Beware of extrapolation

Good strategic decisions rely on good data, or at least logical data. I can’t help but think the extrapolation in this article is misguided and overstated:

…a survey by apps company AppsFire has found the average owner spends $US80 on apps for their iPhones.

Multiply this by the 45 million owners across the globe (and adjust for the 7% of users who prefer to only use free apps) and the market is worth a whopping US$3.3 billion, the company says.

The scope for multiplicative errors here is enormous. If the average spend is even 20% less (and I suspect is substantially less than that), and the percentage of users who prefer to only use free apps is 10% (again, I suspect it is much more), this market would only worth $2.6 billion.

The datasource here is very weak (1200 users) and sample representativeness highly dubious.

Firms should avoid such overt optimism wherever possible. A good strategy considers the worse possible (yet reasonable) external environment, as well as the best.

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2 Responses to “Beware of extrapolation”

  1. Steve Sammartino Says:

    All I can say is that type of analysis is clearly amateur hour. Everyone I know has an iphone and most balk at paying $2 including me. It’s just market forecasting folly. Enough said.

    Steve.

  2. Lewei Jiang Says:

    Agree.

    I am an Apple addict, I download about 10 apps per week average on my iPhone , but only paid $5 in the past 3 months for these apps, not going to pay anything more than that.

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