How big is the relevant market?
Most analysts focus on market size but these estimates can be highly inflated or even irrelevant. For example, many Internet companies will rely on advertising for revenues. While the total amount of advertising dollars spent in the economy might increase somewhat, we can be fairly confident that advertising spending will be a relatively small part of the total economy. Further, the companies in an industry can only spend a small portion of their revenues on advertising over the long term. So establishing boundaries for advertising spending in a particular market is not that difficult. Furthermore, beware of how companies size the relevant market or even measure their own revenues. Take airline travel services. The relevant market is not the revenues that the airlines earn. The relevant market is the fees that airlines will pay to travel agent type services (on-line or off-line), a much smaller market. What market share and returns on capital will the company earn? The last issue is fi
