Google is looking to enter the language learning market. What is the Total Addressable Market (TAM) for people who want to learn any new languages?

Before I start estimating the TAM for the language learning market, I would like to clarify a couple of things and state my assumptions:

• Is Google thinking of starting out in a specific region or across the globe? à worldwide
• Is Google thinking of targeting schools, colleges, enterprises, or individual consumers with this new language learning product? à anyone should be able to learn a new language
• Is Google thinking of building a hardware or software product to enter the language learning market? (I am asking this question as the product accessibility will differ in both the cases and hence the TAM) à software product

Assuming that Google has the capability to provide the learning of any new language (no constraints from language point of view). As Google does not have the license to operate in China and Russia, will not consider these markets for TAM calculation.

TAM = Average annual revenue per user (ARPU) (A) * Total number of potential customers in the target market (B)

Let’s start with the estimation of (B):

World’s population ~ 7.8B

Population of China and Russia ~ 1.4B + 0.15B = 1.55B ~ 1.5B

Rest of the population = 7.8B – 1.5B = 6.3B

Since Google is thinking of building a software product, people should be able to access the application through their smartphones, laptops, or tablets. Since reach of smartphones is greater than the rest, considering the people who can afford a smartphone for the TAM calculation.

Assuming smartphone penetration to be around 70% globally,

Population with a smartphone ~ 70% of 6.3B = 0.7*6.3 = 4.41B ~ 4.4B

Obviously all the 4.4B people will not be interested in learning new languages. Some people learn for fun, for settling in a foreign country or for professional work. From personal experience, only few of my friends/colleagues seem to be interested in learning new languages. 

Extrapolating from personal experience, the population interested in learning a new language ~ 30% of 4.4B = 0.3 * 4.4 = 1.32B ~ 1.3B

Now, let’s estimate the value of (A) in our main equation:

Since Duolingo is a major player in the language learning market, lets use its pricing model as a proxy for calculating the average revenue per user. It offers mainly 2 tiers – a) Free: charging $0 and b) Super – charging $12/month i.e., $144/year or $60/year

A smaller fraction of the potential customers would be learning a new language seriously and would be willing to pay. Let’s consider it to be approximately 30%.

Let’s consider half of the customers would be interested in the annual payment of $60 and the other half would be interested in monthly payment of $12. Lets also assume that the monthly paying customers pay for only 6 months i.e., $72 annually.

We know that TAM = Average annual revenue per user (ARPU) (A) * Total number of potential customers in the target market (B)

Let’s modify the equation to consider only the percentage of people who are willing to pay:

TAM = Average annual revenue per user (ARPU) * Number of potential customers in the target market who are willing to pay

Let’s modify the equation further to consider the percentage of people who are interested in monthly and annual payments

TAM = Average annual revenue per user (ARPU) from annual payments* Number of potential customers in the target market who are willing to pay annual payments + Average annual revenue per user (ARPU) from monthly payments * Number of potential customers in the target market who are willing to pay monthly

TAM = $60*50%*30%*1.3B + $72*50%*30%*1.3B

TAM = $60*0.5*0.3*1.3 + $72*0.5*0.3*1.3 = 0.5*0.3*1.3*(60+72) = 0.15*1.3*132 = $25.74B or $26B