Vertical vs Horizontal SaaS—Ultimate Comparison
When it comes to deciding which SaaS solution you want to develop, understanding the difference between Vertical and Horizontal SaaS becomes of definitive value to your future success. Look at SaaS as two different types of tools: Vertical SaaS solutions are gadgets made for specific tasks, while Horizontal are multi-tools that can do a bit of everything.
Take into account that Hubspot, one of the biggest Horizontal SaaS solutions, has made $2.17 billion in 2023. LinkedIn, a representative of the Vertical SaaS companies, made $15 billion in 2023.
Yes, success might be in the niches, but it all comes to the execution after all.
As a SaaS development agency with experience building both types of products, we discuss the differences between vertical and horizontal SaaS in this article to help you pick the right route for your business.
Key takeaways
Vertical SaaS solutions focus on specific industries or niches and offer tools tailored to unique needs. For example, tools specifically designed for healthcare or real estate businesses are representative of Vertical SaaS solutions.
Horizontal SaaS provides more general tools that work across different industries and cover a wide range of tasks. Tools like project management or customer management software are versatile; many businesses can benefit from them.
Factors to evaluate when deciding between the two options include market specificity, customization requirements, competition landscape, development complexity, sales and marketing strategy, and investment appeal.
In terms of development complexity, vertical SaaS solutions often involve more complex development efforts to deliver effective solutions for specific industries. Horizontal SaaS solutions, on the other hand, come with developing generalized functionalities adaptable across various industries.
Businesses targeting a specific industry or niche market should focus on Vertical SaaS development. This approach comes with less market competition but requires a more complex sales strategy.
For businesses looking to scale quickly and penetrate multiple markets, Horizontal SaaS is the perfect choice.
Importance of choosing the right SaaS model
Cutting to the chase, these are the reasons why choosing the right Software as a Service (SaaS) model for development is crucial. This decision will determine the next steps you, as a developer, are taking.
You should carefully evaluate the market dynamics, customization requirements, competition landscape, development complexity, sales and marketing strategy, and investment appeal to develop a Vertical or Horizontal SaaS solution due to several crucial factors:
1. Market specificity: Whether you are developing a Vertical or Horizontal SaaS determines your target market. Vertical SaaS will have you focus on specific industries or niche markets, while with Horizontal SaaS, you will cater to a broad range of industries.
2. Customization requirements: Vertical SaaS solutions are industry-specific, which creates the necessity for extensive customization to meet each unique need. Horizontal SaaS solutions on the other hand are for general functions and need less customization. Nonetheless, they must still offer versatility to appeal to a diverse customer base.
3. Competition landscape: Vertical SaaS solutions are designed for a specific niche, meaning they face less direct competition due to the high entry barriers. Horizontal SaaS, on the other hand, faces more competition because of the broader market focus and the relative ease of developing generic solutions.
4. Development complexity: Vertical SaaS solutions have a narrow product focus, and often involve more complex development and integration efforts to deliver effective solutions. Horizontal SaaS solutions meanwhile require developing generalized functionalities that are adaptable across various industries. While they’re built to service a much broader range of business types, they are less complex and may require less specialized knowledge.
5. Sales and marketing strategy: Vertical SaaS solutions are all about niche. They benefit from a targeted sales approach that speaks directly to the narrow target audience. Horizontal SaaS solutions are more about casting a wide net and adopting a generalized sales approach. The sales and marketing strategy is about versatility and adaptability of the product and how it can solve problems across the board.
6. Investment appeal: Vertical SaaS solutions tend to attract investors seeking specialized markets with potentially higher profit margins and growth prospects. On the other hand, Horizontal SaaS solutions capture the interest of investors aiming to tap into broader customer bases across various domains.
What is Vertical SaaS?
To first understand what Vertical SaaS is, you need to travel back in time to when it all started. It all began with companies: Horizontal SaaS and Vertical SaaS. Horizontal SaaS companies were like trailblazers, catering their IT products to a wide range of users.
Later on, Vertical SaaS companies showed up with a sole focus on making software just for specific fields. They performed extraordinarily and quickly bypassed the Horizontal ones.
But what took Vertical SaaS so long to shine even after designing and delivering SaaS products that fit each industry’s very own needs? Well, it came down to one realization—making perfect-fit software solutions and blending them into broader systems was more challenging than envisioned.
Many of their tasks had to follow strict rules, making things even more complex. And, of course, they often had to face big and established companies watching them closely. But, in time, Vertical SaaS companies proved they had what it takes to thrive, finding success by serving the unique needs of each industry they chose to focus on.
Perhaps the greatest challenge was bridging the cultural gap between tech-savvy entrepreneurs and industry experts. Tech wizards knew code but not how things worked. On the other hand, industry experts knew their jobs but were not well conversant with tech. This made it quite difficult to collaborate.
Over time, they started working together after tech-savvy entrepreneurs started learning about the industry, with industry experts also learning about tech. As a result, Vertical SaaS companies started performing better and could now compete with other companies.
