Market sizes are often artificially constrained by legacy participants or architectures. When we started Box, most investors could only see how large other players had gotten, as a way of evaluating the market size. But what was missed was that the cloud changed everything.
1. The cloud made software delivery more efficient, 10Xing demand. No longer did you have to install, upgrade, patch, and integrate software and hardware. That decrease in complexity meant any SMB could use enterprise tools, and any enterprise could support more vendors.
2. The cloud made distribution more efficient. When a customer can try a new piece of software with a few clicks in a web browser or a mobile app install, and only pay for what they use (SaaS vs. perpetual licenses), they adopt much more and much faster.
3. The design principles of the cloud enabled faster product adoption. By leveraging consumer design approaches instead of legacy and clunky design that the enterprises (but not end-users) had gotten used to, you could spread much more easily within organizations.
4. New business models let you reach vastly more customers. With freemium and pay as you go approaches, bottom-up distribution finally became possible. End-users had a say in the tools they used, which meant more vectors to enter an organization than ever before.
5. Everyone was moving to the web and mobile. Unlike the traditional constraint of enterprise software being for PC-based knowledge workers, with mobile, billions of people become digital workers, 10Xing the TAM for enterprise software.
6. Cloud brought down the cost of everything. By delivering software over the web, providers had economies of scale that could not be matched by any one customer. Combined with Moore’s Law, that meant new feats could be accomplished in SaaS that couldn’t be replicated on-prem.
7. Finally, macro work tailwinds changed everything. Mobile and remote work, digital transformation, cyber security challenges meant every business had to upgrade their IT stack, making the legacy approach untenable. The finally death knell to legacy.
The lesson: never value a market by the size of legacy solutions or approach. If you do, you will wildly underestimate the potential opportunity.
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