Total Addressable Market (TAM)

What it is: At its core, Total Addressable Market (TAM) represents the total market demand, all potential revenue, for a product or service if 100% market share were achieved. Imagine a world where your solution is the only one available, and everyone who could possibly use it, does. That is your TAM.

Why it matters: It is the grand vision, the ultimate revenue ceiling for your offering. While it is a theoretical maximum, TAM is a key indicator for investors. They use it to gauge the sheer scale of the opportunity and ensure there is enough room for exponential growth, typically looking for markets with a minimum of a billion-dollar potential.

Between TAM, SAM, and SOM, TAM is probably the most critical market size and consequently we will discuss extensively how it is going to be calculated later in this post.

Serviceable Addressable Market (SAM)

What it is: SAM (sometimes also called Serviceable Available Market) is the portion of your Total Addressable Market (TAM) that your company can realistically reach and serve with its current business model, product offerings, and distribution channels.

Think of it this way: If TAM is the entire ocean of fish, SAM is the school of fish that your specific fishing boat (your business) is equipped to pursue and catch within that ocean.

Key considerations for defining SAM:

• Geographic Reach: Your SAM is limited to the regions where your product is actually available due to distribution, regulations, or language barriers.
• Customer Segments & Demographics: Your product might only appeal to specific age groups, industries, or business sizes. SAM filters TAM based on these precise customer profiles.
• Product Capabilities & Fit: Does your product genuinely address the needs of everyone in the TAM? SAM focuses on the segments that your product is designed and capable of serving (e.g., high-end enterprise software won’t have small businesses in its SAM).
• Business Model Limitations: Your operational model might naturally exclude certain market segments (e.g., a subscription-only service won’t target customers looking for one-time purchases).

How it’s calculated: SAM is a direct subset of TAM. You start with your refined TAM calculation and then apply filters based on these realistic operational constraints.

SAM = (Relevant segment of TAM) × (Your Price per customer/unit)

Serviceable Obtainable Market (SOM)

What it is: SOM (also known as Share of Market) is the most realistic and conservative estimate. It’s the portion of the Serviceable Addressable Market (SAM) that your company can realistically capture or “win” in the short to medium term, given its specific resources, current capabilities, competitive landscape, and marketing efforts.

SOM represents the actual number of fish you are genuinely likely to catch from the school of fish (SAM) in the near future, considering your crew’s skill, net size, and other boats fishing nearby. This is your most actionable market projection.

Key considerations for defining SOM:

• Competitive Landscape: Crucially, who are your direct and indirect competitors? How strong are they? What market share do they currently command? Your SOM must account for the existing competition.
• Company Resources & Constraints: This includes your marketing budget, sales team size, production capacity, brand recognition, and distribution network. A brand new startup will naturally have a much smaller SOM than an established market leader.
• Go-to-Market Strategy: Your specific plans for reaching and converting customers (e.g., direct sales, online advertising, partnerships, content marketing) will dictate how much of the SAM you can realistically obtain.
• Historical Performance (if applicable): If you have existing sales data, your past market penetration within your SAM can inform your SOM. For new businesses, this might be a small, realistic percentage (e.g., 1-5%) based on industry benchmarks and your unique competitive advantage.

How it’s calculated: SOM is a subset of SAM, typically estimated as a realistic percentage of the SAM.

SOM = (Realistic percentage of SAM) × SAM

SAM vs. SOM: Understanding the Critical Difference

The distinction between SAM and SOM is frequently blurred, leading to unrealistic short-term projections and misaligned expectations. While SAM defines what your company can realistically serve based on its product, business model, and distribution, SOM focuses on what it can realistically capture given internal limitations and external competition. SAM outlines the accessible market segment your current solution is equipped to pursue, whereas SOM considers the competitive friction and your actual execution capabilities. Investors examine SAM to understand the near-term growth potential of a specific solution, but they scrutinize SOM to understand operational realism and go-to-market effectiveness. An overly optimistic SOM, particularly for a new venture, signals naiveté, while a realistic SOM demonstrates a grounded understanding of the competitive landscape and a clear, executable plan.

The Concentric Circles: TAM, SAM, and SOM in Harmony

Think of these three market sizing metrics as concentric circles, each offering a progressively narrower and more realistic view of your market opportunity:

Presenting all three metrics credibly demonstrates a comprehensive understanding of the market, from its vast potential to your company’s immediate, actionable goals. This nuanced approach inspires confidence in investors, proving you have a clear vision of the future while remaining grounded in present realities.

