Vertical SaaS vs. Horizontal SaaS: Which is Better for Your Business?

SaaS is undeniably a lucrative segment for entrepreneurs wishing to unfold their startups. The growth rates and the level of SaaS services adoption are impressive and promise enticing revenue potential. Thus, the SaaS industry is projected to reach $793 billion by 2029, while revenues in the segment demonstrate an annual growth of 19.3%.

However, those planning to ride that wave may find themselves at a crossroads when choosing between the two primary types of SaaS apps: vertical and horizontal SaaS. Although this choice is paramount for your product’s destiny and your business’s profitability, it can confuse startuppers, as each model has its upsides and downsides.

So, how does a horizontal SaaS differ from a vertical SaaS?

Simply put, vertical SaaS applications address specific tasks, while horizontal are multi-faceted and can perform a set of jobs. To pick the ideal path for your venture, you should deepen your understanding of the topic, leading to a wiser decision.

The article compares each model’s core characteristics to guide your choice and give you distinct selection criteria.

What is Horizontal SaaS?

A horizontal SaaS strategy implies general-purpose software applicable across sectors and matching diverse demands. Thanks to its universality, this approach allows covering the widest market possible.

Horizontal SaaS platforms carry a broad spectrum of functionalities that embrace project management, marketing, internal processes optimization, client relationship management, logistics, and more. Horizontal SaaS products address the requirements of large enterprises and tiny startups alike. Therefore, their primary advantages include scalability and flexibility.

The remarkable horizontal SaaS examples include:

• Dropbox: files’ storage and exchange solution.
  • 700 million clients
  • $8.4 billion value

• Slack: communication and work management tool.
  • 54.1 million clients
  • $26.5 billion value

• Zoom: video communication platform.
  • 2 million clients
  • $22.4 billion value

What is Vertical SaaS?

While the sphere was pioneered by horizontal SaaS apps, vertical SaaS solutions surfaced in the already-established background to concentrate on definite issues and niches.

Their narrow targeting and capacity to remedy a clear-cut problem on a deeper level brought them sensational popularity. Unlike horizontal SaaS, which covers a series of industries with one product, vertical cloud software reveals the underserved requirements of a selected sector and meets them thoroughly.

Here are several noteworthy vertical SaaS examples:

• LinkedIn: business communication network.
  • 1 billion members
  • $26.5 billion value

• Procore Technologies: construction services.
  • 14,000 customers
  • $9.3 billion value

• Veeva Systems: Life sciences and healthcare solutions.
  • 1000 customers
  • $36 billion value

Differences and Similarities Between Vertical SaaS vs Horizontal SaaS

Once the core definitions and examples have been discussed, let’s explore what distinguishes each model and what they have in common.

Horizontal vs vertical SaaS differences

Below is the list of the most significant discrepancies between vertical SaaS and horizontal SaaS.

The scope of market focus

This primary differentiating point between the two SaaS categories have already been touched on. Each approach targets different user audiences. While vertical SaaS companies direct their attention to distinct niches with programs aimed to remedy a particular issue, horizontal SaaS provides universal solutions applicable to numerous spheres.

Features and customization options

By definition, vertical SaaS implies higher customization levels to match the exclusive industry demands. Such a tailored approach becomes possible only with a precise focus since meeting complex requirements and legal regulations throughout various sectors is considerably more challenging.

While vertical SaaS can match the most sophisticated demands, horizontal products usually introduce a set of more universal features applicable to many industries. Their comprehensive nature removes the need for significant adjustment since a deep customization level is unnecessary.

Business strategies

Vertical SaaS companies thoroughly know their consumers and their aspirations, crafting exhaustive solutions. Keen domain expertise and a tailored approach help them gain a strong competitive advantage, subsequently shaping the background for higher pricing.

Horizontal SaaS doesn’t pursue industry-oriented personalization and is rather task-focused. It targets a distinct issue or assignment relevant to a broad consumer audience across industries. Their fundamental purpose is usually expeditious market expansion.

