The 1% Problem
Sridhar November 23, 2007 11: 53 am
Sabeer Bhatia, of HotMail fame, launched Live Documents, on online office suite today. In the news coverage, this snippet caught my attention:
Bhatia said, “If Live Documents makes 1 per cent of Microsoft Office revenues, then we would earn USD 200 million a year. If Live Documents makes 10 per cent of Microsoft Office revenues then our revenues would be USD 2 billion a year in the next three to four years.”
Here is Guy Kawasaki’s The Top Ten Lies of Entrepreneurs and number 11 (sic) on that list is:
“All we have to do is get 1% of the market.” (Here’s a bonus since I still have battery power.) This lie is the flip side of “the market will be $50 billion.” There are two problems with this lie. First, no venture capitalist is interested in a company that is looking to get 1% or so of a market. Frankly, we want our companies to face the wrath of the anti-trust division of the Department of Justice. Second, it’s also not that easy to get 1% of any market, so you look silly pretending that it is. Generally, it’s much better for entrepreneurs to show a realistic appreciation of the difficulty of building a successful company.
Of course, every rule is meant to be broken (or rather, every lie has to be told!), and if anyone can get away with it, Sabeer Bhatia, with his hot(mail) track record can.
Trying to get 1% of “office productivity market” is about as meaningless as trying to get 1% of the “software market”: the category is way too broad. We tend to think of “MS Office” as synonymous with Word/Excel/Powerpoint, but I am almost certain that the $20 billion revenue figure includes a lot more than those. Just off the top of my head, I can think of Outlook, Access, OneNote, Publisher, perhaps Sharepoint, even Visio … as part of the broader office suite.
A more serious problem is that markets are ever-changing, dynamic categories. Ever wondered what happened to the “pager market”? Revenue that comes under one category today may come under a totally different category tomorrow - for example, licensing revenue may become advertising revenue.
Finally, there is what I call the “tail problem” - it is the old 80-20 problem. It is quite likely that 80% of MS Office revenue comes from 20% of their user base. Now guess which 80% of the user base is available to online offerings like Zoho or Live Documents? If you answered “the most lucrative 20% of the Microsoft user base will be ready to switch”, I want to bring your attention to that bridge we have available for sale.
Popularity: 4% [?]
Brilliant post Sridhar! And totally spot on. No thanks on the bridge BTW. ;^)
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[…] Check it out! While looking through the blogosphere we stumbled on an interesting post today.Here’s a quick excerpt Sabeer Bhatia, of HotMail fame, launched Live Documents, on online office suite today. In the news coverage, this snippet caught my attention: Bhatia said, “If Live Documents makes 1 per cent of Microsoft Office revenues, then we would earn USD 200 million a year. If Live Documents makes 10 per cent of Microsoft Office revenues then our revenues would be USD 2 billion a year in the next three to four years.” Here is Guy Kawasaki’s The Top Ten Lies of Entrepreneurs and number 11 (sic) on t […]
Live Documents Enters Web Office Market With PR Bluster - Embrace & Extend its Motto…
Indian company InstaColl today formally launched Live Documents, a mini-office suite of products similar to Word, Excel and PowerPoint. Live Documents has already received plenty of press coverage, mainly because it was co-founded by Sabeer Bhatia - th…
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[…] are additional red flags as well. As Zoho’s Sridhar Svembu notes, Bhatia is making a big mistake by estimating Live Documents revenue based on taking market […]
[…] are additional red flags as well. As Zoho’s Sridhar Svembu notes, Bhatia is making a big mistake by estimating Live Documents revenue based on taking market […]
[…] story here No Comments so far Leave a comment RSS feed for comments on this post. TrackBack URI […]
[…] are additional red flags as well. As Zoho’s Sridhar Svembu notes, Bhatia is making a big mistake by estimating Live Documents revenue based on taking market […]
I do not think he was saying that they were specifically aiming for 1% of the market, I believe he was pointing out the sheer size of the market. Quite frankly, this post is lame and not very insightful - it’s one thing to pick out flaws in a competitors offering or business model, but to take them to task on such an innocuous comment smacks of low self esteem.
[…] are additional red flags as well. As Zoho’s Sridhar Svembu notes, Bhatia is making a big mistake by estimating Live Documents revenue based on taking market […]
[…] Sridhar over at Zoho blogs is really taking Bhatia to task for suggesting that the new product, Instacoll, might capture 1% of the market. Of course Zoho is not exactly a fan of Instacoll which is a very direct competitor to their offerings, but Sridhar’s point is that venture capital people don’t want companies to shoot for 1% of a market - they want it all. […]
I have to make a little semantics-related point. Bhatia is talking about 1% of Microsoft’s revenues , Guy is talking about 1% of the market. It may seem like a trivial point, but clearly some market share—the kind that earns revenue—is more valuable than market share that doesn’t.
Just reiterating what Marc has already said - a brilliant post.
Not sure if we can use the word “launched” for Live Docs because I don’t know anyone who has see that product yet.
[…] are additional red flags as well. As Zoho’s Sridhar Vembu notes, Bhatia is making a big mistake by estimating Live Documents revenue based on taking market […]
Good post - but seriously, use Word 2007 for blogging - it’ll help you avoid all those nasty grammar mistakes
Listen, there is no reason to crown Bhatia with the title of Mr. Repeat. There are precious few (_precious few_) repeats in the web biz. And Bhatia, having had one success with Hotmail, is by no means any more likely to contine with InstaColl and its Live Documents product/service.
Good catch. I was mulling over this 1% thing too. I just think it makes Sabeer Bhatia sound like a stupid digital baniya. The “hotmale” should know better.
Here’s a question: Has Guy Kawasaki, or any company he’s ever backed, ever gotten more than 1% of any market?
Good article. Your last point about the 1% leaving not being the 20% highest paying is a great point.
Great post Sridhar. Spot on indeed.
Apple used the 1% ‘argument’ as you put it when going after the mobile handset market. Things seem to have worked out OK for them.
I don’t see the parallel between office collaboration services and the shrinking pager market. It makes about as much sense as asking whatever happened to the Chuckwagon market. Technology changes and builds on itself to add features to adapt to market needs.
[…] his flag at this space and his company is supposed to be doing fairly well. He couldn’t help take a swipe at this new competitor. He’s quick to point out the 1% lie that entrepreneurs always […]
Death of a Web 2.0 era…
As the peaks of Web 2.0 are behind us, more and more online applications disappear, often try to get sold or just close doors. Looking at Techcrunch’s Deadpool, an accurate source for applications that did not make it, the numbers……
[…] are additional red flags as well. As Zoho’s Sridhar Vembu notes, Bhatia is making a big mistake by estimating Live Documents revenue based on taking market […]
[…] I think not. Something else is going on. As I have said many times, there are way too many applications on the internet these days that offer the same thing as many others. Only one thing can come from that : death. I have never understood why people keep on launching applications online that already exist in many forms, but I think it’s just an attempt to get even the tiniest slice of the market. As stated in the article about the cofounder of Hotmail before it was bought by MS, you need only 1 percent of the market to make serious money. Bhatia said, “If Live Documents makes 1 per cent of Microsoft Office revenues, then we would earn USD 200 million a year.(Zoho Blogs) […]