The year 2021 promises continued success for the world of online retail.

As the year comes to a close, many professionals are reviewing their “total addressable market” projections to inform upcoming strategies. If your planning for 2021 began in the third quarter, that’s excellent – you’re ahead of the curve.

For those of you who view e-commerce as a key market, consider this: have you updated your total addressable market (TAM) and serviceable addressable market (SAM) calculations for 2021, taking into account the changes observed throughout 2020?

For many, market research can feel like a tedious and repetitive task, involving endless clicks on search engine results. When it comes to e-commerce, estimates of the addressable market often rely on figures released by companies like Shopify, specifically merchant numbers mentioned during their financial reports, which are then used to approximate the overall TAM for e-commerce businesses.

Another common, though straightforward, method involves examining user base data from various databases that track technology platform statistics.

However, the most easily obtained answer isn’t necessarily the most accurate.

Mind the gap

Consider installations of e-commerce shopping carts as an example. Platforms like Shopify, Magento, WooCommerce, and BigCommerce report installation figures reaching millions.

This presents a key contrast to keep in mind when discussing your Total Addressable Market (TAM).

E-commerce follows a long-tail distribution. While there’s a large number of merchants, e-commerce revenue is heavily concentrated—a significant portion of total revenue is generated by a relatively small number of companies, perhaps tens of thousands.

PipeCandy provides bottom-up TAM estimations, offering detailed breakdowns of data related to technology, logistics, and payment system adoption across different revenue levels and major markets. A frequent error we observe in interpreting TAM estimates is the confusion between revenue and potential expenditure.

A retailer with multiple brick-and-mortar locations may have a greater capacity for spending, even if their e-commerce revenue is modest, compared to a company focused solely on online sales with higher revenue. Therefore, it’s crucial to understand the business models of companies and assess TAM from that viewpoint.

For instance, PipeCandy identified approximately 1.4 million active Shopify installations as of early Q4. However, this number decreases considerably when considering only businesses with substantial spending power.

Let’s look at a simple calculation:

The traditional image of entrepreneurship in America was opening a store on a street corner. Today, that corner is represented by Shopify, Amazon, and e-commerce in general. I believe Shopify is likely to bring more U.S. small retailers online than Amazon, due to the Shop App, which promotes local discovery and will likely drive more local commerce than Amazon in the years ahead.

Marketplace Pulse data indicates that Amazon.com has historically hosted more sellers from China than from the United States, even when examining the top 10,000, 50,000, or 100,000 sellers. While Amazon aims to support local businesses, its commitment to offering the best value to consumers prevents it from prioritizing local options if they cannot compete on price.

Post-vaccine e-commerce

The rate of expansion for e-commerce will likely be affected following widespread vaccination. Typically, discussions center on shifts in how consumers act, and the increased comfort level that older generations experienced with purchasing groceries online during the pandemic. Whether these new habits will continue remains uncertain.

However, if I were allocating funds as a retailer in 2021, a substantial amount would be dedicated to e-commerce and automation technologies. Consider the grocery sector, for example. Efficient microfulfillment centers and robust last-mile delivery systems, including locker infrastructure, are essential to provide customers with convenient delivery time slots. Significant capital is already being invested in these areas. Even with vaccination efforts, it will likely be the third or fourth quarter of the year before vaccination is widespread enough to alter the established patterns of online shopping.

For those managing demand generation or involved in corporate planning within companies that support e-commerce (covering logistics, technology, finance, insurance, and similar fields), I suggest a thorough analysis of the broader market, extending beyond traditional e-commerce players (such as smaller retailers and grocery stores), to ensure you don't overlook opportunities as the market expands.

We extend our best wishes for a successful and prosperous 2021. Relying on data transforms optimism into a confident strategy!