Establishing TAM

What is the Total Addressable Market [TAM] for the satellite-based Earth observation downstream (data and services)? Let me jump to the end, I reckon it is in the range of $80-$100 billion…. Just don’t ask me to break out the maths. That number is based in part on some practical assumptions, part intuition, part on proxies, part on current uptake, a bit that I’ve been market forecasting in EO for a while now, a sprinkle of what may happen next and plenty of back-of-the-envelope calculations…

So, why is this number so hard to calculate. Firstly, can we all even agree on the TAM of what? All EO today? Or in the future if new sensors emerge opening up new markets? A specific company? Just the “satellite” bit or the wider geospatial TAM? All that alone could start a fight.

Building a “TAM for a company” is somewhat easier (but definitely not “easy”), we know what the company can/or will do, and take it from there. Indeed, there are a couple of examples, Satellogic, Planet and Blacksky all built out “their TAMs” and made them public to support investor decks prior to being SPAC’d. But there is no viable (reputable), independent, total EO TAM published to my knowledge. At least something with a number and then some assumptions to back it up.

The TAM for EO is, however, an important number to know. If we know the TAM we can start to work out market penetration, both for a specific company and as a whole. We could even start to work out market penetration into individual verticals by data/imagery type (optical penetration, SAR etc.) It would also assist companies to work out their Serviceable Addressable (or Available) Market [SAM] – for me the more important number – being able to start with a TAM to get to the SAM would help both companies position themselves, and for investors to see the potential.

Why, therefore, is it hard to work out? At Novaspace in its annual research the key forecast numbers is anticipated revenue generation (this would be just a portion of the TAM). For specific clients looking at specific markets we have built out TAMs, and in the EO4AG report we did work out the TAM for Agriculture. But no public all in, total EO TAM as yet…

One problem is the nature of the EO industry. If you want to build out a TAM for all, you would need to consider the markets for optical, SAR, hyperspectral, LiDAR, meteorology etc. etc. For both current and future systems, data and value-added-services (including information, analytics and so on). An assumption is then needed that all sensor requirements are at the desired levels to meet customer demands – that can be subjective, but some general rules could be built. Indeed, we have a good idea as to what types of sensors would generate the most market demand in most sectors. ?

So, you would need to work out the total market opportunity for each sensor, and for each market… that’s a lot of work. It also doesn’t take into account the value of fused data sets. Also to consider is if there would be any cannibalization of market brought about by new sensor technology (hyperspectral, for instance, could take a portion of the current market for coarser resolution multispectral.)

Then, the really tricky bit, how to evaluate really nascent markets. I have in the past worked out the EO TAM for more “established” verticals (defense, oil and gas, mining, agriculture, emissions…) but newer sectors and application areas that could emerge with more recent EO technology are difficult to gauge. These could also be big ticket markets for EO: environment societal governance [ESG] applications, carbon markets, supporting finance etc. Arguments could be made that these areas could end up bigger than most existing EO sectors (OK, plenty of ifs and buts there), but how to quantify them? How BIG could these markets be for satellite-based Earth observation?

One element to consider is that these markets in themselves are very diverse. ESG is a very broad topic, one in which EO could support in many different areas. The business models for these markets are also less understood and there are very few (at least public) contracts to understand elements such as a customer’s willingness-to-pay [WTP], or average revenue per user [ARPU]. One way to try and come up with a number would be to take a value-of-information (VOI) approach. I.e. what is the total value of a specific market, and then what added value could/does EO bring. The problem with this is you can get to some pretty big numbers with very little way of justifying them. For instance, I just did a very quick internet search “what is the value of carbon markets?” … the first thing that pops up is $948.75 billion in 2023 (according to the London Stock Exchange Group PLC). If the added value of EO information is 1% of this total, it means the TAM for EO in carbon markets is just under $9.5 billion. I mean, it could be right, but why not take 0.5%, or 3%, or 10% … and then, could forest mapping bring the 1%, understanding biomass bring another 5%...

The approach I have preferred in the past to build out market sizing is based on the WTP method. But to get to these numbers you need to have some customer insights – it is actually easier to apply the WTP method to a specific company which is engaged with clients to extrapolate a total market opportunity (the SAM) than it is to do for the industry as a whole. It is also possible to do this in certain vertical markets where there has been some client experience – it is the approach we took to build the size of the precision agriculture TAM ($4 billion) in the EO4AG report. However, again, for more nascent but potentially valuable markets, the approach is more difficult to apply.

The purpose of this article was hopefully to get collect few ideas on how to build an EO TAM. I then may give it (another) shot. So, how did I get to the $80 billion… well it’s a mixture of WTP for more mature EO markets, proxies for markets we can draw parallels and some VOI in areas in which there is less visibility (even if I don’t like it…), and the assumption was made that all sensors would be available at the technical parameters/requirements of customers. I also made a sanity check calculation based on the current market penetration for precision agriculture based on revenue generated today compared to its TAM, and a couple of similar calculations based on client specific work. I’m still not breaking out the maths though.