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When it comes to SaaS, there are two main models: vertical and horizontal. Vertical SaaS targets a specific industry or niche, while horizontal SaaS targets a wide audience and different industries. In this section, we’ll discuss the differences between vertical and horizontal SaaS, as well as the advantages and disadvantages of each.

If you’re a business owner, you’re likely familiar with Software as a Service (SaaS). This delivery model allows businesses to access software applications on a subscription basis, rather than having to purchase and install software on individual devices.

In this article we’re going to compare advantages and disadvantages of Vertical vs Horizontal SaaS.

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Definition and Explanation of Vertical SaaS

Vertical SaaS is a software solution designed for a specific industry or niche. It’s often referred to as industry-specific SaaS and is designed to meet the unique needs of a particular market. The software is tailored to the specific workflows, business processes, and compliance requirements of the industry it serves.

Definition and Explanation of Horizontal SaaS

Horizontal SaaS is a software solution that caters to a broad range of industries and markets. It’s industry-agnostic, and its primary purpose is to meet general business requirements. Horizontal SaaS applications are designed to be flexible and scalable, making them suitable for use across multiple industries.

Vertical SaaS

SaaS offers many benefits, including:

  • cost savings
  • flexibility
  • easy scalability

However, not all SaaS solutions are created equal.

The Rise of Vertical SaaS

In recent years, there has been a significant rise in the popularity of vertical SaaS solutions. These solutions are designed to address the specific needs of a particular industry, providing a complete software stack for that industry.

According to SaaSstitute, vertical SaaS is becoming increasingly important for businesses, as it offers a number of benefits over generic, horizontal SaaS solutions.

Recommended Lecture: Different Types of SaaS

Market Size of the SaaS Industry

The SaaS industry has been growing steadily over the past decade, with a market size of $157 billion in 2020.

This growth is expected to continue, with the industry projected to reach $307.3 billion by 2026, according to Appentus.

Market Cap Increase of Vertical SaaS from March 2020 to Q3 2021

According to a report by SaaS industry experts at SaaStitute, vertical SaaS companies saw a 146.7% increase in market cap from March 2020 to Q3 2021.

This growth can be attributed to the increasing demand for industry-specific solutions, as businesses seek to optimize their operations and improve their bottom line.

Recommended Lecture: Important metrics to track in SaaS

3 Benefits of Vertical SaaS

According to Duda, benefits of vertical SaaS solutions include:

Higher Returns on Investment

Vertical SaaS solutions are designed to address specific pain points in a given industry. This means that businesses can achieve higher returns on investment by using a solution that is tailored to their needs, rather than trying to adapt a generic SaaS solution.

Recommended Lecture: SaaS B2B

Better Integrations

Vertical SaaS solutions are often designed to integrate seamlessly with existing technology stacks, making it easier for businesses to adopt them. This can help businesses avoid the pain of dealing with fragmented systems and data silos.

Lower Customer Acquisition Costs

Because vertical SaaS solutions are tailored to specific industries, they often have a smaller lead pool than generic SaaS solutions. However, the leads that they do attract are more likely to convert, resulting in lower customer acquisition costs overall.

Recommended Lecture: Business Models of SaaS Companies

Challenges Faced by Vertical SaaS Companies

Competition from Legacy and Horizontal Providers

One of the biggest challenges that vertical SaaS companies face is competition from legacy and horizontal providers. These providers may already have an established customer base and may offer cheaper solutions that are more attractive to businesses that are looking to manage costs.

Recommended Lecture: Advantages and Disadvantages of SaaS

Small Lead Pool

Another challenge faced by vertical SaaS companies is a small lead pool. Because these solutions are tailored to specific industries, the number of potential customers may be smaller than with horizontal solutions. This can make it more difficult for companies to find new customers and grow their business.

Being Too Niche

Vertical SaaS companies may also face the challenge of being too niche. While targeting specific pain points in an industry can be beneficial, focusing too narrowly on a particular area may limit growth opportunities.

