Lex’s Episode 386 podcast interviewed Marc Andreessen, co-creator of Netscape (https://lexfridman.com/marc-andreessen/) and one of the topics discussed is why capitalism is good. Marc reasoned that the largest addressable market TAM for any product is if everyone can afford it and want to use it. For that to happen the price point of the product would have to drop and the product must solve a need or problem. This will improve quality of life of everyone.
He brought up several examples of this. The high speed internet initially was only available to government, university and large companies. Today, most homes run on broadband. The iPhone went through this journey too. The screen initially was slow and its cost was high. Through successive iteration and with the help of Moore’s law, the iPhone is now cheaper (for the cheapest model), faster, and bundles more features and most people either have an iPhone or an Android smartphone with equivalent performance and features. Apple has more expensive iPhones in the Pro line but the it also has the iPhone SE that is affordable.
Tesla electric cars are also now on this journey. Its original Tesla Roadster cost well over $100,000. It is a small impractical two seater sports car and addresses only a small portions of the drivers and only a fraction of the high income earners can afford it. Their next product, the Tesla Model S improves on the Roadster in many areas. It seats up to 7, has dual motor all wheel drive and is priced lower than the Roadster at around $80,000. Next came the Model X priced higher but offers more towing and storage utility. Then came the Model 3 sedan with a target price of $35,000. At this lowered price, the addressable market greatly improved. Next came the Model Y, their mid size SUV. This model has larger cargo space than the Model 3 and priced in around $50,000. With today’s government incentives of $7,500, Tesla cars are actually cheaper than the average cost of car at $47,000. Of course the incentives will not last forever. Tesla is working on their next lower cost vehicle and continue to expand their addressable market.