Common Mistakes in TAM Calculation (And How to Avoid Them)

Many startups, eager to impress, fall into common traps when calculating their TAM. These missteps often lead to inflated, unrealistic projections that can instantly raise red flags for discerning investors, eroding trust and leading to critical internal miscalculations.

• The “Top-Down” Trap: This is perhaps the most frequent error. Startups often declare, “It’s a huge market, and if we just get 1% of it, we’ll be enormous!” This simplistic, top-down approach lacks underlying assumptions and rarely holds up to scrutiny, signaling a lack of due diligence. Solution: Always build your market size estimate meticulously from specific components using a bottom-up approach.

• Confusing “Size of the Problem” with TAM: Just because a problem is massive doesn’t mean your solution can capture all the associated revenue. For instance, stating “the opioid crisis is a $100 billion problem” is about the problem’s scale, not your product’s revenue potential within it. Your TAM must be directly tied to the market opportunity your solution creates, otherwise, you risk misallocating resources. Solution: Directly tie your TAM to the market opportunity your specific solution creates, not the problem’s overall cost.

• Claiming the Entire Market: You might be in the cybersecurity industry, but your niche cybersecurity product isn’t going to serve every single company in the $250 billion global cybersecurity market. Your TAM needs to reflect your specific market, the segment that your product truly addresses, not the industry’s behemoth total. Overstating your market leads to unfocused strategies. Solution: Define your specific market segment that your product truly addresses, reflecting your niche.

• Inaccurate or Unvalidated Pricing: Your TAM is calculated as “Number of Customers × Your Price.” If the price you’re using is hypothetical, or worse, borrowed from a high-charging competitor when you plan to be a low-cost alternative, your entire calculation will be fundamentally flawed. This can lead to unrealistic revenue projections and poor strategic decisions. Solution: Base your TAM on your actual or rigorously tested pricing, reflecting customer Willingness to Pay (WTP).

• Lack of Documented Assumptions and Data Sources: This is where transparency comes in. Investors aren’t looking for magic; they’re looking for logic. Failure to show your work, detailing where your customer numbers come from and how your pricing is validated, instantly erodes credibility and suggests a superficial understanding of your market. Solution: Clearly document every assumption, data source, and step of your calculation to build credibility.

• Unrealistic Customer Targeting and Geography: A broad, undifferentiated customer base like “all companies globally” leads to an inflated TAM. You need to precisely define your ideal customer profile and the geographic regions you genuinely plan to serve. This lack of focus can lead to wasted marketing and sales efforts. Solution: Precisely define your ideal customer profile and the realistic geographic regions you plan to serve.

How to Calculate TAM the Right Way: The Bottom-Up Approach

The only credible way to calculate TAM is through a bottom-up approach. This involves building your market size estimate from specific, well-defined components. This method is not just about arriving at a number; it serves as a proxy for your overall market understanding and operational discipline. Investors, in particular, use this calculation as a diagnostic tool, scrutinizing the underlying assumptions and data integrity to grasp your team’s due diligence, understanding of the ideal customer, and commitment to transparency. The rigor of this approach compels critical market research and customer validation early in your journey, leading to a more accurate product-market fit and a robust overall business strategy.

The fundamental formula is straightforward:

TAM = Number of Target Customers × Your Price (per customer or unit)

Here’s how to break down the process:

1. Define Your Target Customers with Precision
   Specificity is Key: Avoid vague terms like “all companies” or “everyone.” Instead, think about the precise characteristics of your ideal customer. Are they small-to-mid-size businesses? Fortune 500 enterprises? Early-stage startups? Specific demographics like Gen Z gamers or senior citizens?
   Narrow the Scope: Identify the precise industry, business size, or user behavior that defines your core customer base.
   Specify Geography: Are you targeting the US market? North America? A specific city? Or truly global? Be realistic about your current and immediate future reach.
   Cite Your Data: Crucially, document where you found the numbers for your customer base. Reliable sources could include industry reports, government statistics, market research firms, or even your own primary research.
2. Determine Your Price with Accuracy
   Use Your Actual/Tested Pricing: If you’re an early-stage startup, you must have rigorously tested your pricing with potential customers to validate their Willingness to Pay (WTP). For established businesses, use your proven price points.
   Define the Unit of Measure: What does your price apply to? Per month? Per user? Per branch? Per device? Per transaction? Be explicit.
   Your Price, Not Competitors’: Your TAM must reflect your revenue potential. If your pricing strategy differs significantly from competitors, use your own projected price, not theirs.
3. Show Your Work
   Document Everything: Every assumption, every data source, and every step of your calculation must be clearly documented. For presentations, using footnotes on your slides is highly recommended. This transparency builds trust and demonstrates a thorough understanding of your market.
   This rigorous, bottom-up methodology is vital. Why? Because multiplying two numbers that are based on inaccurate assumptions (e.g., an inflated customer count and a speculative price) will inevitably result in an unrealistic TAM. This process of “narrowing the TAM funnel” ensures your calculation is grounded in reality.

