What is vertical Saas: Benefits, definitions, examples

Vertical software as a service (SaaS) isn’t a new term or concept, but it’s a term that’s often used with very different intentions. So, what is vertical SaaS? Is it vertical SaaS, or vertical software that’s also sold as SaaS?

Let’s first distinguish the two.

Vertical SaaS: A primer

Vertical software solutions sold as SaaS. Let’s call this what it is – horizontal SaaS. This type of solution has been around since SaaS rose to fame in the early 2000s, when true cloud-native companies started the SaaS revolution. Horizontal SaaS solutions enjoy a wide purview, providing niche business functionality that can and usually does span across industries, such as business networks layered with procurement and sourcing.

Vertical SaaS. This category of SaaS products includes solutions that completely engulf and fill the needs of a specific industry. These solutions are very successful in their own right, and some of the most familiar solution providers include Veeva Systems, which serves the pharmaceutical and life sciences industries, and Guidewire Software, which supports property and casualty insurance. And I’m sure you’re familiar with OpenTable, whose online reservation offering helps foodies everywhere find tables at their favorite restaurants.

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Where horizontal and vertical SaaS meet

When you look at the pedigree of these successful vertical SaaS solutions, it’s hard not to wonder why SaaS providers didn’t emphasize the imperative to go vertical sooner.

The unfortunate fact is that those providers knew horizontal SaaS solutions make them more revenue. This is because horizontal SaaS solutions have a wider reach – the market size is simply much broader. For example, you could assume real estate doesn’t require supply chain software solutions, but nearly all industries need HR software.

Let’s consider a third alternative that goes deeper and provides special industry focus as well as prepackaged capabilities that go beyond the B2B vs B2C vs B2B2C vs D2C segmentations.

I’ll call it “verticalI SaaS,” an SaaS offering that focuses on a sub-software category for a specific industry or a sub-industry category. The name “verticalI SaaS” isn’t important in and of itself and you won’t find experts using this term elsewhere – yet. But we need a name for a class of SaaS solutions that signify the intersection of horizontal and vertical SaaS and is also an inflection point in customers’ expectation of SaaS solutions.

Not all software categories and subcategories will be able to support this advanced slicing of industry needs. But there are software categories that span all industries in terms of needs, and places where a verticalI SaaS solution might make sense. And that brings us to the need of the hour, an e-commerce SaaS solution: vertical commerce SaaS. This category is a perfect example of the need for specialized offerings per industry or sub-industry category.

Commerce solutions today are becoming essential tools in the digital transformation of businesses large and small. But each business has its own specialized needs when it comes to commerce.

Vertical commerce: It’s personal

Look at it this way: Would you rather see a general practitioner or an orthopedic specialist after breaking your arm? What about hiring a general-purpose contractor to wire up an office complex rather than finding a certified electrician? In most cases, you’d seek the expertise of the specialist.

Consumers, too, usually prefer to buy from sellers who provide a specialized assortment of products and services. Commerce platform buyers shouldn’t expect anything less from their software vendors.

Every business, whether it sells consumer goods, software, or services, talks a lot about personalization and customer experience. However while many commerce SaaS platform vendors promise to facilitate personalized customer experience, they’re not providing it themselves.

The fact is that there seem to be very few commerce and ancillary software products built to focus on the specific needs of an industry. There are  large multidisciplinary enterprise software vendors that offer commerce SaaS platform solutions and compete with small to midsize uni-disciplinary commerce SaaS vendors. To their credit, both types of platform providers almost always have a section for industries on their websites.

But for the most part, these industry offerings are simply standard products, bundled and packaged; some have incremental customizations to make it more “industry relevant.”

Core SaaS functions, fined tuned

I define a verticalI SaaS commerce solution as providing all the functionality of a SaaS commerce solution, including:

1. Product content management capabilities
2. A powerful, fast search engine supporting flexible navigation
3. Well-integrated web content management capabilities with omnichannel support
4. Streamlined cart and checkout capabilities and order management
5. Promotion, bundling, pricing
6. API extensibility features that support headless commerce scenarios
7. Analytics

But the real power of a verticalI SaaS commerce comes from the fact that all the commerce components are trained, trimmed, and fashioned for an industry vertical – with all the best practices built in. Take, for example, a utilities provider that needs a commerce solution, but also has unique needs such as guided selling, self-service options, specialized pricing, specialized bundling, and subscription billing.

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Another example is a consumer products goods business, which would expect an even more holistic approach with support for multiple channels, including for its distributors, direct sales, and direct-to-consumer sales, as well as complex pricing and promotions, replenishment, and reordering, subscriptions management.

Let’s not stop with the functionality differences that need due consideration. Now, we can take a look at the infrastructure and the particular needs for each industry.

The verticalI SaaS commerce solution is the amalgamation of core commerce competencies and industry-specific enhancements, leaving enough flexibility to build in the unique practices that make a business distinct and successful.

There are some exceptions, such as retail, since it is by far the most visible industry with a considerable market size and spend potential. Retail gets a lot more love from vendors in the form of focused solutions. Most other industries have to make do with a general-purpose, cross-industry solution. They’re forced to accept the excuse that, because of the uniqueness and complexity of their industry, their solution simply requires custom extensibility.

The business benefits of vertical SaaS

SaaS software products that are vertically oriented have grown massively over the past decade, and will continue to grow. Vertical SaaS across industries shows huge potential, especially as companies transform digitally into intelligent enterprises and move from on-prem, in-house IT organizations to cloud-based  organizations.

For businesses, the benefits of a commerce SaaS solution tailor-made for the industry are clear:

1. Faster time to value: Customers get their tenants provisioned quickly, but as with all SaaS solutions, commerce would come installed and configured for immediate use. The advantage for a specific industry is that the molding or last-mile customizations can be started much sooner. It provides worry-free infrastructure management with reduced IT spending.
2. Scalability and upgrades: A verticalI SaaS solution means auto scaling of infrastructure to support up and down cycles without having to spend valuable resources on tracking, monitoring, support. It also means getting automatic, frequent updates to the software with seamless upgrades, which supports constant, immediate innovation.
3. Integrations: VerticalI SaaS commerce would provide strong, tight, and native prepackaged integrations with other products from the get-go. Just think about the possibilities of integration with some of the most important products for an industry, such as ERP, billing, governance systems, payment providers, and marketing.
4. Best practices and benchmarking: An industry-focused commerce solution will adapt. A vendor should keep a constant eye to changing industry needs, and regularly push best practices back into the product and benchmark the solution against competitors.
5. Governance and compliance: Commerce has a number of industry-specific compliance and legal requirements that can be handled by strong governance practices. An industry-specific commerce solution provider can assume the burden of keeping track of these ever-changing and complex mandates.

As the imperative for digital transformation expands to more and more industries, and as commerce solutions become more of a mainstay and primary means of revenue generation for businesses, the demand for focused solutions will grow. Consumer goods retail is currently the focus, with many targeted solutions already on the market.

But at some point, vendors hopefully will heed the customer demand, see the revenue and customer loyalty potential, and dive in. VerticalI commerce will then truly be the clear path to follow when the road forks.