SaaS adoption is snowballing. A recent Harvey Nash survey revealed that SaaS was voted the most important technology in helping achieve business goals. BetterCloud research found that organizations with more than 1,000 employees use over 150 SaaS applications.
Products within the SaaS industry serve an immense number of functions.
While some are intended to cater to the specific needs of a particular group of users, others help a hugely diverse client base, providing solutions to a broader market. This critical distinction has resulted in two key SaaS models: vertical and horizontal.
If you’re thinking of becoming part of the SaaS industry, you’ll need to clearly understand these two different models and determine which one is right for your business.
What is Horizontal SaaS?
Horizontal SaaS stands for cloud-based solutions that target a wide audience, regardless of the industry, satisfying the needs of most businesses rather than trying to solve more distinct and individual challenges.
Apps operating in horizontal SaaS aim to be relevant across different industries. These solutions include customer relationship management software, human resource management tools, email marketing tools, website builders, and communication software.
Some examples of horizontal SaaS are:
Cloud productivity solution: Microsoft Office 365
Messaging app: Slack
Accounting software: Quickbooks
Sales cloud: Salesforce
Customer relationship management platform Hubspot
What is Vertical SaaS?
Vertical SaaS solutions refer to software targeted at a specific niche or industry. These businesses are purpose-built, but by no means do they aim to cover broad categories.
This type of SaaS focuses on specific verticals such as retail, automotive, insurance, or healthcare industry, among others. Because of this, vertical SaaS companies have a much narrower market than horizontal software.
The vertical SaaS company looks to solve problems unique to a specific industry or to meet custom needs. Developing solutions within this model differs because it requires the involvement of experts having insider knowledge of common pain points.
But vertical SaaS is newer and, therefore, less familiar to most people. However, its popularity increased, being regarded as a trend worth analyzing.
Some examples of vertical SaaS are:
Restaurant-management software: HotSchedules
Social care software ClearCare
Payment management platform: Textura by Oracle
Healthcare solution: BioIQ
Healthcare solution: Health Assurance Plan
Insurance software: Guidewire
Vertical Vs. Horizontal SaaS: 7 Key Differences
1. Scope of Industries and Market Size
The major difference between vertical and horizontal SaaS rests within the industry and the potential market they target.
The vertical SaaS product looks to solve the pain points of a specific group of customers in a precise industry making, their market being much smaller than horizontal SaaS. Think of someone who creates a product that is an accounting solution for fitness centers. The customer base this Vertical software can reach is limited.
However, horizontal SaaS companies service a broader industry and have a more diverse customer base. To follow that same example, a general accounting solution can be used across multiple industries by different businesses.
2. Business models
The vertical SaaS business model is an end-to-end solution designed for the needs of a specific sector. These solutions' software features are specially designed to streamline particular industry operations.
On the other hand, horizontal solutions are less industry-personalized and more problem-oriented. Their increased applicability across several industries sets them apart from vertical software solutions.
3. Customer Acquisition and Retention Approaches
In the world of vertical SaaS, not only is the target market smaller, but the level of competition is lower.
With only a few developers offering solutions to a niche problem, customers are more likely to choose a business and stick with it. That is why these SaaS business models have lower customer acquisition costs.
Vertical SaaS businesses must focus intensely on customer success to keep customers paying over the long term to retain loyal customers.
In the horizontal SaaS world, the number of available solutions is significantly higher, making both acquisition and retention more challenging.
However, the focus here is acquisition. Make sure you have a look over our SaaS customer acquisition guide, as it might come in handy.
4. Sales and Marketing Strategies
The marketing focus is also very different for these SaaS applications.
For horizontal SaaS solutions, the goal is to encourage as many customers as possible to use their software. A popular marketing strategy is to offer the product for free or at a low cost and then charge for premium features.
Horizontal SaaS businesses rely heavily on customer feedback to ensure they are marketing the product correctly with a strong focus on adoption and usage.