With this approach TAM, SAM, and SOM become very correlated with TAM been the first to be calculated. SAM and SOM are a consequence of the first (TAM).

Example: Right-Sizing the Cybersecurity Market

Let’s illustrate the bottom-up approach with a common scenario: a cybersecurity solution.

The Initial (Mistaken) Approach:

A common misstep is for a company to proudly announce, “Our ‘Swiss Army knife’ cybersecurity product crushes nearly every problem a company has! The cybersecurity market is a trillion-dollar global problem, and the market size is $250 billion annually!”

This is a classic top-down, problem-focused, and overly broad estimate: a significant red flag for any seasoned investor or strategic planner. It lacks specificity and fails to demonstrate a true understanding of where the company fits within that vast market.

The Correct (Bottom-Up) Calculation Process:

This process involves a rigorous “funneling” of the market, moving from a broad concept to a highly specific, addressable segment.

1. Narrowing the Customers:

• Initial claim: “Every company globally” (e.g., hundreds of millions of potential customers).
• Drill down: “Not every company, but primarily financial institutions.” (This might narrow it to, say, hundreds of thousands of institutions worldwide).
• Further refinement: “Not all financial institutions (e.g., not large insurance, credit card, or mortgage companies), but rather solutions fine-tuned for bank-specific cybersecurity issues.” (This could reduce the target to tens of thousands of banks).
• Even deeper: “Not massive global banks (like JP Morgan, Citibank), but specifically small to mid-size banks that don’t have a dedicated Chief Information Security Officer (CISO) and rely on a VP of IT or CIO for security.” This is where their value proposition truly shines, potentially narrowing the focus to thousands of such institutions.
• Geographic scope: “We currently operate and support customers in North America, South America, and Europe. Asia and Africa would be future expansion opportunities.” This further refines the number of target institutions to a specific, manageable count (e.g., ‘X’ thousand relevant bank branches in the defined regions).

Resulting Target Customer: Small to mid-size bank branches in North America, South America, and Europe without a dedicated CISO. The next step is to accurately quantify the number of such branches.

2. Determining the Price:

• Initial claim: “Around $10,000.”
• Drill down: “$10,000 per what unit?”
• Clarification: “$10,000 per branch per month.” (This price must be rigorously tested and validated with potential customers).

3. Calculating TAM:

Once the specific number of target customer units (e.g., “X” number of relevant bank branches in the defined regions) is identified, and the validated price ($10,000 per branch per month) is established, the TAM can be calculated:

TAM = (Number of relevant bank branches) × ($10,000/branch/month) × (12 months/year)

By undergoing this rigorous narrowing process, the initial, grandiose “$250 billion market” often transforms into a more realistic, yet still substantial, “$250 million a year” market. This provides a much more accurate and credible TAM, showcasing a grounded understanding of the market.

The Strategic Advantage of Right-Sizing Your Market

For many, seeing a massive market shrink to a more realistic figure can feel like a reduction in ambition. However, this “right-sizing” is, in fact, a profound strategic advantage. A smaller, precisely defined market allows for:

• Hyper-focused Product Development: You can tailor your solution to the exact needs of a specific customer segment, achieving a stronger product-market fit.
• Targeted Marketing & Sales: Your marketing budget and sales efforts become far more efficient, reaching the right customers with the right message, leading to higher conversion rates.
• Optimized Resource Allocation: Precious early-stage resources (time, money, talent) are not wasted chasing an impossibly broad market.
• Investor Confidence: Investors often prefer a credible, focused plan for a well-understood, albeit smaller, market over a vague, inflated claim for a massive one. A realistic TAM, and subsequently a realistic SOM, demonstrates a clear, executable path to market dominance within a specific niche. This “land and expand” strategy is frequently more appealing and less risky than attempting to capture a tiny percentage of an impossibly large market, signaling a mature and disciplined approach to growth.

