Vertical vs Horizontal SaaS

Software as a Service (SaaS) solutions have transformed the way businesses operate, driving efficiency and growth. However, the distinction between vertical and horizontal SaaS may be unclear to many. This article will delve into the differences between vertical and horizontal SaaS, providing clarity on their unique benefits and which might be a better fit for your business needs.

What is a SaaS

Before we dive into the specifics, let's start with a brief overview of SaaS. Software as a Service, or SaaS, is a cloud-based service where instead of downloading software on your desktop PC or business network to run and update, you access an application via an internet browser. The software application could be anything from office software to unified communications among a wide array of other business applications that are available.

Defining Horizontal SaaS

Horizontal SaaS solutions are essentially 'one-size-fits-all' software that is designed to meet a type of software need regardless of the industry or business type. These platforms serve a broad range of industries and cater to common business functions. Some examples include customer relationship management (CRM) software like Salesforce, communication tools like Slack, or financial software like QuickBooks.

The advantage of horizontal SaaS solutions lies in their wide-ranging applicability. They're flexible, scalable, and can streamline common operations across various industries. However, they may lack the industry-specific features needed for more specialized businesses.

Defining Vertical SaaS

In contrast, Vertical SaaS solutions are specifically designed for a particular industry or market sector (the 'vertical'). These solutions are built to address the unique needs, processes, and regulatory concerns of a specific industry. Some examples might include Veeva Systems in the life sciences field, Procore Technologies for construction management, and Clio for legal practice management.

Vertical SaaS solutions offer the benefit of tailor-made features, industry-specific analytics, and compliance with industry-specific regulations. While their market is narrower compared to horizontal SaaS, they tend to offer more depth for their chosen verticals.

Comparing the Two: Vertical vs Horizontal SaaS

Customization vs. Generalization

Horizontal SaaS platforms typically have extensive customization options due to their broad application. Users from any industry can adapt them to fit their business operations. Vertical SaaS platforms, on the other hand, offer industry-specific features straight out of the box. They're custom-built to align with the standard processes and regulatory requirements of a particular industry.

Market Size

The market size for horizontal SaaS is generally larger because these solutions cater to a wider audience. In contrast, vertical SaaS focuses on specialized markets, leading to a smaller but more specific customer base. However, vertical SaaS vendors often face less competition within their niche, which can balance out the smaller market size. Risk of doing business will also be different if you for instance choose to focus on only one country.

Adoption Rate

Since horizontal SaaS solutions cater to a broader audience and are easier to understand, they often have higher adoption rates. However, vertical SaaS solutions can deliver significant value to their specific audience, leading to high adoption rates within the industries they serve.

Development & Innovation

In terms of development, horizontal SaaS providers must keep innovating to stay ahead of the competition. Vertical SaaS providers, on the other hand, need to focus on industry trends and regulatory changes to ensure their software remains compliant and up-to-date.

Which One to Choose?

The choice between vertical and horizontal SaaS will depend on your specific business needs. If you need a solution that caters to common business functions across industries, a horizontal SaaS may be more appropriate. On the other hand, if your business requires industry-specific features and compliance, then a vertical SaaS solution would be the better choice.