Einstein and the Physics of Software TAM
My Strange Loops
If you know me well, you know that I have an odd mind that wanders between questions like:
- How should large enterprises approach launching Customer Success programs?
- How many ridiculous touchdown / twerk dancing highlights will I see from Antonio Brown this weekend?
- Does time really exist?
On that third point, while it may be unusual that the same mind that contemplates SaaS renewal rate optimization also thinks endlessly about time reversal symmetry, it is nonetheless true.
So if anyone is prewired to find a tenuous theoretical string between enterprise software and quantum mechanics, it’s me. And with Salesforce’s new Einstein Artificial Intelligence initiative, my worlds are colliding!
Classical Software Physics
How does physics apply to software markets? For hundreds of years, “classical” physicists, from Newton to Einstein, yearned to understand the natural “laws” that govern energy and motion – with a vision that these laws exist immutably and could be predictive of the future if fully understood.
In a strange parallel, investors, observers and pundits ask companies about the physics of their Total Addressable Markets (TAMs). Responsive CEOs then produce charts showing that their companies (like all others) are pursuing markets that, to paraphrase the late astronomer Carl Sagan, are sized in the “billions and billions.”
And it’s true that in the short-term, software markets are bounded. There are a fixed number of buyers and there is a relatively well-known amount a vendor can charge. In fact, the TAM is generally just the sum of the revenue from the (usually tiny) vendors involved. So for sizing a near-term market, counting Newton’s proverbial apples will probably do the job.
But no one invests in or builds for short-term markets. Every great venture involves predicting a future that’s far out. And that’s where things get complicated.
As a segue, let’s consider the grandaddy of all quantum “weirdness” showcases – the double-slit experiment. In this remarkably simple setup, physicists proved that electrons act both as particles (intuitively) and as waves (shockingly). And further still, when electrons are “observed” by a detecting device, they go back to acting as particles. Our act of watching changes the reality of what’s happening.
If you read enough about quantum physics, you realize the double slit experiment is just the beginning. Particles can become inextricably “entangled” to each other across huge distances. They can also appear out of nothing. Austrian cats both live and die at the same time. You begin to realize that our classical understanding of the “laws” of the universe is woefully inadequate – even if you’re Einstein.
So what about our understanding of Total Addressable Market? In some well-defined categories, classical TAM seems eminently logical. American companies buy a certain number of tractors per year. Chinese consumers purchase a predictable number of automobiles per year. PC shipments may grow or shrink slightly, but they are in a tight range. Oil (depending on the price) has quantifiable demand.
And software? Software TAM is a little bit more squishy. Since software is so intangible – in its form, pricing and value – it often is “in the eye of the beholder” (or observer?) Software markets often suddenly appear out of nowhere. Big categories like “big data” were infinitesimally small just a few years ago.
It’s true that In the short-term, the borders of the software market look well-defined and classical. CRM starts somewhere and ends elsewhere. ERP is over here. BI is a big market. HR software is too. And so on. People don’t influence the markets – they just discover them… right?
If you look with a fuller historical perspective:
- CRM today may look like a market that naturally includes Sales Force Automation, Support Automation, Marketing Automation – and perhaps more recently Business Intelligence and E-commerce. But was it always that way? Was the world destined to have all of these processes converge around vendors that started with Sales Force Automation tools?
- ERP today may look like a market that includes business process automation for many different industries. But didn’t “ERP” companies start with specific industries and processes that they automated and then expand from there?
- And ERP ten years ago was built around the manufacturing world, while today’s fastest-growing ERP company (Workday) started with Human Capital Management.
- BI today is an enterprise application market while years ago, it was primarily downloadable desktop software.
Quantum Makers and Shapers
In truth, these markets were not discovered and colonized. They were structured and shaped by the Marc Benioffs, Aneel Bhusris, Larry Ellisons and Tom Siebels of the world. Their vision and ambition allowed them to make reality what they wanted it to be. They didn’t let classical barriers hold them back.
Yes, these entrepreneurs started with small, well-defined markets. But they constantly found the adjacencies and redefined their categories to encompass neighboring spaces. All along, they marketed compellingly and prolifically to create an idea much larger than what they were doing at the time. While the entire TAM of software may be fixed at any given time, these legendary leaders realized that the division of those dollars was up for grabs.
For today’s market shapers, the software TAM is as flexible as ever. So if you’re an entrepreneur, don’t let the outsider point of view on your TAM box you in and limit your ambition. And for the observers out there, whether your world is quantum or software, every time you look at it, it changes on you.