Beyond TAM: Introducing SAM and SOM

While TAM paints the big picture, it’s just the starting point. To provide an even clearer and more actionable view of your market opportunity, you need to consider Serviceable Addressable Market (SAM) and Serviceable Obtainable Market (SOM). These two metrics offer increasingly realistic perspectives on the portion of the market you can genuinely target and capture. The video below illustrate how to calculate TAM and I used it as a key reference for this part of the post:

Final note on Mastering TAM, SAM, and SOM

Think of these three market sizing metrics as concentric circles, each offering a progressively narrower and more realistic view of your market opportunity. In short TAM, SAM, and SOM are:

TAM (Total Addressable Market): The outermost and largest circle. This is the entire ocean, the theoretical maximum revenue if you captured 100% of the entire market globally, without any competition. It sets the ceiling and signals the overall market potential.

SAM (Serviceable Addressable Market): A smaller circle within TAM. This represents the portion of the ocean you can actually reach with your current fishing boat and equipment (your business model, product, and distribution). It defines the segment you are capable of serving.

SOM (Serviceable Obtainable Market): The innermost and smallest circle within SAM. This is the number of fish you can realistically expect to catch given your current crew, bait, and competition. It’s your realistic, near-term revenue target.

Presenting all three metrics (TAM, SAM and SOM) credibly demonstrates a comprehensive understanding of the market, from its vast potential to your company’s immediate, actionable goals. This nuanced approach inspires confidence in investors, proving you have a clear vision of the future while remaining grounded in present realities.

In conclusion, mastering TAM, SAM, and SOM is not merely an academic exercise but a fundamental discipline for anyone seeking to understand and capitalize on market opportunities. By diligently applying these metrics, you gain unparalleled strategic clarity, optimize your resource allocation, and build a robust foundation for sustainable growth. Embrace the rigor of accurate market sizing, and you will not only articulate your vision with greater precision but also navigate the complexities of the market with confidence, transforming potential into tangible success.

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Beyond the Hype: Mastering #TAM, #SAM, and #SOM
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Don't let inflated market projections sink your venture. Get grounded in reality with #TAM, #SAM, and #SOM. It's about building a viable business, not just chasing #hype ! #MarketSizing #BusinessStrategy #StartupTips #MarketAnalysis…
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Thanks for taking the time to read this blog post on TAM, SAM and SOM. Other related posts includes:

• How to build a Two Side Marketplace
• Marketplaces for Buying and Selling Internet Business

The post Beyond the Hype: Mastering TAM, SAM, and SOM appeared first on Francesco Lelli.

Assessing a brokerage firm is crucial in the process of buying or selling internet business. The evaluation involves scrutinizing the firm’s credibility, reputation, and track record to ensure a positive and trustworthy experience. Industry expertise, client satisfaction, and the firm’s ability to maintain confidentiality are vital considerations. The range of services provided, transparency in communication, and the adoption of modern technology also contribute to the assessment. A brokerage’s global reach, user-friendliness, negotiation support, and post-sale assistance further influence the decision-making process. Overall, a comprehensive evaluation helps mitigate risks, aligns the chosen firm with specific needs, and increases the likelihood of a successful and efficient transaction.

What follows is my personal scorecard for assessing a particular brokerage firm. I will share each voice but in this post I will not evaluate each firm using it as this blog is explicitly develop for academic purposes.

1. Credibility and Reputation: Assessing a brokerage’s track record helps verify its credibility and reputation within the industry. A firm with a positive reputation is more likely to provide reliable and trustworthy services.
2. Transaction Success and Experience: Understanding the brokerage’s transaction volume and success rate provides insights into its experience. A firm with a proven track record of successful deals is more likely to navigate transactions effectively.
3. Industry Expertise: Different brokerage firms specialize in various industries or business models. Assessing industry expertise ensures that the firm understands the nuances of the specific type of online business you are buying or selling.
4. Client Satisfaction: Client reviews and testimonials offer valuable perspectives from individuals who have previously engaged with the brokerage. Positive feedback indicates a client-centric approach and effective service delivery.
5. Confidentiality Measures: When buying or selling a business, confidentiality is crucial. Assessing how a brokerage handles sensitive information ensures that your business details are protected during the process.
6. Services Offered: Understanding the range of services a brokerage provides helps ensure that your specific needs are met. Whether you require valuation services, marketing support, or due diligence assistance, a comprehensive set of services can be beneficial.
7. Transparency: Transparent communication about fees, processes, and the quality of information provided is essential. A transparent brokerage helps build trust and ensures that both buyers and sellers are well-informed.
8. Global Reach: The global reach of a brokerage may be important depending on your geographic preferences. Some businesses may benefit from exposure to an international audience, while others may prefer a more localized approach.
9. Negotiation and Deal Support: A reputable brokerage provides support during negotiations and throughout the deal-making process. This support can be crucial in securing favorable terms and closing the transaction successfully.
10. Post-Sale Support: Consideration of post-sale support is important, especially for sellers transitioning out of their businesses. A brokerage that offers assistance beyond the transaction can contribute to a smoother transition.

