Vertical-specific software solutions, which are built to serve a specialized “vertical” industry as opposed to being a solution across industries, have experienced success as horizontal solutions tend to pose more challenges.
This all comes down to customizations and modifications that horizontal solutions require to work effectively. It’s a struggle to deliver value in the short term and in the long run with a horizontal solution due to complex implementation cycles and costly upgrades over time. It can end up costing companies hundreds of millions of dollars without creating the value to make those solutions worldwide.
Vertical solutions are successful for a number of reasons: the cloud enables vertical vendors to deliver niche features as specific needs arise; the vertical approach helps companies capture a larger market share more quickly; the cloud enables a more scalable marketing approach with social media, search, and email complementing a lean sales team; and the affordability and ease of implementation of vertical SaaS can be particularly useful for small to medium businesses with limited budgets and IT resources.
The success of vertical software solutions speaks for itself. Veeva Systems - a provider of cloud-based CRM and content management solutions for the life sciences industry - went from zero to $2.4 billion in under six years raising less than $10 million. Dealertrack - a provider of on-demand software for the automotive industry – was acquired for $4 billion by Cox Automotive after a solid run in the public markets. Vertical software continues to show signs of performance and growth as it matures.
With a new focus on digital transformation, customized and complex solutions are not always adequate. Vertical software options are often customizable to fit companies’ needs and are paired with expert knowledge of the field. Vendor representatives can more easily act as trusted advisors since the product and their knowledge base are more finely tuned to the user’s industry.
In the last ten years, the market size for vertical SaaS companies has tripled. Previously, many developers and thought leaders thought industries like agriculture and at home health care wouldn’t quickly utilize cloud-based software. But they did.
Despite the success of vertical solutions, the most profitable companies from the first wave of cloud software were players in the horizontal space. Companies like Salesforce and Workday replaced on-premises solutions and obtained huge markets, but horizontal software is old news and vertical solutions are the way of the future.