According to Brights, Hubspot – one of the biggest representatives of horizontal SaaS – made $2.17 billion in 2023. Meanwhile, vertical SaaS representative LinkedIn made $15 billion in 2023. Starting a company in either can be extremely lucrative, but each has its own merits and opportunities.
In this article, we’ll discuss the differences between vertical and horizontal SaaS, focusing on the differences between:
- The markets
- The customer base
- Software features
- Customer acquisition strategies
- Implementation
- Pricing models
- Recruitment needs
We’ll also delve into the emerging trends for both vertical and horizontal SaaS.
Vertical SaaS vs Horizontal SaaS
What is a Vertical SaaS Company?
Vertical SaaS is a software company that specialises in one industry. This specialisation allows the company to present multiple software solutions for an industry-specific problem. For example, software specific to finance or project management.
Popular vertical SaaS businesses are typically only well-known around their niche audiences. For example, Agave is a SaaS company specialising in improving organisation and management within the construction industry.
What is a Horizontal SaaS company?
On the other hand, horizontal SaaS is a software solution to a problem faced across many industries. These companies are more often known across multiple industries and include examples like Salesforce, Slack and more.
Horizontal vs Vertical SaaS – What are the Differences?
There are many differences between vertical and horizontal SaaS, and here we will talk you through each difference.
Markets
The markets that horizontal and vertical SaaS companies operate within are distinct. Let’s delve further into this to gain a better understanding of both.
Vertical SaaS Markets
Vertical software is designed to provide tailored solutions for niche markets. Therefore, vertical SaaS products are directly related to the target markets that they serve.
We can look at the countless vertical SaaS companies that have emerged in the health tech space to demonstrate this.
One example is Flatiron Health which is a specialist tool for oncologists developed in response to a gap in the healthcare industry. The software’s creators noticed oncologists didn’t have access to data analysis tools that other doctors do to track patient health and treatment responses.
This industry-specific tool is backed by cancer research and is highly integrated to fit the needs of doctors in this field. It does not have a broader use case.
Success found in vertical SaaS markets has been constant and is expected to grow by $562.6 billion from 2025 to 2029, according to PR Newswire. With a heavy focus on one demographic or field, vertical SaaS is most effective and lucrative when highly tailored to solve a specific problem.
Horizontal SaaS Markets
On the other hand, horizontal SaaS target markets are less likely to be one demographic. They are most often a general-purpose solution that serves a purpose across a wide range of industries.
For example, most customer relationship management tools fall under this category, along with organisational tools like Notion, Asana, Monday and many more.
It is more likely for members of the general public to have heard about horizontal SaaS tools as they are more versatile and cater to more commonly encountered needs than vertical SaaS products.
While sources vary on this topic, it is estimated that the horizontal SaaS market represents around 60-70% of the SaaS industry and is estimated to continue growing by $308,840 million between 2023 and 2030, according to global market research reports.
Customer Base
Vertical SaaS tends to niche down to serve one particular audience or demographic’s set of problems. While horizontal SaaS serves a broader appeal.
They may share audiences, but vertical and horizontal SaaS products do not tend to directly compete with each other and hold very different spaces with their customers.
Let’s delve into their customer bases in more detail.
Vertical SaaS Customer Base
Vertical SaaS customer bases professionals within specific industries who look for niche software that will benefit their particular market. Customers in the vertical SaaS target demographics will be experts on the subject or immersed in the industry well enough to be considered subject matter experts.
Their needs are specific and require a tailored, well-designed and researched software solution to their problem.
One example of a vertical SaaS customer base is HR managers and recruiters who require recruitment software. They are experts in recruitment and need a niche recruitment-specific solution to help their work.
Horizontal SaaS Customer Base
While horizontal SaaS products offer less customisation, they offer a solution to more people. Because of this, they are usually more common and better known than niche companies in the vertical SaaS sector.
DocuSign is considered horizontal SaaS because it is a general-purpose signature tool used by many companies in several industries and even by individuals. The company was founded in 2003 and then found incredible success during Covid-19 after a rise in demand for signing documents remotely.
The company is now the biggest e-signature software provider, and it is used worldwide in various industries for different signing needs.
Customisation & Features
With each software comes a list of features that are offered to its clients. While most companies endeavour to lengthen this list as much as possible, vertical and horizontal SaaS companies take different approaches to their product and feature development.
