Understanding the XR Market for Product Positioning — TAM, SAM and SOM
XR and immersive technologies are growing in use for various industries, and as the market evolves, it's essential for businesses to understand the market dynamics and opportunities. Having worked on XR projects and other emerging technology modalities in the last few years, I have seen the tides changing multiple times — what is in demand, what is worth of postponing the wait and what is just not viable at all.
In this article I want to introduce concepts that every company or team that currently works on conceptualizing their XR product or service should be paying attention to in the context of immersive technology:
• Total Addressable Market (TAM)
• Served Available Market (SAM)
• Serviceable Obtainable Market (SOM)
Total Addressable Market (TAM)
Total Addressable Market represents the entire potential demand for a product or service within a specific market. In the context of XR and immersive tech, TAM covers all potential consumers, industries and use cases that can benefit from your solution. It basically serves as a big umbrella and a useful framework for understanding the scope and scale of opportunities presented by XR. It’s all potential customers and applications that are potentially for a new innovation to some degree over time. For disruptive technologies, whose use cases span several domains, TAM definition basically underscores massive long-term commercial prospects. In this context you should be looking for all domains that employ some type of visual and other sensory experience. The domain selection is rather vague in this case, because it is literally most domains that are relevant — entertainment, healthcare, construction, engineering, social media, education etc.
When building a product, this is usually clear from the beginning, but sometimes can have overlaps. What is important is to define the main XR features and characteristics that are going to direct the production towards a niche. That can be:
the product’s ability to place digital objects contextually in space (mixed reality)
simulate real (digitally twinned) or imagined (digitally native) environments
augmented experiences and data overlays onto sensory field
remove physical/geographic barriers (remote solutions such as care, troubleshooting etc.)
feature socially-integrated content and social networks
virtualize educational content, skill transfer, training
remote equipment operation, complex assembly guidance, worker safety
virtual tours (real estate), play spaces, property management and safety
digital twins of landscape/cities
cultural events and digital preservation of heritage
digital entertainment venues, streaming platforms, interactive channels
work environment and productivity tools
e-commerce and digital marketing
etc.
There are several indications to lay out the main reference point, but flexibility is recommended. The size of individual vertical market opportunities within the overall TAM depends on:
• specific technology attributes
• use case value propositions
• timing of broader conditions (for instance workplace transforms to hybrid/remote models during a pandemic)
There are many estimates and forecasts, short-term and long-term, for the XR market, but these trajectories and individual technology adoptions tend to fluctuate rapidly. As with other disruptive technologies before it, the full magnitude and diversity of XR's TAM likely remains underestimated given the innovative and unexpected ways it may transform habits, roles and workflows over time. You will need to systematically explore major sector opportunities, investor’s willingness and the overall mood/climate to see if it’s necessary to appropriate the investment you are seeking or if any changes in the roadmap are necessary (mostly they will be). To capitalize on XR's long tail potential across industries you will need to understand where exactly you stand on the transformational impact and scalability of your solutions — which may even birth new categories of applications and business models that you may have not yet considered. Defining XR's total addressable market underscores the future commercial prospects.
Served Available Market (SAM)
Served Available Market is a subset of the Total Addressable Market, which considers the portion of the market that specific companies or products can realistically serve. Not all companies have the capability, resources or expertise to cater to the entire TAM. Many factors play into this, and they are absolutely significant in role defining for a company's SAM:
• geographical reach
• product specialization
• target demographics
While the TAM represents all potential customers across industries that could benefit from a new technology, the served available market presents a more realistic scope of what specific companies can achieve based on their organizational abilities and strategic focus. Accurately defining the SAM factors in capabilities, resources and expertise will influence which portions of the vast TAM they are best positioned to capture. Determining SAM involves analyzing competitive strengths and weaknesses relative to the target market segments.
For example for hardware manufacturers, factors like:
• production capacity
• supply chain management
• partner ecosystems
• the types of devices realistically producible from technical and financial standpoints
Software platform providers assess:
• distribution channels
• technology partnerships
• datacenter infrastructure
• customer profiles supportable under current business models
Service providers evaluate:
• skills
• locations
• sector expertise
• economies of scale
• profitable serviceability of client profiles
Geography can be a major SAM constraint as supporting global customers entails significant additional costs. Regional or country-specific companies with local expertise optimally start by addressing regional demand first before international expansion. Even multinational firms often specialize across certain economies and regulatorily approved regions or applications due to operational complexity. Especially hardware incumbents, they have tremendous resources but focus SAM on addressable segments leveraging existing product portfolios and partner networks for accelerated adoption uplift.
