The Vertical AI Playbook: How GenAI is moving Vertical SaaS to Vertical AI

Generative AI in SaaS is clearly the theme for September 2023’s conferences from SaaStr last week to Salesforce’s Dreamforce this week to TechCrunch Disrupt.? Undoubtably, enterprise SaaS is undergoing a dramatic change in the face of generative AI and large language models (LLMs).

Here is a framework to think about how Generative AI could reshape the SaaS industry this time in view of the last two decades.

1) Software Moves to the Cloud (2000s) - Many organizations began a shift from on-premise software to cloud SaaS tools in the early 2000s.? Some of the new entrants were Salesforce (Founded: 1999, current market cap: $218B) which offers a cloud based CRM system and ServiceNow (Founded: 2003, current market cap: $123B), which offers cloud based IT infrastructure systems.

2) Vertical SaaS Takes Hold in Enterprises (2010s)

At the start of 2010 and with major aspects of cloud infrastructure in place, a key theme in SaaS was Vertical SaaS in which every role in an organization was reimagined with a SaaS tool.

Thousands of SaaS startups were created often focused on a specific team and job function in an organization. For example, marketers could engage their contacts with campaigns utilizing Marketo (acquired by Adobe for $4.75B), customer success teams could manage customer churn and retention with Gainsight (acquired by Vista Equity for $1B+), support teams could respond to product returns and customer tickets with Zendesk (acquired by private equity Permira & HF for $10B+), and finance teams could forecast revenue and plan expenses better with Adaptive Insights (acquired by Workday for $1.5B).

Large companies also moved to the cloud with for example, Microsoft Office 365 launching in 2011 and Adobe’s subscription service Creative Cloud launching in 2013.

3) Vertical AI Native Solutions (2020s)

If the key theme of the last decade was Vertical SaaS, we are now in the world of Vertical AI Native solutions. Utilizing generative AI and large language models, each role within an organization can once again be reimagined, albeit this time with the use of an LLM empowered co-pilot assistive tool.?These co-pilot tools will extend beyond recommendations and towards taking proactive actions and remediations.

?Here are some examples:

Marketing        

• Vertical SaaS: Subscription sites to host articles such as Wix, Squarespace, and Substack.
• Vertical AI-Native: Subscription services to write articles such as Jasper.ai (generative copywriting) and Writer.com (generative AI blog posts).

Sales        

• Vertical SaaS: Services to understand sales conversations such as Gong & Chorus.ai.
• Vertical AI-Native: Co-Pilot to automatically create sales materials and close deals.

IT & Developer Operations        

• Vertical SaaS: Application tools to monitor infrastructure performance such as CPU utilization and mean time to resolution (MTTR) such as AppDynamics (acquired by Cisco for $3.7B).
• Vertical AI-Native: LLM systems to automatically configure developer and production environments such as Augmend.com and OpsMx.com.

Communications Collateral        

• Vertical SaaS: Subscription service to sell images such as Shutterstock.
• Vertical AI-Native: Generative AI created artwork such as Midjourney.com.

We continue to be excited about the many opportunities in vertical AI native SaaS solutions for roles and teams across industries from healthcare to technology to automation to eCommerce marketplaces.

Tau Ventures is an early stage AI focused venture capital fund. This article is meant to be a short conversational starter piece.