1. Deeper business value: Horizontal solutions are often difficult to deliver Industry-specific insights and features. A universal CRM can manage leads, but can it optimize industry pricing? Vertical solutions, on the other hand, are designed with industry-specific complexities in mind. They understand the lingo, workflows, and pain points.This translates to Higher productivity, improved decision-making, and ultimately improved ROI.
2. The competitive landscape is shallow: The horizontal SaaS market is an entrenched and scarred battleground. More than 30,000 companies compete for mindshare and market dominance, leading to price wars and feature fatigue. We’ve seen the results over the past 18-24 months, which is a significant decline in SaaS growth and retention rates.However, vertical industries provide Less crowded playing area.Their smaller addressable markets (more on that later) keep competition at bay, allowing vertical solution providers to build strong customer relationships and Build a defensive moat around their niche expertise.
3. Differentiation and sustainability: Investors are increasingly attracted to companies with Clear differentiation and proven value proposition. Vertical solutions tick both boxes.Their targeted approach resonates with specific customer segments, resulting in Faster adoption and higher customer lifetime value.This makes them Attractive investment targetEspecially in a market where generic “me-too” solutions are losing their luster.
Vertical SaaS also appears at the top of CompTIA’s list of 10 SaaS predictions for 2024. The article points out, “Vertical SaaS solutions tailored to specific industries are likely to proliferate. This trend will be driven by the growing demand for customized software to meet the unique needs of industries as diverse as healthcare, finance, education, and manufacturing.”
Of course, “vertical development” is not easy, and it is easier said than done. Deep industry domain knowledge takes time and experience to build, and often requires a broader delivery model.
The financing models of almost all vertical industries have also changed. By definition, the total addressable market (TAM) is significantly smaller than the horizontally comparable market. In the long-established venture capital model, a smaller TAM is a major red flag, which is the main reason why there are so few vertical SaaS companies at present, because venture capital has always doubted whether the vertical market is large enough to obtain venture capital-scale returns. . Of course, perceptions have changed at least somewhat as tech investors have recently attempted to realign investment criteria to profitability versus growth, though whether venture capital firms will be equally successful in applying their growth-oriented models to smaller TAM vertical market.