Scoring Key:

• 1-2: Weak
• 3-4: Moderate
• 5-7: Strong
• 8-10: Excellent

After evaluating each criterion and assigning scores, you can compare the scores to categorize the brokerage firms. Keep in mind that the weight assigned to each criterion may vary based on your specific priorities and preferences. This scorecard is a starting point for Buying and Selling Internet Business, and you can customize it based on your unique needs and considerations.

Flippa

Flippa is an online marketplace that facilitates the buying and selling of digital assets, primarily focusing on websites, domain names, and online businesses. Launched in 2009, Flippa has become one of the largest and most well-known platforms in the industry. Sellers can list their digital assets for sale, including e-commerce stores, blogs, mobile apps, and domain names, and potential buyers can browse through the listings to find opportunities. Flippa often features auction-style listings where sellers set a starting bid, and buyers can place bids over a specified time period. The platform provides a range of tools and services, including a due diligence process, to assist buyers and sellers in making informed decisions. Flippa caters to a diverse user base, from individual website owners to investors and entrepreneurs looking to enter or exit the online business space.

Empire Flippers

Empire Flippers is an online brokerage firm that specializes in the buying and selling of established and profitable online businesses. Founded in 2011, Empire Flippers focuses on facilitating transactions for a higher-end market, dealing with businesses that have a track record of generating revenue. The platform primarily handles the sale of various online assets, including content-based sites, e-commerce stores, and Software as a Service (SaaS) businesses. Unlike some other marketplaces, Empire Flippers employs a rigorous vetting process for both buyers and sellers, aiming to ensure the quality and legitimacy of the listings. Sellers often provide detailed financial information, and the platform assists in due diligence to give buyers confidence in their purchases. Empire Flippers has gained a reputation for transparency, professionalism, and its commitment to serving the mid-to-high-range online business market.

WebsiteClosers

WebsiteClosers is a brokerage firm specializing in the sale of online businesses, including e-commerce stores, technology companies, and other digital ventures. Founded in 1998, the company offers a range of services to both buyers and sellers involved in online business transactions. WebsiteClosers assists clients in various stages of the buying or selling process, providing services such as business valuation, exit strategy planning, marketing, and negotiation support. The firm emphasizes confidentiality during transactions to protect sensitive business information. WebsiteClosers positions itself as having experienced professionals with backgrounds in finance, law, and entrepreneurship, contributing to their ability to guide clients through the complexities of selling or acquiring online businesses. The focus on a personalized approach and a diverse range of services makes WebsiteClosers a choice for those looking to navigate the sale or purchase of established online ventures.

Quiet Light

Quiet Light is a brokerage firm specializing in the sale of online businesses. Founded in 2007, Quiet Light focuses on facilitating the sale of mid-market and high-value online businesses, including e-commerce stores, SaaS (Software as a Service) companies, content-based sites, and other digital assets. The company places an emphasis on providing a personalized and consultative approach, guiding clients through the entire selling process. Quiet Light is known for its experienced team of advisors, many of whom have a background in entrepreneurship and online business ownership. They offer services such as business valuation, exit strategy planning, marketing, and negotiation support. The firm is particularly known for its thorough due diligence process, ensuring that both buyers and sellers have confidence in the accuracy and completeness of the information provided during transactions. Overall, Quiet Light is recognized for its commitment to the mid-market segment and its expertise in navigating complex online business transactions.

FE International

FE International, founded in 2010, is a prominent M&A (mergers and acquisitions) advisory firm specializing in the sale of online businesses. The company focuses on facilitating the acquisition and sale of high-value digital assets, including Software as a Service (SaaS) businesses, e-commerce stores, and content-based websites. FE International has gained recognition for its expertise in the technology and online business space. The firm provides a range of services, including business valuation, exit strategy planning, marketing, and comprehensive support throughout the sales process. What sets FE International apart is its team of experienced advisors who possess a deep understanding of the online business landscape. The company is known for its thorough due diligence processes, transparent communication, and dedication to achieving optimal outcomes for both buyers and sellers in the online business market. Overall, FE International is a reputable player in the M&A advisory space, catering to a clientele focused on mid to high-value digital transactions.

