Why Vertical SaaS is the future of the SaaS industry

The Software-as-a-Service (SaaS) industry had a rapid growth rate at?fivefold?its market value since 2015. Currently, at?171.9$ billion, it is expected to grow even more.

That means more competitors and an even more challenging environment for new players.?

In the past, SaaS vendors took heavy advantage of the large, unexploited by competitors, target audience with services that offered solutions to all (?Horizontal SaaS). Instead of targeting broad audiences, new vendors narrowed their services to niche industries with?Vertical SaaS.

Here's why Vertical SaaS is the tipping point to a better future for new vendors in the growing SaaS industry.

Advantages of Vertical over Horizontal SaaS

Vertical and Horizontal SaaS have many inherent differences. Here are the three most vital:

1. Costs & Growth Prospects
2. Position in Market Landscape
3. Investor Focus

1. Vertical SaaS has lower overall costs and better opportunities for short-term growth.?

Focusing on a narrow target audience, Vertical SaaS?saves up to 22%?on Sales and Marketing resources. Also, it makes customer requirements easier to fulfill and can require?up to eight times less?customer acquisition costs (CAC) due to increased customer lifetime value (LTV).

Exploiting the aforementioned reduced costs, Vertical SaaS becomes more?capital efficient?than Horizontal peers and gains another crucial advantage: Potential for short-term growth, leading to an?early Initial Public Offering (IPO)?or exit.?

ServiceTitan and Squire excelled at growing fast. Both companies raised their net capital to?700 and 750$ million dollars?respectively within six months showing that the Vertical Market has strong growth potential.

In short, Vertical SaaS revolutionizes cost control?and?short-growth potential in the SaaS industry.

2. Vertical SaaS has a unique position in the market landscape.?

Vertical SaaS has an extra advantage over Horizontal SaaS: A significantly?less competitor volume. Having fewer strong players means less competition and more opportunities for new vendors, while there is plenty of room to explore new niches in the market.

Businesses may recognize the value of using tailored-to-their-needs software, but existing vendors may not have built the high-quality, high-specificity SaaS they seek yet.?

In the new, Vertical market, demand probably outweighs supply.

3. Vertical SaaS offers increasing opportunities to investors.

Investors always seek to capture an early-stage opportunity. Finance, Communications, and Manufacturing industries still show increasing growth sustaining high investor interest.?

However, as SaaS continues to specialize,?unexploited industries?remain. Energy, Utility, Education, Retail, and Healthcare still comprise less than 5% of market spend, marking them as the following investment targets in the coming years.

Investors also care about capital growth. Focused solutions alleviate companies' pain points and add immediate and significant value. As a result, Vertical SaaS offers increased upselling opportunities through customer loyalty. According to Allied Advisers, Upselling?costs are 24% of CAC?for Vertical SaaS offering better scaling chances and attracting investor focus.

The Vertical SaaS market is an uncharted area waiting to be explored and funded.

The future of the Vertical SaaS market

The future looks bright.?

As investors flock to capture early-stage opportunities, it is expected that Vertical SaaS companies will?grow their numbers.?

Funding rounds will?speed up, and more vendors will seek to explore?new niches?in the SaaS industry to benefit from the Vertical wave trend.

As for Verticals that have already kickstarted their journey, a rise in companies?hitting IPO?is looking confident.