In the evolving landscape of SaaS, businesses are constantly looking for ways to stand out. The problem is: you can't just create the next Zoom or Salesforce in the hopes people will somehow move to your app. And you can't also waste years trying to come up with some brilliant fresh idea no one has thought of yet. The chances are, you won't (and fresh ideas are overrated anyway). So what's left for an inspiring young entrepreneur?
What you can do is go deeper and try to meet specific industry needs. And this is where vertical SaaS comes into play. If you need a refresher on what is SaaS industry in general and why it's a good business model, you can check out our article. And if you're ready to take a further step? Let's dive into the world of vertical SaaS and why should your next project consider going vertical!
What is Vertical SaaS?
Vertical SaaS refers to software solutions tailored to meet the specific needs of a particular industry or niche. Unlike horizontal SaaS, which provides broad-based solutions applicable across multiple industries, vertical SaaS focuses on specialized functionalities and workflows unique to a single sector. This specialization allows vertical SaaS to address industry-specific pain points more effectively and offer more tailored solutions.
Vertical vs. Horizontal SaaS
There's no universal recipe for success in the SaaS industry. Best SaaS companies come in all shapes and forms. Still, there are thousands of startups out there, and 90% of them fail. Many do so at the very early stages when it turns out that they didn't validate their business idea and tried to solve a problem no one's really ready to pay for solving. Others are trying to compete with the tech monsters they cannot tackle with the limited resources (especially this is true for solopreneurs.) That's where the difference between horizontal and vertical SaaS can make it or break it for you.
Horizontal SaaS specifics:
- Broad applicability. Horizontal SaaS products are designed to serve a wide range of industries, offering generalized features that can be adapted to various contexts. Examples include Salesforce for CRM and Slack for team communication. These platforms are built to be versatile, making them suitable for diverse business environments.
- Scalability. Due to their broad appeal, horizontal SaaS products can achieve significant scale and user adoption quickly. This scalability is a major advantage, allowing these platforms to grow rapidly and capture a large market share.
- Cost efficiency. Horizontal SaaS can be more cost-effective for businesses that need general-purpose solutions. Companies can benefit from economies of scale, as these products are typically priced to attract a broad user base, making them accessible for small to large enterprises.
- Community and support. With a larger user base, horizontal SaaS providers can offer extensive support and resources, including community forums, extensive documentation, and regular updates. This can help users troubleshoot issues and maximize the software's potential.
- Customization needs. While flexible, horizontal SaaS solutions often require customization to meet the specific needs of different industries. This can involve additional development work or the use of third-party integrations to tailor the software to unique business processes. This is the major downside of horizontal SaaS – and exactly where vertical SaaS comes into play.
Salesforce is a household name for horizontal growth examples because it's a CRM used across various industries, from retail to finance. The same goes for Slack – virtually every industry and business can use it. These are examples of thriving horizontal SaaS.
Vertical SaaS specifics:
- Industry-specific solutions. Vertical in business means specificity, and such products are designed with industry-specific needs in mind. These solutions are tailored to address the unique challenges and requirements of a particular sector, providing tools that align closely with industry standards and practices. Many small or medium-sized businesses will specifically look for such solutions.
- Deep functionality. Vertical industry definition for SaaS means that an app offers features and workflows that are highly relevant to the target industry, reducing the need for customization. This means that businesses can implement these solutions more quickly and with less disruption, as the software already includes the necessary functionalities and integrations specific to their field. Here lies the difference between creating, for example, a "CRM" and a "CRM for freelancers in creative industries."
- Market focus. By focusing on a niche market, Vertical SaaS providers can develop deep expertise and strong customer relationships within their industry. This concentrated approach allows for a more intimate understanding of customer needs, enabling providers to offer superior service and more effective solutions. The niche focus also helps in building a reputation as an industry leader, fostering trust and loyalty among customers.
Benefits and Challenges of Vertical SaaS
Let's look at the bright side first.
Benefits of vertical SaaS
Enhanced industry focus. Vertical SaaS solutions offer specialized functionalities that directly address industry pain points. This targeted approach leads to higher customer satisfaction as the software is tailored to meet specific industry needs, streamlining processes and improving efficiency.
Better customer relationships. By focusing on a specific industry, vertical SaaS providers can build stronger relationships and a deeper understanding of customer needs. This deep industry knowledge allows providers to offer superior customer service and more effectively address client concerns.
Competitive advantage. Specialization allows vertical SaaS companies to offer unique value propositions that are difficult for horizontal SaaS providers to replicate. This niche focus enables vertical SaaS companies to differentiate themselves in the market, attract loyal customers, and command higher prices for their tailored solutions.
What's on the downside?
Vertical SaaS challenges
Market size limitation. The niche focus of Vertical SaaS can limit the total addressable market compared to Horizontal SaaS solutions. This restriction means that vertical SaaS providers often target a smaller customer base, which can impact growth potential and revenue scalability. The second issue also comes from this:
Scalability issues. Vertical SaaS companies may face challenges in scaling beyond their initial niche market. As these solutions are tailored to specific industries, expanding into new markets often requires significant customization and adaptation, which can be resource-intensive and time-consuming… and often defies the idea of a vertical SaaS.
Higher initial costs. Developing highly specialized features for a specific industry can require significant investment in industry expertise and development. These higher initial costs can be a barrier to entry for new companies and may require substantial upfront capital. On the other hand, many vertical SaaS simply have less features which may balance out the specificity of a niche. Check out our article on how much does it cost to build an MVP if you want to get the idea of what comprises the costs.
