Unique Research · Insight · September 22, 2023 · Compiled from Forbes Council (Sanket Firodiya, Jul 14 2023) + Sapphire (Jul 19 2023) — full rewrite of both essays
Horizontal SaaS enjoys huge TAM and copyable capability—but also fierce new entrants. As traffic dividends peak and consumers fragment, generic tools solve fewer firm-specific pains. Vertical SaaS builds deeper moats and stickier client ties via industry-depth solutions. AI now supplies infrastructure and imagination space—Unique Research argues the present and future belong to vertical SaaS.
Essay 1 — The rise of vertical SaaS (Forbes Council / Sanket Firodiya)
Over 20 years SaaS remade business software; vertical SaaS is the next decade-scale shift per industry. It leaves horizontal’s one-size formula for tailored industry needs. Concept is not new (Veeva, Procore, Toast)—but acceleration signals a market-wide turn founders cannot ignore.
Win-win economics: ecosystems fitted to industry workflows deepen loyalty and lift upsell/cross-sell. Embed fintech (payments, lending, payroll, insurance) for new recurring revenue + end-to-end cost/cash/capital visibility. Avoid heavy generic customization; one-stop stacks beat multi-tool sprawl. AI/ML catalyzes predictive analytics, workflow automation, intelligent UI—turning industry data into actionable ops gains; real-time response and personalization; risk/compliance in healthcare, pharma, construction, manufacturing.
Customer-centric success: product alone isn’t enough—active CS (training, ongoing education, support) cuts churn and creates advocates; in niches, reputation decides survival.
Partnerships: peer SaaS, influencers, associations share bases, lower CAC, add credibility—claim a niche in the industry ecosystem, not just ship a SKU.
Challenges: faithfully model complex regulated workflows; customization without killing scale—work with domain experts/advisory boards/early customers; modular architecture.
Close: vertical SaaS × AI is a strategic bet to redefine industry software as a growth/transformation platform.
Essay 2 — Vertical AI is the new horizontal (Sapphire)
Horizontal SaaS (Salesforce CRM, Coupa procurement, Bill.com AP) long dominated investor attention for TAM and platform potential. Converging forces now make vertical AI the new general model.
AI × vertical SaaS: durable advantage = proprietary hard-to-copy data + model-level and company-level domain insight. Best vertical products sit deep in workflows, harvesting opaque industry data to fine-tune models (law settlements; medical claims).
Underserved vs crowded horizontals: many horizontal startups are 3rd/4th-gen fighting “good enough” incumbents. Vertical core workflows remain manual/on-prem; historically under-funded → less competition when displacing legacy. Early vertical winners (project44 alumni ≥10 supply-chain cos; Veeva, Shopify, nCino, Procore, ServiceTitan playbooks) show TAM expands vs first estimates—life-sciences cluster Apprentice, Benchling, BenchSci, Causaly, Medable, Reify Health, TetraScience. Talent + vertical-savvy capital now accelerates the ecosystem. Embedded fintech further sticks workflows and monetizes adjacent transaction flows.
Durable efficient growth: less competition + less crowded capital → steadier growth; deep features + uneven distribution → referral loops. Public comps (Sapphire watchlist of 13 listed vertical SaaS, as of Jul 12 2023): median NTM multiple ~9× vs ~5× for ~40 broader public SaaS apps; ~20% avg YoY growth; 11/13 FCF-positive; Rule of 40 ~25%—in line with broader apps (TOST excluded from median/mean multiple & gross-margin calcs as it recognizes gross payments as revenue; CapIQ/Sapphire; classifications subjective).
Future: horizontal software taught “software eats the world”; domain AI apps will drive the next adoption/expansion cycle—vertical software leading via AI + industry data, underserved markets, and solid financials.
1 CN image; attach on ingest.
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