Website Properties

Website Properties is a brokerage firm specializing in the sale of online businesses and website properties. Founded in 2002, the company facilitates the buying and selling of various online ventures, including e-commerce stores, affiliate marketing websites, software businesses, and other digital assets. Website Properties provides services such as business valuation, marketing, and negotiation support to both buyers and sellers involved in online business transactions. The firm caters to a diverse range of clients, from individual entrepreneurs to larger companies looking to acquire or divest digital assets. Known for its experienced team and commitment to client satisfaction, Website Properties aims to streamline the process of buying or selling online businesses by offering personalized guidance and comprehensive services. The firm’s focus on digital properties makes it a valuable resource for those navigating the complexities of the online business marketplace.

BizBuySell

BizBuySell, established in 1996, stands as a prominent online marketplace for the buying and selling of small to medium-sized businesses. It accommodates a diverse array of industries, providing a platform for sellers to list businesses with details such as financial information and history. Buyers can explore listings based on various criteria to find businesses that align with their interests and investment preferences. The platform features business valuation tools to help sellers set realistic prices and assists buyers in evaluating potential acquisitions. BizBuySell offers a broker directory for professional assistance, educational resources to navigate transactions, and periodic market insights on business trends. Its user-friendly interface and comprehensive features make it a favored choice for entrepreneurs and investors involved in the small to medium-sized business market. It is important to note that while BizBuySell caters to a broad range of businesses, it may not specialize in digital or online businesses as extensively as platforms focused solely on the online business market.

Latona’s

Latona’s is a brokerage firm that specializes in the sale of online businesses, domain names, and internet properties. Established in 2008, Latona’s provides a platform for buying and selling a variety of digital assets, including websites, e-commerce stores, and domain names. The company caters to a diverse clientele, from individual entrepreneurs to corporate entities looking to acquire or divest digital assets. Latona’s offers services such as business valuation, marketing, and negotiation support to facilitate successful transactions. The platform may also feature auction-style listings where potential buyers can bid on listed assets. Latona’s commitment to confidentiality and professionalism, along with its experience in the online business space, positions it as a reputable player in the digital asset brokerage industry.

Acquisitions Direct

Acquisitions Direct is a brokerage firm specializing in facilitating the buying and selling internet businesses. Established in 2003, Acquisitions Direct operates as a business intermediary, connecting buyers and sellers in various industries. The firm focuses on the sale of mid-sized companies, including online businesses, e-commerce stores, and other digital ventures.

Acquisitions Direct provides a range of services to both buyers and sellers involved in online business transactions. These services may include business valuation, marketing, and negotiation support. The firm aims to streamline the buying and selling process, offering personalized guidance and expertise to clients. Its approach may involve a thorough understanding of the unique aspects of each business, aiding in the successful completion of transactions.

Motion Invest

Motion Invest is a platform specializing in the buying and selling of content-based websites. Launched in 2020, Motion Invest focuses on smaller to mid-sized online businesses, particularly those with a focus on content creation, such as blogs and affiliate marketing sites.

Motion Invest streamlines the process of acquiring or selling websites by offering a marketplace where sellers can list their online properties and potential buyers can explore and purchase them. The platform provides a straightforward and transparent approach to the transaction process.

One distinctive feature of Motion Invest is its emphasis on simplicity and efficiency, making it attractive for individuals looking to enter or exit the online business space with relatively smaller-scale ventures.

Other Brokerage firms for Buying and Selling Internet Business

• Digital Acquisitions Digital Acquisitions is a brokerage firm that specializes in the sale of online businesses, including e-commerce stores, SaaS businesses, and content sites. They offer services for both buyers and sellers
• Investors Club Investors Club is a private marketplace that connects investors with online businesses. It requires an application process for membership to ensure a level of quality and seriousness among its users.
• Digital Exits Digital Exits is a brokerage firm that specializes in the sale of online businesses, including e-commerce stores, SaaS businesses, and content sites. They work with both buyers and sellers to facilitate transactions.
• BuySellEmpire BuySellEmpire is a marketplace for buying and selling online businesses. They offer a platform for users to list and browse businesses for sale, including e-commerce stores, affiliate sites, and more.

The post Marketplaces for Buying and Selling Internet Business appeared first on Francesco Lelli.

An application programming interface (or API) is a computing interface which defines interactions between multiple software intermediaries. APIs in the web are literally everywhere and serve a never-ending and ever-growing set of purposes.