Vertical SaaS Examples
What is an example of a vertical software company? Top vertical SaaS companies in 2024 include companies from various industries, such as Lucidworks for enterprise search, CB Insights for market intelligence, Quick Base for no-code development, Housecall Pro for home services, Shopmonkey for auto repair management and many others. Let's take a closer look at a couple of examples.
Procore
Procore is a vertical SaaS product and one of the largest vertical SaaS companies. It is specifically designed for the construction industry, offering a comprehensive suite of project management tools. It addresses the unique challenges of construction projects, such as scheduling, budgeting, quality control, and safety management. Procore's platform integrates various workflows, including project planning, resource management, and field collaboration, into a single, cohesive system. This integration helps reduce inefficiencies and improve communication across teams. Procore's focus on construction allows it to offer specialized features like real-time progress tracking, document control, and customizable project templates. By addressing industry-specific needs, Procore enhances productivity and project outcomes, leading to higher customer satisfaction and stronger industry relationships. Additionally, Procore supports compliance with industry regulations and standards, further solidifying its position as a valuable tool for construction professionals.
As of August 2024 Procore has a market cap of $7.73 Billion.
Veeva Systems
Veeva Systems is a vertical SaaS provider focused on the life sciences industry, offering cloud-based solutions for regulatory compliance, clinical trials, and quality management. Its suite of products is tailored to meet the stringent requirements of pharmaceutical and biotech companies, ensuring data integrity and regulatory adherence. Veeva's platform includes applications for clinical data management, regulatory submissions, and commercial operations, providing end-to-end support for life sciences organizations. By focusing on this niche market, Veeva can offer features like electronic trial master files (eTMF), good manufacturing practice (GMP) compliance, and customer relationship management (CRM) specifically designed for life sciences. Veeva's deep understanding of industry needs allows it to deliver highly effective solutions that streamline processes, reduce time to market, and improve overall efficiency. Its specialized approach helps life sciences companies navigate complex regulatory environments, ensuring compliance and minimizing risk.
Datawisp
Datawisp is a no-code data analysis platform. For many companies, dealing with data requires hiring individuals with very specific skills. Datawisp solves the problem by making the data more accessible for lay people. They created a new, visual way of working with numbers so that everyone could discover valuable ideas. Just like Webflow removed coding from web development, Datawisp removed coding from data analytics. The only problem is that the product was extremely confusing. It needed a UI/UX redesign to simplify its complex data visualization tools and make them more user-friendly. Eleken's redesign improved the visual appeal and significantly enhanced the user experience, which played a crucial role in Datawisp securing a $3.6M seed round.
State of the Market (Generative AI to Rule Them All)
Vertical SaaS has become increasingly popular among investors over the past decade. Changes in end-user behavior and new technological advances are creating larger opportunities than previously expected. Generative AI is also presenting new opportunities for innovation and efficiency. Companies are increasingly integrating AI to enhance automation, personalization, and decision-making processes.
Key factors include:
- The accelerated digital adoption among workers as end users instead of just buyers after COVID-19. They are more comfortable with technology and more likely to adopt new software.
- As Millennials become a larger proportion of business decision-makers, the demand for digitization at work increases.
- New capabilities, such as embedded fintech and generative AI, enable startups to deliver more robust products and services.
- Increased data availability allows developers to build differentiated solutions without constant data integration challenges.
So, where does AI come into play?
In 2024, the global generative AI market is currently valued at $44.89 billion. Total investment in generative AI surged by 407% from 2022 to 2023. Although some investors are starting to wonder if AI is really worth its money, AI FOMO is still driving many in the industry. So, let's take a closer look at the vertical SaaS + AI combination.
Benefits of integrating generative AI into vertical SaaS
- Enhanced personalization. Generative AI can analyze user behavior and preferences, delivering highly tailored experiences that meet individual customer needs, thus increasing user satisfaction and engagement.
- Predictive analytics. By leveraging proprietary data, AI can provide predictive insights that help businesses make informed decisions, optimize operations, and anticipate future trends specific to their industry.
- Intelligent workflow automation. AI enables the automation of repetitive, high-volume tasks, streamlining workflows and increasing efficiency by learning and adapting to specific industry processes.
- Natural Language Processing (NLP). AI can understand and process industry-specific terminology and unstructured data, enabling more effective communication tools such as intelligent chatbots and conversational interfaces.
- Improved data utilization. AI enhances the ability to process and analyze large datasets, uncovering hidden patterns and insights that can drive innovation and improve product offerings.
Finally,
- Integrating AI provides a unique value proposition and this way a competitive advantage, making vertical SaaS solutions more attractive and difficult for competitors to replicate, thus establishing a stronger market position.
Aampe
Another client of Eleken, Aampe is a startup whose goal is to provide an effective solution for companies to generate multiple versions of marketing messages and distribute them. In 2023, it announced that it gathered a $7.5 million pre-Series A funding round. They use AI to offer a scalable approach that allows marketing teams to send thousands of personalized messages to the right audience at the right time, leading to better response rates and engagement. Having been in the market for 4 years, Aampe were looking for a redesign to improve their look and feel. Which proves our initial point: an idea for an app don't have to be really new. You just have to do it the right way.
Final thoughts
Vertical SaaS represents a compelling opportunity for future founders and businesses looking to create impactful solutions. By focusing on the unique needs of a specific industry, vertical SaaS providers can offer unparalleled value, build stronger customer relationships, and achieve a competitive edge.
At Eleken, our experience with vertical SaaS projects demonstrates the benefits of this approach, and we are ready to help you navigate this journey. Need expert advice on your vertical SaaS design? Book a free consultation with us and let's make it happen.
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