On the other hand, vertical SaaS provider focuses their marketing efforts on building strong personal relationships with their existing customers.
They can customize their marketing campaigns for their niche. It’s easier to find out what customers like or dislike and what marketing channels or tips are most effective with this group of users. The intention is to encourage customers to stay with the business and renew their subscriptions. So, they also generally have lower lead-generation spending.
One common tactic for customer retention is offering potential customers free trials. This ensures that when they sign up for the paid product, they have had a chance to try it out and are more likely to stay with it over the long term.
5. Competition Levels
Vertical SaaS solutions have lower levels of competition because it’s a newer, smaller model with fewer big players.
Horizontal SaaS solutions come with greater competition and have more established players. Because the scope is vast, it makes sense that more horizontal SaaS businesses compete for customers.
6. Growth Prospects
Horizontal SaaS has the upper hand regarding growth potential. It’s much easier to scale a horizontal SaaS business because they can sell their product to anyone in various industries.
Vertical SaaS businesses are less likely to grow at the same rate as horizontal SaaS because they can only sell to specific customers with particular needs.
7. Manageability and Scale
Vertical SaaS businesses may only need a small team to build their minimum viable product and maintain their software.
This is because the software is often easier to manage, and it’s more adaptable and scalable because it has a narrow product scope.
On the contrary, horizontal SaaS is more complex to manage and scale due to the vast scope of the products and the many different industries they may be servicing.
Read our SaaS scaling guide to learn more about the steps to ensure your business achieves sustainable growth.
Comparing Vertical and Horizontal SaaS: The Pros and Cons
When starting a SaaS business (or at a crossroads with your business) and deciding whether to scale vertically or horizontally, it’s always good to look at the advantages and disadvantages of each SaaS model.
Vertical SaaS: The Pros
Versatility: Because vertical SaaS is a newer model, it provides more opportunities for business ideas. As an entrepreneur, you can stand out by creating a niche business idea for a specific sector rather than a general one.
Lower competition: The relative newness of vertical SaaS also means that it has fewer competitors operating in the market.
Faster user acquisition: It’s easier to take a large portion of the market share and become the number-one provider of your particular service because you are viewed as the expert in your field. This makes it easier to attract new customers, especially when your business is first starting out.
Easier customer retention: Because there are fewer competitors, you’re less likely to lose customers to other businesses providing the same services.
Lower marketing costs: Vertical SaaS requires only a narrow approach to marketing since marketing efforts are more targeted. This can end up being significantly cheaper than horizontal SaaS.
Additional revenue: It’s simpler to upsell a vertical SaaS solution, as customers are generally tied to the product as one of only a few in the industry.
Rapid regulatory compliance: Because vertical SaaS operates within specific industries, it’s much easier to comply with relevant legislation and regulations within that space.
Vertical SaaS: The Cons
Complicated growth: It’s more challenging to scale and expand a vertical SaaS business. This is because there is a limit to your pool of potential customers. So, you must do thorough research to ensure you have enough potential customers.
Difficult brand positioning: Achieving widespread brand awareness is challenging in a vertical SaaS business. Because your focus is only on one vertical, getting your name out beyond that specific vertical or niche industry will take more work. It may take longer to get to the point where the public is familiar with your brand.
Horizontal SaaS: The Pros
Increased user potential: With horizontal SaaS, you have an enormous scope for customers. Your pool of potential buyers extends across multiple industries.
Wider marketing scope: Your marketing efforts can be broader, and you will likely reach potential customers more quickly since you don’t have to target niche markets.
Lower acquisition costs: Because reaching customers is simpler, customer acquisition costs are probably lower, saving resources for other growth initiatives.
Rapid Brand Recognition: Successful horizontal businesses operate across many industries. This means that you should be able to achieve brand recognition quickly with a wide range of customers.
Horizontal SaaS: The Cons
Higher competition level: You’ll have to contend with many more competitors than in vertical SaaS. There will probably be competitors out there with a similar product or service. Without unique positioning at the beginning, it’s harder to stand out amongst the crowd.
