SAAS Startups Are Going All-Out on Vertical – Here’s What it Means

Many startups in the SaaS sector are choosing to forget about horizontal SaaS and are instead going all-out on vertical SaaS.

But what does that mean exactly? Let us take a look at the topic in more detail to find out.

The Difference Between Horizontal and Vertical SaaS

Horizontal SaaS and vertical SaaS are cloud computing services with different models.

The former targets a wide range of customers, regardless of their specific industry.

The latter, vertical SaaS, refers to targeting a niche market that has a much narrower array of customers. For example, workers in social care can use domestic violence software, such as that from Foothold Tech.

So, vertical SaaS companies are able to target specific needs and develop products that fulfill the needs of a certain industry niche.

There are many reasons why startups are beginning to go all-out on vertical, as we shall see. But one key reason is that, even though vertical SaaS has not been around for very long, it is seeing incredible success.

Take Veeva as an example. The cloud-based CRM company focuses on the niche life science industry. In less than six years, and with funding of just $10 million, Veeva reached the dizzy heights of $2.4 billion.

With such successes recorded for many businesses adopting vertical SaaS, it is not surprising that many startups are choosing vertical SaaS themselves.

What it Means

Startups that are adopting vertical SaaS can reap many benefits.

For instance, because vertical SaaS provides tight-knit products, companies that use the vertical SaaS approach have full control over building and implementing native integrations into their products.

With vertical SaaS, companies can access industry-specific integrations that are not available via horizontal SaaS.

Companies can also develop new integrations that are actually based on users’ needs because they are targeting a narrow sector of an industry.

Because products are able to target a smaller market group, companies that adopt vertical SaaS can more easily conduct research and surveys before they develop products, which makes it much easier to solve the problems of small businesses.

That means vertical SaaS companies can provide tailored products, use fewer resources, and generate more conversions. In turn, that ultimately means they can create much higher returns on their investments, just like Veeva did.

SaaS startups are also going all-out on vertical because it provides other benefits, such as the following.

The Customer Acquisition Cost Is Lower

Due to the industry-specific nature of vertical SaaS, it is much easier for companies to gain better perspectives about the needs of an industry and narrow the number of hot leads.

With less lead chasing and a lower marketing spend, the customer acquisition cost is much lower compared to horizontal SaaS approaches.

Vertical SaaS Companies Have a Head Start Over Competitors

Vertical SaaS has only been around for about a decade, so startups that embrace it are still able to get a head start over many of their competitors who are still utilizing horizontal SaaS.

And because vertical SaaS companies work closely with industry experts, they can gain valuable insights into an industry and its inner workings.

Therefore, vertical SaaS companies can design products that keep future change in mind.

Scalability Can Be More Easily Achieved

By adopting a vertical SaaS solution, companies have a much better understanding of industry cycles.

In turn, it is easier for those companies to automatically scale up infrastructure to accommodate the down cycles as well as the up cycles without wasting resources on things like monitoring, tracking, and support.

That means scalability is much more achievable. And with greater scalability, vertical SaaS startups can generate higher profits.