Vertical SaaS Customisation & Features
As we know, vertical SaaS is highly tailored and focuses on the needs of a specialised group of people. Software developers in this industry provide a deeper, more comprehensive software solution that provides a better chance of resolving these specific problems.
Vertical SaaS products end up with higher levels of customisation as well as smarter features that resolve very specific problems.
Clio, a legal software, provides a tailored solution for law firm management. This software provides the following:
- Includes an automatic “Request E-Signature” button on contracts
- Manages billing seamlessly
- Allows communication with clients efficiently
- Automatically organises documents into connected cloud services
Additionally, there are over 100 integrations that customers can add on as they need to, including business development, discovery, reporting and more. The level of customisation available in a specialised, vertical SaaS software like Clio is the level you can expect from vertical SaaS businesses.
Horizontal SaaS Customisation & Features
Horizontal SaaS, on the other hand, focuses on reaching and catering to a larger number of people rather than providing extensive customisable features.
It would be impossible to cater to everybody, as horizontal SaaS tools are often used for business and personal purposes. That said, it is common for companies in this category to provide as many general-purpose tools as possible in hopes of catering to as many people as possible.
Zoom, for one, is a video conferencing tool used by countless individuals and even more businesses. Its core competency is video conferencing, allowing people to share videos and screens and even annotate on shared screens.
That said, that’s all it is – a video conferencing tool often used by businesses and schools. And there are not as many extensive tools available on the application.
For comparison, Google Classroom, another video conferencing tool predominantly made for schools, provides a section where students can submit assignments and ask questions in a public class forum.
Customer Acquisition Strategies
Once a business determines its target market, the next step is to nail down some marketing strategies that will allow it to gain footing in the market and start making some profit.
Here’s how vertical and horizontal SaaS strategies differ when acquiring customers.
Vertical SaaS Customer Acquisition Strategies
Vertical SaaS companies focus on potential clients who fit the mould of the software they’ve created. Clio will focus on law firms, Flatiron Health will focus on oncologists or cancer-specialised clinics, and Nomad Health will focus on doctors and nurses looking for permanent freelance positions.
Techniques used to acquire these clients vary but generally result in lower acquisition costs than in horizontal SaaS due to the smaller, more niche markets.
Client acquisition strategies include:
- Land and Expand: Acquiring a customer with a small contract agreement and then expanding the relationship further during your contract. This increases the chances of acquiring more business.
- Customer Success Initiatives: Investing in customer success to create a positive, long-term relationship with customers. The idea is that customers derive maximum value from the service, leaving them coming back for more.
- Events and Networking: Attending industry-specific events where potential clients will be in attendance. This is a great way to meet new customers and spread awareness of the software.
Horizontal SaaS Customer Acquisition Strategies
Meanwhile, horizontal SaaS strategies often demand higher customer acquisition costs due to the broader market and more competition. This often bleeds into the need for feedback and improvements to the product.
Keeping up to date with feedback and constantly updating the software is what gives an edge to horizontal SaaS software over the rampant competition.
Some of the strategies used to acquire customers are:
- Freemium and Free Trials: Free trials and/or subscription tiers that give clients a glimpse of the product or a limited-use version. This allows customers to use the product to their heart’s content before hitting a wall with limited use or time constraints.
- Cold Outreach: Cold calling or emailing businesses to expose them to a solution they weren’t aware of in the first place that might better fit their needs.
- Targeted Advertising: Internet ads, affiliate marketing or even influencer marketing. Targeted advertising increases awareness and, sometimes, the credibility of software by advertising in trusted places seen by the intended target market.
Implementation and Complexity
The two categories of SaaS are both built with the user’s problem in mind and need to be built to be as user-friendly as possible. However, there are usually some key differences between horizontal and vertical SaaS when it comes to the implementation and complexity of the software.
Vertical SaaS Implementation and Complexity
Generally, vertical SaaS provides a more highly customisable experience for users. For this reason, there is usually more research and development focused on tailoring usage and integration specifically for the intended audience.
- Deployment: Vertical SaaS products are highly tailored for specific niches and, in some cases, may require support with training staff to use them. They may also need to be built to integrate with specific legacy software widely used amongst their audience.
- Customisation Collaboration: Vertical SaaS businesses must discuss a client’s needs before they can provide a fully customised solution. This means a longer process of customer acquisition but makes vertical SaaS what it is – highly customisable.
