Vertical SaaS Market Definition, A Question of Degree

by Mark Stansberry on Thu, 27 May 2021

Some of the largest and fastest growing software development markets are within the Vertical SaaS market. It is a fragmented market that addresses over 100 different submarkets.

Major Vertical SaaS market classifications include healthcare, education, financial services, human resources, marketing, engineering, IT and insurance. One could argue that these vertical SaaS markets are horizontal SaaS markets. For example, almost all companies have a need for human resources and marketing. And that is a valid point. The definition of a vertical SaaS market is more limited in scope than a horizontal SaaS market. A stricter definition for vertical SaaS is that a vertical SaaS service applies to only one distinct market segment. However, that definition, like beauty, is in the eye of the beholder. What is a vertical market to a large company might just be a horizontal market to a small company. For example, a human resources SaaS service could be classified as a horizontal SaaS market because of its broad application to many different markets. That is the target market is the entire spectrum of human resources professionals and every company or organization that has a human resource department. On the other hand, if the SaaS service were focused on just engineering recruitment companies it would be classified as a vertical SaaS service.

With that in mind, the definition of horizontal and vertical SaaS markets becomes clearer. The difference between a vertical and horizontal SaaS market is more a question of degree with no absolute fine line. A SaaS Service that every company and every person can use would have an exceptionally low vertical ranking, while a SaaS Service that targets the accounting needs of Bitcoin traders would have a relatively high vertical ranking.

At SaaS marketing departments the real question becomes what end-markets they want to address. A very vertical market or a very horizontal market. A horizontal market has a much larger total available market than a vertical market does. On the other hand, a very narrow vertical market SaaS service might have an extremely high growth rate and a much better return on investment. Developers are often on the lookout for such emerging vertical markets because as history shows, revenues and investment funding for such ventures can soon skyrocket.

Finding which SaaS Vertical markets are in demand requires research and knowledge about the SaaS needs of specific end-markets. And these needs and demands change with time. Tomasz Tunguz identified in 2016 marketing and human resources were two of the the largest horizontal markets in the United States.

More to read

If you are looking for more posts about what it is like to build a boutique subscription product, you might enjoy Boutique entrepreneur, LLC or Corporation? or Breaking The Curse of Negative Cashflow in SaaS

More business lessons we learned running a SaaS application hosting platform are also available on the DjaoDjin blog. For our fellow engineers, there are in-depth technical posts available.

Photo of One central park vertical gardens in Sydney by Goran Bogicevic

by Mark Stansberry on Thu, 27 May 2021

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