The SaaS industry is thriving rapidly. However, with business models expanding across industries, SaaS has taken two separate routes: vertical SaaS and horizontal SaaS.
Understanding these two concepts will help you identify what your users want and what route you want to take on your journey to success.
According to recent statistics, the SaaS industry will bounce by approximately $60 billion by the end of 2023.
So, if you are wondering what is the difference between these two concepts and how this can help you find your own recipe for success, you’ve come to the right place.
Here are a few things we will cover in this article:
- The growth of SaaS
- What is Horizontal SaaS?
- What is Vertical SaaS?
Without further ado, let’s dive right in!
The Growth of SaaS
The SaaS industry is on the rise, and the pandemic has only speeded up things. More specifically, the SaaS industry has increased by 20% in 2020 as a result of the pandemic, and it is expected to continue this growth in the future.
SaaS is a shorter way of saying Software as a Service. At its core, this model includes software tools that are hosted on the cloud platform. In other words, this allows users to access the cloud from anywhere at any time without having to install it on their computers. They can use it as long as they have access to the Internet.
Also, instead of paying a one-time license, users pay a fee to access the software, which means that SaaS operates under a subscription model. This flexibility is another reason why users opt for SaaS.
As the market changes, users have more and more options to choose from as there are more and more new services and products to choose from.
What is Horizontal SaaS?
To put it simply, horizontal SaaS services the horizontal market — the one that caters to the needs of a wide range of users. In other words, a horizontal market meets the needs of as many people as possible across the market.
So, instead of focusing on a specific niche, it envisages a gigantic mass of people across multiple niches thus targeting different end targets and needs. This is a more mature model — it has been around for more than a decade.
Some of the most famous horizontal SaaS examples include:
- Salesforce (CRM)
- HubSpot (marketing)
- QuickBooks (accounting)
There are a variety of businesses that choose the SaaS model including supply chains, retailers, and manufacturers.
The benefits of Horizontal SaaS
Time is a number one factor in today’s ever-increasing market and competition. By investing in the software that can help you do more things at once, you will be able to collaborate more efficiently with your team and save much time along the way.
On top of this, collaboration software allows managers to monitor more projects at once and make the right business decisions based on the data they have.
Horizontal SaaS offers a number of growth opportunities. For instance, a company that provides digital marketing services and VPN services can use one project management software to manage both departments.
Through this one tool, project managers can keep track of all activities across both departments.
What Is Vertical SaaS?
Vertical SaaS offers services that completely cater to the needs of the users of the specific industry or niche. Unlike horizontal SaaS, this model is a more recent trend.
Some of the examples of vertical SaaS on today’ market include:
- Health Assurance Plan
Since vertical SaaS is built for a specific industry, it narrows down to a more specific target audience. In most cases, vertical SaaS solutions are developed by experts that specialize in the specific industry niche.
For instance, the Health Assurance Plan was built by dental experts initially. It offers dental plans to those who do not have them available or are not able to afford insurance. Also, vertical SaaS chooses to have a narrower approach to marketing than other Horizontal SaaS providers.
The Benefits of Vertical SaaS
Scalability and upgrades
A vertical solution enables auto-scaling of infrastructure without having to spend valuable resources on monitoring, scaling, and support. On top of this, it also means frequent, regular updates of the software which supports immediate and constant innovation.
Vertical SaaS solutions would provide tight, strong, and native pre-packaged integrations with other products from the start.
In other words, the vertical SaaS model enables integrations with some of the most important products on the market across industries including billing, ERP, payment providers, governance systems, and marketing.
Higher return on investment
Once your business starts growing, you have to do everything to make sure you keep things under control. You cannot afford to make any assumptions. The greater the value of the data you collect through software, the more issues it will solve.
The invaluable insights you gather this way will help you solve any issues you come across along the way.
At its core, vertical SaaS will provide you with a bigger picture of your target audience and target market, allowing you to meet your customers’ needs. This, in turn, will help you reduce costs in the long run.
By gathering important data about your competition on the market, you will have an opportunity to find ways on how to get ahead of the curve and maintain your position there. This way you will be able to offer your customers services that match their needs and requirements.
But, more importantly, you will have a chance to communicate and collaborate with an industry expert that will provide you with enough knowledge and the right feedback allowing you to move in the right direction.
Vertical vs Horizontal SaaS
As you can see there are many benefits to both of these models. But, to help you find the right model that will perfectly suit your business needs, let’s go through the main differences between them.
Cost of acquisition: Since horizontal SaaS relies on the whole business, and should be promoted to a bigger and wider target audience, it makes sense the cost is higher. On the other hand, vertical SaaS has a much lower cost acquisition
Sales and Marketing: Horizontal SaaS dives into the chapter of sales and marketing with the focus to create more verticals. This leads to a bigger number of loyal clients. On the other hand, vertical SaaS is only focused on specific niches.
Customer Success: Since horizontal SaaS has been present on the market for more than 10 years, it gives companies the ability to leverage its capabilities to learn more about customers
Manageability and Scalability: Due to the reduced level of operations and facets, Vertical SaaS enables higher manageability. A small in-house team can remove some bigger, unnecessary issues. On the other hand, a horizontal business provider has to deal with a large business which means that manageability and scalability are at a much higher level when compared to a vertical SaaS.
In the meantime, if you are not sure which model to opt for, you can always consult a team of Dallas software developers. They should give you the right guidelines and help you match your requirements with the right business model. This will allow you to focus on other business things that matter.
Which vertical is better? Horizontal SaaS or vertical SaaS?
As mentioned before Horizontal SaaS is dominating the industry, and the G2 report provides that.
Here are a few SaaS organizations that are moving the boundaries across the market:
- Hubspot — CMS Hub, Sales HUB, Marketing Hub, Academy (Help Desk, Marketing, CMS)
- Atlassian — Trello, Jira, Confluence, Bitbucket, Jira Service Management
- Cisco — Jabber, Webex, Webex Meetings, Cisco Umbrella, Duo Security
- SurveyMonkey — Wufoo, SurveyMonkey, Enterprise, Market Research Solutions
- Google — Hangouts, Drive, Docs, Analytics
- Smartsheet — Smartsheet for G-Suite, Smartsheet for Gmail, Smartsheet
- Zoominfo — Zoominfoe Engage, Zoominfo, InboxAI, FormComplete,
- Microsoft — SharePoint, PowerPoint, Teams, One Drive
- Active Campaign — Active Campaign (Marketing)
All of these are big players which are making ways on the market
One of the reasons this is happening is because horizontal SaaS provides numerous benefits not only to organizations but also to customers. And they are generally cost-effective solutions.
On the other hand, vertical SaaS for niche sectors is rising. Vertical SaaS companies can focus on solving the specific pain points and deliver the business value to a much narrower target audience.
So, which of these two models will disrupt the market? We will have to wait and see.
The bottom line is that both Vertical and Horizontal SaaS models have their advantages and disadvantages. Both of them can bring value and contribute to your business growth.
To make the best of them, you need to clearly define your business needs and then choose the model which answers to them. Also, to achieve success, you need to always keep the goals you want to achieve in your mind and consider all the advice given in this article.