The Software-as-a-Service or SaaS market is booming. Even the staunchest naysayer won't be able to argue against these stats. In 2023, the SaaS industry market size was over $273 billion, and it's projected to surpass $1228 billion by 2032.

Businesses increasingly rely on SaaS products and solutions—whether to streamline operations or address customer needs and pain points across countless niche markets. A report by Productiv shows that SMBs used over 250 apps on average in 2023.

With so many options out there, SaaS solutions can be broadly classified as vertical or horizontal SaaS. Each business model has its pros and cons, so a thorough understanding can help you choose the right solution for your business. In this article, we'll dive deeper into the differences and similarities between the two. 

What Is Vertical SaaS?

SaaS applications that address specific needs in niche industries are called vertical SaaS. For example, cloud applications developed for specific niches like healthcare, construction, retail, etc., that can't be used in other industries are classified as vertical SaaS solutions.

Vertical software does not aim to cover all bases. Instead, it offers customized features for the unique business needs of an industry. This makes the vertical SaaS model useful and sets it apart from other SaaS software. These solutions have become indispensable in certain industries because of how well they cater to their target audience. 

Companies that build such products also tend to have significant market expertise that enables them to stay on top of industry trends and regulatory changes. Their clients can rest assured that these SaaS applications will help them navigate the market better and thrive.

Vertical SaaS Examples

Veeva Systems is a great example of vertical SaaS that serves the pharmaceutical industry. It helps companies identify and tackle operational inefficiencies and meet regulatory compliance.

The construction industry has Procore — a construction management software geared toward contractors and builders. 

Toast is another noteworthy vertical SaaS product built for the restaurant industry. It helps restaurants manage almost every task — from inventory tracking to point-of-sale (POS) management and customer engagement.

These solutions work well because they offer exactly what businesses need and are not bloated with unnecessary, general-purpose features. 

What Is Horizontal SaaS?

Unlike vertical SaaS, which focuses on the unique requirements of specific sectors, horizontal SaaS does the exact opposite. It is designed to serve a variety of industries and optimizes general business tasks like customer relationship management (CRM), accounting, human resources (HR), etc.

Regardless of your industry, you can use the same horizontal SaaS platform companies in retail, tech, healthcare, etc. are using. As they are made to cater to a variety of businesses, horizontal software solutions offer high levels of scalability, adaptability, and flexibility. Their broad appeal makes such solutions so popular.

These products also tend to attract a large user base from diverse industries and company sizes. From startups to large enterprises, horizontal SaaS, if made well, can be used by businesses in seemingly unrelated industries to streamline business processes, improve efficiency, and boost profits.

One of the best features of horizontal SaaS is that it's made to be scalable. These platforms can grow with the business and integrate well with other software solutions as business needs and scope evolve. 

Horizontal SaaS Examples

Salesforce is probably one of the best examples of horizontal SaaS. This ubiquitous SaaS platform is widely used across different industries like retail, finance, marketing, etc. as a comprehensive CRM solution. An entire industry has been created around educating people on Salesforce and how to build and customize it.

Another popular horizontal SaaS app is QuickBooks — an accounting software used by businesses of all sizes and across multiple industries.

Other examples? Consider the following: for finance and HR management, you have Workday, while for business messaging and collaboration, there's Slack.

Vertical SaaS vs Horizontal SaaS: Key Differences

It's essential to be fully aware of the differences, strengths, and nuances of vertical and horizontal SaaS so you can choose the solution that works best for your business model in the long run. Let's explore a few areas where vertical and horizontal SaaS vastly differ.

Target Market

The most evident differentiating factor when comparing vertical vs horizontal SaaS is their target audience. As mentioned earlier, vertical SaaS is designed to cater to specific processes unique to an industry. So, even though a vertical SaaS product can be extremely valuable to a business, it cannot be used by a company in another sector.

Horizontal SaaS, on the other hand, is built for use by several industries. These platforms target general business processes and common tasks across different verticals. For example, customer management, human resources management, billing and project management, etc. are tasks every business deals with. These are best served by horizontal SaaS applications. 

Features and Customization

Vertical SaaS products are highly specialized and provide niche solutions for the industries they cater to. As a result, they have very specific integrations and workflows. They also need to work with compliance tools used in a particular industry. Customization is key when it comes to vertical SaaS. 

Speaking of horizontal SaaS, flexibility is prioritized over customization and deep specialization. As they serve general processes that are common in most businesses, they don't require too much customization to be adopted for day-to-day use. These tools have more generalized features that any business can easily adopt.

