The SaaS ‘revolution’ was initiated by solutions that spanned various industries. Products like CRM, ERP, web hosting, and e-commerce can be easily implemented by almost any kind of company, and it was that versatility that propelled its initial growth.
This model is known as horizontal, and has been leading the pack until now, but the vertical solutions are starting to get their spotlight. These represent the other end of the spectrum: SaaS tools designed for niche industries and needs.
While they’re nothing new, these solutions are now seeing a resurgence of sorts due to a saturated market of more generic tools. As time goes on, SaaS products will only become more specialized in order to stand out.
In this article, we guide you through the basics of these two models: What they are, what they’re good at, and the similarities and differences between them.
What is Vertical SaaS?
Vertical SaaS is software that targets a specific industry or niche. These purpose-built platforms are tailor-made to meet the unique requirements, custom workflows, and nuanced regulations of a specific sector.
This SaaS model is all about specialization. Tools often come with a suite of features and functionalities that are purpose-built to align with the industry’s needs. Focusing on a specific market allows vertical SaaS companies to deliver solutions that are targeted, efficient, and effective. It also helps SaaS operations by enabling companies to discover and identify the best SaaS tool for their needs.
These solutions are made to serve specific industries, such as:
- Healthcare: Providers must be able to manage a large amount of sensitive patient data while complying with strict regulations like the Health Insurance Portability and Accountability Act (HIPAA). The right vertical SaaS can help store, access, and manage vast amounts of data while adhering to compliance standards.
- Construction: Companies often face challenges in setting up and managing complex projects. An effective vertical SaaS tool might help professionals monitor progress, track expenses, and manage permits.
- Finance and banking: Institutions in this niche often have to navigate a complex regulatory environment. Vertical SaaS platforms can help with compliance monitoring, fraud detection, and reporting.
Let’s take a look at an example of a vertical SaaS tool, along with its core functionalities, and features.
Example of Vertical SaaS: Oracle Cerner Streamlines Administrative Overhead for Clinics
Oracle Health is a branch of the tech juggernaut that builds products for healthcare clinics. Their Electronic Health Records (EHR) system is designed to help providers securely store, access, and manage patient data. This platform enables a smooth information flow, makes patient information easily accessible, and reduces the time doctors spend on administrative tasks.
This company also offers population health management solutions to help track the health of large groups of people, and a revenue cycles management solution to streamline financial aspects of healthcare.
Other examples of vertical SaaS include Pulley; a company that helps construction companies get approved permits, and nCino, which streamlines banking workflows.
What is Horizontal SaaS?
Horizontal SaaS refers to software solutions designed to serve a wide range of industries and sectors, rather than a particular niche. It provides professionals with generalized tools that work for different markets and business functions.
With this SaaS model, versatility is the name of the game. Companies aim to be relevant with a suite of features that are easily integrated and scalable.
Some common horizontal SaaS functions are:
- Customer relationship management software: Nearly every industry needs a way to manage their relationships with customers. Horizontal SaaS solutions that focus on this aspect include tools for sales tracking, contact management, and customer service.
- Human resource management: Horizontal SaaS can manage employee data, payroll, and performance. These general HR functionalities are important in any company, regardless of industry or niche.
- Website building: These software solutions serve a wide range of companies. Whether you’re a small accounting firm or a global trading enterprise, you’ll likely need a website, and hence, a horizontal SaaS builder to get the job done.
Example of Horizontal SaaS: Cledara Helps You Optimize Software Spend
Cledara is a platform that helps finance teams manage software spend. With Cledara, businesses can easily assess, monitor, renew, and cancel SaaS subscriptions with ease. Smart approval flows evaluate new applications and renewals and ensure teams have maximum visibility over every financial aspect of their tech stack.
Some of Cledara’s features include the ability to set payment limits, manage spend reporting, and create alerts for under-utilized tools. Companies can also use Cledara to streamline their accounting process with automated invoice capturing and integrations with accounting tools like Quickbooks, Xero, and NetSuite.
Besides Cledara, other horizontal SaaS solutions include HubSpot; a customer relationship management (CRM) platform for marketing and customer service, and BambooHR, which helps companies store employee data and manage payroll.
What are The Similarities Between Vertical SaaS and Horizontal SaaS?
Despite serving different purposes for different industries, these two SaaS models have a few features in common. Here are the main similarities they share.
Subscription-Based Licensing and Pricing
Subscription pricing is one of the most common SaaS payment models. Through a SaaS license, users pay a recurring monthly or annual fee to access a platform’s features and functionalities. In most cases, SaaS providers offer multiple plans at different price points.
Both vertical and horizontal SaaS platforms use subscription-based pricing due to its convenience and profitability.
Cloud-Based
Both of these types of SaaS mostly use cloud-based hosting, meaning users can easily access the software via the Internet without needing on-premise installation.
Besides seamless access and regular updates, cloud-based hosting is also advantageous for teams that need to access the solution from different geographical locations. This makes it a key attribute of any SaaS company, whether highly focused on a specific niche or a wide range of industries.
Continuous Product Updates
All SaaS companies constantly update their offerings to stay relevant in the market, attract customers, and retain users. They typically release incremental improvements throughout the year based on user feedback and market demands.
Users can expect anything from new features and interfaces to core functionality refinements. This timely development cycle ensures customers don’t need to wait long to access the latest technological advancements relevant to their business.
What are the Differences Between Vertical SaaS and Horizontal SaaS?
While they share certain features, there are plenty of ways in which the two models differ. Here’s how.
Target Market and Competition
Vertical and horizontal SaaS markets have opposite market strategy approaches. Typically, a vertical SaaS tool will target a single industry or niche. Creating such solutions requires in-depth industry knowledge, so the barrier to entry is much higher. As a result, these tools sell to a much smaller customer base. However, they also enjoy considerably less competition.
A horizontal SaaS solution champions broad application to a wider range of industries. It targets multiple industries simultaneously and competes with other generalized SaaS tools offering similar solutions. These SaaS companies have access to a much larger customer base in a much more crowded market.
Customization and Functionality
Specific markets need specific solutions, and that’s exactly what vertical SaaS tools deliver. They provide customized features that meet complex, nuanced, and technical industry requirements.
Horizontal SaaS tools, on the other hand, are based on generic functions that most businesses require regardless of the industry. Organizations generally don’t need much customization from these tools to complete a task, although many horizontal SaaS solutions provide custom features for a premium.
Scalability
Scalability is straightforward and easy to address for vertical SaaS solutions because they don’t serve vastly different customer types. Their customers typically only have a few, hyper-focused expectations that the tool was originally designed to fulfill.
Horizontal SaaS solutions face greater challenges when it comes to scalability because they cater to multiple business types and industries. Their customers can have widely different needs, preferences and expectations. As a result, they often have to constantly update their features, integrations, and scale to meet the shifting demands of the market.
Managing SaaS Software at Your Organization
Vertical SaaS focuses on providing super-specific solutions for a particular industry or niche, while horizontal SaaS has functions and features for broad application. Many businesses use a combination of both vertical and horizontal platforms in their tech stacks.
Any business using multiple software solutions will need a way to manage them. That’s where Cledara can help.
Cledara lets you control every aspect of your software spend. With Cledara, you can set up smart approval flows that let you evaluate new software renewals, set payment limits for any tool, and capture invoices from tech tools automatically.
From canceling subscriptions with a single click to getting renewal reminders so you can renegotiate with SaaS providers, you never have to worry about software spending again.
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