Product categories influence SAM determinations — hardware businesses carved out opportunities in areas like medical, industrial, consumer or enterprise devices based on specialized capabilities. Platforms specialize across verticals like gaming, enterprise simulation or spatial computing accordingly. Services orient towards strategic focus areas harnessing sector backgrounds — consultancies towards design/training while staffing firms towards volumes. If you choose a niche application, it can help maximize competitive differentiation while mass applications warrant different scalable approaches.
Demographic factors further shape reachable profiles within industries of interest. This is also an area of targeting certain age groups, skills levels, enterprise sizes that necessitate tailored solutions, content and pricing suitable to each persona's requirements and purchasing patterns. Regulations and cultural sensitivities can impact viable profiles and use cases nationally or between B2B vs B2C situations.
To accurately scope the SAM based on such constraints allows prioritizing resources towards opportunities presenting the optimal blended balance of achievability, profitability and strategic fit. Again, you need to continuous to evaluate what keeps your SAM definitions dynamic and capable over time, and what creates runway to expand reachable targets sustainably through successive product and market developments. SAMs are proactively determined and constitute an important exercise in realistically capitalizing on opportunities within the immense overall TAM landscape commensurate with each company's competitive positioning.
SERVICABLE OBTAINABLE MARKET (SOM)
Serviceable Obtainable Market is the slice of the market that a company can realistically capture given its current operational constraints. that includes:
1. budget
2. distribution channels
3. market positioning
With XR, identifying the SOM is crucial for businesses to set achievable goals and create a sustainable growth strategy. While served available market (SAM) defines the total slice of demand a company can theoretically address based on its capabilities, the serviceable obtainable market (SOM) represents the actionable portion realistically attainable in the short to medium term view operational practicalities. Accurately scoping the SOM serves as an important checkpoint for setting tangible near-term objectives and formulating responsible growth strategies.
Budgetary limitations heavily impact SOM determinations. Hardware costs, workforce sizing, R&D budgets, marketing expenses, distribution obligations all factor in what annual demand targets can realistically be financed under prudent fiscal responsibility. Securing certain customer segments usually requires investing in specialized tools, certification programs or compliance measures that companies may not be prepared to cover out of pocket immediately.
Distribution channels also shape the SOM. For example:
— consumer devices need mass merchant availability
— industrial equipment relies on authorized distributors
— unproven platforms need app marketplaces onboarding
— services require suitable sales pipelines
Building widespread availability takes a lot of effort over quarters or years. It is similar with acquisitions of necessary skills and certifications to handle different use cases or asset classes.
Market positioning impacts captures within segments too. Early innovators navigate pilot deals but when it comes to scaling them, there is a need for proven solutions. These are dependent on strategic alignments and optimized total value propositions to onboard large user bases across various customer profiles. Brands and brand awareness evolves over time and follows deliberate marketing campaigns demanding intermediate objectives rather than ambitious overnight transformations.
Geographical expansion occurs step-wise as well. If we deal with domestic opportunities, they will remain larger initially than international prospects, because of need for local hires, language support and regulatory adaptations. Clustering efforts around strategic regional hubs allows companies to measure territory expansion and harvest knowledge transfers between mature-emerging markets. Product roadmaps must also balance iteration and innovation. Continuous quality improvements enlarge existing bases and reference clients for endorsements, but breakthrough features expand SAMs over generations as user understandings progress.
All these constraints make SOM a realistic near-term call based on how prepared the company is operationally rather than potential size. It considers sudden increases, proving foundations for more ambitious visions and ensures only commitments deliverable to preserve reputation. SOM focuses on capturing low-hanging fruits within the SAM while laying groundwork for wider SAM constructions long-term. Following a responsible SOM framing will work for sustainable XR companies and help them scale through achievements rather than overpromising capabilities.
Maturely scoping SOM protects stakeholders. It focuses on meaningful progress attracting support and maintains integrity central to this burgeoning technology and users — without having to compromise visions but also planning well to realize them through realistic milestones. It translates opportunities into actionable strategies for companies be able to deliver steadily on long-term basis.