- Regulation Compliance: Vertical SaaS are more likely to be serving an audience processing sensitive information. Therefore, they must comply with complex regulations in their industry. HIPAA and GDPR are examples of regulations in healthcare and personal data.
- Scalability: As vertical SaaS businesses grow, they must be able to handle higher demand and have increased capacity for data handling and user access. To this end, vertical SaaS software needs to be built strategically to allow for easier scalability in the future.
Horizontal SaaS Implementation and Complexity
Meanwhile, horizontal SaaS businesses require less customisation but a higher ability to cater to more people and support larger groups of customers from around the world. This makes their products generally less complex and simpler to access.
- Easy Deployment: Horizontal SaaS is generally easier to begin using. Software in this category is built to allow ease of use for general tools that benefit almost everybody. And so, they have to be intuitive and easy to use from the get-go with very little training support.
- Less Customisation: General tools are likely less customisable and easier to implement quickly and efficiently to meet the needs of a broad customer base.
- Regulation Compliance: As horizontal SaaS companies don’t tend to work with sensitive information, they usually only need to adhere to standard regulations.
- Scalability: Considering horizontal SaaS is built for larger markets, it must be built for scalability from the beginning. The tools must be able to withstand large numbers and are designed to accommodate significant growth in the long run without the need to reconfigure infrastructure.
Pricing Models
Pricing plays an important role in not only the profitability of a company but also its marketability. The various pricing models used by vertical and horizontal SaaS are highly strategic and based on their market position and business models.
Vertical SaaS Pricing Models
Here are some of the most common pricing models seen in vertical SaaS solutions:
- Feature-Based Pricing: This is where customers pay for specific features that they need. That way, businesses customise their subscriptions based on the functions customers require.
- Tiered Pricing: Companies offer various packages with different features and prices. This approach caters to different customer segments within the industry.
- Value-Based Pricing: The price is determined by the value delivered to the customer. Software companies can charge based on outcomes instead of just features.
Horizontal SaaS Pricing Models
Here are the different pricing models most commonly seen in horizontal SaaS solutions:
- Flat-Rate Pricing: A single product is offered at a fixed price with all features included, simplifying purchasing decisions for customers. This is particularly effective for products that appeal to a wide array of people.
- Usage-Based Pricing: Pricing is directly tied to how much of the service is used. Customers pay for their actual usage, making it attractive for startups and smaller businesses with variable demands.
- Per-User Pricing: Pricing increases with each additional user. This model is good for collaborative tools like project management software or communication platforms.
- Tiered Pricing: Companies offer multiple packages with varying features and usage limits. This flexibility allows businesses of different sizes to select a plan that aligns with their needs.
- Freemium Model: This strategy helps attract users in niche markets who could later convert to paid plans as they recognise the value of premium features.
Recruitment Needs
Vertical SaaS Recruitment Needs
Vertical SaaS companies require candidates with specific expertise in the industry they will be serving. This could include familiarity with relevant regulations, workflows, and unique customer challenges.
For example, companies like Clio may actively seek candidates with legal backgrounds to ensure their team understands their legal audience’s needs.
Candidates with prior experience in the industry are often preferred in these roles. For example, an app in the legal sector would benefit from hiring individuals who have worked in law firms, have worked closely with legal professionals or have a background in legal technology.
Horizontal SaaS Recruitment Needs
Meanwhile, horizontal SaaS businesses benefit from a wider talent pool and can hire candidates with general technical skills applicable across various industries. Skills in software development, project management and customer support are highly valued.
For that reason, candidates who can adapt to different industries and understand diverse customer needs are essential.
For example, a CRM solution like Salesforce requires sales professionals who can sell to various sectors without needing to delve too deep into industry-specific knowledge.
Slack leverages a broad recruitment strategy by seeking candidates who excel in collaboration and communication skills rather than requiring specific market experience. This approach allows them to build diverse teams capable of addressing a wide range of customer needs.
Benefits & Challenges of Vertical SaaS
Benefits:
- Deeper Integration with Industry Requirements: Vertical SaaS software addresses specific industry needs by providing customised features and functions.
- Stronger Customer Retention in Niche Markets: With a narrow target in a single industry, vertical SaaS companies often experience higher levels of customer loyalty and retention. Customers will not make a switch to a competitor when a vertical solution is part of routine operations.
- Higher Perceived Value for Products and Services: Clients will pay a premium for an industry-specialised software that can tackle specific concerns.
