Distinguishing Vertical SaaS from Horizontal SaaS

Introduction to Horizontal SaaS and Vertical SaaS

Let's review Horizontal SaaS and Vertical SaaS. Horizontal, as the name implies, refers to SaaS that is used across various industries for specific functions like HR or marketing". As the meaning implies, it refers to SaaS that is used by a specific type of job, such as "for HR" or "for marketing," regardless of the industry or type of business, such as time and attendance management or MA tools. Examples include QuickBooks, an accounting SaaS operated by Intuit, Salesforce, a leading CRM, and Maketing Automation and HubSpot, which is mainly focused on

Vertical is a synonym for Horizonal, meaning "vertical," and the difference between Vertical SaaS and Horizontal SaaS is that Vertical SaaS has industry-specific functionality. Because of this characteristic, it is also called "industry-specific SaaS. Examples include Veeva, which provides SaaS specialized for the life sciences industry, such as biotechnology and medical device manufacturers, and Procore, a construction project management SaaS developed for the construction industry.

Product Development from Horizontal SaaS and Vertical SaaS Perspectives

1. Market

The primary difference between Horizontal SaaS and Vertical SaaS lies in their target markets. Vertical SaaS is limited to industries such as manufacturing and logistics. There are two points of difference that affect product development.

The first is your suitability as a product manager. Due to the difference in market, Horizontal SaaS focuses on setting up "questions" that work across industries. In other words, as you go about your work, you will adopt a "problem-oriented" approach that focuses on problems and issues, pursues their causes in depth, and finds solutions.

Vertical SaaS, on the other hand, is industry-specific and focuses more on "actions" to resolve business issues. Of course, like Horizontal SaaS, it starts by identifying problems and issues, but it focuses more on specific actions, plans, and solutions to solve them, which can be described as a "solution-oriented" approach.

Although relative, this difference in approach also affects the product manager's qualifications: Horizontal SaaS requires a logical mind that can deeply analyze and gain insight into issues, as well as an objective point of view and a calm mind. is a person who is flexible to change, can come up with ideas with imagination, and is persistent in putting them into practice.

The second question is whether the focus is on user acquisition or retention. Vertical SaaS, on the other hand, is industry-specific, which means that the target user base is narrower. Therefore, once a user has been introduced, the importance of that user is high, and product development will proceed with an emphasis on retention.

2. Competition

Regarding competition, Horizontal SaaS markets often feature large players with established footholds in particular industries. Their main strategy typically involves pursuing M&As of peripheral products. On the other hand, in Vertical SaaS, if the industry is limited within Japan, TAM is limited and it is difficult for a large player to emerge.

Based on this understanding of the competitive environment, the two major product strategy strategies for Horizontal SaaS are to seek out industries where there are no players yet, or to select a theme from among those already offered by large players and create a product that can be offered with higher precision and success. Vertical SaaS has a high barrier to entry because it assumes that you have a domain. Therefore, there is time to take your time to create a product, and to build it deeply and broadly.

3. Users

The third point focuses on users. Horizontal SaaS, being usable across industries, often operates in environments with established regulations and rules that are largely unavoidable. Vertical SaaS, on the other hand, is more deeply embedded in the industry, and because of the wider scope of the product offering, it provides everything from front-office operations to back-office integration. In particular, the degree of freedom for front-office operations is higher.

How does the difference between areas with a high level of business necessity and areas with a high level of freedom affect product development? If there are business necessities, such as regulations and rules, the product can be designed by basically turning those necessities inside out. On the other hand, in areas where there is no necessity and a high degree of freedom, it is difficult to design a product out of the blue, and it is necessary to first consider and define the ideal business flow.

In addition, when creating a Vertical SaaS, the needs of individual industries will generate detailed specifications, and the design of a database that can express products and services will be the foundation of the product. In other words, a product manager who can look at the entire business, design, and promote development that builds up in an honest and careful manner is suited for this job.

4. Solution

Lastly, relatively few Horizontal SaaS companies offer professional services as an option, as many focus on delivering products usable across industries by concentrating on a single theme.

Vertical SaaS, on the other hand, is industry-specific and value-added, so its scope is broad, and it is willing to provide professional services. For example, Vertical SaaS may develop consulting services in the name of professional services, and the value realized in the consulting services may be realized in the product. After implementation, we may also provide operational services on behalf of the client. In this way, Vertical SaaS is characterized by the wide range of user value that can be achieved by combining professional services as well as products.

Summary

Horizontal SaaS and Vertical SaaS are the same SaaS, but the product policy varies greatly depending on how the market and competition perceive it. Also, the way to create the product will vary depending on the scope and type of the targeted business.

Even if you are a SaaS product manager, the way to create value and the way of thinking as a product manager will change between Horizontal SaaS and Vertical SaaS. We hope this article will be helpful not only in understanding SaaS, but also in choosing a career as a product manager.