“Talent hits a target no one else can hit, genius hits a target no one else can see.” Arthur Schopenhauer
There are two parts of every market- current market. The current market is where all the players are currently operating, and this is where all the customers exist.
Traditional players will enter this market, and operate within this market.
This is the market that the research reports will define as market size.
As a new business, you can operate in this market, but to catch the consumer’s attention, you have to do something radically different- target a sharp set of consumers whom you’ll probably have to take away from someone else, create noise about your offering, make your offering better, or make your pricing better.
The other part of the market is the untapped market, or the part of the market that is locked by certain friction causing factors. Another way to think about entering a market, is to figure out what’s holding the market back.
Let’s take the example of doctor appointments. Data shows that consumers in metros visit a doctor 4 times a year, and non-metros visit 2 times a year. If we go to Tier 3–4 markets, the frequency is probably even less. We can take a national average of 2 doctors visits per year.
There are 1.35 Bn Indians. That is 2.7 Bn doctor appts per year, approx 7M doctor visits per day. That means, on a given day, only 0.5% of Indians are seeing a doctor, that’s 5/1,000.
In developed economies of Asia, like Japan, the average person visits the doctor 13 times a year, i.e. 12 visits out of 365 days. You could say, on a daily basis, ~3.3% of the population has a need for a doctor’s advice, assuming that the Japan doctor appointment market is tapped out.
It’s not like people in Japan would be sicker than India. Let’s assume the same.
So, just using current data, it shows that as of today, 0.5% of Indians visit a doctor on a daily basis, whereas the need is at least at 6.5 times that (at 3.3%).
That’s almost a 7x market, but what’s keeping these people from talking to a doctor?!
All these 3.3% of people are probably unwell. They would benefit from a doctor’s advice, what’s coming in the way that only 15% of them actually see a doctor.
When you look at the market like that, that’s a 7x opportunity. Question is what’s holding them back? Two main factors: Time and Cost.
Time: The time it takes to reach the doctor. That could be a factor of the doctor being geographically far (typically the case in semi-urban and rural India), or the person having too busy a schedule to prioritize visiting a doctor (typical friction in the Indian metros). Even in metros, the 15 min doctor visit requires 2–3 hours from a person’s schedule. And if you’re living in a place where the doctor is far, it can be an all day affair.
Money: There is a cost to any service. Any time we pay for a service, we naturally evaluate the return on investment (ROI). Sometimes, despite having proximity of the service, patients don’t justify the cost, and skip going to the doctor.
So, for the remaining 85% of this unwell population, what are they doing?Could be self medicating, could be avoiding their health problem, or Googling their symptoms. These are consumers who feel the friction of time & money.
Time & money are often interchangeable frictions, so for simplicity if we combine it into one factor, ‘time-money’.
If you plot this potential market on a pyramid with cost of time/money on the y-axis, you get a massive pyramid, of which only the top of currently being tapped.
As you reduce the friction of time-money, you start unlocking more and more of this pyramid.
Continuing with the example of visiting a doctor. If you live in the top 20 cities, combining commute time, waiting at the doctor clinic, and pharmacy time, it currently takes at minimum 2–3 hours of your productive day to see a doctor, even for minor health concerns.
Time Factor What if you could reduce the time of visiting a doctor just to 45 min. Maybe by having your doctor located closer to you, or by reducing wait time at the clinic. That would help.
Or better yet, reduce the time of visiting a doctor to just the 15 min the doctor spends with you? Not cheaper, just taking away the time of commute/waiting.
For the set of users with the friction of time, this would suddenly unlock those users to see a doctor whenever they want. Anytime, they have an odd chest pain, or a skin lesion, or a persistent fever, they can talk to a doctor instantly. Distance and wait time become irrelevant, unlocking a mass of users who have a need to see the doctor. Note: This does not replace the need to physically see a doctor, but unlocks from the previously untapped market.
For ‘seeing the doctor’ use case, telemedicine apps are solving this. You can now talk to your doctor from anywhere, office, home, cab, or in the middle of watching your favourite TV show. The doctor is now an app away!
If you note in the diagram below, this can potentially unlock a market that’s many times larger than the previous one.
This applies to many sectors:
Food-Hospitality: With food delivery, suddenly the friction of time spent to visit a restaurant is gone. Instead of going out 1–2 times a week, people can now eat from any restaurant 4–5 times a week, or more
Shopping: With ecommerce, shop for what you need without worrying about the logistics of going anywhere.
