Skill Level Beginner
- Hey everyone, welcome back. This section is all about competitive market analysis. A big part of product manager is making sure that the market you're attempting to address is large enough to make it worth going into. This applies if you're a product manager at a company and you're looking at building a feature or product that will put you in another market, or if you're starting a new business on your own. There are two common approaches to thinking about market sizing. One of them is top down and the other one is bottom up.
The top down analysis is calculated by finding the total market and then estimating what your share of the market is. Let's say that we'll selling an Iphone app, for let's say ice cream connoisseurs. A top down estimate would be something like, okay, we know there are 100,000 ice cream connoisseurs with Iphones in the United States, so if we can just get 10% of them, to download our app at $5 a piece, we're going to make $50,000. The problem with this approach is that you need to make assumptions on how much market penetration you will have inside that market.
Even though it sounds reasonable, it's not the most respected way of estimating the potential market. A bottom up analysis is done by thinking about the current sales of similar products and then estimating how much of those sales you can capture. This is a much more accurate approach because it looks at patterns that exist in sales today, rather than the total market. This is a better way to do it as a product manager, but it takes a little more effort, and takes a little bit longer. Again, let's pretend we have an Iphone app for ice cream connoisseurs. First we must ask ourselves where people currently buy apps related to ice cream or food.
Obviously this would be the Apple app store, in this case. Next we think about the volume of sales for existing similar apps. You may think that there's nothing similar to your app, but in reality there's probably things at least slightly similar. If there are no other ice cream connoisseur apps, we could look at other apps that have to do with other types of desserts or foods. We do a little bit of online research or we look at websites like App Annie, and we look at the sales volumes and popularity for the existing apps out there.
So let's say that the similar apps are downloaded about a thousand times per month globally. At that point we can make a conservative assumption and say that if we get 5% of the sales that they do per month, it comes out to be about 50 downloads per month. So do you see the difference between these two approaches? The top down approach thinks about the total market size, or the potential number of users, which is always quite optimistic. The bottom up market looks at the current trends and data to make sure our assumptions stay a little closer to reality.
It is much better to be conservative when it comes to starting a product or business, or adding a new feature, than it is to be overly optimistic. Lastly, I want to give you some tips on tools and techniques you can use to look at some market data. One of the first things you can do is just Google industry reports for x, or industry or market size for x. Just using Google, this is a really good way to find already existing reports that industry research groups have put out. Secondly, if you are looking at websites of competitors, or other similar apps, then you can use a website like compete.com and look at the amount of traffic the different competitive websites get.
You can compare this to other ones, or other industries, and get a really nice competitive overview. Another tool you can use is the Google AdWords keyword tool. This is a tool that Google provides for people to do research on advertisements they want to place with Google. It shows you the volumes and related terms of searches on Google, and it is extremely valuable in determining the amount of interest out there for your app or your product. You can also search things like Twitter and Reddit to see what people are saying about things related to your product.
This also has the bonus of showing you what frustrations they're having, if any, because people usually will add additional comments or respond and say, well this is what I like or don't like about a certain product.