Increased customer success costs: Potential customers are likely to compare your product to several other solutions, which means you’ll need to offer the best quality and prove that you’re the most cost-effective option.
Complex user acquisition and retention: The stiff competition makes it more difficult for horizontal SaaS businesses to acquire and retain customers.
Should You Scale Your SaaS Vertically or Horizontally?
No one knows the answer to this question better than you. But to make it simpler to make this call, here are three key questions worth asking:
- What type of SaaS product are you offering, and what are the problems you wish to solve?
- Will your product be used by specific industry verticals or by wider audiences?
- What is the competition you are facing, and how do you plan on differentiating from other SaaS providers?
By answering these questions, you can determine whether you are building a horizontal or vertical SaaS model. Moreover, you can create a roadmap for success for your SaaS business.
Unlock unprecedented growth with PayPro Global leading-edge eCommerce solution. From comprehensive tax management and simplified payments to automated billing, gain access to all the necessary tools to scale your SaaS business worldwide.
How Can PayPro Global Help?
Creating great products to sell is only part of the work that goes into building a successful product, even with open source.
The real challenge is acquiring and retaining customers within the competitive SaaS market and allowing you to turn a profit. The simplest way to do this is by joining forces with a reliable, trustworthy partner with the infrastructure you need to get your product in front of buyers worldwide. And that partner is PayPro Global.
Whether you are contemplating a micro SaaS idea or considering starting a vertical or horizontal SaaS company, know that you can rely on our one-stop eCommerce solution to help you scale your business.
With over a decade of experience servicing thousands of customers worldwide, PayPro Global has the technology and expertise to drive global sales, streamline revenue streams, and constantly identify new growth opportunities.
From providing you with multiple payment methods and currencies to thoroughly taking care of tax, compliance, and subscription management, our solution helps grow your business while you sleep.
Gain the freedom to focus on developing new and exciting products and leave the operational work to us.
Final Thoughts
There are many factors to consider before deciding whether to scale your SaaS company horizontally or vertically. Every SaaS business is unique, and you alone can decide which model best suits your business.
One thing we do know is that SaaS demand continues to grow. So, will you be a jack of all trades or a specialist? Joining forces with dedicated eCommerce partners ready to provide you with access to configurable or out-of-the-box software, depending on your needs, that can effectively scale your business.
At PayPro Global, selling software and SaaS online is simple. Get in touch with us to partner with an e-commerce partner with all the tools you need to drive your business growth.
What is the difference between Vertical SaaS and Horizontal SaaS?
While vertical SaaS solution is designed to cater to the needs of specific industries, solving focused challenges, horizontal SaaS targets a broader audience, answering multiple needs belonging to different industries.
How does the customer acquisition strategy differ between Vertical and Horizontal SaaS?
Since there is considerably lower competition within the vertical SaaS industry, the focus is on building strong customer relationships to ensure long-term profits. Horizontal SaaS business models, on the other hand, rely heavily on user acquisition, often offering free trials to enlarge their customer base.
What are the advantages of Vertical SaaS?
Focusing on the needs of a specific industry, vertical SaaS solutions offer lower competition level, rapid user acquisition, market versatility, as well as easier regulatory compliance and customer retention.
What are the pros of Horizontal SaaS?
With a broader user base, horizontal SaaS products enjoy lower user acquisition costs, fast brand recognition, and a wider marketing scope. Still, this market faces greater competition and complex growth challenges.
How can PayPro Global assist SaaS businesses in scaling?
Offering users a complete eCommerce solution packed with different features like diverse payment methods and currencies, global tax and compliance handling, as well as complete subscription management, PayPro Global helps SaaS, software, and digital goods businesses scale and identify new growth opportunities.
Meir Amzallag
Co-founder and CEO of PayPro Global
Ioana Grigorescu
Content Marketing Manager at PayPro Global
