Decoding The Vertical SaaS Opportunity

Let’s first understand the terms ‘Horizontal SaaS’ and ‘Vertical SaaS’. A horizontal SaaS product or application is one that caters to multiple industries and organizations within them. Salesforce and Slack are two examples. 

A vertical SaaS product, on the other hand, caters to a specific industry. For example, Riskalyze is built to cater to the needs of financial advisors.

Why Vertical SaaS?

Vertical SaaS is new compared to horizontal SaaS but it is highly effective as it offers solutions to industry-specific challenges. It is designed to understand and address industry needs, as opposed to being a generic app that spans functions and departments, as horizontal SaaS is. 

A vertical SaaS app may cater to an industry, but it will still have micro-apps that address a specific need within the vertical. For instance, a vertical app could cater to all the needs of a bank, whereas a micro-app can go one level down and offer a SaaS-based solution just to handle Non-Performing Assets (NPAs).

The vertical SaaS market has grown rapidly in the last five years. With accelerated digital transformation happening across customers, this market is here to stay and grow. 

The benefits of creating a vertical SaaS product are as below: 

Seamless Integration With Industry-Specific Systems

A vertical SaaS product would understand the tech landscape of the industry much better than other SaaS products. Hence, the product will be created with high regard for seamless industry-specific integration. 

The product team will also be well-attuned to the industry and can build customisations faster as and when required. 

Better Revenue & Profitability

Since vertical SaaS is relatively new when compared to horizontal SaaS products, it will be a niche area with less competition. Hence, if the product is good and solves well for the need that it targets, it can benefit from positive ‘word of mouth’ which accelerates business and enhances profitability. 

Optimised Productivity 

Creators of vertical SaaS products do not have to go after everyone. It’s a niche market, and its target audience is limited yet highly engaged. Hence, such a product company can get a better ROI on their marketing spend due to focused targeting across a well-defined audience base. 

Efficient Customisation & Upgrades

The members of the vertical SaaS product team are better tuned to the updates in industries such as banking, media, retail, and more. Hence, they can respond to regulatory, business, or industry-wide changes and mandates by building customisations swiftly. 

If the need arises, they can also efficiently incorporate their learning from the users of their products and their internal research and development efforts to create enhanced versions of their vertical SaaS product. 

Is Vertical SaaS Always Better Than Horizontal SaaS?

The answer depends on the customer’s requirements. The journey of the customer in terms of cloud adoption is a critical question to ask. The journey normally begins with horizontal SaaS products, and vertical SaaS adoptions can be incorporated into their tech landscape subsequently.

The pandemic has accelerated the need for and importance of such solutions, which is well poised to grow in 2023 and beyond. 

What Should Product Companies Do?

If you are developing SaaS products and are stuck in the vertical SaaS vs. horizontal SaaS confusion, it might be prudent to understand that horizontal SaaS products can give you a wider canvas in terms of target audience and industry. However, it may not solve focused industry-specific customer needs. Vertical SaaS addresses a definite industry type and its needs. Hence, it is more customised to the users’ requirements. 

In a product company, where the employees have extensive expertise and experience in a particular industry and are solving a pressing need that they truly feel passionate about, a vertical SaaS product may be a great thing to build. However, if the problem that they are solving is generic and can cut across industries, then horizontal SaaS products can enable them to grow faster. 

What Should Customers Of SaaS Products Do?

The answer lies in the customer’s SaaS adoption journey or phase. If they have just started exploring the cloud or are bound by strict or unclear regulations with respect to cloud adoption for their industry-specific needs, a vertical solution may not be an apt fit. 

On the other hand, if the product addresses a pressing need for a particular industry and offers the ability to scale and customise to solve current and future challenges, a vertical SaaS product may yield rich dividends. 

Vertical SaaS will grow exponentially as organisations of all sizes across industries and geographies continue to embrace cloud products and solutions. It’s up to the creators and consumers of vertical SaaS products and solutions to leverage them to accelerate their organisation’s growth.