Recommended Lecture: steps to implementing OKR in a SaaS

Solutions to Overcome These Challenges

There are several solutions that vertical SaaS companies can implement to overcome these challenges and increase their chances of success. These include:

  • Showcasing product superiority: By highlighting the unique features and benefits of their solutions, vertical SaaS companies can differentiate themselves from the competition.
  • Expanding into similar niches: By expanding into related niches, vertical SaaS companies can increase their customer base and grow their business.
  • Increasing functionality: By adding new features and functionalities to their solutions, vertical SaaS companies can improve their offerings and make them more attractive to potential customers.

Private Label Applicant Tracking System: According to HiringThing, a private label applicant tracking system can help vertical SaaS platforms overcome challenges such as competition from legacy and horizontal providers. This solution can also provide additional revenue streams for these companies.

Recommended Lecture: SaaS Venture Capital Investing

The Dominance of Horizontal SaaS

While vertical SaaS solutions are on the rise, horizontal SaaS solutions still dominate the market. In this section, we’ll explore what horizontal SaaS is, why it’s so popular, and why businesses may want to consider exploring various SaaS verticals instead.

Definition of Horizontal SaaS and Its Benefits

Horizontal SaaS is a generic software solution that can be used by businesses across a wide range of industries.

These solutions offer a one-size-fits-all approach, providing basic functionalities that can be adapted to suit the needs of different businesses. 

Recommended Lecture: Venture Capital in B2B SaaS Companies

Discussion on Why Horizontal SaaS Dominates the Market

Horizontal SaaS solutions are popular with businesses because they offer a low-cost, flexible solution that can be adapted to suit different needs.

Because these solutions are not tailored to specific industries, they may not offer all the features and functionalities that businesses need.

However, they are often cheaper than vertical SaaS solutions, making them an attractive option for businesses that need to manage costs.

Importance of Targeting Specific Pain Points in an Industry

While horizontal SaaS solutions may be cheaper than vertical SaaS solutions, they may not offer the same level of functionality and integration that businesses need.

By exploring various SaaS verticals, businesses can target specific pain points in their industry, resulting in higher returns on investment and better integrations, as discussed in section 2.

While vertical SaaS solutions may be more expensive than horizontal solutions, they may ultimately provide better value for money by addressing specific needs and pain points.

Recommended Lecture: SaaS Valuation

Horizontal SaaS: Benefits and Challenges

Horizontal SaaS has its advantages and disadvantages. In this section, we’ll discuss the benefits and challenges of horizontal SaaS.

Benefits of Horizontal SaaS

Large Market Potential

One of the biggest advantages of horizontal SaaS is that it has a large market potential. Since it caters to a wide audience, the potential customer base is vast. This can make it easier for companies that offer horizontal SaaS solutions to gain market share.

Lower Development Costs

Developing horizontal SaaS solutions can be less expensive than developing vertical SaaS solutions. Since the solution is designed to meet general business requirements, it requires less specialized development expertise. This can make it less expensive to develop the solution and can reduce the time to market.

Easier to Scale Up

Horizontal SaaS is designed to be flexible and scalable, making it easier to scale the solution to meet the needs of multiple industries. This can make it easier for companies that offer horizontal SaaS solutions to expand their customer base.

Recommended Lecture: XaaS vs SaaS

Challenges of Horizontal SaaS

Stiff Competition

One of the biggest challenges of horizontal SaaS is that it faces stiff competition. Since it caters to a wide audience, there are often many companies offering similar solutions. This can make it harder for companies that offer horizontal SaaS solutions to differentiate themselves from their competitors and gain market share.

Lower Customer Satisfaction

Since horizontal SaaS is not tailored to a specific industry, customers may not be as satisfied with the solution. This can lead to lower customer retention rates and more customer complaints.

Difficulty in Complying with Regulations

Horizontal SaaS may struggle to comply with industry-specific regulations since it’s designed to be industry-agnostic. This can make it challenging for companies that offer horizontal SaaS solutions to ensure that their solution meets all necessary regulatory requirements.