The plot below gives you an idea on the size of the economy and its estimated growth in the coming years. We should probably note that this estimate is pre-Covid. Therefore, I would not be surprised if the growth would be even greater.

The big 4 as well as McKinsey are regularly monitoring the phenomena. Here you can see the point of view of Deloitte on the API Economy in one of their recent whitepapers.

The #API #Economy and its role for #programming the Web
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From a technical point of view, the communication leverages the fact that machines exchange messages via the Web usually using a REST or a SOAP approach.

REST/SOAP and their role in programming the Web

Representational state transfer (in short ReST) is a software architectural style that defines a set of constraints to be used for creating Web services. Web services that conform to the REST architectural style, called RESTful Web services, provide interoperability between computer systems on the Internet. It leverages the GET/PUT/POST/DELETE of the HTTP protocol for implementing the CRUD methods that are usually used in DBs such as:

• CREATE procedures generate new records via INSERT statements.
• READ procedures reads the data based on input parameters. Similarly, RETRIEVE procedures grab records based on input parameters.
• UPDATE procedures modify records without overwriting them.
• DELETE procedures delete where specified.

SOAP (abbreviation for Simple Object Access Protocol) is more flexible and is just a messaging protocol specification for exchanging structured information. It is used in the context of implementing web services in computer networks. Its purpose is to provide extensibility, neutrality, verbosity, and independence.

#REST and #SOAP play an important role in #programming the web and the #API #Economy
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SOAP and REST are subject to a never-ending battle. Programmers and software architects tend to have a polarized view. I personally see them as two sides of the same coin. I will cover some of the aspects of the discussion in a future article. In this post, as I usually use SOAP in the lectures of SOE, I will use REST for describing how programming the web works.

Programming the Web from a technical point of view

This video summarizes the various concepts that rotate around REST as well as gives an example using data represented in JSON.

For a good API the protocol is only the beginning and there is always need for a SDK. They practically go in tandem. A software development kit (or SDK in short) is a collection of software development tools in one installable package. They facilitate the creation of applications by having a compiler, a debugger and perhaps a software framework. They are normally specific to a hardware platform and operating system combination. In other words, they are a set tools that make the adoption of a protocol easy.

This video explains how an API and a SDK complement each other:

the role of #SDK in #designing a good web #API and fostering protocol adoptions
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Useful resources for navigating the API economy

Where can I find an API? You can start by searching in google “<name of the company> API” and you will be surprised by the astonishing amount of companies that are using this approach. However, in case you are shopping for ideas, this approach may be limiting the possibilities. A better alternative could be to familiarize with the API Economy using this set of videos from the ProgrammableWeb:

You could also browse catalogs that are available in the Internet, such as:

• https://any-api.com/ Collection of APIs and tools for using them.
• https://www.programmableweb.com/category/all/apis A “historical” initiative that intends to list all possible APIs that are available in the web.
• https://apilist.fun/interviews APIs can be also a fun endeavor!

Useful #resources for navigating the #API #Economy and discover new services
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The post The API Economy: Resources for Programming the Web appeared first on Francesco Lelli.

Value Chain

A value chain is a combination of the systems a company or organization uses to make money. In other words, a value chain is made up of all the various subsystems that are used to create products or services. This includes the company’s processes from start to finish.

Michael Porter developed a strategic management tool for analyzing a company’s value chain. In his book “Competitive Advantage” (published 1985), Porter laid out his method of analyzing value chains. He sought to define a company’s competitive advantage noting that it stems from the company’s processes, such as marketing and supporting activities.

All five primary activities are essential in adding value and creating a competitive advantage. They are:

• Inbound logistics: arranging the inbound movement of materials, parts, and/or finished inventory from suppliers to manufacturing or warehouses, assembly plants, and retail stores
• Operations: managing the process that converts inputs (raw materials, labor, and energy) into outputs (goods and/or services).
• Outbound logistics: the process related to the storage and movement of the final product and the related information flows from the end of the production line to the end user.
• Marketing and sales: selling processes and products for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and/or society at large.
• Service: all the activities required to keep the product working effectively for the buyer after it is sold and delivered.

Companies can harness a competitive advantage at any one of the five activities in the value chain. For example, by creating outbound logistics that are highly efficient or by reducing a company’s shipping costs, they can either realize more profits or pass the savings to the consumer in the form of lowered prices.

The use of support activities helps make primary activities more effective. Increasing any of the four support activities helps at least one primary activity to work more efficiently.

