AT&T's $12 Billion Mistake
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Bill Gurley's story about AT&T's massive market prediction mistake.
AT&T once paid McKinsey a million dollars to forecast how big the cell phone market would be. They wanted to know if they should become a cell phone manufacturer or care about that market. McKinsey's top analysts predicted that in February (of the target year), there would be 900,000 people using cell phones, which turned out to be less than 1% of the actual number - it was 9 billion.
Because of this dramatically wrong forecast that gave them a false sense of security, AT&T decided not to invest in that area. Once they realized cell phones were going to be a big deal and they were behind, they ended up having to buy a cell company for $12 billion. It was essentially a $12 billion mistake. Now, about 5-6 billion people have cell phones - they're absolutely ubiquitous.
As Aaron Levy, the founder of Box, tweeted: "Sizing the market for a disruptor based on the incumbent's market is like sizing the car industry based on how many horses there were in 1910."
Shaan Puri
Host of MFM
Shaan Puri is the Chairman and Co-Founder of The Milk Road. He previously worked at Twitch as a Senior Director of Product, Mobile Gaming, and Emerging Markets. He also attended Duke University.