SaaS. Software as a service. A cloud-based solution that goes where you do.

What more do you need to know? The SaaS subscription model is growing at an incredible rate and has become a typical standard with both business and entertainment users alike.

However, with so much new money available in all of their combined markets, you could be considering which way would make your best investment as a startup.

Today we’re looking at the differences between horizontal and vertical SaaS, both for customers and those breaking into SaaS operations.

What does vertical vs horizontal SaaS mean?

Before we go there, let’s have a quick recap on how SaaS works.

The SaaS market has grown at a very healthy rate over the past ten years. Yet, over the past two or three, it’s been catapulted beyond expectation. With COVID lockdowns encouraging staff and their teams to work from home wherever possible, utilizing systems that went where the workers did—all via an internet connection— it’s become a new standard.

Whether your SaaS provided advanced communication channels or simply allowed remote workers to continue operating, it radically boosted the use of the systems we depend on over a few short years.

Why do we have these things? Well, the growth of the SaaS market depends on technological innovation, customer behavior, and demand, items in abundance throughout our current business lifestyles.

Back to the horizontal vs vertical SaaS discussion

Looking back at the previous few paragraphs, we’ve already seen two clear examples of SaaS in operation.

Communication between teams and a remote system that runs their business operations: the first is horizontal, and the second is edging more and more towards vertical.

What is horizontal SaaS?

Horizontal SaaS delivers a solution to the many – for the types of problems all kinds of businesses face each working day. The activities they cover are attractive to the broader market by organizing office organization and procedures to become more effectively structured and productive.

The most successful businesses run on efficient management systems covering CRM, HR, accounts and billing, communication, project management, online content management, and eCommerce systems.

Vertical SaaS delivers solutions to a specific industry. It’s a niche solution for a particular sector: think hospitality or hotel management, healthcare delivery, finance, stocks and shares, manufacturing, retail, or banking.

TL;DR

If you can only apply a single industry to the service, it’s vertical. If it caters to the many, it’s horizontal.

Vertical SaaS is one of the most predicted trends in SaaS in 2023. Do you want a peek at more SaaS and IT trends expected in 2023? Get our insightful e-book for free here!

A vertical and horizontal SaaS comparison

Single of multiple industry operations – Horizontal SaaS delivers common solutions across many different fields, whereas vertical SaaS focuses on the typical issues of one specific industry.

Customer range – Horizontal SaaS has customers in any domain, whereas vertical SaaS, being industry-specific, has customers that only hail from the same or very similar operations.

Ease of use and operation – Most horizontal SaaS are pretty straightforward to use right out of the box, designed for simplicity and a broad customer range. Verticals SaaS platforms expect some industry knowledge for operation and may require a little effort to organize and personalize.

Customization – With a wide-ranging out-of-the-box package, product customization is available in most horizontal SaaS packages but not at the industry-specific level and depth their vertical counterparts offer.

Adaptability – When trends occur throughout each industry, it’s unlikely that horizontal SaaS providers will pick them up so quickly. Whereas, by the nature of being niche, vertical providers deliver new solutions before their users have barely considered how those trends could affect their operations.

Marketing – With the broadest market, horizontal SaaS providers need a wide-ranging marketing strategy to reach each arm of their audience. Vertical services have a smaller, easier-to-target audience with a higher chance of conversions and lower cost per acquisition rate.

Vertical and horizontal SaaS specifications

One of the biggest challenges within vertical SaaS is compliance with industry standards and requirements. As you can imagine, there is an abundance of legal areas subject to compliance for industries such as healthcare, insurance, or investment.

However, with the right players of a well-put-together team in place, utilizing their history and experience working within those industries, compliance becomes part of the process; the result is offering peace of mind and security to its end users.

The challenges and benefits of using (and creating) vertical and horizontal SaaS systems

As we’ve said, the horizontal and vertical SaaS markets focus on either a wider-reaching package for all or more defined, specific niche options.

Niche markets offer higher chances of conversion from more specific leads and marketing arenas, but for the horizontal operations, the attainable revenue can reach incredible heights for the leaders in each field.

The cost per acquisition is lower for vertical operators, and customer retention levels are also high, mostly due to the level of expertise on offer and specialized assistance available.

When it comes to picking which way a startup should aim their sights, it depends on what they expect to achieve and how they’ll go about attaining their goals.

Perhaps the niche options, as the market grows, will create more personal and unique ways of reproducing the popular horizontal packages, yet industry-specific, pulling subscribers away from the mass market. However, that’s not as easy as it sounds without enough reasons to jump ship. To encourage their subscribers, they’ll have to be far more advantageous, both financially and feature-wise. 

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Vertical and horizontal SaaS examples

You'll find plenty of pages outlining the leading horizontal and vertical SaaS companies; those that make the most money grow the fastest and indeed have sold for the most incredible figures. The following are merely examples of those we think you might have heard of already to help highlight our point.

Horizontal SaaS examples

• Microsoft 365 offers all kinds of business and office services.
• HubSpot delivers a sales and marketing platform for the masses.
• Dropbox provides online cloud storage.
• Mailchimp has simplified and standardized how we manage email marketing.
• Salesforce manages entire business operations as the complete CRM (customer relationship management).
• Quickbooks provides financial organization for your business.
• Slack keeps your teams in touch and communication channels open at all times.
• Zendesk takes charge of customer support—whatever market your customers come from.

Vertical SaaS examples

• ClearCare manages health care records in the US.
• Quizlet is an education tool via web or app for those studying science.
• Ordina provides IT solutions to the public sector.
• BioIQ is a leading medical technology and health plan provider.
• Toast manages every aspect of restaurant management.
• Guidewire provides a standalone insurance service, or alternatively, integrates with a very popular horizontal SaaS CRM.
• Cox Automotive is a leading vertical provider for car dealers, delivering systems for operation, inventory, sales, and service.
• Veeva provides solutions for highly regulated life science industries, such as cosmetics and consumer goods.

What can we expect the vertical and horizontal SaaS future to look like?

Heading back to the top of this piece, we determined that the growth of SaaS stemmed from technological innovation, customer behavior, and demand. Given that we’re not going to be short of any of those ingredients for a long time, the future of SaaS doesn’t just look good, but the projections suggest the market will only grow at the same fast pace under the impact of the latest technologies.

The introduction of blockchain technology is already changing how we use the latest version of the Internet, with Web 3.0 heading to a decentralized, digitally distributed way of managing data. Artificial intelligence (AI) and machine learning (ML) will analyze the masses of available data and provide efficiency to the operations we’ve never quite seen before.

And who will drive how we use it? The software services, of course.

Both horizontal and vertical SaaS will continue to grow how we drive operations. Yet, with the market expanding and becoming more competitive, our startups and existing operators will have to work smarter and fight harder to be at the top of their relative trees.

Horizontal SaaS has had a few more years to find its feet and become somewhat established as a new set of systems. Vertical SaaS has been around for a significantly shorter period but is growing nonetheless at a very healthy pace. With niche systems appealing to different markets and industries, it will only capture more of the market moving forward.

For the consumer, however, it translates to more choice, smarter options, and far more range than ever.