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Although predictions about growth in e-commerce are made authoritatively and used widely, the exercise in estimation is like guessing how many cubic liters of fog will roll in under the Golden Gate Bridge in any given period. The e-commerce estimates are not only inherently inaccurate; they aren’t even meaningful. I know this now, but I didn’t always. It took an old friend of mine, named Bob, to teach me the age-old truth that made-up numbers don’t always add up. Bob is impulsive to the point of being spring-loaded. Back in early 1997, Bob caught dot-com fever. He was hell-bent to launch an on-line exchange that would bring together sellers and corporate purchasing agents. I thought he was nuts. I told Bob that my detailed spreadsheet model showed that his plan might make sense, if the Forrester Research forecast for 1999 was higher—perhaps by 25%. I’ll never forget his cackle of derision. "Who gives a hoot what the size of the market is?" he sneered. "E-business is here to stay. It’s growing fast. What more do you need to know?" Bob went blindly ahead. I called him a year after the launch, still worried for his sake. Had he, I asked, seen the revised Forrester projections? Again came the cackle. I persisted about the value of the forecasts. After all, I’d never seen a strategic plan that didn’t start with a reputable prediction of market size. Now it was Bob’s turn to explain patiently. Regardless of market-research studies showing that on-line markets were still relatively small, more than 5,000 companies had registered to buy and sell at Bob’s site. The number of transactions was growing 75% per month. These were real numbers, not forecasts. "The size of the market is infinite relative to my ability to serve it," he said. "Oh, by the way," he added, "I’m being flooded by calls from venture capitalists wanting to fund my business. So my question to you is: Whose money should I take?" "But Bob," I tried again, "how can you figure how fast to grow and how much money to take if you don’t have a good forecast?" "Jay," Bob said, "did you ever hear the old joke about ‘How many dead people are there in the graveyard?’" "No," I responded, suspiciously. "They’re all dead," he snorted. "The number makes no difference!" "Ha, ha," I said humorlessly. But I began to think that Bob just might be right in his analysis. We shouldn’t talk about how much commerce will be e-commerce. All commerce will have an on-line component. Estimating the size of Internet-based business is like estimating the size of telephone-based business. Perhaps the true value of market-size forecasts is simply to convince a critical mass of people that a potential market exists. Once enough people believe, they make the belief come true. Maybe that’s why, no matter how much market researchers ratchet up their forecasts every year, they still decide that they have underestimated the market. As Bob pointed out to me, when the market is riding the penetration curve, demand will grow to meet all available supply. In other words, the projections of market size for e-business are truly irrelevant. Bob took his company public last fall. The IPO was priced to value the company at $500 million, but the market value shot up to $5 billion. Bob’s 40% share makes him worth $2 billion. Now those are numbers! Speaking of numbers, he has changed his telephone listing, and it isn’t easy getting him to return my calls these days. I want to tell him that I’m starting an e-business. Maybe, for old times’ sake, I’ll run a few numbers by him.
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