• Infrastructure: consists of activities such as accounting, legal, finance, control, public relations, quality assurance, and general (strategic) management.
• Technological development: pertains to the equipment, hardware, software, procedures, and technical knowledge brought to bear in how the company transforms inputs into outputs.
• Human resources management: consists of all activities involved in recruiting, hiring, training, developing, compensating, and (if necessary) dismissing or laying off personnel.
• Procurement: the acquisition of goods, services, or works from an outside external source. In this field, the company also makes decisions concerning purchases.

The video below introduces the value chain and discuss the benefits of this model as well as its limitations:

System Dynamics

System dynamics is a methodology and a mathematical modeling technique to frame, understand, and discuss complex issues and problems. Originally developed in the 1950’s to help corporate managers improve their understanding of industrial processes, System Dynamics is currently being used throughout the public and private sector for policy analysis and design.

System dynamics tries to understand the nonlinear behavior of complex systems over time using the following key concepts:

• Stock: an accumulation of people or things in a specific location or with a specific condition in a system. An element of a system that accumulates or drains over time. Stocks are the memory of a system and are only affected by flows.
• Flow: the movement of people or things between stocks within a system boundary or across the model boundary and thereby into or out of the system (through sinks and sources); changes in stocks over time. Flows represent activity, in contrast to stocks that represent the state of the system.
• Feedback: when the effect of a causal impact comes back to influence the original cause of that effect. A feedback loop is an alternating sequence of variables and causal links that creates a closed ring of causal influences.
• Table function: a numeric table version of a graphical function.
• Time delay: a delay in the flow of conserved material or people.

The video below provides an introduction to the concept:

The lecture below gives a set of examples as well as familiarizes you with the concept of System Dynamics:

I hope that these videos will serve as an introduction for understanding the dynamics that drive a company.

The post On Understanding the Dynamics that Drive a Company: Value Chain and System Dynamics appeared first on Francesco Lelli.

All crises bring with them a chance to better understand this thing we call the economy. Here is a timeline of economic crashes throughout history.

Economists talk about recession as being two successive periods of negative economic growth. That doesn’t necessarily mean much. What matters is that recessions harm people’s wellbeing – think homes lost, less “stuff” purchased, and unemployment. The long-term social effects can be harmful if people are less confident or are without jobs for a long time. While we do pull through recessions, they tend to hit some people harder than others which can have long-run implications. Unfortunately, crashes are an innate part of the economic system.

There is no such thing as long-term economic stability. You might have heard the popular saying that there is an economic disaster every ten years or so. COVID-19 is just the latest in a long line of economic crashes. 

Recessions are both a disaster and a learning opportunity. Policymakers need to learn from recessions so we can understand how to mitigate the damage. We probably get better at addressing economic disasters, but the big ones like COVID-19 or the 2008 Great Recession bring with them unique features that we can learn from each time.

There are several reasons why recessions can happen:

• Demand-driven – a widespread drop in spending causes a downturn. We are seeing this during COVID-19 with containment measures, health risks and uncertainty causing people stay at home and reduce spending.
• Supply shocks – a sudden decrease in the supply of a good or service. This type of downturn could occur when there is say a destructive natural disaster or a resource runs dry (e.g. an oil well)
• Bubble bursting – a large drop in asset values (e.g. shares in a company or property) causing people to lose confidence in the economy. 
• Financial panics – run on banks due to a loss in confidence in the financial system with depositors removing large amounts of cash.

Depending on the cause of the recession different mechanisms may be used to address the problem. Governments often step up to the plate with large spending packages designed to stimulate the economy and keep money in people’s pockets. Central banks may lower interest rates to encourage people to reduce saving and spend more money. Tax cuts could be popular as a way to encourage spending. Reforms are often proposed with voters advocating change.

Perhaps one day economists will have the ability to properly predict and avoid recessions, but that’s unlikely to happen any time soon. In the meantime, stay safe during COVID-19, and let’s try to make it to the other side in one piece.

About the author: Byte Size Story is run by a New Zealand economist and connects everyday economic interactions with the big picture. The blog talks about popular issues using economic ideas to tell a story, exploring topics such as government intervention, policy and markets.

Where to know more:

• List of Economic Crises
• List of Recessions in the United States

The Full list of Guest posts is available here:

• https://francescolelli.info/category/guest-post/

The post Bubbles and Crashes: When the Invisible Hand Dishes Out an Invisible Punch in the Nose appeared first on Francesco Lelli.