A few of us had a bit of a discussion via Twitter on the size of a particular market today. Another analyst and I disagreed on the projected size for 2009, but by a margin that’s basically a rounding error when you are looking at tech markets (even though it was a big percentage of the market in question).

I get asked all the time about how big this or that market is, or the size of various vendors. This makes a lot of sense when talking with investors, and some sense when talking with vendors, but none from an end user.

All market size does is give you a general ballpark of how widely deployed a technology might be, but even that’s suspect. Product pricing, market definition, deployment characteristics (e.g., do you need one box or one hundred), and revenue recognition all significantly affect the dollar value of a market, but have only a thin correlation with how widely deployed the actual technology is. There are some incredibly valuable technologies that fall into niche markets, yet are still very widely used.

That’s assuming you can even figure out the real size of a market. Having done this myself, my general opinion is the more successful a technology, the less accurately we can estimate the market size. Public companies rarely break out revenue by product line; private companies don’t have to tell you anything, and even when they do there are all sorts of accounting and revenue recognition issues that make it difficult to really narrow things down to an accurate number across a bunch of vendors. Analysts like myself use a bunch of factors to estimate current market size, but anyone who has done this knows they are just best estimates. And predicting future size? Good luck. I have a pretty good track record in a few markets (mostly because I tend to be very conservative), but it’s both my least favorite and least accurate activity. I tend to use very narrow market definitions which helps increase my accuracy, but vendors and investors are typically more interested in the expansive definitions no one can really quantify (many market size estimates are based on vendor surveys with a bit of user validation, which means they tend to skew high).

For you end users, none of this matters. Your only questions should be:

  1. Does the technology solve my business problem?
  2. Is the vendor solvent, and will they be around for the lifetime of this product?
  3. If the vendor is small and unstable, but the technology is important to our organization, what are my potential switching costs and options if they go out of business? Can I survive with the existing product without support & future updates?

Some of my favorite software comes from small, niche vendors who may or may not survive. That’s fine, because I only need 3 years out of the product to recover my investment, since after that I’ll probably pay for a full upgrade anyway.

The only time I really care is when I worry about vendor lock-in. If it’s something you can’t switch easily (and you can switch most things far more easily than you realize), then size and stability matter more.

Photo courtesy http://flickr.com/photos/31537501@N00/260289127, used according to the CC license.