Go-To-Market Strategy

Companies in the vertical SaaS space leverage their knowledge of the industry and highlight specialized features of their tools to their customer base. They need to develop expertise in the industry, build a strong network of connections, and position themselves as specialists in the field. Horizontal SaaS businesses need to take a broader approach and use extensive marketing campaigns to reach a wide audience. 

Customer Acquisition and Retention

The sales cycles in vertical SaaS tend to be longer as products are specialized with highly tailored features. So, it takes longer to get clients on board and it could take more customization to convince customers.

As a result, customer acquisition costs are also higher. However, once customers sign on with vertical SaaS businesses, they are more loyal as they have software built to match all their needs. 

Due to their more generalized nature and wide reach, horizontal SaaS companies have shorter sales cycles. However, they also face stiffer competition and lower customer retention rates as customers can easily switch to another software with similar features. 

Payment Processing in Vertical and Horizontal SaaS

Vertical and horizontal SaaS differ greatly with respect to payment processing capabilities. Let's take a look.

Vertical SaaS Payment Processing

Payment processing features often come built-in with vertical SaaS solutions since they are so industry-specific. As the payment features also need to match the unique workflows of each industry, SaaS providers often incorporate payment processing into the core vertical SaaS platform. Think of hotel management software with payment gateways to manage bookings and invoicing.

For example, retail SaaS products could include POS support, allowing them to handle in-store purchases. Similarly, vertical SaaS apps for the healthcare industry can also manage billing and insurance settlement. Apart from making the software easier to use, integrated payment systems can boost revenues for SaaS manufacturers by providing a crucial additional service.

Integrated payments in vertical SaaS often include critical compliance features. In healthcare, payments must be HIPAA-compliant by protecting patient information. Payment features in healthcare SaaS must ensure compliance as the entire software is healthcare-specific. Similarly, retail SaaS products should ensure PCI compliance when processing card payments. 

Horizontal SaaS Payment Processing

As horizontal SaaS is meant to work for many industries, its payment solutions will also work for different types of businesses. For example, Stripe and PayPal are two of the most popular SaaS platforms that can be made to work for almost any business. Horizontal SaaS platforms are very flexible but could require some tweaking to fit the requirements of specific industries.

Benefits and Challenges of Vertical SaaS

To provide a deeper understanding of these solutions, let's look at the pros and cons of vertical SaaS.

Benefits

To create vertical SaaS apps, providers need to have deep industry knowledge, which can offer higher perceived value to clients. As these platforms are tailored to the unique specifications of an industry, SaaS providers can leverage this specialization and expertise in the industry to position themselves as trustworthy leaders and the go-to company for software solutions.

One of the biggest benefits for vertical SaaS companies is low churn and high customer loyalty and retention because businesses appreciate that the application is built to fit their unique requirements.  

Challenges

The downside of building highly specialized software is a limited target market. This can severely hamper growth as the company can only focus on one industry.

Moreover, vertical SaaS platforms are developed to solve niche industry problems so they must have highly specialized features and meet industry-specific regulations and guidelines. All this adds up to higher software development costs.

Additionally, dependence on a single industry makes vertical SaaS providers more vulnerable to industry-specific crises. 

Benefits and Challenges of Horizontal SaaS

To provide a deeper understanding of these solutions, let's look at the pros and cons of horizontal SaaS.

Benefits

Horizontal SaaS is popular due to its generalized offerings and enjoys the benefits of having a large potential market. These solutions can easily adapt to multiple industries and geographies allowing horizontal SaaS providers the opportunity to earn substantial revenues. 

Development costs are also lower as horizontal SaaS companies can make economies of scale work for them in product development and support. Additionally, due to the generic nature of horizontal SaaS solutions, their functionality and value can be easily enhanced with additional integrations. 

Challenges

With a focus on catering to as many industries as possible, horizontal SaaS products can be superficial and lack meaningful features and expertise. Hence, it is much harder to stand out from the competition and become a reputed company in this domain.

Horizontal SaaS products don't just need to compete with similar general-purpose SaaS solutions but also with vertical SaaS. Customers can also easily switch to SaaS solutions from competitors as the features are quite similar. This leads to low customer loyalty and retention.

Final Words

Both types of products have their pros and cons and knowing them will help you pick the correct SaaS application for your business. Horizontal SaaS is flexible and scalable and can thereby grow faster across multiple industries. It offers a broad range of markets that SaaS providers can target. 

Vertical SaaS offers tailored solutions for the target industry, which can lead to strong customer loyalty and higher customer retention. Figure out your expectations and goals for your business before choosing which type of SaaS solutions might work for you in the long term. 

Regardless of the SaaS applications you choose, a unified platform that allows you to access all of them from a single place can be very beneficial. Preczn can help you simplify managing these apps so you don't need to juggle them constantly. To learn more, contact us today.