The size of the software as a service (SaaS) market reached $197 billion in 2023. The surge in demand for SaaS products has also led to a rise in competition among software providers. 

To develop a competitive edge in such a landscape, creating personalized solutions by creating niche software has become a well-known strategy. 

As a result, many entrepreneurs are exploring the possibility of building industry-specific software and SaaS verticals. 

This article helps to understand Industry-Specific software, why verticalization is growing in importance and its key benefits. 

What Is Industry-Specific Software and Vertical Market Software?

Industry-specific software and Vertical Market Software are terms that more or less mean the same thing. 

They are software applications that are designed to meet the specific needs and requirements of a particular software industry verticals.

Such software solves unique pain points while meeting the industry’s regulations. 

For example, Electronic Health Record (EHR) systems are designed specifically for the Healthcare industry. Another example is case management software that is created for law firms.

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Why Has Verticalization in Software Become So Important and Valuable?

Horizontal software vs Vertical software

Software Verticalization has become so important and valuable today as entrepreneurs realize that creating tailored software solutions can help them compete in the market.

Oftentimes, when selling general software across various industries, the customers tend to be frustrated that the solutions are not customized to the industry’s specific problems. 

From the customers’ perspective, they get a better experience as the sales teams understand their industry well. Most importantly, the solution is tailored to the industry’s pain point. 

For example, a generic manufacturing execution system (MES) may not meet all the complex requirements of an automotive manufacturer. 

Those working in the automotive industry would prefer an MES system specialized for their industry that tackles all relevant problems they face. 

Companies adopting software verticalization are reaping its value as research shows that verticalization has a direct correlation with 10% to 20% with year-over-year revenue growth for B2B software businesses. 

As every industry has business complexity, unique business processes, and regulations, software that perfectly aligns with their needs becomes a priority choice. 

The Benefits of Vertical Market Software

As organizations continue to seek new ways of increasing their revenue and competitiveness, Vertical Market Software has become a recommended approach. 

Some of the critical benefits of Vertical Market Software include: 

  • Helping Build Credibility and Differentiation 

The most important benefit of verticalization is that it proves expertise for the industry. 

For example, an Enterprise Resource Planning (ERP) software built specifically for the logistics industry may have higher credibility. 

This is because it would be built to address needs that are specific to this industry, such as supply chain analytics and real-time shipment tracking. 

This can help SaaS companies to increase their inbound inquiries on the product too because of the differentiation they have created from the generic players in the market. 

  • Customization and Flexibility

Industry specific software solutions are highly customizable and flexible based on the specific industry and its best practices.

This flexibility and industry-focused technology help organizations adapt their software to the unique workflows of the clients more effectively.

A case in point is the software called ShipOX provides delivery management system software to the logistics industry. Such industry-specific technology and solutions are customizable, along with flexibility in pricing depending on the specific needs of the delivery company and what phase of growth they are in.

  • Cost-Effectiveness and Better ROI

Though Vertical Market Software may have higher upfront costs, their results are better. This includes an increase in efficiency across processes along with quicker time to value. 

The industry-specific nature of the software means that there is faster adoption by the employees too. 

All of this leads to an increase in total return on investment for the organization from such software in comparison with horizontal market software.

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What Is Vertical SaaS?

Vertical SaaS means a type of Software as a Service (SaaS) that is developed for a specific industry. As consumers are searching more and more for ready-to-use software, tailored software solutions are becoming more popular. 

Especially in the context of adopting new technologies, customers can be hesitant unless there is a direct and tangible business benefit. 

Using Vertical market software can thus help increase the adoption rate in comparison with Horizontal market software that is focused on a broader audience. 

Key characteristics of Vertical SaaS products is that they are sector-specific SaaS or address the unique needs and workflows of a specific industry.

This can help to provide differentiation in comparison to companies that are trying to appeal to various industries. The Vertical SaaS product is more likely to meet the requirements at a granular level as it conducts in-depth research of the user journey within that industry. 

However, one challenge of adopting Vertical SaaS landscape might be in scaling the product as the market size would be smaller than a Horizontal SaaS product.

Vertical SaaS Examples

The use of Vertical SaaS spans across various industries such as construction, retail, manufacturing, healthcare, automotive, and many more. 

For example, Terra Insure helps to streamline the claims management and policy administration made specifically for the insurance industry. They have helped over 3000 insurance companies with this solution. 

In the case of the legal services industry, there are Vertical SaaS products such as LegalZoom which focus on individuals and small businesses with legal needs. Vertical SaaS for insurance also includes helping to handle legal documents when forming businesses.

