Horizontal Saas vs Vertical Saas

Saas

Horizontal Saas vs Vertical Saas- which is the better one?

Saas stands for Software-as-a-Service. In this article we’re going to see what Horizontal and Vertical Saas are and learn how it works.

We often come across the term called  Saas when we talk about digital products. Therefore it is important for us to understand it’s purpose and why it’s used widely.

Table of Contents

What is Saas and how does it work?

Software-as-a-Service, is a cloud-based product, commonly known as Saas acts as a substitute to software being installed on your laptops or desktop PC. Instead you can access the product or application via internet browser itself. It basically saves your time and makes your life easier.

Advantage of using Saas is that it’s affordable,  no contract based, have an option to pay for what you use. It offers low upfront cost when compared to conventional software products that needs to be installed on your system.

Internet connection required can act as a huge disadvantage. Nowadays every household and office space have high broadband deals and internet connectivity, so this might not be a major issue.

Since Saas is a cloud-based application, even small scale companies can have access to complex software tools at an affordable cost. Selling point of Saas is that it needs no hardware investment cost but is compensated on servers and storage.

Advantage of Saas over traditional Software products

  • No hardware installation cost
  • Highly accessible
  • Affordable
  • Data analytics

What is Cloud?

The term Cloud computing was inspired by the actual representation of a cloud. Thos who’ve studied computer science or have basic knowledge on the same might know what Cloud means.

It basically refers to softwares and services that need no pre-installation on your system and runs on the servers. These cloud servers are located in data centers all over the world.

Horizontal vs Vertical Saas

In a nutshell, Horizontal Saas is not product specific and is open to all industries that covers various functions and features. Whereas Vertical Saas is industry specific and focuses on the functions and features required by a particular industry.

Without further ado, let’s dive deep into the two concepts.

Horizontal Saas

Horizontal Saas refers to Software solutions that extends across various markets and is not industry-specific. It targets a larger set of end users, and is there for more than a decade. It provides single function to a variety of industries.

It is designed to satisfy larger group of people from different industries with different end goals. It caters to wider business groups and provides solution to all range of industries from startups to enterprise.

Horizontal Saas models have been there for over a decade when compared to Vertical Saas. So if you’re starting your own business and in need of Software services or products, this is the right set to begin with.

To put in a better way, Horizontal Saas acts like Swiss Knife , that serves different purposes across various industries. Now let’s look at companies that make use of Horizontal Saas.

Examples of Horizontal Saas

Now let’s look at distinguished examples of Horizontal Saas that caters a wider breadth of market. One might want to look into Sales and Marketing strategies before purchasing the right Saas solution.

  1. Hubspot(Marketing )
  2. Salesforce(CRM software)
  3. Freshworks(CRM software)
  4. Quickbooks(Accounting)
  5. Slack

These are a few examples of Horizontal Saas, and there are more prominent brands that could be added on the list.

Since Horizontal companies caters across various industries, they tend to put their customer stories on the Main page to gain trust from their potential customers that they can get good value from their product.

Vertical Saas

On the other hand, Vertical Saas targets a particular industry and focuses on features and functionality with respect to the niche. This type of Saas was introduced recently and has not been there over a decade. 

Since Vertical Saas focuses on solving industry-specific problems, this software-as-a-service is quite high at its price. It narrows down its features and functionality on its verticals and focuses on solving complex problems faced by their customers. Since it focuses on industry restricted problems, such companies tend to hire people with rich knowledge on the respective niche.

For example, let’s take the product focuses on solving problems for hospitality industry. In order to solve their problem, good knowledge on the niche is required. Therefore, specialists curate vertical functionality required that is industry-specific and solves their problem. This type of Saas could be expensive when compared to Horizontal solutions that provide range for broader markets.

Since the approach of Vertical is narrowed down, this approach requires greater resources when compared to the latter, that is horizontal.

Examples of Vertical Saas

Markets that come under Vertical Saas are governments, hospital, insurance, real estate and banking. Examples of Vertical Saas solution are as follows:

  1. Zenoti(Salon Software)
  2. Guideware(Insurance industry)
  3. Veeva(Life science and Pharma)

Vertical Saas is in contrast to the traditional Saas solutions. They tend to have a defined target market and focus on providing maximum value for their customers in their industry.

One of the benefits of going Vertical is that there are lesser competetion when compared to Horizontal.

Which is the better one?

Well, that depends on your requirements and resources. By resources I mean budget you could spend on the Software.  In order to understand better, let us compare the two models side by side.

Horizontal Saas puts Marketing and Sales on top and prioritizes them to try and convert potential leads into Customers. Since Vertical focuses on a particular niche, it provides tailored solution to your industry.

From a developer’s point of view, less complexity in the product’s features would make it much easier to come up with the product.

  • Vertical Saas are known for being Capital efficient as the features are tailored to a specific industry
  • Since they closely work with one particular industry, they know well which redundant features add no value to the product, and know well the prominent ones. Ultimately, they know their customers well, and provide with the right product with required features on it.

Both products adds great value and it completely depends on the entreprenur’s requirement in order to choose from Horizontal and Vertical Saas products.

Does Vertical Saas require different GTM(Go to Market) when compared to horizontal Saas Companies?

Yes, absolutely. The strategy used by Vertical companies are quite different when compared to the latter. Therefore Vertical markets look for a differentiated strategy to outperform their competitors in the market. 

Let’s take a Vertical Saas example – Veeva which provides Software for Life science and Pharma industry. Before the venture went public, the company almost made $4.5M  in venture investment. But today’s market cap is almost about $3.5B.

All Vertical Saas companies usually develop uniquely focused products. As they have less competition in their industry less resources is spend on Sales and Marketing. But this is not the case in Horizontal Saas, where money is poured on Sales and Marketing.

The product portfolio enables Vertical Saas companies to upsell and cross-sell their products to the existing customer base. Vertical Saas requires strategic engagement that brings better upsells and cross-sells, sales efficiencies and narrower product scope.

Final thoughts..

Horizontal Saas is a well established model that is widely used by various business owners whereas Vertical is comparatively newer model that solves specific industry problems. Starting a vertical Saas involves strategic approach and smaller market approach.

Both models have their own benefits but choosing suitable model that tailors your business is important before you purchase the product or service. Let me know in the comment section which one you think is better.

Sources

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