All things considered, the story of Vertical SaaS is a clear indicator that personalization strategy ultimately prevails in the world of software, even though patience and perseverance may not always pay off.
Examples of Vertical SaaS
Here are some of the Vertical SaaS businesses that made it to the top:
| Shopify | Veeva Solutions | ||
|---|---|---|---|
| Users | Over 1 billion members | Over 2.1 million daily | 1000 customers |
| Value | $15 billion | $4.9 billion | $32.51billion |
Advantages and challenges
Some of the key advantages and challenges facing vertical SaaS businesses include:
1. High sales efficiency
Vertical SaaS companies perform better at selling to certain business types. They use a smart strategy called "Land and Expand." First, they learn all about the needs of each business, then tailor their product to fit them. This makes sales easier and faster. They also share success stories from happy customers which helps new customers see the value of their product.
The "Land and Expand" strategy is super-efficient for sales. It costs way less to grow with existing customers than to find new ones. Once a company "lands" a customer, it's easy to "expand" and sell more services to them later. This boosts sales without extra work or cost.
2. Strong business advantage
Vertical SaaS companies have a big edge over others. They know their industry and customer needs from A to Z. This knowledge protects their business and allows them to charge higher prices making it harder for new competitors to enter the market. They supplement this by advising clients, further strengthening their pricing power and a market position.
Essentially, how Vertical SaaS companies manage their finances shows their efficiency at selling and competing. For example, when you compare Vertical and Horizontal SaaS companies’ public records and revenues at different levels, you’ll see that Vertical SaaS businesses are more efficient at selling. They can tailor solutions for specific industries and offer extra services, making them steadfast in the fast-evolving SaaS market.
However, Vertical SaaS companies also face challenges. These challenges arise from serving niche-specific businesses and developing software for those unique settings. This high level specialization has its fair share of complexities, such as:
Narrow market size
Vertical SaaS companies serve niche markets within specific industries. This specialized approach offers broad opportunities but also limits the overall market size. Unlike Horizontal SaaS providers that target broader markets, Vertical SaaS companies have a smaller pool of potential customers. This can make it hard to keep growing and scaling over time.
SaaS development costs
Vertical SaaS development costs can get pretty high since you have to cater to an industry's unique needs. Such companies must invest significant time and effort in developing their SaaS solutions. It’s considerably more than what’s required with Horizontal SaaS companies. They need to understand industry workflows, regulations, and customer requirements. This complexity extends to software integration where existing industry-standard systems may be incompatible with the new solutions.
Issues with regulatory compliance
Regulations heavily control most sectors where vertical SaaS is applied. It is more demanding to develop and implement Vertical SaaS software as it must adhere to industry-specific regulations. For example, in the health sector, the software solution must adhere to healthcare privacy laws (such as HIPAA). In most cases, it’s difficult to ensure that the software solution conforms to set standards by law while routinely updating it.
Opposition from well-established entities
Certain industries are dominated by firms that have strong market positions. Because they worry about upending their current business models, these well-established organizations could be reluctant to engage with Vertical SaaS suppliers or adopt new technology. For Vertical SaaS startups, getting past this opposition and becoming accepted by the sector is a big challenge.
Cultural and knowledge gap
A gap exists between tech entrepreneurs who create software and industry experts well-versed with the ins and outs of the field. Entrepreneurs are skilled at building technology, but may not fully understand the nuances of specific industries. On the other hand, industry experts may not see how tech solutions can improve their workflows. While effective teamwork and communication between these two groups is vital, it’s quite challenging to achieve.
Market education
Vertical SaaS companies often need to educate their potential customers about the benefits of their specialized and industry-specific software. Many industries stick to old methods or outdated systems. As such, it takes time and effort to show them the value in adopting new technologies which can be a tedious and resource-intensive process.
What is Horizontal SaaS?
Horizontal SaaS refers to a type of cloud software solutions that cater to a broad spectrum of corporate users, irrespective of their industry. Companies that offer horizontal SaaS solutions develop programs for common business tasks needed by businesses across all sectors.
When the SaaS business model initially surfaced, a lot of investor-backed firms went with a horizontal strategy. The Total Addressable Market (TAM), the widest market that might exist, was the sole focus of this strategy.
Back then, most software tasks were simple, requiring fewer resources for research and development. Consequently, the companies concentrated on well-defined functions such as customer relationship database management and bookkeeping, aligning with the investment objectives of venture capital organizations.
Examples of Horizontal SaaS
Below are SaaS examples that have successfully implemented the Horizontal approach.
| Slack | Dropbox | Zoom | |
|---|---|---|---|
| Users | 54.1 million active users | Over 700 million registered users | Over 2 million users |
| Value | $26.51 billion | $7.98 billion | $9.32 billion |
Advantages and challenges
Horizontal SaaS companies have big advantages, such as:
Wide market reach: They offer services that fit many industries, so they can reach more customers and enter different markets.
Growth prospects: Since Horizontal SaaS targets many areas at once, the firms can grow fast without needing to make big changes for each industry.
