The misleading TAM (Total Addressable Market)

April 13, 2022 | 667 words |



The Total Addressable Market (TAM) is one of the most misleading business metrics in the IT industry (and possibly in others). It’s just feel-good numbers we say to each other.

There are at least three reasons:

There are other metrics that could lead to more realistic numbers. Things like Serviceable Available Market (SAM) and Serviceable obtainable market (SOM) but

Notice that, on purpose, my criticism does not focus on how industry professionals approximate and miscalculate TAMs. Not because there are no approximations and miscalculations. There are aplenty. But if we go down that path, then we also need to call out the approximations and miscalculations in sales forecasts and growth trend models. Any person that has ever gone through that sort of tribulation knows that those models are based on a castle of cards made of (partially or completely) made up numbers. And you can find cards-castle-builders in scrappy startups as well as in prestigious public companies, in famed think-tanks as well as in leading industry analyst firms.

How the TAM is a broken concept in its essence is way more important than how it’s imprecise in its expression.

The TAM is just a story we tell ourselves within BUs and in our interactions with investors, analysts, and the press. It’s a feel-good number that has no connection with the reality of how people buy and use products, and it often places the blame for failure in the wrong places.