Commercial Potential - Market Share

Now it is time for some reality testing. While it is often the case in technology businesses that the first product to be released can grab and hold a larger market share than latecomers, it is still rare for one product to ever achieve a 100-percent market share. Moreover, it takes time to develop an invention and to penetrate a marketplace. Since time is money, it is important to know, approximately at least, what proportion (percentage) of the entire market will be supplied by the invention in a reasonable time, say in five years. Because the value of an invention is the present worth of its future net income (profit) stream, and the farther in the future that profit is earned, the lower its present worth, only relatively near-term commercial potential need be considered. For example, a dollar earned ten years from now has a present worth of about 16 cents if a discount rate (expected rate of return) of 20 percent is used. So, profits achieved far in the future add little to the commercial potential of an invention.

Near-term market share is estimated by answering the question: "Out of all customers, what percentage will buy my product five years from now?" Of course, if the product will not be available in five years, the answer is zero. If the product is desired, is in full production, and customers have no other choice, then the answer is 100 percent. Most products are somewhere in between.

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