By: Krista Napier
What’s wrong with simply taking 10 per cent of the U.S. market for a rough estimate of the size of a particular sector in the Canadian IT space? A lot, when important decisions depend on accurate information.
Yet, at a recent conference, I had someone ask me what was so wrong with that method. The “10 per cent rule” works with respect to population — as of July 5, 2011, there were around 311,699,825 people in the U.S., according to the U.S. Census Bureau population clock, and around 34,506,947 in Canada, according to Statistics Canada’s population clock. That’s 11 per cent.
So the assumption seems to be that if Canada’s population represents around 10 per cent of the U.S. then everything else we do with respect to technology will as well. That’s a bad assumption, and here are just a few reasons why:
1. The 10 per cent rule assumes we follow the same growth trends. The 10 per cent rule assumes that Canada will follow the same large growth or decline trends as the U.S. If their market goes up, so will ours, and at the same pace. If their market comes down, so will ours, and at the same pace. But obviously, that is not a safe assumption.
In the smartphone market, while RIM has lost share and shipments have declined recently in the U.S., the company has fared better in Canada and has remained relatively steady for now. If you had made the assumption that the decline in the U.S. applies directly to Canada, you would misinterpret the growth trend, which does not necessarily pace the U.S., let alone the market size, at a rate of 10 per cent.
Related story – Canadian mid-market IT spending on the upswing
The Android market provides another example of this problem. The U.S. smartphone market seems to have settled into an approximate 50 per cent shipment share for Android, while Android adoption is still ramping up in Canada (and last quarter was about 24 per cent share of the smartphone market). This is primarily due to the legacy of AT&T’s exclusive deal with Apple, which resulted in Verizon aggressively marketing Android. So, if you assumed we were at the same rate of adoption as the U.S., you would be overstating Android’s share in Canada for smartphones.
2. The 10 per cent rule makes assumptions about timing. If you were trying to calculate the size of the install base of the Canadian media tablet market, simply taking 10 per cent of the U.S. market definitely would not work. The U.S. launched earlier than Canada (in early May 2010) while media tablets were available at the end of May in Canada. The U.S. had a full extra month of shipments under its belt. So taking 10 per cent of the U.S. market to estimate Canada’s install base of media tablets would lead to an overstatement. The issue of timing will continue to come up again and again with respect to timing issues around advances in connectivity (4G) and new product or OS launches.
Related story – Canadian tablet market will near 1.5 million by year’s end: IDC
3. The 10 per cent rule forgets about our unique business structures and strategies. In comparing U.S. data with Canada data on a regular basis, I can say definitively that the 10 per cent rule does not work. There are many cases where the differential is due to the dynamics that are unique to the Canadian market. When it comes to something like a media tablet, the data plans that go along with it can be expensive (Canada’s not exactly known for offering cheap data plans). As such, compared with another country like the U.S., it’s possible we may see fewer people connecting their devices to a plan, or simply going with a WiFi device from the start. That could impact connectivity rates (number of WiFi vs. 3G/4G devices purchased). And if that holds true, taking 10 per cent of the U.S. market to determine how many devices in Canada are 3G/4G vs. WiFi would underestimate the true number of WiFi devices (this is a hypothetical example only).
Related story – SMB tech spending on the way up – IDC
Differences between the two countries in vendors and strategies are also problematic. Take the ereader market as an example. Barnes and Noble’s Nook ereader is one of the popular ereaders in the U.S., and it runs on Andriod OS. Kobo’s eReader is big in Canada, and it runs on Linux. So if you wanted to know how many ereaders were running on the Android OS in Canada, simply taking 10 per cent of the U.S. market would lead you to overstate the size and growth rate of Android in the Canadian ereader market. The Nook, while very popular in the U.S., is not popular in Canada. Furthermore, only a handful of ereaders in Canada run Android at all, and they do not make up the top three leading brands in this space. So Android actually represents a very small share of the ereader market in Canada … much lower than 10 per cent. Different vendors with different strategies equate to very different market dynamics.
Furthermore, the structure of the U.S. economy and its industry priorities are different. For example, the U.S. spends a higher percentage of its GDP in the defense sector at 4.7 per cent of GDP, compared with Canada at 1.5 per cent of GDP (Stockholm International Peace Research Institute [SIPRI] Military Expenditure Database, 2010). This difference impacts technology decision-making and spending priorities, which can lead to large differences between the two countries, even within the same industry.
So making the assumption that you can apply something as simple as broad demographic data (such as population) to all IT markets to understand the intricacies of vendor’s strategies, connectivity, segment data, growth trends, perceptions, and preferences is absolutely incorrect. The Canadian and U.S. markets are and will remain different, so it should not be assumed we can simply boil it down to a 10 per cent rule.
Krista Napier, is an IDC Canada senior analyst specializing in Canadian emerging technology
