What is a Nascent Market and Is it For You?
Urban Air Mobility (UAM) has created significant buzz over the past few years. Since The Jetsons first aired in the 1960s, flying cars have captured imaginations, and plenty of entrepreneurs have dreamed of vehicles capable of whisking passengers through the skies to their desired destinations. Many tech and transportation firms believe the future of flying cars is now in sight, propelled by the advent of electric vertical take-off and landing (eVTOL) vehicle technology.
Developments like eVTOL and other breakthrough technologies are creating nascent markets; unique, unprecedented commercial arenas on the verge of hyper-growth. With forecasters predicting a GDP growth rate hovering in the low single digits over the next few years, corporations will likely face stagnant or slow revenue growth. Under these circumstances, companies are beginning to proactively seek alternative markets in which to sell their products and services. Many consider nascent markets; they present an opportunity for a company to get in early, be positioned as the first mover, and benefit from rapid revenue expansion as these markets develop.
Methodologies used for examining existing adjacent markets must be altered in order to successfully understand nascent markets in which separating truth from reality is difficult. Understanding if you should play and how to play in a nascent market requires three analytical elements: identifying probable market development barriers and strategies to overcome them; identifying potential players and partners with whom to align, and envisioning what the future state of the market will look like.
A deep exploration of potential barriers and how likely they can be overcome is critical to understanding whether a nascent market is substantive and how it will evolve. In a market like UAM there are several conspicuous barriers: technology, infrastructure, and regulation. However, it’s crucial in a nascent market analysis to dig deeper to find the less obvious roadblocks that may impact the market in unexpected ways. When assessing the potential for full-scale UAM deployment we discovered several important obstacles. First, until eVTOL vehicles become autonomous, thousands of trained pilots will be needed and there are no clear pathways to filling these roles. Additionally, with multiple eVTOL vehicles operating in compact areas near the ground, noise mitigation will be essential. These types of barriers are potentially overlooked when simply viewing a market in its infancy. When picturing the market at a larger scale, other key impediments can surface. For the UAM market, cutting through the hype to understand the limitations of the technology was critical for our client to make informed decisions regarding the market potential and the timing of possible market entry.
Determining which players will be successful in a nascent market is essential for a firm to understand with whom to align or partner. Sifting through the myriad of players that strive to be involved in a future market is challenging. By looking at factors such as transportation experience, aerospace expertise, existing partnerships, viability of prototypes, and level of capitalization we were able to narrow down a list of almost 200 eVTOL manufacturers to a dozen viable players. Even though the technology is still early in development our client needed to act quickly for its systems to be included in initially certified vehicle designs. Without establishing an early partnership, they could potentially miss out on the market. When looking at a nascent market, even though commercial viability may seem to be far in the future, you must know when it is necessary to engage. Often it is earlier than you think.
Understanding what a future technology market will look like is challenging because…well, it doesn’t fully exist yet! Establishing a clear vision of use-cases for the technology and comparing them to existing market analogues can help address this challenge and provide a sense of the key characteristics of the market. For UAM, it became clear that the most likely use case would be short trip air-taxis, rather than privately-owned car replacements or long-distance super-commuting vehicles.
The commercial helicopter market proved, in many ways, to be the most accurate comparison to the potential UAM market. Helicopters are currently used commercially in a similar manner to predicted UAM use cases: for the transport of customers from hub-to-hub over relatively short distances, particularly in urban areas. Many commercial helicopter models also have similar cabin sizes to eVTOL vehicle prototypes, meaning specific cabin components and parts would be similar in many ways. Propeller aviation components had certain specific design features that aided in our analysis, and the small jet market’s high-end demands helped narrow down market projections.
While success is never guaranteed, by performing a thorough analysis of market development barriers, a systematic evaluation of aspiring players, and a careful investigation of analogues, suppliers can make better decisions on if and how to play in nascent markets.