- Cost-Efficient Growth: Niche marketing helps vertical SaaS companies save on customer acquisition. They can hone their messaging and ad distribution to suit only their very targeted users.
Challenges:
- Smaller Market: Unfortunately, vertical SaaS will always run into a limit regarding how far they can expand within one industry.
- Higher Development Costs: Owing to how highly specialised the software is, vertical SaaS products tend to demand higher development expenses to get the product just right.
- Difficulty in Scalability Outside Niche or Industry: Vertical SaaS companies find it difficult to grow beyond their initial niche. Being highly specialised in one specific problem makes it hard to adapt and implement similar solutions in alternative industries.
- Competition from Established Companies: Most industries have established software solutions that serve as significant competition for new SaaS businesses. Established companies have long-standing brand loyalty and customer bases, making it difficult for newer companies to gain traction.
Benefits & Challenges of Horizontal SaaS
Benefits:
- Broad Market Coverage: Horizontal SaaS addresses a range of industries, allowing a larger base of potential buyers to find the software.
- Scalability Across Industries: Horizontal SaaS specifically develops software with scalability and adaptability in mind. Their software is designed to span multiple industries with the need to develop new, custom-designed products.
- Improved Economies of Scale: Being able to serve larger audiences across multiple sectors means that costs minimise as the number of users grows. This cost efficiency can then translate into lower prices for buyers, making it a more cost-effective, and more attractive, solution.
- Ease of Deployment: Horizontal SaaS products require less specialised knowledge to implement and use. They should be plug-and-play to minimise any obstacles to use.
- Faster Brand Awareness: Horizontal SaaS companies operate within a larger pool of users and industries, enabling them to gain quicker brand recognition. Some of the most well-known horizontal SaaS brands often do not require any explanation, i.e. Zoom or Slack.
- Regular Updates: Users of horizontal SaaS software receive regular updates and improvements, allowing users to access new features without additional investment.
Challenges:
- Industry-Specific Needs: Horizontal SaaS products often fall short on the customisation that some industries demand. While the software is adaptable, it may not meet unique compliance and market requirements in some industries.
- Intense Competition: The horizontal SaaS market is highly competitive, with numerous players vying for market share across various industries. It can be challenging to stand out, often requiring significant marketing efforts.
- Higher Customer Turnover: Companies in this category often experience higher customer turnover rates compared to vertical SaaS. Customers have numerous alternatives available and can easily switch providers if their needs are unmet or if they find a solution that better suits them.
- Differentiation: With many companies offering similar solutions, standing out can be difficult. Businesses must invest in innovative features or outstanding customer service to establish a competitive edge in a saturated marketplace.
- Overwhelming Number of Features: In an effort to serve diverse industries, horizontal SaaS software may include an excessive number of features that not all users need. This can create a complex user experience, leading to confusion and underutilisation by users. There’s a risk of products trying to do everything for everyone.
Trends in Vertical and Horizontal SaaS
Emerging Trends in Vertical SaaS
- AI-Powered Solutions: Vertical SaaS is more often integrating artificial intelligence to provide industry-specific intelligence, simplify workflows and allow for complex analysis and personalisation.
- Continuing to Niche Down: As companies seek customised solutions, vertical SaaS is continuing to gain traction in specialised industries such as healthcare and financial services. Solutions will continue to be created to meet the specific demands of these sectors.
- Micro-SaaS: Organisations are beginning to adopt super lightweight solutions that address specific needs without adding unnecessary complexity. We expect to see more small, focused software with a single purpose.
Emerging Trends in Horizontal SaaS
- AI-Driven Personalization: Horizontal SaaS will also use artificial intelligence to provide personalised experiences across numerous industries, enhancing customer engagement.
- Flexible Pricing Schemes: With users seeking value and transparency in software purchases, there has been a rise in models like usage-based pricing and financing options like “Pay As You Consume” and “Buy Now, Pay Later.”
- Superapps Development: Superapps platforms that integrate multiple services into a single application will gain more traction. These apps will allow users to access various functionalities seamlessly, improving both engagement and retention.
- Embedded Analytics: Incorporating advanced analytics directly within horizontal SaaS platforms will provide users with important insights without the need for additional tools. This streamlines analytic processes and adds value to the software.
Specialists in Vertical SaaS and Horizontal SaaS Recruitment
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