Salon/Spa services: With home based beauty services, it takes away the friction of going somewhere.
Another great example is ride hailing. The global taxi market is estimated to be about $108B. Today, we have Uber that is just one among the many ride-hailing companies that is valued at ~$80B! Not to count Lyft, Didi, Ola, Grab, Gojek and other ride hailing companies. Besides the traditional taxi market.
Same thing can be seen across the sharing economy companies.
So, just creating convenience (reducing time friction) unlocks a large market.
Money Factor Now, let’s talk about the ‘money’.
After you’ve reduced the time friction and made it more convenience, what can you do to reduce the cost of the service itself?
3 factors that help to reduce cost:
Bring in more efficiency into the process, saving time/cost.
Source at lower cost, while maintaining quality, through economies of scale.
Build technology to reduce the cost further- like replacing parts of the service.
Continuing with the use case of seeing a doctor, through your mobile phone. With time efficiency, telemedicine apps that connect a doctor and patient instantly reduce the friction of time.
Now, what if health apps could help doctors monetize time that is un-utilized, and potentially get it at a much lower cost that they can pass on to the user. Most doctor visits happen in the evening, or on weekends, because that’s when patients are able to take time out from their schedule. There are potentially very few patients who visit the doctor in the late morning- that time is anyway unmonetized. This part of the patient-doctor economy was getting lost.
Now, with a telemedicine app the doctor can that be available to patients at that time because the patient can do it from their home/office, and potentially at a lower cost.
This is just about leveraging efficiency of time-availability because of geographic & information asymmetry.
Ride hailing companies like Uber do the reverse of this during peak hours by charging surge rates. Again, a factor used in the sharing economy.
As the service scales, the business is able to create more predictable demand. With scale and predictable demand, all such platforms can source at better costs, and deliver better demand to their supply.
But the next level of this is where it gets interesting. Most services are rendered by humans. The cost of the service = Human Expertise x Time
As technology develops, AI (artificial intelligence) and ML (machine learning) will enable us to power more and more human services (at least the repetitive parts of them) to be done by bots.
Think self driving cars and chat bots. Companies like Babylon and PingAn are building AI based health chat bots that are enabling significant parts of the health interactions to be done by technology, involving the doctor only when a critical decision has to be made.
This is enabling these companies to offer doctor consults at an extremely low cost, or even free in some cases (where they figure out other monetization sources).
Suddenly a lot more people can get health advice for minor symptoms by just paying a few cents, instead of searching on Google for 45 minutes and self diagnosing.
Again, similar to the previously unlocked market (by time/convenience), this new unlocked market (by lowering cost) is a significantly larger market. The market that it is eating into is the self diagnosing market, or the self medicating consumer. Its estimated that there are 80M+ healthcare searches on Google every month in India- probably not for fun. That’s 1B+ searches annually, and growing.
With instant and almost-free access to health expertise, you could be talking to a health expert everyday- it could be about your sickness, nutrition, weight, emotional state, just about anything. These are everyday needs, so you could be interacting with your AI powered health guide on a daily basis.
And as you start plugging in your data into this system, it starts to know you better and better. Anytime you chat with a doctor, or visit a doctor, your previous interactions with the AI powered health guide and your data, will help further improve your health outcomes.
I used doctor appointments as an example.
Similarly with self driving cars, it will reduce the cost of transportation unlocking significant cost savings. If your daily Uber ride cost goes from $10 to $3, suddenly a lot more people will prefer to ride the Uber.
In food tech, automated cooking ovens are coming in. Still in an experimental phase, but once at larger scale adoption, if a lot of repetitive cooking tasks are done by machines, then the cost of hot food being delivered to you will also decrease. At some point, it may be more efficient to order, instead of having a running kitchen.
Traditional successful examples of the money factor expanding the market are also when the FMCG companies in India, turned everything normal size packets into sachets, from toothpaste, to tea, to shampoo, to detergents, to even chocolate. The same concept was applied by telecom companies when they focused on the ‘chhota recharge’. Today, India has among the highest number of mobile users, with an average monthly bill of Rs 100–150 (~$2)
This 2nd type of market unlocking, that’s unlocked by lower costs from automation is yet to play out in a significant way, but the next phase of technology startups are focused on unlocking these markets. And it’s going to be big!
