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Like any technology industry that is inherently very prone to change, the SaaS industry is no different. New market opportunities are emerging along with constant product and business model innovations and rapid changes in the industry competition. The Grand view research claimed in 2021 that the global SaaS market was valued at $165.9 billion. It is also estimated to expand at a compound annual growth rate (CAGR) of 11% from 2022 to 2028.
The size of the SaaS market has increased considerably over the past 10 years, reporting a cumulative annual growth rate of 25%. It’s also worth saying that SaaS startups are getting funding and growing in popularity, and the market is still hot for well-implemented SaaS solutions.
In this article, we will discuss how the vertical SaaS model differs from the horizontal one. These differences include models’ characteristics, markets, and what users want from each type of software solution. To begin with, consider what horizontal and vertical SaaS are.
What are horizontal and vertical SaaS?
Let’s dive into the difference between SaaS two models – vertical and horizontal ones – and how they can help SaaS providers grow their businesses.
Horizontal SaaS is a type of cloud software solution that is aimed at a broad range of business users, regardless of their industry. For example, a company like Salesforce has a horizontal solution that can be used by any number of companies across different business verticals. Horizontal SaaS solutions are considered a mature model in terms of market share. Because of its business model and scale, horizontal software, as opposed to vertical market software, is focused on meeting the needs of businesses rather than individual consumers.
On the other hand, vertical SaaS solutions include software for a specific niche or industry standard. Compared to horizontal solutions, this model is not as mature and is a fairly new trend in the development of the SaaS market. Vertical SaaS companies are not so popular among a wide audience but are favored in a particular field. BioIQ is an example of vertical SaaS in medtech and Guidewire is in fintech.
Now let’s take a closer look at each model separately.
Horizontal SaaS: characteristics and examples
Choosing between vertical and horizontal SaaS solutions, we can say that in terms of the market model, the horizontal model is more mature, because it has been around for more than 10 years.
Horizontal SaaS businesses, like HubSpot, QuickBooks, and Salesforce, strive to provide a wide service capable of covering a broad market spectrum through a multitude of industries. Horizontal SaaS companies exist not only in the software industry but also in supply chain management, insurance, retail, and manufacturing.
When thinking about the industries and markets where a horizontal SaaS application might want to exist, worth mentioning marketing strategies that can be used. In this matter, you can require significant resources and inbound marketing tools – various campaigns launched in parallel, automated marketing emails, and so on.
Vertical SaaS: characteristics and examples
Vertical SaaS is focused on a specific industry. It has a narrower scope and can be used by companies in one or two industries, but not multiple industries. For example, a company that offers vertical SaaS to the construction industry would focus on tools that allow contractors to manage projects and track their finances, while a horizontal product would cover all aspects of project management.
Vertical SaaS products like FarmersEdge, Granular, and ServiceMax are usually strongly user-friendly because they’re designed specifically for users in the same industry as the company that created them.
Also, compared to its horizontal counterparts, the vertical SaaS model takes a narrower approach to marketing. Because it is a small market, focused on one industry, fewer resources are required.
Let’s try to summarize the point, which model to choose after all.Vertical or horizontal SaaS: which option to choose
As we said earlier, horizontal SaaS is more widely used because it can be applied to almost any company. Vertical companies, on the other hand, keep their attention on resolving a specific problem in a certain industry. But in both cases, there are pros and cons.
Vertical SaaS
The pros:
Vertical SaaS solutions are faster and easier to implement, stable, feature-rich, and best suited for specific industries. And so, because their services are niche-oriented, they can reduce the cost of attracting customers several times over.
There are more vertical SaaS advantages worth mentioning:
- Easier to take the largest market share
- Fewer competitors
- Less risk of customer loss
The cons:
- Difficult to scale and expand
- Hard to improve brand awareness
Horizontal SaaS
There’s a great chance that when you hear about SaaS, it was about horizontal SaaS. It works that way because horizontal SaaS can be used by almost any industry. If you’ve been interested in buying software, you’ve probably considered horizontal SaaS products like Google Analytics, Salesforce, or Adobe Creative Cloud. Salesforce alone has 150,000 customers in various industries.
Thus, the horizontal SaaS model tends to be easier to sell because it can be applied to a variety of industries immediately after purchase.
The pros:
- Large Pool of Potential Customers
- Easy to Grow Brand Awareness
The cons:
- Many Long-Established Competitors
If you are interested in even more information, you can contact check data science consulting firm to compare horizontal service and a vertical one and explore which model will fit better for your SaaS business.
Conclusion
If you are providing a horizontal SaaS product, then you have a strong chance of success. However, being at a more mature stage of the software development lifecycle does not mean that you cannot benefit from the added value that vertical SaaS can bring. A single-purpose software solution may be simpler to develop and launch, but it is also much harder to create awareness around.
When you’re ready to get started creating a horizontal or vertical SaaS product, don’t forget that there are several factors to consider. Your company’s size, budget, and goals should all be taken into account when deciding which type of business model is right for your company. By using the information from this article as a guide, you’ll be able to make an informed decision about which type of software business is right for your organization.