Recommended Lecture: Managed Services vs SaaS

Why Businesses Should Consider Exploring Various SaaS Verticals

While horizontal SaaS solutions may be popular, there are several reasons why businesses should consider exploring various SaaS verticals. In this section, we’ll explore some of the benefits of vertical SaaS solutions and how they can help businesses achieve their goals.

Recommended Lecture: Why investing in SaaS can drive High Returns

Better Integrations

One of the key benefits of vertical SaaS solutions is better integrations. Because these solutions are tailored to specific industries, they are often designed to work seamlessly with other software and tools that are commonly used in that industry. This can help businesses improve efficiency and productivity by streamlining their workflows.

Higher Returns on Investment

Vertical SaaS solutions are often more expensive than horizontal solutions, but they can also offer higher returns on investment. By targeting specific pain points in an industry, vertical SaaS solutions can help businesses save time and money, while also improving their bottom line.

Lower Customer Acquisition Costs

According to SaaSstitute, vertical SaaS solutions can also offer lower customer acquisition costs. Because these solutions are tailored to specific industries, they may be more attractive to businesses that are looking for specialized solutions. This can make it easier for vertical SaaS companies to attract new customers and grow their business.

Improved Customer Retention

Including a website builder in a vertical SaaS stack can increase revenue per account, as stated by Duda. By offering a complete software stack for a specific industry, vertical SaaS solutions can help businesses improve customer retention. This can be especially important in industries where customer loyalty is key to long-term success.

Specific Solutions to a Growing Market

The market for vertical SaaS solutions is expected to continue growing, as more businesses seek specific solutions to their pain points. According to SaaSstitute, the market for vertical SaaS solutions has seen tremendous growth, with a 146.7% increase in market cap from March 2020 to Q3 2021. By exploring various SaaS verticals, businesses can tap into this growing market and find solutions that meet their specific needs.

Challenges of Vertical SaaS and How to Overcome Them

While vertical SaaS solutions offer many benefits, they also come with their own set of challenges, as discussed in section 4. By understanding these challenges and implementing solutions to overcome them, businesses can make the most of the benefits that vertical SaaS solutions have to offer.

The Advantages and Disadvantages of Horizontal and Vertical SaaS 

Market Size and Potential

One of the biggest differences between vertical and horizontal SaaS is their target market. 

Vertical SaaS targets a relatively small and specific market, while horizontal SaaS targets a wider audience. As a result, the market size and potential for each model are vastly different.

Vertical SaaS has a smaller potential market since it caters to a specific niche. However, this also means that it has less competition and a more targeted customer base.

On the other hand, horizontal SaaS has a larger market potential since it caters to a wider audience. However, this also means that there is more competition and a less targeted customer base.

Competition

Another significant difference between vertical and horizontal SaaS is the level of competition. Since vertical SaaS targets a specific niche, there is often less competition in that market. This makes it easier for companies that offer vertical SaaS solutions to stand out and gain market share.

Horizontal SaaS, on the other hand, faces stiff competition since it caters to a wide audience. There are often many companies offering similar solutions, making it harder for companies to differentiate themselves from their competitors.

Customer Acquisition and Retention

Since vertical SaaS targets a specific niche, it’s easier to identify potential customers and tailor marketing efforts to that audience. This makes customer acquisition easier for companies that offer vertical SaaS solutions.

Additionally, since vertical SaaS is designed to meet the specific needs of that industry, customers are often more satisfied with the solution, leading to better customer retention.

Horizontal SaaS, on the other hand, has a wider target audience, making it more challenging to identify potential customers and tailor marketing efforts to that audience.

Additionally, since horizontal SaaS is not tailored to a specific industry, customers may not be as satisfied with the solution, leading to lower customer retention rates.

Scalability

Scalability is another factor that sets vertical and horizontal SaaS apart. Since horizontal SaaS is designed to be industry-agnostic, it’s easier to scale the solution to meet the needs of multiple industries. This makes horizontal SaaS more scalable than vertical SaaS.

Vertical SaaS, on the other hand, is designed to meet the specific needs of a particular industry or niche. While this makes it an excellent solution for that industry, it can be challenging to scale the solution to meet the needs of other industries.

