Blaine MathieuDirector, Market Strategy & IntelligenceCorel Corporation

November 19, 2002

Understanding Market Sizing

PMeasures of market sizePExamples and scenarios PHow growth is calculated

�– Note: all examples and scenarios are theoretical only

Overview

PTotal Addressable Market (TAM) is the most common waythat market sizes are reported by companies

But it is important to understand TAM in a larger context

Note that these measures can generally be expressed both in terms of revenues and seats/installations

Reporting Market SizeThere is more to the market than TAM

2000 2001 2002 2003 2004

TPM:Total Potential

Market

TAM:Total Addressable

Market

TCM:Total Captured

Market

Sample Market Sizing

PMarket size that accounts for the maximum possiblerevenues/seats that could theoretically be captured

Assumes every potential user will actually purchase the product�– Example: 1.5b knowledge workers in the world x $250 ASP= the Total Potential Market for

Word Processing ($375b)�– Note that TPM does not count all 6b people in the �“universe�”. Even TPM must be �“reasonable�”Unlikely to be achieved in the real worldCreates a upper boundary (top cap) for TAMMay exhibit low (or even negative) rates of growth�– I.e., a declining ASP would likely cause TPM to decline over time�– Remember: User vendor (sell-in) ASP, not retail/channel (sell-thru) ASP

TPM: Total Potential Market

2000 2001 2002 2003 2004

TPM

PBased upon the proportion of TPM seats that will actually purchase amarket solution given realistic product and marketing assumptions

PDerived from TPM based on two key factors:Product factor: The extent to which products in the market address real customer needsMarketing execution factor: The extent to which the customers perceive that the products address theirneeds (i.e., awareness)

PThese factors combine to create a rate of adoption of the TPM that resultsin TAM seats/revenues

�– Example:$375b Potential Word Processing market x 0.2% yearly adoption rate= the Total AddressableMarket for Word Processing ($750m)

TAM: Total Addressable Market

2000 2001 2002 2003 2004

TAM

P Size of revenues/seats that a particular vendor will capture

Usually we think of that vendor as being Corel

P Based on the vendor's share of the market�– Example:$750m Addressable Word Processing market x 95% share= the Total Captured

Market for Microsoft Word ($713m)

TCM: Total Captured Market

2000 2001 2002 2003 2004

TCM

PWhen understanding markets, it is often important tounderstand all three elements of market sizing

PTPMEasiest to forecast. Therefore useful particularly in emergingmarkets since it is difficult to forecast actual adoption rates with anyaccuracyProvides a �“top cap�” to the actual market value to help comparepotential market attractiveness

PTAMDescribes how much activity is actually taking place in the marketReal revenues that Corel could gain a share ofOften used for resource allocation

PTCMActual revenue and share forecasts are critical for obvious reasons

Why TPM, TAM & TCM

Example: EPM Market Sizing

$-

$500

$1,000

$1,500

$2,000

$2,500

2000 2001 2002 2003 2004

Total Potential Market (TPM)CAGR = 4.6%

Assumption: Every singleenterprise manager and processowner either purchases orupgrades a copy of the software

Total Addressable Market (TAM)CAGR = 37.6%

Assumption: Based on actualEPM software sales trends(actual and forecasted adoption)

Total Captured Market (TCM)CAGR = 40.4%

Assumption: Corel will increaseits share of market over time

EPM Market Sizing

Note: Theoretical example only. These numbers are not real market size numbers.

P When all possible users are actually addressableP More likely in very mature or saturated marketsP The Pro Layout market (Tier 1 geos only) might resemble

this scenario

Unique Scenario 1TAM = TPM

2000 2001 2002 2003 2004

TAM = TPM

TCM

Sample Scenario Market Sizing

(by the out-year)

P When Corel projects 100% market shareP Possible if Corel defines a new market that only its solution

serves (Grafigo?)Scenario usually not sustainable as significant revenues will attract competition

Unique Scenario 2TCM = TAM

TCM = TAM

TPM

2000 2001 2002 2003 2004

Sample Scenario Market Sizing

P In certain markets, TAM may include revenues/seats that are earned by substitutetechnologies and not only directly competing products

P Possible when demand exists that is currently unmet directly by existing products but isbeing met via alternative solutions that are competing for the same dollars

P Example:The �“value�” of home grown/proprietary solutions might also be included in TAM

P But don't forget that product and marketing factors affect TAMA market is not considered �“addressable�” unless Corel can (and will) execute against that opportunity

Unique Scenario 3TAM may include indirect competitors

Proportion of TAM that ismet by direct competitors

TAM

Sample Scenario Market SizingOver time, TAM may become 100% met bydirect competitors ascompanies realize thatthere is a need for adirect solution in the space.

2000 2001 2002 2003 2004

This scenariodescribes the mostproblematic area ofTAM sizing. Talk toMS&I if you areunsure how this consideration may affect the sizing ofyour market.

P In general, the following logic flow is used to take the�“universe�” down to TCM

PUniverse to TPMTPM = Universe size x % of seats/revenues �“potentially�” in the market

PTPM to TAMTAM = TPM x Adoption rate which is fn(product x marketing)

PTAM to TCMTCM = TAM x Company market share

Conversion Formula Summary

Actual buyers/revenues fora particular productTCM

Actual buyers/revenuesTAMPotential buyers/revenuesTPMTo summarize:

PGrowth is reported in terms of �“% CAGR�”PCAGR

Compound Annual Growth RateThe average annual rate of growth between two points in time

(Year 1 and Year X)CAGR Formula = (Year Xvalue / Year 1value) ^ (1 / # Years) -1

PExampleVideo game market size: 2000 = $232m, 2004 = $831mCAGR = (831 / 232) ^ (1 / 4) �–1CAGR = 37.6%

Reporting Growth

PFor �“emerging�” markets, TPM is often more useful than TAMBecause there is no TAM until real products are in the market

PTheory aside,TAM can be calculated in a number of waysSupply side (adding up competing vendor revenues)Demand side (based on seats and adoption/purchase rates)TPM is nearly always based on a demand-side analysis only

PPlease use proper terms and definitions when describingmarket sizes �– avoids confusion and controversy

And be careful in interpreting how others use these terms. Definitionsare not standardized in the wider business community

PFor further information and assistance with market sizing andforecasting, contact

Blaine Mathieu, Director Market Strategy & Intelligence x1387

Final Issues