Disruptive tech, like cloud and AI not only capture a big portion of the existing market, but they 📈 expand the size of the market itself. Disruptive business models, like marketplaces follow the same pattern. Here is how.
In the span of a decade, Cloud has grown from a modest $6Bn niche in 2010 to a staggering $400Bn in 2023, undergoing a 40% CAGR, according to Pat Grady, Partner at Sequoia Capital.
🎯 Interestingly, this Cloud growth has also expanded its total addressable market (TAM) from $350Bn to $650Bn.
"The cloud transition over the last 20 years or so, that was a major tectonic shift in the technology landscape that led to new business models, new applications, new ways for people to interact with technology. And if we go back to some of the early days of that cloud transition, this is circa about 2010, the entire pie, the entire Global TAM for software was about $350 billion, of which this tiny slice - just $6 billion," Pat Grady explains.
Fast forward to last year [2023] the TAM has grown from about 350 to 650, but that slice has become 400 billion of Revenue that's a 40% CAGR over 15 years - that's massive growth.
âš¡ The analogy Sequoia draws is clear: just as the Cloud transformed the software and infrastructure market, AI has the potential to replace services with software.
It's targeting and expanding a market that's not just in the billions, but possibly in the tens of trillions.
"If we're going to reason by analogy, Cloud was replacing software with software. Because of what I mentioned about the ability to interact in a humanlike capability, one of the big opportunities for AI is to replace services with software, and if that's the T that we're going after, the starting point is not hundreds of billions, the starting point is possibly tens of trillions."
📊 Marketplaces: Catalyzing B2B SaaS
The same reasoning could be applied to the explosive growth of cloud marketplaces, with a >86% CAGR, comparable with AI's expansion.
Cloud marketplaces make the B2B software instantly deployable and almost infinitely scalable, just like in the case of the App Store or Google Play that now host millions of apps.
What marketplaces also do as a disruptive innovation in B2B SaaS distribution - they expand the pie. That is the reason why they are beating the growth projection and why all 3 hyperscalers made them their top priority.
Cloud marketplaces with the largest ecosystems - number of customers (commits) and developers are poised to win. Does it mean that if you're a successful product, you need to commit to only one marketplace? Maybe not, just like you can find WhatsApp across major app stores.
As we see the convergence of AI, cloud and marketplaces, we're entering a new era in how B2B software is built and distributed.
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