A simpler way to
think about TAM
in emerging markets.

Walk into any boardroom in Mumbai, Jakarta, Lagos, or São Paulo with a pitch deck that uses the framework Total Addressable Market — Serviceable Addressable Market — Serviceable Obtainable Market, and you will be greeted with polite nods. The numbers will be inspected. Someone will ask about the assumption behind the SAM. Someone else will compliment the rigour of the analysis.

And then the decision will be made on the basis of something else entirely.

This is not because the people in the room are unsophisticated. It is because TAM, SAM, and SOM were built for a particular kind of economy — one in which the market exists, the players are known, the consumer behaviour is roughly stable, and the growth question is mostly about share. None of those assumptions hold cleanly in most of the markets I work in. And yet the framework remains the lingua franca of market sizing, because nothing has come along to replace it.

This essay is an attempt at a partial replacement.

Section 01Where TAM came from

It is worth remembering where the TAM/SAM/SOM framework comes from. It was developed in the United States in the 1970s and 1980s, primarily for use by venture capitalists and corporate strategy teams sizing the opportunity for a specific product in a known market. Cell phones in 1985. Hard drives in 1990. The framework assumed, reasonably, that the consumer existed, the category existed, the substitute behaviours were measurable, and the question was simply: how much of this category can we win?

In a developed economy with stable categories, this is mostly a defensible set of assumptions. You can look up the number of households, multiply by an average spend, segment by demographics, and arrive at a number that means something.

The trouble starts when you take this framework somewhere it was not designed to go.

Section 02Why it breaks here

In an emerging market, three things are different in ways that the framework cannot accommodate.

The category is often still being created. When you are launching, say, a quick-commerce service in a tier-2 city, the question is not what share of the existing quick-commerce market you will capture. There is no existing quick-commerce market in that city. The question is whether enough latent demand exists to create one, and how fast. TAM analysis assumes a category. Here, the category is the bet.

Consumer behaviour is changing fast and unevenly. A sizing exercise based on last year's behaviour can be obsolete by the time it is presented. Smartphone penetration moves through a tier-3 town in eighteen months that took a tier-1 city six years. Payment behaviour shifts. Income brackets reshape. The static cross-section that TAM produces becomes a snapshot of a market that no longer exists by Q3.

The competitive set is unstable. In a developed market, you are competing with companies. In an emerging market, you are often competing with informal alternatives, government schemes, family networks, and older substitute behaviours that don't show up in any database. The competitor for a financial services product may be the local moneylender, who is uncountable, untaxed, and resilient.

Section 03Three replacement questions

What we use instead, in nearly every emerging-market feasibility study we run, is a set of three questions. They produce something less precise than a TAM number, but more useful for actually deciding whether to enter a market.

Question one: what is the present-day substitute, and what is wrong with it? Before you can size a future market, you need to know what the consumer is doing today instead. The local moneylender. The unbanked savings club. The four-hour bus ride. The unbranded grocery shop. The substitute is what you are actually displacing, and the size of the substitute — in money, time, or aggravation — is the first real measure of opportunity.

Question two: what is the unlock? Most genuinely new emerging-market opportunities are unlocked by something specific — a regulatory change, a piece of infrastructure, a price-point that has just become reachable. The unlock matters more than the headline market size, because the unlock determines the timing. A 100-million-person opportunity that requires a regulatory change to materialize is not the same as a 20-million-person opportunity that is unblocked tomorrow.

Question three: what is the path of penetration? Emerging markets do not adopt products evenly. They adopt them in patterns — geography, age cohort, income tier, language. The honest version of a market sizing for an emerging market is not a single number; it is a path. This year, this segment in these three cities. Next year, this expansion. Three years out, this larger arc, conditional on these things being true. A sizing presented as a single number conceals more than it reveals.

Section 04A worked example

To make this concrete, take a recent engagement we did for a financial services client considering a small-ticket lending product in three Indian states.

The original TAM analysis the client had commissioned showed a serviceable addressable market of around ₹180,000 crore. Impressive. Defensible. Built on the right Census data and CEIC numbers. The client was understandably enthusiastic.

When we ran the three questions, the picture changed. The substitute, in two of the three states, was an extraordinarily efficient informal lending network with relationships measured in decades. Customers were not under-served; they were differently-served. The unlock was a regulatory change that everyone in the industry was watching, and the timing of that change was uncertain. The penetration path, when we mapped it honestly, suggested that meaningful share was reachable in one of the three states within three years, and probably not in the other two within five.

The TAM number was not wrong. But the decision the client needed to make — whether to enter, where, and how aggressively — was not actually answered by the TAM number. It was answered by the three questions.

The client entered one state, with a clear thesis about the substitute they were displacing and the unlock they were positioned for. They held off on the other two. Two years later, that turned out to be the right call.

Sizing what isn't there yet.

None of this is to say that TAM analysis is useless in emerging markets. It is a useful sanity check on whether the order of magnitude is right. If the substitute analysis suggests a $100 million opportunity and the TAM analysis suggests a $50 billion category, something is off in one of them.

But the framework should not be the spine of the analysis, because it cannot bear the weight. The spine should be the substitute, the unlock, and the path. The TAM is the sense-check, not the answer.

The next time you are presented with a market sizing for an emerging-market opportunity, try this experiment. Cover the TAM number with your hand. Read everything else. If the analysis still tells you what to do, you have a real piece of work in front of you. If it doesn't, the number was doing more work than it should have been.