Market research can reduce the risks that entrepreneurs face when they want to build a new product. In this article I talk about some market research techniques I have found that answer some important market questions.
On doing market research
Seasoned entrepreneurs often recommend doing ‘market research’ as a starting point for building a new product.
The goal of market research is to determine how easy it would be to launch a new business in a particular market.
When you do market research you want to find a ‘good‘ market.
A good market is a market that is growing rapidly where there is a manageable amount of competition and where there is no clear market leader.
Find a market like this and you set yourself up for success.
It’s worth finding good markets
I was fortunate to be one of the early developers who started writing apps for Android.
In the early days of the Play Store doing business was easy. People were constantly buying phones so there was a steady stream of new customers. There were very few apps so there was little competition.
It was a dream for app developers. Come up with an idea and the next day you had hordes of users.
Today things have changed. The market is crowded. A lot of niches these days are packed with high quality apps.
That’s why it’s critical to do market research. Market research will show you what you’re up against.
I want to show you a method I have used for market research, but first I want to clarify some terms. The concept of ‘markets‘ was confusing to me and it wasn’t until I had an understanding of what this term meant that I was able to do quality research.
What exactly is a market?
According to business dictionary online, a market is:
An actual place where forces of demand and supply operate, and where buyers and sellers interact to trade goods or services for money or barter.
-business dictionary online
I would say that this general description reminds me more of a marketplace.
In the online world a marketplace would be a place a customer goes to to find (and sometimes purchase) solutions.
Some examples of online marketplaces might include:
- The Google Play Store (where you can download apps)
- Medium (a marketplace where you can find articles)
- Amazon (a marketplace where you can purchase physical goods)
- To some extent Google itself (a marketplace where you can find and sometimes purchase just about anything you want)
Within a marketplace there are always many different markets.
An individual market forms when a particular group of customers looks for a particular type of good.
Let’s look at some examples.
On the Google Play Store there is a market for poetry community apps. This market is made up of all the Google Play poetry community apps and the customers who are interested in poetry apps.
There are also markets for basketball game apps, word puzzle game apps, flashlight apps and everything else one could imagine.
Amazon has markets for every kind of physical product imaginable from garden hoses to dental floss.
These individual markets are the markets that we want to understand.
Let’s look at how to analyze them.
How you can find a good market
If you follow the process I lay out below, you will be able to say whether or not a particular market is one you want to sink your time into.
When we study a market we are interested in measures of market size, growth, and competition.
One of the easiest ways to get this information is to look at a market’s competitors. Competitors are easy to find and a lot of the conversations they have with customers are public.
Finding a list of competitors
Finding lists of competitors is easy. On the Google Play Store you can use the platform’s search feature. Include every app that you feel is solving your target problem.
Sometimes competitors aren’t listed in a specific marketplace. In cases like this you can look for review sites.
For example if you’re interested in building a web app and wanted to do market research you could use a site like https://alternativeto.net to get build your list.
Coming up with measures of business strength
Once you have a list of competitors you’ll want to try to measure how strong their business is.
To do this you’ll need to search for data that reveals this information.
For Android apps on Google Play this is easy. You can use the # of app ratings as a rough estimate of app success.
Converting counts to rates
A lot of times numbers that you find will be counts. Ratings, likes and claps are all examples of counts. Counts have a little problem. They’re not comparable.
Let me give you an example. Which of these apps is more popular?
- App A has 500 ratings
- App B has 5000 ratings
If all you had was these counts you might have gone with App B… but let me add some information. App A has been on the market for 1 day while App B has been on the market for 1000 days.
With this new information we can conclude that App A with 500 ratings/day is much more popular than App B with 5 ratings/day.
Dividing a count by a time period converts it into a rate and rates are comparable.
Looking at rates for a market
I’m an engineer so I tend to write software to collect and process market data. Automating this process allows me to explore lots of different markets quickly.
In this article, we’ve been looking at ‘Name Art’ apps on Google Play. Here is processed information about the Name Art app market on Google Play.
To me this kind of information is so interesting!
Imagine we want to know the market size. The market size would be the total number of customers downloading apps like this over some time period.
We don’t know exactly how many people downloaded the app, but we can guess… if we assume that ~4% of customers leave a review then that would suggest that the apps with ~10 ratings per day are getting ~250 times per day. Add download estimates for several apps and you get market size.
Is the market growing? If we wanted to figure this out we could look at the ratings / day for the past 60 days and compare that number to the ratings per day from a year ago.
A quick glance at these numbers also gives us lots of insights about competition.
Several apps have similar ratings / day rates. This implies that there is no clear market leader (app with brand recognition)… rather consumers are picking whichever app they come across.
We can also see that some apps are using shady tactics to inflate their review numbers… we would need to dig deeper to see how widespread this is. It could be that all the competitors are using these kinds of tactics. If so it’s good to know that the playing field isn’t level.
Is this a good market to be in? By comparing this market’s numbers to numbers of other opportunities we could get a sense of whether these numbers are high or low.
I hope you see how valuable it is to do market research.
Give it a try and let me know how it works for you. I’d be curious to know what kind of challenges you run into.