Another example is Yardi Systems which is focused on the real-estate industry. They provide property management software that helps companies working in this space with asset performance, property management, procurement, and risk management. 

Their Vertical SaaS solution has helped to reduce per-invoice costs and eliminated multiple processing steps helping their customers get great results. 

Vertical Software examples

Vertical Software Development

Vertical Software Development means the process of creating sector-specific software solutions for an industry or vertical.

The idea of verticalization has been one of the most important topics for the Software industry. This is because Improving personalization is an important aspect of improving customer experience in this industry. 

Some of the most popular examples of products in Vertical Software Development include Electronic Health Record (EHR) systems for healthcare, ERP solutions in manufacturing, and Learning Management Systems(LMS) in education. 

The reason for Vertical Software Development gaining popularity is that there is customization of niche needs within the specific industry. These niche software solutions include features, functionalities, and data structures that might not be relevant to other industries.

Furthermore, various industries require specific regulatory requirements and compliance standards. For example, companies that offer services to Healthcare clients may need to comply with the Health Insurance Portability and Accountability Act (HIPAA). 

There are also integrations a SaaS product would need to make specific to an industry. In the case of the construction industry, a Vertical SaaS may require integration with Building Information Modeling (BIM) Software. 

Such integration may not be feasible for Horizontal Software Development as they need to cater to multiple industries.

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Horizontal Vs. Vertical SaaS

Targeted Industry and Market Size

The industry they target and the market size are what distinguish horizontal and vertical SaaS the most.

Horizontal SaaS is known for catering to a wider range of industries and has a more diverse client base. On the other hand, vertical SaaS is a tailor-made solution for a specific industry or client base.

While vertical SaaS meets specific customer needs, horizontal SaaS ends up claiming a larger market size.

Business Models

Horizontal SaaS business models are meant for problem-oriented solutions rather than industry-specific approaches.

As a result, they are adopted by the border industry and contribute to day-to-day use. Unlike that, vertical SaaS is more like an end-to-end or all-in-one type solution for a specific industry or niche, such as healthcare or real estate.

Competition Level

In the digital landscape, broader service solutions like horizontal SaaS are bigger game players and have more competition.

As a result, it gives the customer a better chance to compare with other solution providers and switch to a suitable option. Contrary to that, vertical SaaS is a relatively new and smaller model, making it less compatible in the market.

Customer Acquisition and Retention Approaches

Related to the factors above, it affects the customer acquisition and retention approach of the service solutions.

Because horizontal SaaS is more competitive and offers border choices for customers, they can easily jump from one solution to another.

That means both customer acquisition and retention are highly challenging for such solution providers.

This is where vertical SaaS has an advantage.

Due to its smaller market size and offering niche-specific solutions, clients tend to stick to one service for a long time.

Sales and Marketing Strategies

When it comes to sales and marketing, horizontal SaaS depends highly on customer feedback and focuses on getting new users of their software.

That is why they offer free trials or low-cost products to encourage customers to use their solutions. However, vertical SaaS focuses on its current customers and clients to secure long-term relationships. 

As a marketing strategy, vertical SaaS businesses offer potential customers free trials and sign up for free products.

Growth Prospects

Since horizontal SaaS businesses can sell their product to many industries or customers, they have an upper hand growth prospet and acquire more clients.

On the other hand, vertical SaaS businesses only cater to one specific area of an industry, limiting their growth and the number of clients they have.

Management and Scalability

As horizontal SaaS has a vast scope and broader business model, managing it is comparatively more complex. However, vertical SaaS is more manageable and scalable, as it requires a much smaller team to build and maintain the software.

How Does Software Verticalization Help with Sales?

The growing demand for software services has led to multiple companies who are eager to fulfill this need. 

As a result, there are competitors who are looking to differentiate their services and increase their sales. 

Verticalization has become an effective strategy to meet this goal as it is known to increase trust and lower the sales cycle for a customer. 

In comparison to software that is generic and caters to different industries, a tailored software solution addresses the specific pain points for the industry. 

Because of this, the sales team is able to narrow their sales pitch to these pain points which is more receptive to the customers as well. 

71% of companies expect personalized interactions to meet their needs. Furthermore, 76% get frustrated when this doesn’t happen. 

By adopting verticalization, the sales team can provide industry-specific solutions. During sales calls, they can empathize with the client’s pain points better while also being seen as industry experts. 

Additionally, success stories from similar companies in the industry provide social proof to speed up the purchase decision. 

Overall, vertical market software positively impacts both the size of the deal and the speed at which the sales cycle gets completed.

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