When I came to Silicon Valley, I started attending a lot of meetups and events. Because we are in the SV area, the speakers and conveners would always be talking about their company or startup, specifically using terms like, "Our TAM was X…" or "Our SOM was getting affected by this strategy…". For quite some time, I was clueless and didn't really have the courage to ask a question to clarify what TAM meant. Simply doing a Google search on "What is TAM" gave me a rough idea. But that was all the knowledge I could get, and not the whole concept surrounding these terms of TAM, SAM, and SOM. Fortunately, last week in my Product Management class conducted by Professor Adrian Ott, I was given an in-depth explanation and knowledge about TAM, SAM, and SOM.

So who are these three oracles, TAM, SAM, and SOM?

Let’s understand this with a definition and later two examples: Tesla and Salesforce

• TAM - Total Addressable Market: This represents the total market demand for a product or service. It's the maximum amount of revenue a business could generate if it had 100% market share and no competition.

• SAM - Serviceable Available Market: This represents the portion of the Total Addressable Market (TAM) that a company can realistically target and serve with its current business model, products, and services. It takes into account factors like geographical limitations, product-market fit, and the company's capabilities.

• SOM - Serviceable Obtainable Market: This is the portion of SAM that you can realistically capture in the short to medium term. It takes into account factors like competition, your resources, and your go-to-market strategy.

Yeeeeaaaa, it got a bit too technical. Let’s take a live example to understand and imagine these concepts in real life. In this example we will take Tesla, an existing company with a running product.

Tesla Electric Vehicle Market Analysis: TAM, SAM, SOM

Total Addressable Market (TAM)

Tesla's TAM for electric vehicles would include all potential car buyers worldwide. This includes:

• All current car owners

• Potential new car buyers

• Commercial fleet operators

In 2023, the global automotive market was valued at approximately $3.56 trillion (source). As Tesla produces vehicles across multiple segments (sedans, SUVs, trucks), their TAM closely aligns with the entire automotive market.

Serviceable Available Market (SAM)

Tesla's SAM is a subset of their TAM, considering:

• Regions where Tesla operates or can realistically expand

• Price segments Tesla serves (primarily mid to high-end)

• Consumers interested in or open to electric vehicles

Let's estimate Tesla's SAM:

• Tesla operates in North America, Europe, China, and parts of Asia-Pacific

• These regions account for about 75% of global car sales

• Electric vehicles made up about 14% (source) of new car sales in 2023

SAM Calculation: $3.56 trillion * 75% * 14% ≈ $373.8 billion

Serviceable Obtainable Market (SOM)

Tesla's SOM is the portion of the SAM they can realistically capture, considering:

• Tesla's production capacity

• Brand strength and consumer preference

• Competition from other EV manufacturers

In 2023, Tesla delivered about 1.8 million vehicles (source) (source-2), representing about 18% of the global EV market.

SOM Calculation: $373.8 billion * 18% ≈ $67.3 billion (67B just in EV Car sales)

This aligns closely with Tesla's actual 2023 automotive revenue of $82 billion (which includes services and other automotive revenue) (source).

Summary

• TAM: $3.56 trillion (global automotive market)

• SAM: $373.8 billion (EV market in Tesla's operational regions)

• SOM: $67.3 billion (Tesla's attainable market share)

This analysis shows how Tesla has captured a significant portion of the current EV market, but still has substantial room for growth within their SAM and enormous potential within their TAM as the automotive industry continues to shift towards electric vehicles.

Now let’s take another example from the software industry.

Salesforce CRM Market Analysis: TAM, SAM, SOM

Total Addressable Market (TAM)

Salesforce's TAM for its CRM software includes all businesses worldwide that could potentially use a CRM system. This encompasses:

• Small to medium-sized businesses (SMBs)

• Large enterprises

• Government organizations

• Non-profit organizations

According to Grand View Research, the global CRM market size was valued at $65.59 billion in 2023 and is expected to grow at a CAGR of 13.9% from 2023 to 2024.

Projected 2024 market size: $65.59 billion * 1.139 ≈ $74.71 billion

For our TAM, we'll use the projected market size for 2024: approximately $74.71 billion.

Serviceable Available Market (SAM)

Salesforce's SAM is a subset of their TAM, considering:

• Regions where Salesforce operates (primarily North America, Europe, and parts of Asia-Pacific)

• Business sizes that align with Salesforce's offerings (primarily mid-market and enterprise)

• Industries that have higher CRM adoption rates

Let's estimate Salesforce's SAM:

• Salesforce operates in regions that account for about 80% of the global CRM market. This article's estimate that Salesforce operates in regions accounting for 80% of the global CRM market—primarily North America and Europe—is supported by market data. North America alone accounted for over 43.6% of the market share in 2022, and Europe contributed approximately 25%

• Their offerings are most suitable for mid-market and enterprise segments, which make up about 70% of the CRM market

SAM Calculation: $74.71 billion * 80% * 70% ≈ $41.84 billion

Serviceable Obtainable Market (SOM)

Salesforce's SOM is the portion of the SAM they can realistically capture, considering:

• Salesforce's current market position

• Brand strength and customer loyalty

• Competition from other CRM providers (e.g., Microsoft Dynamics, Oracle, SAP)

As of 2023, Salesforce held approximately 23.8% of the global CRM market share.

SOM Calculation: $41.84 billion * 23.8% ≈ $9.96 billion

This aligns closely with Salesforce's actual revenue from its core CRM products (Service Cloud), which was about $8.25 billion in fiscal year 2023.

Summary

• TAM: $74.71 billion (projected global CRM market in 2024)

• SAM: $41.84 billion (CRM market in Salesforce's operational regions and target segments)

• SOM: $9.96 billion (Salesforce's attainable market share)

This analysis shows Salesforce's strong position in the CRM market, capturing a significant portion of their SAM. However, there's still room for growth within their SAM and substantial potential within their TAM as more businesses adopt CRM solutions and the market continues to expand.

Conclusion

Understanding TAM (Total Addressable Market), SAM (Serviceable Available Market), and SOM (Serviceable Obtainable Market) is crucial for businesses of all sizes, from fledgling startups to industry giants.

• TAM represents the entire universe of potential customers, painting a picture of the market's maximum potential.

• SAM narrows this down to the portion of the market a company can realistically target given its current capabilities and constraints.

• SOM further refines this to the market share a company can expect to capture in the near term.

For startups, these concepts are invaluable in crafting realistic business plans, setting achievable goals, and attracting investors with well-grounded market projections. For established companies, they serve as essential tools for strategic planning, identifying growth opportunities, and allocating resources effectively. Whether you're Tesla eyeing the global automotive market or Salesforce navigating the CRM market, a clear understanding of TAM, SAM, and SOM provides a roadmap for sustainable growth and helps businesses make informed decisions in the marketplace. Mastering these concepts isn't just about numbers—it's about gaining a deeper understanding of your market, your potential, and your path to success.

Disclaimer: I am a non-native English speaker, and hence, I have used multiple GenAI tools to correct the Grammar and sentence framing of the blog to make the reading experience smooth and error-free.

Mustafa Saifee

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