 10-30 poles weighing 10 to 40 lbs each
  3. Each tarp weighs 1 to 4 tons
  4. A circus has 4 to 8 lions weighing 300 to 400 lbs
  5. A circus has 3 to 10 elephants weighing 2000 to 3000 lbs
  6. you get the picture

What you have done by looking at the parts is reduced your high margin of error in the total to many smaller margins of errors in the components. That helps you get more precise (smaller margin of error) because you are handling components you have more knowledge about and can improve your knowledge about. When you add up these components the total margin of error will be far less than what it was when you estimated the total directly.

So how do you find the weight of circus? You try to make it a range estimate with a stated margin of error and confidence level. You try not to make a direct estimate with high margin of error. You estimate the parts and then come up with a better estimate with lower margin of error. You never try to state a single number that is guaranteed to be wrong.

Now how do you estimate the market size for

  1. Curling irons?
  2. Blow Dry Bar
  3. Wearable fitness device
  4. DELL Tablet
  5. iWatch


Challenging the Certainty in the Claim I often Make

I recently made a comment about a pricing article that recommends doubling prices.

The article under question claims,

Higher prices simply work better. Here’s seven psychological reasons why… (and gives seven reasons)

You may think I make similar claim too. Well, am I on solid ground making a comment like this with bold claim?

If one price is good, two are better.

It states that if it were possible to sell a product profitably at one price, it is certain that there will be higher profit from two prices.  Note that the profit here means Price less marginal cost and does not include fixed cost. You might find there are other cost components that make the second price untenable. But that is a factor you can control.

Some time back I did take a critical look (to an extent I can suppress my own biases) at this claim.

It is impossible for me to re-do years of economic research on consumer surplus, price discrimination and other economic works. The  statement I make relies on those works first started by Pigou.

The point to note is that my claim is not inductive logic. It does not follow from this statement,

“if two prices are good, three are better”

Yet, I did not address adequately the certainty in this claim. Shouldn’t this claim be more like,

“if one price is good, two are likely better for most situations”


Let us rely on the works of  Thomas Bayes for this (P is the probability)

What I am stating with my claim is,

P(2 are better | 1 is good)  = 1 and not

P(2 are better) = 1

That is a huge difference.

The first probability statement is conditional probability. It is the equivalent of stating, “you picked a random card from the deck, if it is Jack of Spade, then we are certain that it is a face card).

It states that if it were possible to sell a product profitably at one price, it is certain that there will be higher profit from two prices. Either a moment’s reflection will convince you or you need to dwell into tomes of economic research.

The second probability statement is false. To see that we have to expand it

P(2 are better) = P(2 are better| 1 is good) . P(1 is good) +
P(2 are better | 1 is not good) . P(1 is not good)

As you can see from practice, P(1 is good) is a much small number than 1 and hence the it is not at all certain “two prices are always good”.

Ignoring all these, the net of these to you the marketer/entrepreneur/product manager is

If you find a market for your product at one price, you will find bigger market (measured in $$) at two prices.