Scaling opportunities

For vertical SaaS products, scalability is typically simpler than for horizontal programs. Tiny niches and precise focus make the progress more straightforward from the product’s standpoint. Unlike horizontal SaaS, which serves a wider spectrum of businesses and may require extensive development resources.

However, Horizontal SaaS apps have a larger potential audience, making huge room for broadening the market.

Marketing methodologies

The different business focus also dictates varying marketing approaches for vertical SaaS vs horizontal SaaS.

The goal of horizontal SaaS applications is to enlarge their consumer base by encouraging more users to apply this software. The corresponding marketing activities include discounts and free product offerings.

The marketing efforts of vertical SaaS companies are highly targeted and pursue a deep level of consumer relationships. These brands support close interactions with users, identifying their aspirations, deriving insights, and determining the most efficient communication channels.

Market competition and entry barriers

With vertical SaaS, tiny niches and specialized products pose relatively high barriers for those aiming to enter the segment. Consequently, the rivalry in this environment is somewhat lower than for horizontal SaaS.

Horizontal SaaS companies, in turn, have an easier entry by developing a general solution that covers a range of needs. However, lower barriers often lead to fierce competition.

Horizontal SaaS vs vertical SaaS similarities

Although the difference between vertical and horizontal SaaS is significant, there are areas where the two models can have common traits.

Pricing model

Both vertical and horizontal SaaS firms often apply subscription-based monetization. This model implies a regular fee for established services, which is simple and convenient regardless of the sector and audience. Providers may split subscriptions into several plans, varying by price and available functionality. Therefore, consumers may choose the most appropriate option and upgrade as their business expands.

Easy access

Both types of platforms utilize cloud-based technology, which means, consumers can access them from any place and through any device with an internet connection. Easy and unobstructed access makes both solutions favorable for businesses, especially those with numerous locations.

Processes’ automation

While vertical vs horizontal SaaS have varying purposes and strategic focus, they share a significant common advantage: automating repeated processes and raising the efficiency of internal procedures. Numerous sectors can win from reducing manual tasks and expediting workflows.

This capacity is inherent in both vertical and horizontal SaaS applications.

User support and regular updates

Whether the SaaS product is narrowly focused or implies broad use cases, it must be easy to implement and keep bringing value to users.

Vertical and horizontal SaaS providers usually deliver comprehensive client support, including onboarding, training, and maintenance. Furthermore, they continually adjust their programs to stay up to date and match the altering demands.

Vertical SaaS vs Horizontal SaaS: Which One Should I Favor?

Both models offer exclusive benefits and challenges affecting your choice.

How to make a wise selection empowering you to develop a successful SaaS application?

Consider your purposes, industry focus, and target community.

Namely, vertical SaaS would be a better choice if:

• You have a solid background in a distinct industry and plan to deliver specialized solutions.
• Your target segment has exclusive demands or strict regulations.
• You seek to lead a niche with minimum competition.

Favor horizontal SaaS if:

• You plan to enter a broader market with more generalized needs.
• Your venture goals include rapid expansion to diverse industries.
• You intend to mitigate risks by attending multiple sectors.

In Conclusion

Vertical and horizontal SaaS are both elements of the rapidly progressing innovative sphere, full of alluring opportunities for entrepreneurs. However, these two models have significant discrepancies, while each contains unique limitations and favors.

The first step when selecting the appropriate path for your venture to prosper is meticulous research. The analysis of the similarities and differences between vertical SaaS vs horizontal SaaS empowers you to assess probable gains and traps. Horizontal apps may appear more potent from the standpoint of profitability and growth. However, the cases of top vertical SaaS companies show outstanding results within tiny niches as well. Admittedly, with a wise planning and superior execution, you can turn the upsides of each approach into your exclusive strength.

Therefore, to construct a remarkable SaaS startup, learn the details about both app types’ development and operation and correlate the received observations with your project, its goals, and its target community. The approach that better matches your venture, mission, and vision, will open plentiful opportunities to thrive.