Easy to use: Their tools are simple and fit well in many kinds of businesses, making it easy for companies to start using them quickly.
Higher investment appeal: Investors prefer Horizontal SaaS because they can appeal to a big part of the market and make more money.
However, they also face several key challenges such as:
Competition: Since these firms aim at a wide market, lots of businesses end up fighting for the same customers.
They’re difficult to customize: Trying to meet the different needs of many industries makes changing and fitting solutions more complex, leading to more costs and longer setup times.
Hard to stand out: It can be tough for Horizontal SaaS firms to show they are different from others offering similar things. This can push prices down and make their products seem less unique.
There's a need for wide know-how: Working with many industries means you need a broad understanding of different business practices and rules. This makes it challenging for Horizontal SaaS companies to offer specific support and meet unique industry needs well.
Key differences between Vertical and Horizontal SaaS
| Vertical SaaS | Horizontal SaaS | |
|---|---|---|
| Market focus | Vertical SaaS draws its name from its picks in one specific industry or niche market. These businesses develop solutions that adhere to all the unique solutions of the chosen industry. | As the name suggests, Horizontal SaaS allows applications to expand into various environments. The type of software offers the same software solution, with a related contextual base, to various sectors. |
| Customer base | With this medium of SaaS application, you will target a few customers in a niche industrial segment. | With Horizontal SaaS, your business targets multiple and diverse summative industrial sectors, and they share the same suite. |
| Customization | Since the business tailors its software suite to one industry, each attached feature is customized for the end user. | Doesn’t need much customization, and consequently its products are recognizable in users. |
| Development complexity | Needs a thorough comprehension of industry-specific procedures and laws, which makes development and integration more difficult. | Concentrates on creating universal functionalities that are more industry-adaptable and less complex. |
| Competition | May face rivalry from other Vertical SaaS providers aiming for the same industry, but faces less direct competition inside specialist markets. | With multiple businesses fighting for market share across various industries, horizontal SaaS faces more competition than vertical SaaS. |
| Sales strategy | Typically uses a targeted sales approach that focuses on industry-specific value propositions and expertise. | May employ a more generic sales strategy, emphasizing the adaptability and wide range of applications of their products. |
| Investment appeal | Attracts investors looking for opportunities in niche sectors that may offer better growth and profit margins. | Although there may be more competition and lower margins per client, horizontal SaaS appeals to investors that want to enter bigger markets and target wider consumer segments. |
How Brights can help
Choosing between building a vertical or horizontal SaaS solution depends on your business objectives. If you’re unsure about this decision, we at Brights have the expertise to help you determine the best approach and guide you through the entire process. After all, our team has built both vertical and horizontal solutions, two of which we share below:
Vertical SaaS: Creative-focused project management platform
Our client turned to us with a groundbreaking idea of building a solution that would streamline the production process of creative assets. We made it easy for users to work with videos and large files for quick idea realization. We also added real-time chat and feedback features, along with a customizable approval system, to simplify and accelerate the workflow.
As a result, together with the client, we built a user-friendly, secure platform perfect for managing creative projects and collaborating with teams and partners.Horizontal SaaS: Nova Assure IoT management solution
Nova Assure solution is suitable for any kind of business, not just one specific industry. It is a convenient end-to-end IoT management solution designed to boost productivity.
For this project, we built both a web platform and a mobile app, which provide services like delivery accountability, dynamic reports, intelligence, and security. The product’s central feature is a customizable dashboard, connecting everything that can be measured, controlled, and assigned in one place.
These examples are just a glimpse of the diverse SaaS projects we've worked on. Whether your focus is on industry-specific needs or broad applicability (or you’re hesitant about which way to go), our team is here for you. We can help you conduct a comprehensive discovery stage to maximize the chances of your project's success, and, subsequently, build either type of solution.
Main factors to consider
The ultimate question of Vertical vs Horizontal SaaS solution doesn’t have a one-size-fits-all answer. The decision here completely depends on your business objectives, market focus, and customer base.
When launching a Vertical SaaS product, you serve a specific niche market, offering tailored features that address specific pain points and workflows. If you get it right and make a product that resonates with the professionals you target, you can establish a loyal customer base that will help your product grow.
At the same time, while Vertical SaaS products usually face less direct competition, building such a product also requires a thorough understanding of industry-specific procedures, regulations, and market dynamics. Moreover, it often means a more complex (and costly) development process. Our SaaS outsourcing team at Brights is equipped to navigate these tech complexities, but such a project would still require a lot of effort in terms of the sales strategy.
If your goal is to scale quickly and reach a broader audience, a Horizontal SaaS project is the right option for you. Such products offer universal functionalities that can be adapted to various sectors, which makes them less complex to develop. Naturally, these solutions tend to face more competition, but they also present opportunities to attract larger market shares and diverse customer segments.
Regardless of the SaaS product development strategy you take on this journey, Brights is here to guide you every step of the way, ensuring your solution is tailored to your goals.