What’s valuable to note about these new markets:
They operate at lower price points, but not necessarily lower margins, because their cost of procurement is lower. Telemedicine platforms operate at similar gross margins as clinics.
Addressing these markets will take scale. So building companies in these spaces will require investment of time and money- to build products & technology that are useful (and ethical), to source at the right price points, and build a scalable top of funnel, which converts to monetisation.
As the consumer goes lower in the pyramid, the level of technology building required to serve those markets becomes deeper. We are already seeing two types of companies 1. One set of companies focusing on building deep tech (like real AI), and smart backend systems. 2. The other set of companies being large consumer aggregators, that will come together, to enable such services. Their main focus will be to lower the cost of distribution. Since the transactions are lower cost, to maintain margins, cost of distribution has to be lower than the traditional service. Their AI based services will often be powered by the #1 type of deep-tech companies.
It is unlikely that in the near future, that as these markets get unlocked, they will significantly cannibalise each other. Continuing with the example of healthcare- there is a lot of value to physically meeting a doctor where she can examine you, versus doing a video chat with a doctor vs talking to doctor-like-bot. Each of these markets will continue to serve their use cases. But as a result of more of the market being served, more of the overall economy will get unlocked, and it will potentially lead to better health outcomes for consumers. With the growth of telemedicine, one assumption can be that chatting with a doctor may cannibalise a doctor’s physical appointments. But if you look at data, while the telemedicine service is growing fast and consumers consult online 2.5 times a year (from 0 a few years back), data shows us that physical appointments per patient also grew almost 20% just within 2018.
This is an example of the pyramid unlocking, in addition with natural growth of the market
In certain markets, there may be one more factor, i.e. of product innovation, specifically addressing problems in that sector.
For example, in the market doctor consultations, there is a certain stigma or ‘societal friction’ in visiting doctors for certain specialities like sexual health, and mental health. Health concerns in these areas typically are suppressed, self treated (if ever diagnosed) or often, just not treated. Online consultation opens up a new avenue for consumers to get a doctor’s expert advice while maintaining privacy.
The electric car market was stagnant for many years with each of the leading car companies (Honda, Toyota, Ford, Nissan) playing with just one electric/hybrid model. These cars gave great mileage, were good for the environment, so logical to buy them, but they just weren’t selling as fast. The insight was that cars sell on sex-appeal (emotion) of their design/features, not logic. Enter Tesla (with the power of Elon Musk marketing & chutzpah), who combined the power of electric cars, the design of a sports-car with a futuristic experience, and suddenly, everyone’s talking about them, buying them faster than Tesla can make them, and booking months ahead. The electric car market didn’t have this big a demand problem earlier. Effectively, Tesla unlocked the market pyramid for electric cars
Addition on Apr 5, 2020: Coronavirus impact
Living through the coronavirus epidemic, the fear it has created, and how it has changed people's behaviours:
Short term behaviours, like hoarding masks, sanitizers, groceries and toilet paper.
And others potentially for the long term, like adoption of services that reduce exposure to virus and serve us in the comfort of our homes, like - digital education (schools/colleges and students are forced to adopt) - digital healthcare (telehealth itself has grown 2-3x in 1 month- who wants to risk going a clinic for minor issues), - digital entertainment (netflix, and other OTT players are working hard to keep up with usage), - digital meetings (Zoom usage has increased 20x since lockdown) - e-commerce, gaming, and many more that have grown significantly
Keeping this unexpected situation in mind, I want to add one more factor- Epidemics.
Though rare, leading to a seismic shift and sweeping changes in consumer behaviour.
The downside of this spike in digital adoption is that it is a result of an immediate disruption of schools/colleges, clinics/hospitals, movie theatres/malls, office/co-working spaces, cafes, gyms, restaurants. And depending on how long it takes for us to return to normalcy, it has the potential for long term disruption of these.
Also, this factor is really just a factor of chance, one that most (or none) of us couldn't have predicted or planned for. It's a reality that we're living with, and hope to overcome.
Growing up, I watched movies and read theories about unlocking treasures in the great pyramids. As entrepreneurs think about their sectors, there are probably many more pyramids to unlock.
Go unlock yours!
If you’ve identified other factors which help unlock the market pyramid, I’d love to hear about it in the comments below.
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