Compliance with Regulations

Another advantage of vertical SaaS is that it’s easier to comply with industry-specific regulations. Since the solution is designed to meet the specific compliance requirements of that industry, companies that offer vertical SaaS solutions can ensure that their solution meets all necessary regulatory requirements.

Horizontal SaaS, on the other hand, may struggle to comply with industry-specific regulations since it’s designed to be industry-agnostic. This can make it challenging for companies that offer horizontal SaaS solutions to ensure that their solution meets all necessary regulatory requirements.

Choosing Between Vertical and Horizontal SaaS

When choosing between vertical and horizontal SaaS, there are several factors to consider. In this section, we’ll discuss some of the key factors to consider when choosing between vertical and horizontal SaaS.

Target Market

The first factor to consider when choosing between vertical and horizontal SaaS is your target market. If you’re targeting a specific industry or niche, vertical SaaS may be the better option. On the other hand, if you’re targeting a wide audience, horizontal SaaS may be the better option.

Competition

Competition is another factor to consider when choosing between vertical and horizontal SaaS. If you’re entering a market with a lot of competition, it may be harder to gain market share with horizontal SaaS. In that case, vertical SaaS may be the better option since there is likely to be less competition in a specific industry or niche.

Development Costs

Development costs are another factor to consider when choosing between vertical and horizontal SaaS. Developing vertical SaaS solutions can be more expensive since it requires more specialized development expertise. Horizontal SaaS, on the other hand, can be less expensive to develop since it’s designed to meet general business requirements.

Compliance with Regulations

Compliance with regulations is another factor to consider when choosing between vertical and horizontal SaaS. If your target industry has specific regulatory requirements, vertical SaaS may be the better option since it’s designed to comply with industry-specific regulations. Horizontal SaaS may struggle to comply with industry-specific regulations since it’s designed to be industry-agnostic.

Scalability

Scalability is another factor to consider when choosing between vertical and horizontal SaaS. If you’re looking to scale your solution to meet the needs of multiple industries, horizontal SaaS may be the better option since it’s designed to be flexible and scalable. Vertical SaaS, on the other hand, may be more challenging to scale since it’s designed to meet the specific needs of a particular industry or niche.

Customer Satisfaction

Customer satisfaction is another factor to consider when choosing between vertical and horizontal SaaS. If you’re looking to provide a solution that meets the specific needs of a particular industry or niche, vertical SaaS may be the better option since it’s tailored to the specific workflows, business processes, and compliance requirements of that industry. Horizontal SaaS, on the other hand, may not be as satisfying for customers since it’s designed to meet general business requirements.

Funding and Growth Potential

Funding and growth potential are other factors to consider when choosing between vertical and horizontal SaaS. Venture capitalists prefer investing in B2B SaaS companies with clear business models. Horizontal SaaS has a larger customer scope and lower acquisition costs, making it easier to grow and attract funding. Vertical SaaS, on the other hand, has a smaller potential market but solves specific problems effectively, making it easier to comply with regulations.

Ultimately, the choice between vertical and horizontal SaaS depends on your specific business needs and goals. By considering the factors discussed above, you can make an informed decision that will help your business succeed.

Questions and Answers

Who can benefit from exploring various SaaS verticals?

Businesses in specific industries looking for tailored solutions.

What are some benefits of exploring various SaaS verticals?

Better integrations, higher ROI, lower acquisition costs, improved customer retention.

How can businesses overcome challenges in vertical SaaS?

By showcasing product superiority, expanding into similar niches, and increasing functionality.

Who are the leading players in the SaaS industry?

Salesforce, Microsoft, and IBM, according to Cyclr.

What is the market outlook for vertical SaaS solutions?

The market for vertical SaaS solutions is expected to continue growing, according to SaaSstitute.

How can vertical SaaS solutions improve customer retention?

By offering a complete software stack for a specific industry, including a website builder, as stated by Duda.

But aren’t vertical SaaS solutions more expensive?

Yes, but they can offer higher ROI by targeting specific pain points in an industry. According to SaaSstitute, they can also offer lower customer acquisition costs.