User base definitely an important factor for the success of a product. When a product is planned to launch in a market, the company decides to check the current market size, total addressable market or TAM, pricing strategy, to go market strategy, marketing/ sales channel, competitor analysis etc. But everything is determined around the user because all products are developed to solve customer or user problem.
A small example how a user base helps to determine the size of the market and expected revenue from it.
Windows operating system desktop version controls almost 75% of world's desktop operating system market. If tomorrow Microsoft launches a product, it will automatically have the existing user base to cater its product. Even 5 % of the existing user base accept and purchase the new product, it will be a huge revenue for Microsoft.
IOS or apple device now crossed 1bn count. If Apple decide to launch something similar to Amazon Kindle, it will automatically inherit the existing user base. If each new device cost around 100 dollar and 10 percent of the apple existing customer decides to buy, it will generate 10bn dollar revenue.
This example proves how big companies with existing huge user base, don’t think much on the total addressable market. Similarly for a new company, it is quite a challenge to capture user base at the beginning. A new company generally plan for bottom-up approach to size the market, get sales data from market research report, categorize the direct competitors/alternate product/substitute, then tries to identify the total addressable market. It needs to be very good in its planning to make the product launch successful.
Instagram was successful in this way, and it was bought by Facebook for a whooping 715mn dollar.
No comments:
Post a Comment